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WEDC loan program gets green light from budget committee

The Legislature's budget committee voted Tuesday to restore WEDC's loan program.

The Legislature’s budget committee voted Tuesday to reinstate the Wisconsin Economic Development Corp.’s loan program, two years after phasing it out in the wake of a scathing audit and a State Journal investigation into a failed loan.

The 12-4 party-line vote came as the Legislative Audit Bureau is still working on the latest biennial review of the job-creation agency prior to finalizing the 2017-19 budget.

The 2015 audit found the agency wasn’t keeping track of promised jobs and the 2013 audit found several awards given out in the early days of the agency without proper oversight.

In one case revealed by the State Journal investigation, a $500,000 loan to a struggling Milwaukee business that had been pushed by a top aide to Gov. Scott Walker never underwent proper underwriting. The loan was never repaid.

Sen. Alberta Darling, R-River Hills, said the agency’s problems have been almost entirely addressed under the leadership of Mark Hogan, the agency’s third CEO.

The agency has posted on its website the progress it has made on addressing the audit bureau recommendations.

“It’s important to note that WEDC is in a much more effective position than they have been in the past,” Darling said.

Sen. Jon Erpenbach, D-Middleton, argued the committee should postpone final action on the WEDC portion of the budget until the 2017 audit is released. He noted the agency has improved because of the audits and the news coverage of bad loans. The committee voted 12-4 against coming back to WEDC business at a later date.

Co-chairman Rep. John Nygren, R-Marinette, said “if we find something in the future that warrants action, we’ll take action.”

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In his 2017-19 spending plan, Walker proposed reinstating the loan program with a few new stipulations — they can only be funded with repayments of existing loans, they can’t be forgivable and they must adhere to commonly accepted commercial lending practices.

The committee rejected one of those stipulations, allowing the agency to provide loans from its state appropriation, rather than only from loan repayments.

Republicans rejected several Democratic proposals for the agency, including that funding above a certain level be directed toward rural, small business, startups and minority-owned businesses.

Another Democratic proposal would have required every award to create at least one job. But Republicans noted some of the agency’s programs train workers, rather than create jobs.

In the last budget, Walker and the Republican-controlled Legislature limited new loans to $10 million in 2015-16 and $5 million in 2016-17 with no new loans after June 30 of this year.

One specific type of loan for technology startups was separately capped at $3 million a year and allowed to continue.

A national consultant has since advised the agency could tighten some of its practices, but didn’t need to be overhauled. The latest biennial state audit of the agency is due out as early as next week, Darling said.

The agency had 189 outstanding loans totaling $73.3 million as of last June 30, according to the Legislative Fiscal Bureau. The agency received about $9.2 million in loan repayments last year, forgave $6.7 million and wrote off $2.45 million worth of loans that could not be recouped.

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