Accountability Needed in Business Development Programs

“How much does this cost?” What started as a simple question a few weeks ago has turned into the discovery of a problem that has been years in the making. It is costing the state millions of dollars in lost revenue with questionable results.

The question came as I was studying a bill that would extend the time film production companies could claim tax credits; some of them refundable tax credits. That’s the kind companies want. If your company doesn’t make money, you claim the credit and get a check from the state - a refund. No one had an answer to my question “How much does it cost?” But the best estimate was around $20 million. That’s a lot of money.

This summer, in the heat of the campaign season, a state audit of economic development programs was released. The report was ignored by most people but provided me with great insight into those programs that provide money to encourage business activity. The goal is laudable. But the audit uncovered many problems.

The audit studied activity over four years and found the state’s commitment to business is extensive: $180.9 million in grants and loans; $240.4 millions in bonding authority; $64.4 million in loan guarantees. The state had authorized $406.6 million in tax credits for development zones; $310 million in seven different income tax credits; and 16 different sales and use tax credits that in one year totaled $342.6 million.

The audit reported a serious record-keeping problem: while helping small business is an important priority, the auditors could not determine the size of the companies in more than half of the awards. Certain types of industries are a higher priority but the auditors could not identify the type of business in more than a third of the awards. Certain parts of the state need help more than others but, for over $2 million worth of grants and loans, the auditors could not identify in what counties the dollars were spent.

The most troubling part of the audit – in addition to the incredible sums of state money and the record keeping problems – is that the state does not measure whether or not the money is well spent. The state does not know if those awarded planning grants actually launched their businesses; whether jobs that the business expected to create actually were created; or whether the new business development zone actually helped create new businesses.

When we spend state dollars in other areas, every dollar is tracked. For example, social service programs are required to carefully track not only the service delivered, but the quality of that service. To spend millions of dollars on programs that are never evaluated is not wise! Our state dollars are very short and the list of needs very long. We are looking at a budget proposal that raises taxes and cuts back programs. Before we head that direction, let’s first make sure that every dollar we are spending is wisely spent.

Oh, and the film tax credit bill? I voted against it. I was the only ‘no’ vote.

I will keep you posted as I work with colleagues to address these concerns. If you have ideas or concerns, please call us! Black River Falls at (715) 284-1730; In Eau Claire at (715) 838-0448 or in Madison at (877) 763-6636 (toll free); or write: State Capitol; P.O. Box 7882 Madison, WI 53707-7882 or email Sen.Vinehout@legis.wisconsin.gov.