Jobs agency Gov. Scott Walker led dogged by allegations of shoddy lending, political influence

Technology Associated Press

After declaring an economic emergency, Wisconsin Gov. Scott Walker's newly created economic development agency backed a plan to turn dirty plastic forks and ketchup-stained napkins into jobs.

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The Wisconsin Economic Development Corporation awarded $1.2 million in grants and loans in 2011 and 2012 to Green Box NA Green Bay LLC, a company that said it could produce recycled products, electricity and even diesel from fast-food waste.

"Gov. Walker and I are firmly committed to doing everything possible to expedite the processing and awarding of this incentive award," then-agency Chief Executive Paul Jadin wrote in a September 2011 letter to Green Box.

There were warning signs. Green Box told the state that the company and its founder, Ron Van Den Heuvel, had no recent legal troubles. But court records showed that Van Den Heuvel had been sued 27 times in the prior five years by banks, business partners, state tax officials and even a jeweler. Green Box said it held seven patents, but the U.S. Patent and Trademark Office lists no patents granted or assigned to Van Den Heuvel or the company.

Four years later, the 116 jobs the company promised to create don't exist, according to a recent legal deposition of Van Den Heuvel, though in another setting the company has said it created all 116 jobs. Green Box is in court-ordered receivership, and its attorney told a court that sheriff's deputies had seized five truckloads of documents from its offices, according to the Green Bay Press-Gazette on Monday.

The economic development agency — which Scott Walker created and led as chairman until earlier this month — is in disarray.

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Nonpartisan state audits have determined that the agency doled out tax breaks, loans and grants in ways that ran contrary to its own rules and state law. Expected jobs never materialized, with some award recipients receiving payouts even as they outsourced Wisconsin jobs overseas. Awards appear to have gone to Walker's political supporters and allies — at least in one case, after a high-ranking Walker appointee interceded on an applicant's behalf.

"It just keeps getting worse," said Peter Barca, a Democratic assemblyman and minority leader who sits on the agency's board. "Never in my wildest imagination would it occur to me that WEDC would give out loans with so little oversight."

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As Walker has prepared for his presidential campaign, he has faced a stream of embarrassing revelations from an agency once billed as the centerpiece of his plan to bring 250,000 jobs to Wisconsin. Though the agency has ceased making new loans and Walker resigned as its chairman on July 12, the agency's travails are awkward for the newly announced presidential candidate.

"Bright spots in the Obama economy are few and far between," Walker wrote in an editorial during the president's recent visit to his state. "I like to think what we have been doing in Wisconsin could serve as a model."

Other Republican candidates have had their own economic development controversies. Rick Perry's administration awarded an economic development grant to a political supporter and Chris Christie's New Jersey spent lavishly to relocate companies from just a few miles away.

But no other candidate has so closely associated himself with an economic development agency as Scott Walker. As chairman, Walker starred in the state's marketing campaigns, appointed six members of the agency's 15-person board and selected its top management. Walker also had unusual access to the agency's files: Unlike the rest of the agency's board, his adviser Eileen Schoenfeldt has direct access to the software cataloging every agency grant and loan for the purpose of briefing Walker, according to the governor's office.

Walker has acknowledged the agency's troubles. "There have obviously been lessons learned along the way," spokeswoman Laurel Patrick wrote in an email to The Associated Press. But she credited Walker with creating an agency that "could more effectively focus on spurring economic development and job growth."

The agency's current board members — all but two of whom are either Republicans or people appointed by them — has shown little desire to rehash what went wrong.

"I love the elected officials, but my goodness gracious, let's try to move things forward without trying to dig up the past or accentuate the negative," said Ray Dreger, a businessman and board member appointed by Walker.

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The Wisconsin Economic Development Agency arose out of Walker's 2010 campaign pledge to abolish the Commerce Department, which oversaw grant and loan programs amid broad criticism. To replace it, Walker championed a new agency, a public-private partnership freed from bureaucratic encumbrances. At the new organization's first board meeting, Walker as chairman declared that it "marks a new beginning in the relationship between job creators and government."

Walker calendars obtained by the AP show weekly meetings with Jadin, then head of the agency, and the new governor regularly delivered speeches at factories of award recipients.

But staff bolted during the agency's transition out of state government, and it landed in the headlines for losing track of $8 million in overdue loans and temporarily lacking authority to issue federal economic development grants.

One year after the agency's creation, Walker shook it up, dispatching his deputy chief of staff, Ryan Murray, to serve as its chief operating officer.

In attempting to impose more structure on the agency, Murray clashed with other agency officials, but problems continued. Wisconsin's legislative audit bureau identified failures of oversight and diligence in their 2013 and 2015 reviews. The agency failed to create the jobs it expected: Out of more than 19,000 jobs it predicted would result from its programs through the 2013 fiscal year, fewer than 8,000 were actually created, a 2015 audit found.

As its troubles have become public, the agency and its former leaders have suggested its errors arose from early growing pains. Murray, who left the agency at the end of last year to become a lobbyist, said he found inadequate operating procedures and a breakdown in the financial systems.

"The guidance from the governor's office was to clean things up, get rules, policies and procedures in place and hire good people who could help facilitate those things," Murray wrote in response to emailed questions. "Starting from scratch took time."

The audit released in May said the agency had addressed some lapses but was still mishandling loans and tax incentives. Internal emails obtained by AP and interviews with four former employees reveal continued struggles to keep track of basic paperwork or question on problematic award applications.

"It was almost like they couldn't say 'no' to anybody," Joseph Nelson, a former underwriter who joined the agency in early 2013, said in an interview. He left one year later, concerned that underwriters' concerns weren't heeded.

The agency's chief credit and risk manager, Jake Kuester, disputed the former employees' characterization. The creation of underwriting rules in 2013 formalized the process, he said, and his team of underwriters meets weekly to independently review projects.

All the same, "it is fairly rare to turn them down," he said of applicants. "If we've got the money, and we can assist the businesses, why would we want to get tougher?"

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The Green Box loan suggests lapses. There is no indication that anyone at the agency checked Van Den Heuvel's legal history — available at the courthouse and online — or requested documents regarding Green Box's claimed patents, either when the agency awarded the initial grant or before it offered the company relaxed repayment terms in 2014.

As recently as February, the economic development agency assessing whether to give Green Box additional grants.

"Your project is extremely exciting," agency Vice President Katy Sinott wrote in late March, inviting the company to participate in a state-sponsored trade mission to Africa. "I look forward to hearing more about your next project — cleaning the seas!"

Green Box didn't go on the trip — and the agency joined a lawsuit against Green Box less than one month later. Green Box — which initially told the AP that it was in good standing with the state before acknowledging the litigation — said the agency's lawsuit against it is meritless. Van Den Heuvel offered to allow a reporter to tour a paper plant in De Pere, Wisconsin, and review documents verifying its technology, though the AP declined after Green Box would not provide evidence it owned the facility and required the AP to sign a confidentiality agreement.

Asked about its patents, Green Box provided the AP with patents registered to other entities. Some belonged to agricultural giant Cargill, which denied through a spokesman having any current relationship with Green Box.

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Agency projects have also come under scrutiny for political ties, with major Walker donors receiving handsome payouts.

Cheese manufacturers controlled by the Gentine family, which has cumulatively given $104,000 to Walker's campaigns, have received five separate deals totaling more than $1.5 million in loans and more than $9 million in financing. A $2 million tax credit went to a company ultimately owned by Diane Hendricks, a billionaire construction magnate who contributed $500,000 to Scott Walker's campaign during the 2012 recall, when there were effectively no donor limits. And companies represented on the board of Wisconsin Manufacturers and Commerce, a business trade group that spent undisclosed sums against Walker's recall, are regular awardees.

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In one instance, top Walker aides lobbied the agency to give a $500,000 loan to a troubled, high-risk company owned by a Walker donor. First reported by the Wisconsin State Journal, the ill-fated loan was made to Building Committee Inc., a construction company whose owner, William Minahan, gave Walker's campaign $10,000 one day before the 2010 election.

After Minahan met with Walker's chief of staff, Keith Gilkes, and the head of the state's Administration Department at the time, Mike Huebsch, Huebsch pushed the agency to give Minahan's company a $4.3 million loan. The agency loaned the company $500,000 — without a financial review, according to a later state audit — after agency staff and ultimately Chief Executive Jadin balked at the multimillion dollar request.

The misgivings were well grounded. After a year, the company said it had run out of money. The agency agreed to extend the loan, without requiring the business to post any collateral. Huebsch then sought to help the company win $4.5 million in federal energy conservation bond funding — and continued their efforts after learning that Minahan had pledged agency funds to pay for a lease on a Maserati sports car.

Walker's office has said the governor did not know about the agency's efforts on behalf of the company and did not receive a letter about the award on which he was copied. Wisconsin Economic Development Agency spokesman Mark Maley said that, in practice, the agency never provided the governor's office with such materials.

"That's bizarre," Barca said of the governor's stated lack of knowledge, noting that Walker had exceptional access to both agency staff and records. "He's chairman of the board."

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Uproar over the agency's recent audit and the details of the troubled loan to Building Committee Inc. has cast a shadow over the development agency's future. Walker has abandoned plans to merge it with a state housing and small business finance agency, and legislators in both parties have called for the organization to be stripped of lending authority.

There are reasons to fear more trouble is still coming. At the end of the March, 37 loans worth a total $7.4 million were delinquent. The agency has allowed borrowers to defer payments on dozens more in recent years — often an indication of financial stress.

Barca said he's attempting to gather more information about the deferrals, though the agency has denied requests from him and other board members for direct access to its electronic documentation system.

The possibility that further losses on WEDC loans will emerge "worries me tremendously," he said.

Such comments have drawn condemnation from other members of WEDC's board, most of which were picked by Walker or the state's majority-Republican legislators. Regarding the Green Box loan, "He's been very active. He's had the hands on," Dreger said.

But, he added, as far as the administration of the agency, "of course, he's really not involved."