Governor drops plan to merge economic agencies, hours after scathing audit released

Republican Gov. Scott Walker abruptly scrapped plans Friday to merge the troubled Wisconsin Economic Development Corporation with an agency that provides low-interest housing loans, a decision that came just hours after a scathing audit found WEDC hasn't tracked job creation or complied with state law.

Walker's office announced that he wanted to scuttle the merger plans in a statement released about two hours after the audit came out. The statement made no mention of the audit, saying the governor had come to the decision because lawmakers, stakeholders and members of both agencies' boards had concerns. Walker spokeswoman Laurel Patrick told The Associated Press the decision had nothing to do with the report.

The governor had included language in his 2015-17 state budget that would have combined WEDC with the Wisconsin Housing and Economic Development Authority. Walker, a likely 2016 presidential candidate, had said the new entity could serve as a one-stop shop for businesses looking to grow. He later asked Republican legislators to implement the merger through a stand-alone bill, saying the idea deserved deeper scrutiny than it would get as part of the massive state spending plan.

Walker created WEDC, a public-private partnership, to replace the state Commerce Department in 2011 and serves as the WEDC board chairman. The agency was beset with problems from the start, including not tracking past-due loans, leadership turnover and highly critical audits that revealed mismanagement at the agency. A LAB audit last fall found WEDC lacked supporting documentation justifying spending on expenses and grants during the first two years of its existence.

The agency has become a punching bag for minority Democrats, who never miss a chance to heap more criticism on it. They had been lambasting the merger idea, saying it serves no purpose beyond creating another unaccountable, opaque agency. Democratic lawmakers who sit on both WEDC and WHEDA's boards criticized the merger during a joint meeting last month.

On Friday, state auditors released another report that showed the agency's problems continued in fiscal year 2014, noting its contracts with grant and loan recipients haven't complied with state law and the state hasn't demanded proof that recipients are actually creating or retaining jobs.

Reed Hall, WEDC's secretary and chief executive, disputed the audit's findings. But Sen. Robert Cowles, R-Green Bay, co-chairman of the Legislature's audit committee, called WEDC's inability to solve its problems "unacceptable."

The statement from Walker's office said the governor had asked lawmakers to remove the merger language from the budget and stop work on the merger bill. The office also said it was dropping another plan in the budget to merge the state Department of Financial Institutions with the Department of Safety and Professional Services and asked lawmakers to drop separate legislation that would have implemented that merger as well.

"After hearing concerns from legislators, stakeholders, and the WHEDA and WEDC Boards, we asked legislators to remove the proposed agency mergers from the state budget and we asked the bill authors to not move forward with the proposed separate legislation," Walker's office said. "Given the issues raised at the recent joint WEDC/WHEDA board meeting, it is not the appropriate time to pursue these proposals."

Patrick said in an email to The AP that the move stems from "concerns from legislators and stakeholders" and the statement speaks for itself. She did not elaborate.

Senate Majority Leader Scott Fitzgerald, R-Juneau, said in a statement that GOP lawmakers and Walker "have worked to be responsible to the concerns of the public and our legislative colleagues as we considered these changes." He said the Legislature's budget-writing committee will hold a vote on removing the mergers from the budget but didn't say when.

Democrats said they were pleased to see Walker give up on the WEDC-WHEDA merger.

"While I am glad that the governor has heeded our advice to abandon a hasty agency merger," said Assembly Minority Leader Peter Barca, D-Kenosha, a member of WEDC's board, "he must go further to take immediate steps to protect taxpayers by shoring up his agency's failures."