Madison ? To see the recent struggles of the state's jobs programs, take the case of a missing crane, a seemingly untraceable business owner and $83,000 in squandered taxpayer money.
When the state lent the money to Milwaukee Iron Works in the fall of 2010, seemingly everything soured ? from the state's spotty follow-up on the delinquent loan and the firm's eventual status as a tax scofflaw to a shortchanged pension fund for the company's workers and even a sloppy job of lawmaking by legislators eliminating the state program. Taxpayers were left with bad debt and no collateral: The crane that was supposed to back up their loan can't be found.
The case turned up in an ongoing Journal Sentinel review of the state's job programs that encompassed hundreds of records on delinquent loans and matched a database of tax-delinquent companies against firms that have received state jobs incentives such as grants, loans or other awards.
The review found seven companies that benefited from nearly $1.3 million worth of taxpayer subsidies ? including loans, grants and loan guarantees ? and that owe nearly $300,000 in state taxes and other charges, according to a recent count in state records. One business actually owed taxes at the time the state gave it the award, and others, like Milwaukee Iron Works, had growing financial problems that could have been spotted by state officials had they looked deeper into the companies.
"We have to repair the public's trust. This kind of information from the past doesn't help, but it's there," said Paul Radspinner, a board member of the Wisconsin Economic Development Corp. who has been critical of the quasi-public authority in the past but now sees the potential for change.
The Journal Sentinel review confirmed the well-publicized problems at WEDC, the agency that replaced the Department of Commerce under GOP Gov. Scott Walker. But it also found problems under the Department of Commerce under Democratic Gov. Jim Doyle as well as in other state and local agencies.
Last year, the newspaper reported that WEDC had discovered it had failed to track in one centralized database more than $12 million in past-due loans. As a result of those and other problems, the authority's chief financial officer at the time resigned and WEDC undertook a range of reforms of its lending and other financial controls.
Radspinner, president and chief executive officer of Madison biotech firm FluGen Inc., said he's encouraged by a proposed committee on the WEDC board that would use businesspeople like him to evaluate loans before they're awarded.
"I can assure you we're going to be very diligent," Radspinner said.
WEDC chief executive officer Reed Hall said last week that his agency was tracking its entire $58 million loan portfolio. That portfolio had an arrears rate on its loans of about 6% ? several times as high as that of a well-run commercial bank ? but Hall said that's acceptable, given the riskier companies supported by his agency.
"The customers that come to us are usually young companies that cannot get a bank loan because they don't have a credit history," Hall said.
One of those loans was awarded in August 2010 by the Department of Commerce to the metal fabrication firm Milwaukee Iron Works. The award from the department's Forward Innovation Fund aimed to create 10 jobs at the 14-person firm and give the company better profit margins and more capacity by helping it purchase heavy equipment such as an overhead crane.
Milwaukee Iron Works and its owner, Abimael "Aby" Gutierrez, had already had one outstanding unemployment insurance tax warrant filed against them ? a 2005 action in which the state sought a modest $278. For years, Gutierrez had also fallen behind for periods in paying a health and pension fund for his union workers, members of Iron Workers Local 8. Gutierrez also had a minor criminal record, including a 1996 conviction for marijuana possession.
In 2009 and 2010, Milwaukee Iron Works fell behind on its required payments to a union benefits fund. Even after significant collections work, the amount owed still stands at $145,600, according to actions filed by the fund in state and federal court last year. This red flag could have been quickly spotted by state officials deciding on the loan if they had checked on the company with its union or with the association of contractors, said Chris Ahrens, an attorney representing the pension fund.
"They could have done their homework and found this," Ahrens said of state officials.
WEDC spokesman Tom Thieding said the agency checks for unpaid taxes as part of its underwriting and also asks prospective businesses if any of their owners, subsidiaries or officers have outstanding tax liens.
There was a safeguard in the loan contract ? taxpayers got to secure an interest in the crane and other equipment purchased. Gutierrez sent invoices to the state for the purchases in September 2010 and was given $82,870, according to state records and emails from the Department of Justice, charged with recouping the lost money.
For almost the next year, no one in state government had any contact with the company and when the loan came due in October 2011, the company didn't pay, the records show. By then, other financial challenges for the company were apparent, such as the first of numerous money claims filed against Milwaukee Iron Works and one of Gutierrez's other companies, Wisconsin Iron and Steel. In state taxes and fees alone, the two companies are listed as owing more than $112,000.
The Journal Sentinel has requested but not yet received the company's file to see if Milwaukee Iron Works filed its required regular reports with the state.
By August 2011, the Department of Justice had begun working with the Wisconsin Economic Development Corp. to collect on the loan. But there was a problem with the collateral ? the crane was missing.
"I want to add a claim alleging fraud/misrepresentation relating to the purchase of the crane," Department of Justice attorney Debra Remington wrote to WEDC attorney Steven Michels in an August 2011 email. "I can't believe Milwaukee Ironworks took the full draw, when they did not purchase the crane!"
DOJ attorneys were never able to find the crane or confirm whether it was ever purchased, executive assistant Steven Means said. Despite that, Means said, the DOJ didn't pursue a fraud investigation.
In another email, Michels told Remington that generally the former Department of Commerce would have only released the loan money to Milwaukee Iron Works if the crane and other equipment had been purchased, but "there may be limited circumstances where that (practice) would be broken." Michels told Remington that WEDC had kept this policy of generally waiting to disburse money.
Tracking problems
Rep. Peter Barca (D-Kenosha), a member of the WEDC board, said he had been frustrated by the repeated failures within the state's economic development programs.
"They don't have the tracking policies and, when they do have them, they don't seem to follow them," Barca said.
Means said DOJ hadn't been able to track down Gutierrez and believed he had left the area or even the country. Ahrens agreed.
"He just stopped talking to me," Ahrens said. "He disappeared."
But as it turns out, Gutierrez pleaded guilty to a second drunken driving offense July 2 and was sentenced to 21/2 months in the Racine County Jail, where he currently sits. His attorney in that case, Michael M. Hayes, passed along a request for comment, which received no response.
State officials also had to decide what to do with the Milwaukee Iron Works loan if they ever collected on it. Under the Department of Commerce, the Forward Innovation Fund was a revolving loan fund, which meant that the interest and principal payments from its loans went back into the fund to make new loans.
When Walker and GOP lawmakers ended the Department of Commerce in July 2011, they abolished the Forward loan fund and transferred the outstanding loans to WEDC. But they didn't specify where the proceeds from those loans were to go, according to the DOJ emails.
Other agencies
WEDC and the former Department of Commerce weren't the only agencies that turned up in the Journal Sentinel review.
The Wisconsin Housing and Economic Development Authority made a loan guarantee of $100,000 to Junction City Motors LLC in July 2008, according to state records. The business had an outstanding tax claim from the state at the time and now owes more than $9,000 in unpaid taxes and other charges, according to the Department of Revenue. The loan was repaid.
It's worth noting tax delinquencies can arise out of an honest disagreement between a taxpayer and the state or financial challenges. None of the businesses highlighted in this story commented about their cases.
WHEDA spokesman Kevin Fischer said the agency normally asks a borrower to disclose whether he or she is delinquent on any taxes.
"We will pull the file from storage to verify that we did not overlook a negative response, but our electronic database and directory does not make mention by the lender, the borrower, or WHEDA staff, of any tax delinquency prior to approval," Fischer said in a statement.
The furniture distributor Especially for You Ltd. of Coloma received a $306,000 loan of in federal money that flowed through the Department of Commerce and Waushara County in Dec. 7, 2009. Within just months, money claims were being filed against the company by multiple creditors, including the State of Wisconsin, which recently reported being owed more than $110,000 in taxes.
The company's name was removed from the online state delinquent taxpayer list on Friday ? a step that can be taken for undisclosed reasons such as a repayment plan being negotiated or a bankruptcy being filed.
Some of the loans were calculated risks. For instance, $506,000 in federal block grant money was lent to Synergy Web Graphics to reopen a commercial printing facility that had closed in the Dane County community of Mazomanie. The new company reopened the plant in 2007, employing more than 100 people, but it closed the following year.
The company now owes just under $7,000 in unpaid taxes, according to the state.
Hall, WEDC's chief executive, said Wednesday that his agency has hired a new chief financial officer and additional compliance and internal auditing resources as well as a former bank executive to bring "banking discipline" and underwriting to WEDC. New financial tracking software is being purchased and WEDC's board is adding a new committee with two retired bankers and WEDC staff who vet proposed loans.
"We're trying to have more external oversight of our organization," Hall said.
Twitter: twitter.com/jasonmdstein
Source: http://www.jsonline.com/watchdog/watchdogreports/state-jobs-programs-gave-grants-loans-to-firms-with-financial-problems-b9953065z1-216306091.html
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