In The Arena Scott Walker, Crony Capitalist The Wisconsin governor has a long record of doling out corporate welfare to political allies.

Peter Suderman is a senior editor at Reason magazine.

Wisconsin Governor Scott Walker tends to be tightfisted with taxpayer money, unless that cash is lining the pockets of one of his political donors.

Over and over during his presidential campaign, Walker has declared that, as president, he’d stand up to “special interests.” But by signing legislation a few weeks ago committing $250 million in public funds—which, once interest is included, balloons to more than $400 million—to the construction of a new stadium for the Milwaukee Bucks, Walker has made it clear, once again, that he’s willing to use taxpayer money in ways that help his political allies, like Bucks co-owner and longtime Walker donor Jon Hammes.


This is classic crony capitalism—a hefty dose of corporate welfare doled out to the benefit of a deep-pocketed political ally—and Walker has a long history of it in his home state. Indeed, one of Walker’s first acts as governor was to overhaul Wisconsin’s Department of Commerce, transforming it into the Wisconsin Economic Development Corporation (WEDC), a poorly run crony capitalist boondoggle that has benefited his political allies at taxpayer expense.

“We think this is a good solid move as a good steward of the taxpayers’ money here in Wisconsin,” Walker said of the stadium project, according to the Milwaukee Journal Sentinel. It’s a familiar sentiment. Walker has stumped for the stadium deal for months, and the idea that taxpayers ultimately stand to benefit from it has always been at the core of his argument. The Bucks have threatened to leave Milwaukee without a new arena; Walker’s position is that it’s “cheaper to keep them” because games held at the new stadium will bring in local spending (and thus taxes) while encouraging outside investment.

His pitch, long favored by politicians committing public funds to sports facilities, is contradicted by virtually all the economic evidence: multiple studies from organizations across the ideological spectrum have found that stadium subsidies don’t encourage nearly the level of economic gain that backers promise. And with or without the stadium, locals would spend their money inside the state.

While research indicates that taxpayers don’t win from deals like this, wealthy sports team owners clearly do. And in this case, that means people like Hammes, a billionaire financier whose son’s financial firm gave $150,000 to a pro-Walker Super PAC the day before the stadium deal was first announced. Not long after the donation went through, Hammes became co-finance chair of Walker’s presidential campaign.

This is hardly the first time that one of Walker’s financial supporters has benefited from taxpayer largess. A July report by One Wisconsin Now, a liberal activist group that has been consistently critical of Walker, found that since 2009 the governor’s campaign organization, Friends of Scott Walker, had received more than $2.1 million from individuals linked to WEDC awards.

According to the report, the majority of the money doled out by the WEDC since its inception has gone to Walker donors—including, once again, Hammes, whose $100 million hotel project received a $55.9 million taxpayer backed loan approved by the agency.

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Walker’s embrace of crony capitalism in Wisconsin goes back to one of the key promises he made during his first run for governor. Running in 2010, as the recession was taking its toll, Walker said he would boost job growth in Wisconsin—specifically, that he would create 250,000 jobs. In pursuit of this goal, Walker moved quickly to sign bipartisan legislation early in 2011 to create the WEDC, a quasi-private agency purportedly devoted to promoting job growth and economic development in the state.

The design of the new agency followed recommendations from a 2010 consultants’ report, sponsored by state business groups, which concluded that the existing Department of Commerce was too unfocused and too burdened by various rules and regulations to successfully foster a stronger business environment in the state. Walker’s new agency would still spend public money, but its quasi-private status would, at least in theory, free it from many of the old bureaucratic strictures.

Some political oversight would remain in place in the form of a board nominated by the state’s executive and legislature. Walker would watch over all of it: As governor, Walker, who pushed for the agency’s creation, would sit at the top of the board; he would also be responsible for picking the new agency’s CEO. Ultimately, it was his show.

The board was given wide latitude with regard to the sorts of activities it could conduct. They could pursue essentially any activity that might boost job growth or economic activity in the state. But the law also explicitly required that the board establish clear objectives and quantifiable benchmarks for every program created, and it required recipients of any public funds to send in a report on the results. The board was also tasked with verifying the information submitted by companies receiving public backing and with taking action against recipients who sent in false or misleading reports.

In other words, the board, under the leadership of Governor Walker, was to be the both the idea generator and public watchdog for the new jobs agency—ensuring that its actions, funded at taxpayer expense, produced results.

But instead of results and oversight, the WEDC turned out to be a dysfunctional mess, wracked by incompetence and compliance problems, along with troubling connections to Governor Walker’s state political career and presidential ambitions. Signs of trouble were already apparent by November of 2012, little over a year after the agency went online, when the Journal Sentinel reported that the agency was suffering from serious financial control problems, including losing track of more than $12 million worth of loans.

The state’s Legislative Audit Bureau soon ratified those initial concerns in a brutal audit. Dated May 2013, the lengthy report, coauthored by two state Republicans, found that the agency, which spent roughly $80 million during its first year in operation, suffered from sloppy management and faulty oversight, as well as multiple failures to follow legally mandated award guidelines and reporting requirements.

The report discovered that the WEDC did not collect contractually required progress reports from more than half of 59 companies reviewed by auditors which were benefiting from some of the agency’s programs, did not establish benchmarks in a third of its economic development programs and did not monitor expenditures or verify performance metrics for many award recipients, as required by law. The agency also did not monitor how much was spent on many of its programs because agency staffers didn’t understand their own accounting system. And, in addition, the agency on multiple occasions gave money to “to ineligible recipients, for ineligible projects and for amounts that exceeded specified limits.”

Beyond failing to track and measure spending during its startup years, WEDC published misleading figures about its own performance. One WEDC progress report, for example, relied on the dodgy and unusual metric of “jobs impacted” to describe job growth. And the audit found that the agency misrepresented the job creation results of its Community Development Block Grant program. Instead of the 302 jobs created and the 63 retained that WEDC had reported, the audit revealed that, according to program results, the grants had not created or saved a single job.

The 2013 audit was a damning assessment of failure on almost every level—failure to create jobs as reported, failure to track the progress of projects and failure to follow the law. Public hearings were called, and the agency promised reforms, with WEDC CEO Reed Hall insisting that by the time the report was released many internal issues had already been addressed.

Two years later, in a report released this May, another state audit revealed that, although the agency had improved in some respects, many problems persisted. It continued to give out awards that were in violation of its own policies, didn’t require award recipients to prove that jobs had actually been created even when their contracts required it and failed to verify—as required by statute—that the progress report information submitted by award beneficiaries was accurate.

Four years after its creation, in other words, the WEDC was still failing to fully comply with the law, and was still deeply troubled. The agency’s flaws remained serious enough that in May, Wisconsin’s Joint Finance Committee voted to remove Walker from the board. (Republicans say Walker asked to be removed; Democrats say he was fired.)

It’s hard to argue with the decision, given the agency’s bleak performance and lack of results. Certainly it failed to live up to its initial billing: Of the 250,000 jobs Walker promised to create during his first term, fewer than 150,000 were actually created. (Walker did not make a similar promise for his second term.) And while the state did experience a significant drop in its unemployment rate under Walker, as he often brags on the campaign trail, much of the decline tracked with the national reduction in unemployment following the end of the recession.

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So who has really been helped by Walker’s taxpayer funded business development agency? For one, Scott Walker.

In months prior to formally announcing his run, Walker took time off from giving speeches at events featuring likely GOP presidential hopefuls to take overseas trips with political connotations. In February, Walker traveled to Great Britain, where he met with he met with conservative party political leaders and visited an influential think tank. The trip was organized by the WEDC, and Walker was accompanied by several agency staffers. As the Journal Sentinel reported, it cost the state’s taxpayers $138,000. An April trip to Germany, France and Spain was also organized by the agency. (Walker’s political organizations have agreed to reimburse the WEDC for the second trip’s tab, which has yet to be disclosed.)

Walker has a long and commendable record as governor in many ways, but by tasking a publicly backed, politically created agency with economic development, Walker created the opportunity for troubling interactions between his political machine and the state’s business community.

Inevitably, that led to questionable overlap between the two, such in 2011, when a senior Walker administration aide personally lobbied for a $500,000 WEDC loan to a Walker donor on a dubious construction project—a green energy retrofit of several banks. As the Wisconsin State Journal noted when it first reported the story in May, the project created no jobs and the state sued to get the money back. Although a court ruled in the state’s favor, the funds have yet to be repaid.

The WEDC model is plainly one that paves the way for cronyism, and leaves taxpayers to foot the bill. Yet other states are apparently looking to follow Wisconsin’s lead. In Nebraska, the state’s newly appointed jobs-agency director, who previously worked for the WEDC, has been in touch with the same consulting company that authored the report that led to the creation of WEDC about the possibility of overhauling Nebraska’s development office, according to a July report in Watchdog.org.

Walker’s jobs agency is better understood as a model of what not to do. The persistent struggles of his perpetually mismanaged, publicly funded business development facilitator highlight just how inept government-designed agencies can be at spending taxpayer money to create jobs, and the perils of a politically driven, get-something-done approach to economic growth. And, in combination with his flawed arguments for the stadium deal, they offer a stark reminder of the sort of dismal results that can occur when politically connected corporate interests team up with politicians under the banner of happy economic boosterism: Businesses benefit, and so do politicians—but only at taxpayers’ expense. Despite Walker’s campaign-trail claims to be a champion for the little guy, what he’s inadvertently shown in Wisconsin is how the special interests win.