× Expand Kate Golden/Wisconsin Center for Investigative Journalism Gov. Walker says business growth will come from existing companies or startups.

Gina Ray had a front-row seat to the chaos that erupted around the Capitol protests in early 2011.

Although Ray sympathized deeply with the protesters, she had a job to do as a 20-year veteran on the governor's security detail: protect the governor and his staff and keep the peace. Mostly, what she saw going on behind the curtain during those chaotic days was fear.

"They were afraid to walk to their cars. They thought the protesters were a criminal element," Ray says of the leaders who supported Gov. Scott Walker's conservative coup. Ray notes that the Capitol Police always had officers in full riot gear behind the scenes ready to spring into action if needed. She was heart-broken to see government so hostile to citizens.

"The whole [governor's] staff was afraid they were going to be kicked and spit on. Every single staffer was a wreck. And in short order, the protesters became an enemy to them."

But there was one notable exception among these GOP revolutionaries: Scott Walker.

"Even though he was nervous, he never changed the way he spoke to you. His plan is his plan, this is how it's going to go," Ray says. "I never once saw him look afraid. I saw his staff and inner circle look afraid every day. He acted like nothing was going on."

For as much as Wisconsin has been consumed by Scott Walker and the Republican uprising in the past two years, the governor himself remains something of an enigma. He's demonized by the left and worshiped by the right, but one question remains: Who the hell is this guy who has taken over our state?

It's a question that may never be answered - certainly not by Isthmus, whom the governor has repeatedly refused to grant interviews to (his office declined an interview request for this article). But what we can do is look at the promises he made and the job he's doing two years into his contentious first term.

Walker promised revolutionary change on behalf of employers, particularly by shrinking government and cutting taxes, in order to boost the economy. How is that working out for us?

Campaign promises

On the night of Sept. 14, 2010, Scott Walker stood in front of a crowd that chanted "Go, Scott, Go."

Walker had just won the Republican primary, and his supporters were hoping he would bring meaningful change. Walker thanked his wife, God, supporters and his primary opponent, Mark Neumann. He promised that the tough primary campaign would help them take on the "liberals in Madison," as if he were preparing to charge the Bastille.

And he described the mood of many by focusing on the dour economy. "People are scared. They're scared about the economy, they're scared about their own job, or their spouse's job, or their kid's job," he said. "Well, let me tell you clearly put tonight, come Nov. 2, you don't have to be afraid anymore, because help is on the way."

Walker then rattled off his campaign goals. "We have a plan to get this state working again. Our plan to help the employers of this state create 250,000 new jobs is based on lowering taxes, cutting through the red tape and fighting out against lawsuit abuse."

He also promised to improve education, lower health care costs, and invest in roads and bridges - and "not on the boondoggle of a high-speed train."

Like many politicians, Walker made promises. But the one that everybody remembers him making is that jobs pledge. And on that front, Walker has failed.

"The last few years have been really exceptional in terms of our lack of job creation," says Laura Dresser, a labor economist and associate director of the Center on Wisconsin Strategy, known by its acronym COWS. "Just on his own terms, how has Scott Walker done? Not very well."

The state has created just under 40,000 new jobs under Walker, according to the Milwaukee State Journal's PolitiFact site.

"The numbers speak for themselves on the trend line for reaching 250,000," says Zach Brandon, president of the Greater Madison Chamber of Commerce and a former administrator in the state Commerce Department. "I'm not sure it's even possible at this point."

But the situation is bleaker than it seems, because the state is falling behind. COWS's recent job report found that the state has lost 152,900 jobs since the start of the recession (which began in late 2007, well before Walker took office). During that time, the state needed to add more than 90,000 jobs to keep pace with population growth. This adds up to a deficit of 243,127 jobs.

Dresser doesn't blame Walker for all of this. She's skeptical that governors have much influence on job creation in economies that stretch well beyond state borders. But what Walker has done seems to have hurt job growth here, she says. Rejecting millions in federal aid during the recession didn't help. That train "boondoggle" alone would have brought in $810 million to the state.

Conservatives hate the idea of spending public funds on passenger rail. "The governor's argument was that once the trains were up and running, it would be a liability and cost us money down the road," says Andrew Reschovsky, professor of public affairs and applied economics at the UW-Madison. "That may or may not be true. But if we don't subsidize trains, we'll subsidize roads more."

It looks like that will be the case - a commission recently recommended that the state raise money by taxing motorists based on the number of miles they drive.

Dresser says that other Walker actions have hurt the economy. Cutting the take-home pay of state workers had the undeniable effect of sucking money out of the economy. Walker also delayed by a week when unemployed people can collect benefits. While that saved state government about $50 million, Dresser says, "There's no better pocket to put a dollar in than an unemployed pocket. These are the best places to get a big multiplier."

What's troubling to Dresser is that Wisconsin is lagging behind both the country and the region in job growth. Like the rest of the Midwest, Wisconsin is seeing some growth in manufacturing jobs, which is good news. But, in contrast to neighboring states, there's been no growth in other sectors, like business services and leisure and hospitality.

"Why that deviates from the national trend is not clear," Dresser says. She suspects it might be because Wisconsinites are fretting more about the economy than residents of other states, causing them to save more.

"Because our growth is slow, that means people are more nervous, which means they spend less money," she says. "That makes it hard to grow a leisure sector."

The chaos that erupted around Walker's efforts to break public-sector unions also didn't help, Dresser says.

"There is a very live question about whether the change is so radical, jarring and divisive that the things you meant to be working together on, like the state's desperate need of jobs, can't get worked on because you've created such an environment of disagreement."

Dresser can't say for certain whether that's the case, but adds, "It seems like a much more divided state today."

Walker argued that by cutting taxes, both income and corporate, he would spur job growth. That hasn't been the case, and Reschovsky says it's no surprise. "I am very skeptical of the ability of these tax breaks to generate jobs," he says. "I wasn't expecting there'd be a spurt in job growth because of those policies."

Shrinking government

Walker pushed his most radical change - stripping most government workers of most of their collective bargaining rights - as a way to deal with the state's massive deficit. When he took office, the state was facing a $3.6 billion shortfall.

This was nothing new, and his predecessors had found increasingly creative ways to deal with it. For instance, Gov. Jim Doyle and the Legislature shifted money from the highway fund, which is dedicated for transportation projects, and then borrowed to pay for the transportation projects.

Walker hasn't entirely stopped doing this. A July 5, 2011, memo (PDF) from the Legislative Fiscal Bureau identifies more than $400 million from 10 funds in the current budget "used for purposes other than those for which the fund has traditionally been used."

But even some Walker critics concede that he's been better about not creating large structural deficits, which remain after the economy improves. In an ideal world, a government's yearly operating expenses are covered by its revenues. Structural deficits arise when governments borrow or use one-time revenues to pay for regular expenses.

"The spending cuts that the governor pushed through have eliminated most of the state's structural deficit, but at a steep cost to Wisconsin's education system, BadgerCare, and numerous other public services," says Jon Peacock, research director for the Wisconsin Council on Children and Families.

On the balanced-budget score, the governor can claim some bragging rights. In January, the Department of Administration announced that the state is estimating a $484 million surplus - which is $137 million better than the state estimated last November.

But all of the tax cuts that Walker has already instituted have yet to take effect. Peacock estimates they will cost the state $262 million in the 2013-15 budget; and even more cuts will phase in after that. The deal on the federal fiscal cliff also prevents the restoration of Wisconsin's estate tax, which would have brought in another $219 million.

Walker hasn't cut taxes for everybody. He reduced the homestead tax credit and the earned income tax credit, two taxes that benefit elderly and low-income residents. The two cuts raised about $70 million over two years.

Despite this shrinking revenue, Walker is talking about using the estimated surplus to give more tax breaks. This risks creating another deficit, Peacock says.

"It's not fiscally responsible to use a one-time surplus for an ongoing tax cut," he says. "I think they'll have a response to that, which will be they're going to continue to cut spending in future years. They intend to keep downsizing government. And it's true, you can address the concerns about the structural deficit by making deep cuts. But they get deeper as you keep going."

Calling Illinois

One of the first things Walker did after taking office in January 2011 was install a series of signs at border crossings that announced Wisconsin is "Open for Business."

He also spread a similar message on TV and radio shows in Illinois, which had just hiked its tax rates. "We're telling people we'd love to have them up in Wisconsin because we're open for business," he told reporters at the time.

"That game of trying to steal companies from other states is a race to the bottom," says Dresser. That's because you end up attracting fickle employers who are happy to jump ship if a better offer comes along.

A better approach is to "build a strong collaborative climate around needed infrastructure, whether that's rail lines and roads, freight, passenger, broadband. All that infrastructure matters a lot to business investment."

So too do many of the things taxes pay for. "It matters [to businesses] if it's a state where people feel like the roads are safe and clean, the parks are nice, and the schools especially are good," Dresser says. "Those things really matter to a long-term economic gain, and governors control those things."

One of Walker's other moves to boost economic development was to shutter the state's Commerce Department and replace it with the public-private Wisconsin Economic Development Corp. Many of Commerce's old regulatory functions were moved to other agencies, including the departments of Natural Resources and Administration. The new WEDC is supposed to focus on economic development and ease the regulatory burden businesses face.

So far, the agency has been a huge black eye for Walker. An audit last year found that it had lost track of some $56 million in development loans and that borrowers of $12 million of that money had fallen behind on payments.

Still, some argue that replacing Commerce was a good idea. "The Commerce Department wasn't very open to broad-based attempts to see what drives an economy," says Merton Finkler, an economics professor at Lawrence University in Appleton. "Wisconsin is known as having a high barrier to creating new companies."

Show us the money

What hurts Wisconsin the most in terms of economic development is a simple lack of capital, says Brandon of the Madison Chamber of Commerce.

"It's not really up for debate that all new net jobs come from companies five years old or younger," he says. "They come from startups."

Wisconsin has scores of innovative ideas percolating at the UW and some of the state's larger companies that could be turned into viable businesses, says Brandon.

"Epic is a great example. When it was founded in the late '70s it had one and a half employees. Now it has 6,000," he says. "We're not going to convince Boeing to move its headquarters to downtown Madison. We need to have a state economic plan that fuels the spark that's here."

And Brandon adds, "If the governor should have accomplished anything, it was the passage of a venture capital bill."

The Legislature failed to pass a venture capital bill last session, and there is opposition on both sides of the aisle to it. Some liberals see venture capital as "corporate welfare," while some conservatives don't think government should be doing the job of private investors. But there is also support on both sides, and carefully crafted legislation could be a real bipartisan effort.

Dan Olszewski, director of the Weinert Center for Entrepreneurship at the UW-Madison, says investing in startups would spur job growth in the state. "We have a lot of ideas," he says. "One of the things you need to move forward is investment capital. That's where the state has lagged the East Coast by quite a bit and even some of our neighboring states."

Focusing on startups doesn't produce the splashy numbers that make governors look good, though. "It's not one 500-job plant," Olszewski says. "It's 20 or 50 people."

In the past, some entrepreneurs would use their homes as collateral for loans, Brandon says, but since the housing market collapsed and banks have become stingier, that's no longer an option.

Wisconsin does have money available for so-called angel-level businesses, when entrepreneurs are trying to raise an initial $500,000 to $1.5 million, Olszewski says. But they find it much harder to get the later venture-level investments, in the $2-to-$10 million range.

Brandon says the state had a serious shortage of angel funds in the early 2000s. But the Legislature passed an innovative bill giving investors in angel companies a credit of 25% of their investment. The program has been a huge success. The new law helped Wisconsin bring in an extra $20 million in angel investments in 2011, according (PDF) to the , where Brandon used to work.

Both angel and venture level investments show a general growth in Wisconsin. In 2011, the state brought in a total of $61 million in angel investments and more than $91 million in venture investments. But more is still needed, Brandon says.

"Those companies need to continue to grow," he says. "To get from angel to venture - some people call it the 'valley of death' - is very difficult."

If the state can't find a way to help fund these new companies, it risks losing them to other states that have available funds, Brandon warns. The governor has expressed support for passing a venture capital bill, but Brandon says he needs to do more than just talk.

"I will go out on a limb and say it's going to require the governor to put his leadership behind it to get it done," Brandon says. "It's not enough [for him] to say 'I think it's a good idea.' It has to be in his budget."

Softer tone

Walker released a video last week that shows him chatting with workers around the state on his Talk With Walker tour to friendly workplace audiences. It's clear the governor hasn't forgotten about that campaign job promise and will focus the remainder of his term on economic development.

In the video, Walker says he developed his strategy for economic development while he was in college (he attended Marquette but never graduated). "I paid for college by selling warranty agreements for IBM. My old adage I got from my boss was spend three-quarters of your time with the people you already sell to...because they're the ones you're most likely to sell more to. Spend a quarter of your time trying to find new customers."

He explains how he applies that adage as governor: "I believe most of our growth is going to come from existing businesses or it's going to come from new startups... that come out of our universities or [existing companies]."

Walker expounds on a new economy: "In the same way we saw innovations in high-tech, whether it was an Apple or a Microsoft or Facebook or others out there that transformed and improved the American economy, we could do the same thing. But to do that it means we have to transform how we think about jobs, how we think about education. That's part of what we're trying to do in this next budget."

But Walker has softened his tone in recent months, suggesting that he won't be looking to make any more sweeping transformations. He's even said that he will increase school funding slightly, though not enough to make up for the $800 million he cut last time around.

The evidence of just how moderate the governor has become will be found when he releases his biennial budget on Feb. 20. Even if Walker went radical one more time, however, it's unlikely that would translate to a couple of hundred thousand jobs over the next two years.

[Editor's note: This report has been corrected. It originally misquoted Zach Brandon as saying all "new jobs come from companies five years old or younger." Brandon actually said all new "net" jobs come from start-ups. Also, figures the article cited regarding venture capital may have been misleading. While a 2005 state law helped bring in an extra $20 million in angel investment in 2011, total investments in Wisconsin were much higher. In 2011, the state brought in more than $61 million of angel investments and more than $91 million venture investments.]