WEDC looking to ramp up tax credit revocation following audit

WEDC officials say they’re looking to pick up the pace on revoking tax credits from businesses that fail to meet the terms of their contracts. 

“Our contracts for smaller tax credits usually run about five years, but it has historically taken us a while to get to looking at those and closing those out,” said Jennifer Campbell, chief legal officer for the Wisconsin Economic Development Corporation. 

During a meeting of the agency’s Audit and Budget Committee, members discussed actions being taken in response to the latest biennial WEDC audit from the state Legislative Audit Bureau. The April audit included a number of recommendations for improving WEDC’s processes, including updating procedures on tax credit revocation to do so in a more “timely manner.” 

In one example, a business that received tax credits from the state indicated in March 2017 that it had lost all of the contractually required jobs that were previously created. But WEDC didn’t revoke the $125,000 in tax credits until more than three years later, in June 2020. 

“It has historically been a resource issue,” Campbell said yesterday. “But the team has a plan in place for all those tax credits that have kind of been lingering; we’re just going to really push through those and hopefully this fall get caught up, so this isn’t as big of an issue.” 

She also noted the state Department of Revenue imposes a 12 percent annual interest rate on the amount of unpaid taxes. In its audit, LAB urged the agency to improve its revocation process “to ensure that taxpayer funds are spent appropriately and that recipients do not unnecessarily pay interest.” 

Another recommendation from LAB directs WEDC to change its procedures for Enterprise Zone tax credits such that credits are only awarded for wages paid to employees providing a service within the defined enterprise zone. As it stands, WEDC could be awarding these tax credits for wages paid to employees working elsewhere, LAB said. 

Campbell said WEDC is exploring ways to comply through administrative change, or to alter related statute through legislative action. But she said tracking where contracted businesses’ employees are physically located can be “really tricky,” adding that the COVID-19 pandemic “really highlighted for us that work can get done from a variety of places.” 

Also during Thursday’s meeting, Campbell pushed back on one of the audit’s recommendations related to reviewing adherence to tax credit contracts. She explained LAB is suggesting that WEDC conduct annual performance reviews for each year of a given contract, rather than waiting until the end of the contract’s performance period. 

“LAB’s suggestion is that we look at performance in each year of the agreement, and if there’s been a dip even in year three of a five-year contract, instead of not just issuing credits, we actually do a revocation for each year of the agreement, which seems really onerous and really hard for the companies,” she said. 

She noted that over the past year, due to the COVID-19 pandemic, WEDC would have had to revoke tax credits for the majority of contracted businesses under LAB’s recommended approach. 

“We’re also working with DOR on this, on what’s the best way to approach revocation that’s helpful for the business, good for economic development and administratively un-horrendous,” she said. “We’re trying to bridge those gaps, and as you can imagine, it will take some creative thinking and probably some legislative work.” 

In response to LAB’s suggestion that WEDC provide more robust data for reports and on its website, Campbell noted the agency has been adding more each year to the information it provides as part of a “continuous process improvement.” 

WEDC will be providing a report in response to the audit’s recommendations to the state’s Joint Legislative Audit Committee in October. 

See the LAB audit: 

–By Alex Moe