It’s clear that the Wisconsin Economic Development Corporation faces challenges in properly administering the state’s economic development programs. What’s less clear is what, if anything, state policymakers are going to do about that.
Numerous problems at WEDC came to light this week, with the publication of a scathing new audit of WEDC. The WEDC is a public-private corporation that replaced the state’s Department of Commerce. The Milwaukee Journal Sentinel’s article summed up the audit’s findings:
The Wisconsin Economic Development Corp. didn’t require financial statements from companies receiving incentives; gave awards to ineligible businesses and ineligible projects; and awarded nearly $1 million in tax credits to companies for actions taken before they had signed their contracts with the state. The agency lacked strong policies and oversight on awarding taxpayer money and then did a poor job following up to see if jobs were truly being created and other goals met, the audit found.
A careful analysis of the four most prominent “business climate” ratings of state tax systems finds them to be “deeply flawed and of no value to informing state policy.” A report published today by Good Jobs First (“Grading Places: What Do the Business Climate Rankings Really Tell Us?”) concludes that business climate studies are actually “politicized grab-bags of data” that contradict each other wildly.
The “Grading Places” report is authored by Dr. Peter Fisher, an economist who has written extensively on economic development. According to Dr. Fisher:
“When we scrutinized the business climate methodologies, we found profound and elementary errors. We found effects presented as causes. We found factors that have no empirically proven relationship to economic growth. And we found scores that ignore major differences among state tax systems.”
You can find the complete report and the executive summary here.
Jon Peacock Read more
Like many other governors, Scott Walker is frequently talking up the state economy and trying to take credit for any recent bit of positive economic news. That’s perfectly understandable. It’s also becoming increasingly difficult.
The income tax cut proposed for Wisconsin is more likely to hurt, rather than help the state economy, if past history in other states continues to hold true.
Critics of the income tax cut have raised a number of concerns about the proposal, including:
- Half of the benefit of the tax cut accrues to the top 20% of earners, even though its proponents have described the tax cut as being targeted at the middle class.
- Most workers earning $30,000 a year or less would not receive an income tax cut. These workers pay a higher share of their income in state and local taxes than the best off.
- The tax cut reduces state revenue by about $170 million per year, and is partly responsible for the projected re-opening of the state’s structural deficit in the coming years.
Added to this list of concerns is the fact that the tax cut is not likely to help Wisconsin’s economy, and in fact could do the opposite. Read more
Small Disagreement Suggests Deep Dispute over Role of Unemployment Insurance Advisory Council
The state Assembly passed a bill Wednesday to approve a bipartisan idea, but in the process rekindled debate about respect for collective bargaining. What made the debate interesting and significant is that it could have been avoided by simply passing the version of the bill approved by the Unemployment Insurance (UI) Advisory Council, with the full support of the labor and business groups on that advisory body.
The substantive merits of the debate, which concerned only a small part of the bill, are far less important than the procedural matter of whether the Legislature decides this session to depart from the long practice of deferring to the recommendations of the UI Advisory Council. The Council uses a consensus process that provides stability to the state laws relating to unemployment benefits and taxes. Both the labor and business groups prefer that stability to the erratic swings in the UI system that could occur if the law is changed significantly every time control of the legislature changes hands.
Mining Bill Reduces Resources for Local Governments to Address Impact of Mine
Local governments affected by a proposed mine in northern Wisconsin might not have sufficient resources to offset the increased public costs associated with the mine. That’s because the proposed mining bill, which has passed the Joint Finance Committee and heads to the Senate Wednesday, diverts part of the revenue from the mining tax away from a fund set to offset mine-related costs of local governments, and instead sends it to the Wisconsin Economic Development Corporation.
Under current mining tax law, all proceeds from the mining tax are set aside to provide financial assistance to local governments experiencing social, environmental, or economic impacts from the mine.
The mining bill currently under consideration in the Senate changes the law and instead allocates only 60% of the proceeds from the mining tax to the fund to address local impacts. The remaining 40% of proceeds would be sent to the Wisconsin Economic Development Corporation, with no specific requirements as to how the money must be spent. Read more
States that follow the economic policy agenda promoted by ALEC risk weakening state economies and harming middle class families. That’s the message of a new report by the Center on Budget and Policy Priorities, which outlines American Legislative Exchange Council’s policy recommendations and their negative effects.
ALEC is a network of conservative state legislators and lobbyists that works to influence state legislation in a variety of policy areas, including budget and tax policy. According to CBPP, ALEC’s proposals would:
cut taxes deeply for wealthy individuals, investors, and corporations; shift tax burdens substantially from well-to-do to middle- and low-income households; and impose strict constitutional or legal limits on revenues or spending that would severely limit states’ ability to provide adequate funds for education, health care, and other priorities, and impair state economic growth.
Many of the recent changes made to Wisconsin’s tax and budget system follow ALEC’s recommendations. For example, the Wisconsin state legislature has passed several new tax cuts that primarily benefit corporations and well-off individuals. Read more
A minimum wage bill, SB 4, was introduced in the Wisconsin Senate on January 31 by Senator Wirch and Rep. Mason. A total of 34 legislators have signed onto the bill. Unfortunately, none of the cosponsors are Republicans.
The minimum wage in Wisconsin has been $7.25 per hour for most workers since July 2009. Senate Bill 4 would increase it to $7.60 (except for minors and currently exempt categories of workers), and beginning in September 2014 would require the Dept. of Workforce Development to make annual adjustments for inflation. It would also allow local governments in Wisconsin to set higher minimum wages.
The minimum wage has already increased in about a dozen states this year, including 10 states where it rises annually with inflation. As an article in the USA Today reported, a total of 23 states have either increased it already this year or are considering bills or ballot measures to increases their minimum wage. Read more
As Early Investment Capital Falls Nationally, It Jumps 31% in Wisconsin
Bruce Murhpy’s latest commentary at UrbanMilwaukee.com ventures where few people (especially “angel investors”) dare to tread – by challenging the perception that Wisconsin lags in availability of venture capital for entrepreneurs and should allocate state funding to create more incentives for boosting the amount of such capital. His analysis was triggered by a January 17 Milwaukee Journal Sentinel (MJS) article, which reported that Wisconsin enjoyed strong growth in early investment capital in 2012 – with a 31% increase last year, even though the national venture capital pie contracted by 10%.
Murphy’s column critiques the MJS article and contends that it painted a “glass half empty” picture of venture capital in Wisconsin, but I think he concedes that the Milwaukee paper has accurately reported the statistics. He notes that a PolitiFact column in the Journal Sentinel reported that Wisconsin ranked 25th among the states in the amount of venture capital raised in the first three quarters of 2011 – which I think is better than many people seem to believe. Read more
The maximum duration of federally funded unemployment benefits will drop in Wisconsin next month because of a reduction in the state’s unemployment rate over the last several months. We’ve been following this story for the past year, as federal policy changes and a slow decline in unemployment have triggered several contractions in the length of unemployment insurance (UI) benefits.
The decline in Wisconsin’s unemployment rate has followed a roller coaster path this year, which caused the duration of benefits to fluctuate as the 3-month average unemployment rate dropped below 7.0% early last summer and then rose back above that level in the fall. Because it’s again below 7% (currently 6.7%), the maximum length of benefits for the long-term unemployed will drop in February to 54 weeks, from the current limit of 63 weeks.
According to a letter sent to legislators Friday by the Department of Workforce Development, approximately “10,500 Wisconsin UI claimants who exhaust benefits in the federal EUC Tier 2 program during the weeks following February 9, 2013 will not be able to move into Tier 3, per the federal government.”
Although I’m very sorry to see the duration of benefits reduced, I think there’s some logic to phasing down these benefits as the economy improves. That’s a political compromise that is far preferable to the abrupt elimination of all the federally funded unemployment benefits, which was narrowly averted by the fiscal cliff legislation enacted a few weeks ago.
Jon Peacock Read more