By the best measure available, there has been a net loss
Updated: Monday, May 14th, 2012 | By Dave Umhoefer
When Scott Walker campaigned for governor in 2010, his top promise was to add 250,000 private-sector jobs in his four-year term.
But there was a second big jobs-related promise:
"If you elect me as your next governor, I'll get government out of the way and lower the tax burden so Wisconsin business owners and factories can create 250,000 jobs and 10,000 businesses in our state by 2015,” Walker said in a February 2010 speech.
He made clear that -- just like his jobs promise -- he meant a net gain in businesses: "as we create those new jobs, we will be able to add 10,000 new businesses.”
Now that Walker has more than a year under his belt as governor, we thought it was a good time to check progress on this pledge.
We checked in with the state Department of Financial Institutions, which Walker and business-formation experts say is the best tracker of this data. The department registers new business entities -- and dissolves those that become inactive or go out of business. They calculate a resulting number of existing "business entities.”
The change in that number represents the net difference, up or down.
The scorecard: After one year of the Walker era, there were 9,485 fewer businesses than at the end of 2010, Gov. Jim Doyle's final year in office.
It's improved somewhat in recent months, but the total of existing entities was still down 4,338 as of April 30, 2012, compared with December 2010.
The picture is worse if you look only at Wisconsin business entities doing business here, and exclude out-of-state businesses that must register here to transact business.
Those "domestic” business entities were down 10,189 after Walker"s first year, and down a total of 5,741 after 16 months.
So the numbers have gone backward.
To be sure, it's a small dropoff in the big picture: As of April 2012, there were 360,031, compared with 364,369 as Walker took office. That's a 1 percent drop.
During the recall campaign, Walker and his administration have been highlighting only the new registrations and only those in 2012.
But that presents only one side of the equation. It would be like counting only births -- and not deaths and departures -- to track population changes.
When you look at the full picture, when dissolved businesses are accounted for, there are fewer existing business entities now than when Walker took office.
So, why are we calling them "business entities”? Aren't they just plain old "businesses” or "companies” with employees?
And therein lies a critical point about the questionable value of these statistics, which typically receive scant public attention as an economic or employment indicator.
Two lawyers who specialize in business formations told us there are major limitations on the data.
Most of the new registrations are Limited Liability Companies, many of which employ no one, said Jennifer M. Krueger, a Madison attorney. In addition, people often set up multiple LLCs for their business for tax and liability purposes, she said. Many are holding companies.
For example, Krueger said, let's say somebody owns a building and operates a business in it. If only a single LLC covers both, the business could be sued for an injury in the building even if it was unrelated to the business operations. So the owners instead would set up separate LLCs for the business and the building.
"I take these numbers with a grain of salt,” Krueger said of their use as employment and business indicators.
Another example: Owners of residential or commercial real estate typically set up LLCs for each property or group of properties, noted Joseph W. Boucher, a Madison attorney who led the drafting of Wisconsin"s LLC law.
Boucher told us that an uptick in new business registrations is a positive sign but "it's very difficult to tell how meaningful these numbers are.”
The stats on net number of existing businesses are also incomplete, because they exclude sole proprietors and partnerships, which have no obligation to register with the state, Boucher said.
"I think it's a weak indicator,” Boucher said of the business formation stats.
Indeed, the annual statistics were especially meaningless from 1996 to 2007.
Despite its responsibility under state law to cull out inactive businesses from the registration list, the department did no dissolutions for those 11 years. The agency acknowledged that when we asked about the figures. The problem spanned three governors: Republicans Tommy Thompson and Scott McCallum and Democrat Doyle.
The gap messed up the numbers, and continued to do so after 2007 as the agency made up for lost time and dissolved entities by the thousands.
The department says it's uncertain if the 2010 figures it gave us are fully representative of reality because of that clean up job.
But we analyzed the numbers and found that the cleanup job was very nearly completed by 2010, based on what we can see from the data, so the Doyle-Walker comparison holds up.
Walker campaign and office spokespersons could not be reached for comment.
In sum, Walker has made no movement so far on his promise to add 10,000 businesses. The first quarter of 2012 showed progress, but the numbers are still in the hole compared with before he took office.
Of course, he set this out as a four-year goal.
For now, this promise is rated as Stalled.
Phone interview with Joseph Boucher, attorney, May 10, 2012
Phone interview with Jennifer Krueger, attorney, May 10, 2012
Phone interview with George Althoff, communications director, Department of Financial Institutions, May 10, 2012
Department of Financial Institutions, Annual reports, accessed May 10, 2012
Scott Walker campaign website, promise on business creation, Feb. 23, 2010
Department of Workforce Development, 2010-11 statistics, accessed May 9, 2012
Department of Workforce Development, historical statistics, May 10, 2012
We want to hear your suggestions and comments. Email the Wisconsin Truth-O-Meter with feedback and with claims you'd like to see checked. If you send us a comment, we'll assume you don't mind us publishing it unless you tell us otherwise.