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By Dave Umhoefer August 3, 2014

Mary Burke: Abbott deal had "strong protections for taxpayers"

Gov. Scott Walker alleges that former state Commerce Secretary Mary Burke "wasted" nearly $25 million in the so-far failed attempt to attract a major Abbott Laboratories expansion in Wisconsin.

But Burke, Walker’s main Democratic challenger in the 2014 governor’s race, says her agency built tough failsafes into the deal.

"Everyone from local officials to the local chamber of commerce to Walker's own administration agrees that this was and is a good deal from an economic development standpoint," Burke’s campaign said on July 9, 2014.

"The grant," she continued, "contained strong protections for taxpayers if job creation goals were not met or infrastructure was not developed for economic development."

On July 31, 2014, we rated Walker’s $25 million claim False, noting that Walker double-counted the $12.3 million cost of the deal.

In the jousting over the strength or weakness of the deal’s protections, the two campaigns cite the same sections of the complicated Abbott aid agreement as evidence for their side’s view.

Let’s start there.

The 2006 deal passed $12.5 million in federal block grant funds through the Village of Pleasant Prairie and the Kenosha Area Business Alliance to purchase 40 acres of land to hold for Abbott, which already had amassed 500 acres for a potential Kenosha County corporate campus.

If the pharmaceutical giant’s Wisconsin expansion proceeds, Abbott could buy the land for $1.

State officials wanted a so-called "clawback" provision that would require Abbott to pay back the money if the company did not create at least 2,400 jobs, but Abbott declined to sign one, according to Michael Pollocoff, Pleasant Prairie’s administrator.

Burke and then-Gov. Jim Doyle pushed forward without such a provision.

It’s common for Commerce Department grants and loans to businesses to be tied to performance measures mandating partial or full return of such aid if jobs are not added, according to a 2006 state audit. Often the state’s contracts call for personal loan guarantees and financial penalties in case of non-repayment.

Such conditions vary depending on the situation, but in the Abbott case, the state’s approach meant that the party the state was hoping to come through with jobs was not directly on the hook. It was subject only to indirect financial pressure to do so -- the loss of a "free" piece of land.

Land sale envisioned

The plan, however, did not leave the state without any recourse.

Under the agreement, the business alliance, known as KABA, is responsible for returning some funds to the state if the Abbott jobs don’t emerge by 2016.

That refund, though, was tied to what the 40-acre property could bring in a sale, and the plan came with some terms that weakened the possibility the full amount could be recovered.

At this point, the land’s assessed value is about 55 percent of what KABA paid for it -- nearly $5 million lower than the $12.3 million purchase price (a pre-recession price paid to a truck stop developer who had leverage in the negotiation.)

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So at least as things stand now, far less than the full $12.3 million seems recoverable.

The deal called for KABA and Pleasant Prairie to recoup their own costs related to holding and preparing the Abbott site for development. Those costs are nearly $4 million, said Pollocoff.

So if the state were to immediately sell the property, the leftover funds might total only $2 million to $3 million.

There’s nothing in the deal that would block the state from holding the land in hopes that its value in a busy corporate corridor would increase.

"This is a unique piece of collateral with significant growth potential," Burke spokesman Joe Zepecki argued in an email to PolitiFact Wisconsin, "40 acres of land along a busy highway, next to up-and-coming businesses like Amazon and Uline."

Todd Battle, president of the KABA group, didn’t respond to interview requests for this story, but in 2006 he described the land as "some of the most valuable real estate along the (Interstate 94) corridor."

But there’s one more, major point here.

Because federal officials in 2013 declared the deal ineligible for federal money in the first place, and the promise of jobs was so vague,  the state is being forced -- now -- to pay back HUD from state tax revenue. Federal officials say the project was overly speculative and has not paid off over eight years.

That’s something no one contemplated as a possibility, and one that a stronger and more properly drawn deal would have prevented as a matter of course.

Mike Huebsch, state Department of Administration secretary and a top member of the Walker administration, is not impressed by predictions of money coming back to the state.

"The deal was constructed in a way that put us at a disadvantage every step of the way," he told us. "The state’s position was not strong."

We sought an outsider’s opinion and turned to Ronald D Berkebile. He’s a founder of Dominion Scientific Analytics, a financial analyst with the city of Virginia Beach, Virginia, and an author of articles on the financial impact of economic development projects.

Berkebile didn’t fault the general structure of the deal, and said there’s an element of hindsight in the criticisms.

If the economy had not soured, Abbott might have met the agreement’s expectations, and "no one would have asked about this situation," he said. "The economy (in 2006) likely supported the promise of a large pharmaceutical company developing the land. A promise of this nature is very enticing."

But he said more performance milestones should have been built in to protect the investment, and there should have been better monitoring to avoid violating state and federal rules.

If Abbott couldn’t produce by a date certain, "then KABA should have had the ability to exercise alternative property rights to develop the land in accordance with (block grant) standards," he said.

Our rating

Burke’s campaign said the $12.5 million incentive deal she approved for Abbott Laboratories contained "strong protections for taxpayers if job creation goals were not met."

While the land provides some collateral, the deal’s protections and structure fell short of those used in many such cases, leaving the state vulnerable to picking up some or most of the pieces if Abbott doesn’t deliver.

And it’s hard to reconcile how "strong protections" could have allowed the scenario now unfolding in which the state is paying cash to HUD.

We rate the claim False.

Our Sources

Interview with Joe Zepecki, Burke campaign spokesman, July 29, 2014

Interview with Mike Huebsch, state Department of Administration secretary, Lisa Marks, DOA housing administrator, Greg Murray, chief legal counsel, DOA Legal Services, July 29, 2014

Interview with Tom Evenson, Walker campaign spokesman, July 29, 2014

Interview with Michael Pollocoff, Village of Pleasant Prairie administrator, July 28 and 29, 2014

Interview with Ronald Berkebile, founder, Dominion Scientific Analytics, LLC, July 30, 2014

Public records request for documents on the Commerce grant

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Mary Burke: Abbott deal had "strong protections for taxpayers"

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