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In July 2014, Gov. Scott Walker’s re-election campaign targeted a so-far failed effort begun by challenger Mary Burke to lure a major Illinois-based drug company to expand in the Kenosha area.
Now Walker’s back on the air with another TV ad related to that economic development deal.
In mid-July we rated Mostly True a Walker claim that Burke, as state commerce chief in 2006, spent more than $12 million for land to help Abbott Laboratories even though the firm had presented "no plans to create jobs in Wisconsin."
Federal Housing and Urban Development officials who provided the $12 million to Wisconsin concluded that the Commerce Department never got a written commitment from Abbott. Now they want the money back.
In the new ad, Walker contends that Burke’s economic development strategy in the Abbott case "could cost taxpayers nearly $25 million" in "wasted" funds.
But how can a $12.3 million deal become $25 million lost?
The deal itself
The Walker ads focus on a March 2006 announcement by Burke and then-Gov. Jim Doyle of a $12.5 million forgivable loan funded with federal money, specifically community development block grant funds.
The money was to buy a 40-acre parcel in order to block a truck-stop development that local officials thought would discourage Abbott’s development of 500 acres the firm had acquired in Kenosha County for a potential corporate campus.
Under a complex agreement with the state Commerce Department, the funds were passed through the Village of Pleasant Prairie to an arm of the Kenosha Area Business Alliance. The business alliance then used the funds to buy and hold two parcels for Abbott, with a proviso that the land could not go to Abbott unless the company showed -- by 2016 -- that it would create at least 2,400 jobs.
Ultimately, $12.3 million, not $12.5 million, went for the deal.
Eight years later, with two years left on that deadline, Abbott hasn’t made its contemplated Wisconsin move a reality. And HUD has declared that the project -- which it called a "speculative land banking venture" -- was ineligible for block grant funding in the first place.
The state will pay half the $12.3 million back in cash, and the other half will come in a reduction of future block grant money to the state.
The campaign’s math
We spoke to Tom Evenson, a Walker campaign spokesman, about the ad’s claim that "taxpayers" could be out $25 million through the $12.3 million deal.
He said that Walker views it as the state "paying twice" -- $12.3 million it has to repay, and the lost economic development the money could have generated if it had been used differently at the time.
That "opportunity cost" argument is problematic for several reasons.
The ad presents the math in concrete terms -- "taxpayer" dollars. And no matter how you cut it, the $12.3 million is being counted twice.
So what are taxpayers out so far, and what are the possible outcomes when the smoke finally clears on this deal?
The federal government put up the $12.3 million, but is getting the money back.
State taxpayers didn’t provide the $12.3 million in the first place, but they will fork over $6.15 million in cash to repay HUD.
The $6.15 million in lost future block grants from the feds means Wisconsin loses whatever benefit they might have provided. But state taxpayers don’t necessarily have to replace the lost federal funds with state funds.
So depending on how you score that last item, the tab so far is either $6.15 million or $12.3 million.
In the end, the total could be smaller.
Under the Burke-signed deal, if no Abbott development occurs, the 40 acres could be sold and thereby generate some cash to offset the $12.3 million cost. The land is now assessed at about $6.7 million, according to local officials.
The final proceeds to the state, though could be reduced to less than $3 million, however, because the agreement called for local officials to be reimbursed for paying taxes and utilities and other costs associated with the land.
They say they have spent $3.9 million on those items.
If the land can’t be sold, of course, there’s no offset to the state’s $12.3 million bill, or the locals’ $3.9 million.
Either way, though, the hard numbers don’t approach $25 million.
Finally, what about "wasted?"
Walker’s math rests in part on the assumption that Burke’s deal never had a chance, in 2006 or now, to succeed.
It looks like a faint hope now, though the land has been and is ready for development. And HUD’s criticisms fuel the notion that the deal, done in an election year for Doyle, was a pie-in-the-sky notion from the start.
On the other hand, Commerce Department records show that Abbott’s interest developed over several years as it bought up 500 acres and dealt quietly with officials in a project they code-named "Project Doo Dah." Local officials came to the state to ask for help in buying up what it saw as a crucial final puzzle piece to attract Abbott and up to 12,000 jobs.
At one point in late 2004, local officials were told that Abbott was choosing between Wisconsin and one other place for its expansion, according to a November 2004 email between Pleasant Prairie and business alliance officials.
And Walker’s own administrators argued to HUD in 2013 that buying the vacant land "has allowed the (Village of Pleasant Prairie) to remove slum and blight from the area and has created an environment in which Abbott Laboratories will want to move forward and construct their campus."
It also opened the door to major spin-off development, including Uline's new corporate headquarters and distribution facility that already employ more than 850, Lisa Marks, Walker’s housing administrator, wrote to HUD.
Walker’s ad says that Mary Burke "wasted 12.5 million dollars on a vacant lot," a move that "could cost taxpayers nearly $25 million."
The spot greatly exaggerates the real taxpayer costs and ignores the Walker administration’s own praise to HUD for the project.
We rate the claim False.
Walker campaign ad, "Boondoggle," YouTube video, July 28, 2014
Interview with Mike Huebsch, DOA secretary, July 29, 2014
Interview with Tom Evenson, Walker campaign spokesman, July 29, 2014
Interview with Joe Zepecki, Burke campaign spokesman, July 29, 2014
Interview with Michael Pollocoff, Pleasant Prairie village administrator, July 29, 2014
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