The federal government said two Wisconsin state agencies have failed to follow federal law and their own policies in issuing economic development grants.
The U.S. Department of Housing and Urban Development sent a strongly worded letter to Gov. Scott Walker's administration on Aug. 12 ordering them to improve the distribution of economic development money.
The 22-page report sent to the Wisconsin Department of Administration points out numerous issues HUD found, including instances during the last year where almost $10 million in grant money was awarded in violation of statues and regulations.
The HUD letter points to numerous problems resulting from what it called the "hasty" transfer of duties from the former Department of Commerce to the new economic development entity, the Wisconsin Economic Development Corp.
WEDC head Paul Jadin said the letter and report are welcome and clarify policies that have not been understood in year's past, including the distribution of community block grant funds, which according to the letter, WEDC awarded funds when it didn't have the authority to.
"I think the letter is something that's very helpful for us," Jadin said. "I think there are issues based on legacy practices. HUD showed us there were concerns going back to 2005."
HUD also said it found instances in which no underwriting was done before grants were awarded, which is a violation.
Jadin said his resignation from the year-old agency, and other recent personnel changes, have nothing to do with the letter from HUD.
Walker is defending not telling the quasi-private board in charge of economic development efforts for the state about the highly critical letter from the federal government.
Walker said if HUD required specific action from the WEDC, it would be discussed. But he said for now his DOA wants to hear more back from HUD about what changes are needed.
"The response from the DOA was that they had planned to go through and look at all those in the past but, more importantly, set in place standards that would make sure that they were in full compliance," Walker said.
The DOA has already sent a letter back to the federal agency responding to the criticism. The letter challenges some of the findings, but said the state takes responsibility for other issues and is assigning staff to oversee some of the grant distribution process that's been questioned.
The state said it's waiting to hear back from the federal government to see if the explanations it provided and the changes it has made are acceptable.