After major disasters, a money tree of federal relief aid is almost a given.
And after floods afflicted several Midwestern states in 2008, a particularly lucrative one took root in Wisconsin. Congress approved billions in tax-free bonds, including $3.8 billion for the Badger State. The bonds amounted to low-interest loans, and Congress’ intent was to put this cut-rate financing into the hands of victims, stimulating battered local economies. George W. Bush sealed the deal by signing the Heartland Disaster Tax Relief Act in late 2008, and the future for a waterlogged Middle America looked a little brighter.
But in the years since, most of the bonds have gone unclaimed. As of this fall, state officials had only awarded about $546 million, leaving some $3.2 billion unused. Of the $546 million, $203 million went to companies and other recipients in Milwaukee, mostly to finance real estate projects. A review of those awarded locally found that many of the projects had little or no connection to damage done by the flooding.
In 2009, an executive order by former Gov. Jim Doyle opened the gates wide to any number of projects, even those “involving private business use by a person who did not directly suffer a loss in trade or business attributable to the June 2008 storms.”
The consequences of this language first bubbled up in September, when Greg Marcus, president of Milwaukee’s Marcus Corp., and state Sen. Lena Taylor (D-Milwaukee) questioned $43.5 million in disaster bonds awarded to the Downtown Marriott project.
Marcus, owner of three Downtown hotels, said the Marriott was gaining an unfair advantage: low-interest public financing when the developer had already claimed to have private funding in place.
Taylor asked for an investigation by the Joint Legislative Audit Committee, arguing in a letter, “It appears in this matter that we are subsidizing a project which may not have required public assistance and thereby limiting the use of MDA bonds in projects with demonstrable need.”
Illustration by Leslie Herman
But others that have received financing in Milwaukee suffered no direct damage in 2008. One such case is a Summerfest project that received $25 million in bonds. Of that, most was used to help finance a $40 million rebuilding of the south end of the grounds, including the addition of a new stage, pavilion, restrooms and locations for food vendors.
Frank Nicotera, Summerfest’s general counsel, defended the funding, saying that disaster bonds are helpful even if they’re not repairing damage caused by storms. He brings direct experience to issue, having served as chief deputy city attorney in New Orleans when Hurricane Katrina struck in 2005. Starting work in undamaged areas, he says, can give idled workers a way to keep working and contributing to the local economy.
Promega, a large biotech firm in Fitchburg, also suffered no direct damage but used $75 million in disaster bonds to build a 260,000-square-foot facility to produce chemical components for medical tests. The company plans to add 100 jobs in the next four years, a spokeswoman said.
At the University of Wisconsin-Oshkosh, $3.7 million in bonds were used to build a bio-digester to convert lawn clippings and food waste into reusable compost and methane. “It was significantly more affordable using that finance vehicle than conventional bond financing,” says Arthur Rathjen, president of the UW-Oshkosh Foundation.
The university is in a minority – it suffered actual damage in the 2008 storms. A conference center located next to the Fox River was decimated by flooding, and along with it went revenue from hosting meetings on the campus.
Companies have until January 2013 to apply for the bonds, and late last year, more applications were said to be in the works. Tom Thieding, spokesman for the Wisconsin Economic Development Corp., declined to comment on Doyle’s executive order giving businesses and other organizations carte blanche to apply for financing.
A Department of Commerce (the precursor to the WEDC) application used for requesting the bonds did ask whether applicants had withstood damage during the floods, as well as the number of jobs to be created by the project. And the WEDC, as part of its development efforts, has tracked the bonds.
Rathjen says he understood the 2008 law to be an effort at economic stimulus following a season of nasty flooding and tornadoes. “I appreciate what the intentions were.”