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John Foust -
Negotiating in Secret
Negotiate with Wal-Mart in Secret?
Amid all the debate about Wal-Mart in Jefferson, let's be thankful that we don't live in Beaver Dam.
If Jefferson did economic development as they do in Beaver Dam, all these Wal-Mart negotiations would have taken place in secret.
In fact, Jefferson almost did it that way...
Private corporation, nothing to see here...
Beaver Dam is not far from Jefferson. It is a city of 21,000 north of Watertown. In 1997, Beaver Dam elected officials and business leaders worked hand-in-hand to privatize the economic development efforts that once took place within City Hall.
The Beaver Dam Area Development Corporation (BDADC) was created as a private entity with the goal of encouraging development on land within the City or that might be annexed to the City. Its only client is the City.
To sidestep the law, the City never officially created the BDADC. If it had, the group would've been subject to Wisconsin's Open Records and Open Meetings laws. Reporters and the public would've been able to watch its meetings and actions. Certainly it was a sweetheart deal. The BDADC operates rent-free in City offices, using city phones, copy machines, fax machine and postage meter and shares City secretarial services.
This untested organization was given a great deal of money. The BDADC now gets 90% of the city's room tax revenue. According to State law, this room tax money is supposed to be used to promote tourism. For example, before the BDADC, some of that room tax money used to help the City's "Beaver Dam Lake Days" festival and the Beaver Dam Must-skies water-skiing team. The other 10% goes to the Chamber of Commerce, another private entity. The BDADC also received city money to loan out for "development incentives".
In early 2003, the Wisconsin Department of Commerce asked fourteen communities to compete for a large development project by an anonymous company. As it turns out, the project was a Wal-Mart distribution center. The BDADC worked very hard to land the project.
For a year the BDEDC worked in secret to negotiate a deal with Wal-Mart on the $55 million project. The BDADC promised more than $6 million in incentives, with the city paying for $2.3 million in infrastructure improvements, including $1.5 million it would get from the state. It also agreed to reimburse Wal-Mart for $5.4 million of the land costs, with $1.4 million at closing and the balance in 20 annual payments of $200,000. The BDADC drafted options to buy the 400 acre parcel that Wal-Mart needed for the 1.2 million square foot building. The land would be bought from a private company whose president served on the board of the BDEDC until this incentive package was offered.
More than 700 trucks a day were expected to travel to the center, causing neighboring rural subdivision residents to raise concerns of noise, diesel exhaust and runoff. Wal-Mart originally told the Department of Commerce that the project would create 1,000 jobs, but over time that estimate was lowered to 450. The jobs are now expected to include 35 managers at $35,000 a year, 40 maintenance workers at $11-13 an hour, with the rest of the jobs in data entry or box handling jobs at $9-11 an hour.
18 months of secret planning?
The public first learned of this Wal-Mart project at a Council meeting on October 30, 2003. In a single meeting, the Council received a 13-page recommendation from the BDADC and quickly voted to approve it. Later during the public hearings for the rezoning and annexation for the project, then-Mayor Olson told outraged citizens that the schedule developed by the BDADC did not allow time for questions and answers.
A complaint from a group calling itself Citizens for Open Government filed complaints and attracted the support of a Madison law firm. They successfully argued that the BDADC was a contractor to the City and obtained records of the negotiations. A clause of the Open Records law says that anything a City pays someone else to do must be just as open as anything the City did itself.
This poking around uncovered a letter the Mayor sent on City letterhead to Wal-Mart's real estate agent on May 7, 2003 that stated that the Council had "voted unanimously" to approve a $6.18 million incentive package in closed session.
If the Mayor's statement was true, it would be a violation of Open Meetings law. Opponents wondered how the Mayor had full knowledge of the incentive package in May, months before it became public and before it actually came to a vote in October. If City business was being done in private BDADC meetings, isn't that a violation of Open Meeting laws?
Later, a District Attorney investigated. He interviewed the Mayor. The DA ruled there was no violation because the Mayor's letter "was not factual." Mayor Olson explained to the DA that he "made these representations based on his enthusiasm for the project." In an interview with a Milwaukee Journal-Sentinel reporter, the Mayor said his letter meant that officials had reached a consensus on the project but had not taken a vote. The Mayor also claimed that only he and one alderman knew the project involved Wal-Mart until the October meeting.
Beaver Dam attracts attention of Attorney General
In July 2004, Citizens for Open Government filed a complaint with state Attorney General Peg Lautenschlager. She filed a law suit against the BDADC, saying that the City “cannot ‘spin off’ a private entity... then consider itself above the state laws that ensure the public has open access to the public’s business. [...] This is contrary to the fundamental Wisconsin tradition of openness in government. Such activities cannot be conducted without public notice and public input."
The Attorney General's case was based on the argument that the BDADC was the City. Lautenschlager's complaint said that BDADC receives most of its funding from public sources for activities that serve a public purpose, that the mayor and chair of the community development committee sit on the board as city officials and conduct business during hours for which they are paid by the city, that city provides all its office space, equipment and supplies, that the city provides clerical support from city employees who are paid a city salary, and that the BDADC operates as an extension of the city by negotiating business transactions on behalf of the city.
In February 2006, the Attorney General's case lost in a Marquette County court. An appeal is planned.
How Jefferson almost did it this way...
In Jefferson, we once had an economic development corporation that claimed it was private. I fought very hard to open it. (Read more here.)
City officials attended meetings. No reporter was ever present. Official decisions were made regarding the City's industrial parks. Indeed, that was the linch-pin that caused District Attorney David Wambach to rule that the JDC needs to be open to the public.
A similar sweetheart deal exists in Fort Atkinson. The Fort Atkinson Industrial Development Corporation routinely hands recommendations to their City Council for approval, with all the back-room dealing taking place outside of public view. They get free office space and support from the Chamber of Commerce, who benefits from room tax funds.
If the secretive Jefferson Development Corporation had not been forced to disband, certainly they would have been the ones negotiating the Wal-Mart annexation and development plans.
Instead, the new Jefferson Development Committee - as formed in 2001 by the City Council in the place of the disbanded Jefferson Development Corporation - held meetings in public to discuss and evaluate the project. The public opponents could attend, along with reporters covering the story for the papers. Imagine if everything they'd done had been done in secret.
How it could still happen here
Cities will continue to be tempted by the use of private economic development agencies.
Apart from the clever structuring of economic development corporations as a way to mask negotiations with developers, cities can even run afoul of the law and outrage citizens even when they adhere to the letter - but not the spirit - of the law.
In Milton, city officials spent nine months in a series of closed session meetings to discuss incentives to bring an ethanol plant to town. The Council held closed session meetings using the clause that allows it for competitive or bargaining reasons. After a complaint, a judge found no violations, but the case attracted the attention of critics who remind us that the public's business should be conducted in public, not behind closed doors.
But wait, there's more. Beaver Dam shares the same building inspector with Jefferson. Both cities use Wisconsin Building Inspection Agency, operated by Guy Burlingame.
Late in 2004, Burlingame negotiated with Mayor Jack Hankes to change the way inspection fees were handled. Building inspections would be privatized. Burlingame would be an independent contractor, subject to the highs and lows of the market. The Council approved the change. Inspection fees would now be paid directly to the building inspector, not the City. Fees would be based on the cost of construction. The rate schedule was changed so that commercial development were increased.
Burlingame's firm received more than $290,000 in inspection fees on Wal-Mart's project alone. Other critics claimed the City lost more than $670,000 total in fees.
How should communities assist economic development? I can't say it any better than Isthmus editor Bill Lueders, commenting on the Beaver Dam case:
Wisconsin has a long tradition of openness in government. Let's keep it that way.
I wrote this based on numerous articles online, not direct first-hand interviews. For more info, see:
The attorney general's suit against the BDADC:
Building inspector articles: