April 29, 2016

State revokes tax credits after W.W. Grainger cuts, outsources jobs

The Wisconsin Economic Development Corp. is getting $50,000 back after the Illinois-based company did not create jobs and sent some of them to Panama

In this 2010 file photo, the exterior of the W.W. Grainger building is seen in Janesville, Wisconsin. The Illinois-based company had to return $50,000 in tax credits after failing to create promised jobs.

Bill Olmsted / The Janesville Gazette

In this 2010 file photo, the exterior of the W.W. Grainger building is seen in Janesville, Wisconsin. The Illinois-based company had to return $50,000 in tax credits after failing to create promised jobs.

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The Department of Revenue has revoked $50,000 worth of tax credits from W.W. Grainger, a distributor of industrial and maintenance supplies, after the company failed to create promised jobs, sold subsidiaries employing hundreds of its workers and sent some jobs overseas.

The money was part of $500,000 in tax credits approved for W.W. Grainger in 2011 by the Wisconsin Economic Development Corp., Gov. Scott Walker’s signature job creation agency that he chaired until 2015. A former top official at Grainger, David W. Grainger, has been a major donor to Walker’s gubernatorial campaigns.

Illinois-based W.W. Grainger had promised to make at least $1.8 million in capital improvements to its Janesville location and create 130 new jobs at that facility by March 2013. The contract also required the company to retain both the new jobs in Janesville and the 1,169 existing full-time jobs across Wisconsin until March 2015.

When the company failed to create any of those jobs by the deadline — and in fact eliminated 361 jobs in Wisconsin — it became ineligible for $450,000 of the credits. Because W.W. Grainger spent well over the planned amount on capital improvements, it received $50,000 in tax credits. But WEDC later changed its mind.

“While Grainger has far exceeded their capital investment expectations, they did not create any of the expected 130 jobs, and have had a significant reduction in their workforce,” WEDC program manager Shelly Braun stated on an award closeout assessment signed Oct. 14. “I recommend the revocation of the $50,000 in tax credits verified for capital investment.”

WEDC notified W.W. Grainger’s tax manager of its intent to revoke the credits and, a month later, turned the matter over to the Department of Revenue.

W.W. Grainger spokesman Joe Micucci said the company is paying the $50,000 back. WKOW-TV in Madison disclosed in a report Thursday that the company’s tax credits had been revoked.

Micucci said employment temporarily declined due to the sale of subsidiaries in 2013 but has since rebounded. According to Micucci, the company now has about 1,250 Wisconsin employees, but he declined to say whether that includes part-time employees. When the company applied for the credits in 2011, it reported having 1,169 full-time and 93 part-time employees.

Thomas Cafcas, a research analyst for Good Jobs First, said taxes represent just 2 percent of a company’s costs. More important factors include a ready workforce, good education and transportation systems, and the availability of suppliers and customers, said Cafcas, whose organization promotes accountability in economic development.

“If you look at WEDC, there is so much emphasis over the past few years on how tax breaks create all sorts of jobs,” Cafcas said. “Frankly, (Grainger) is the case in point — along with a whole host of other deals that have gone awry — that this is simply not the case.”

He added that when it comes to business decisions, “subsidies have little to do with it. A company will take taxpayer money if available, but it’s not really driving them to be where they are.”

David W. Grainger, the company’s former senior chairman, is a top Walker donor. He stepped down as chairman in 2007, and he was the largest individual shareholder as recently as 2013. Micucci said Grainger no longer holds that distinction and is not involved in day-to-day operations of the company.

Grainger has given $21,000 to Walker since 2011, according to the Wisconsin Democracy Campaign database. In the 2014 election cycle, Grainger was one of 11 contributors who exceeded the limit of $10,000 in donations for the governor’s re-election. Walker’s campaign was ordered to pay a penalty for accepting excessive contributions.

The foundation managed and funded by Grainger also has been a generous donor to the University of Wisconsin-Madison. The business school building was named Grainger after he and the Grainger Foundation together gave $10 million for its construction. And last year, the foundation made a $47 million gift to the UW-Madison engineering program from which David W. Grainger graduated.

Job tax credits under scrutiny

WEDC has faced criticism for years and, in some cases, acknowledged its lack of proper oversight in awarding and monitoring financial awards. Critics also have called on the agency to stop subsidizing companies that send jobs outside of Wisconsin. Recently, WEDC chief executive Mark Hogan announced the agency is reviewing its job-related tax credit program after officials identified inaccuracies in how the agency counted qualifying jobs.

W.W. Grainger first applied for the tax credits in 2010, before WEDC was formed, with the Department of Commerce under Democratic Gov. Jim Doyle.

Walker, a Republican, formed WEDC after becoming governor in January 2011. The public-private agency then chaired by Walker authorized up to $500,000 in credits in July 2011, including $450,000 for job creation and $50,000 for capital investments.

Grainger’s application detailed plans to convert unused warehouse space in its Janesville property into office space and add 130 full-time jobs, the majority of which would pay around $14 an hour plus benefits. The remaining positions would be managerial positions with hourly wages ranging from $26 to $51.

The application noted two alternative locations to move the jobs, both outside of Wisconsin: Grainger’s corporate offices in Niles, Illinois, or the company’s headquarters in Lake Forest, Illinois.

The final progress report, obtained by the Wisconsin Center for Investigative Journalism under the state public records law, shows the company completed the capital investments, spending $6.6 million on its Janesville facility — well over the $1.8 million promised. Improvements included new office space, additional parking, a second cafeteria and other updates.

But W.W. Grainger failed to create 130 new jobs and in fact eliminated two to three times that many positions between receiving the credits and filing the final progress report in 2015.

Citizen Action of Wisconsin, a nonprofit that focuses on social and economic justice, criticized the deal Friday.

“Wisconsin voters are on to the fact that political and corporate establishment are committing economic treason against Wisconsin workers,” said Robert Kraig, executive director of Citizen Action. “The public is also increasingly realizing that if the economy can be rigged against workers, it can also be re-rigged in our favor through policies that expand economic opportunity.”

Job numbers decline, rebound

Micucci said the company’s 2013 sale of Gempler’s, Ben Meadows and AW Direct to Ariens Co. — an equipment manufacturing company based in Brillion — caused its headcount to decline.

Last year, W.W. Grainger cut 30 jobs from the Janesville warehouse as part of a strategy to outsource 130 jobs companywide to Panama. According to Micucci, all but six of the 30 employees were placed in other positions with Grainger.

In January, the company announced it would close its Green Bay warehouse and lay off around 43 employees. Employees were told they could apply to jobs at the Janesville warehouse; seven have transferred to date, Micucci said.

He added that the company has no plans for additional job reductions in Wisconsin. In fact, more than 220 people have been hired in the Janesville facility since January. However, since 2011, the number of employees in Janesville has increased by 50 people, to around 900 — still 80 jobs shy of its target.

W.W. Grainger is publicly traded and has paid shareholders increasing dividends for the past several years.

In a recent earnings statement, Chairman and CEO Jim Ryan told shareholders that the company responded to challenging market conditions in 2015 by “restructuring several of our businesses, resulting in a leaner cost structure.” Grainger closed 49 U.S. branches last year and, according to Ryan, “will continue to execute changes” in 2016.