Erik Gunn, Wisconsin Examiner
In his two terms in office, Sen. Ron Johnson (R-Wis.) has run hard against government spending. Since his first Senate campaign in 2010, the Oshkosh Republican has described himself as an outsider and business creator who has succeeded without government help.
He has dismissed big-ticket bills as wasteful, telling a TV host in June that measures backed by Congressional Democrats were intended to “make more Americans dependent on government.”
Yet in the 1980s, the company that Johnson was running at the time expanded by raising money under a government-sponsored financing program instead of conventional corporate bonds — a program made possible by the federal government as well as the city of Oshkosh that saved the company hundreds of thousands of dollars in interest payments.
The company also benefited from a direct federal grant from the city of Oshkosh to build a rail spur to serve the new factory it built in the city.
Johnson’s use of the federal programs for the company he led, Pacur, has been previously reported. But that history has drawn new scrutiny in light of his reasons for voting against signature bills addressing COVID-19 relief, infrastructure development and repair, the microchip industry, health care costs and climate change. Johnson criticized all of them for spending too much money.
This past spring, Johnson’s vote against replenishing a federal bill that offered the restaurant industry support to overcome losses from the COVID-19 pandemic was one of only eight that kept the legislation from passing the Senate.
In his first campaign and afterward, Johnson has leaned heavily on his role at Pacur as a core credential, claiming that as the company grew during his tenure as CEO over the previous three decades, it did so without government involvement.
But from that first race, critics have said that Johnson’s account glosses over the company’s use of financing under a program authorized both by the federal government and the city of Oshkosh for business development.
In three separate transactions from 1979 through 1985, Pacur or its predecessor company raised a total of $5 million for expansions by selling industrial development revenue bonds.
Industrial revenue bonds — IRBs for short — are a sort of hybrid between government bonds and the commercial bonds that companies issue to borrow money from investors for capital projects.
For decades, IRBs have been a popular economic development tool for states and municipalities seeking to lure new business or retain existing ones. State or local governments authorize IRBs. But instead of being used for municipal or state building projects — building a new school or sewer plant, for example — IRBs are issued on behalf of private businesses.
Like government bonds— and unlike corporate commercial bonds — the interest paid on industrial revenue bonds is tax-free for investors, just as the interest on school, sewer or other government bonds would be.
While the state or local government authorizes the IRB, it’s not a general obligation bond like most government bonds. The business bears the ultimate responsibility and risk if the bond defaults — not the government that authorized it.
Because investors who buy them don’t pay taxes on the interest income, they accept a lower interest rate.
“IRBs absolutely are a subsidy because they lower the cost of capital by about 25% from commercial bond rates,” says Greg LeRoy, executive director of a nonprofit group that monitors government incentive programs aimed at supporting expansion or relocation by private business.
‘Raid on the federal treasury’
Pacur was originally founded as Wisconsin Industrial Shipping Supply in 1977. In 1979, Oshkosh authorized a $1 million IRB for the company to finance its new buildings in the city. After the company was renamed Pacur, Oshkosh authorized two more IRBs to finance additional expansions: $1.5 million in 1983, and $2.5 million in 1985.
When Pacur’s use of IRBs in its early expansion was first reported in 2010, Johnson’s campaign issued a statement that defended their use: “No taxpayer money was ever involved in those bonds, nor were taxpayers ever put at risk,” said the statement, which also noted that the loans were repaid in full with interest.
But that defense sidesteps the central benefit that the company received thanks to the government program.
“Interest rates were really high in the 1980s,” LeRoy says. According to federal data, commercial corporate bonds in 1979 paid about 9.6%-10.7%. In 1983, the year of Pacur’s second IRB, those rates were 12%-13.5%. By the year of the third IRB, 1985, they had fallen only slightly, to 11.4%-12.7%.
For Pacur, however, opting for IRBs each time saved the company substantially. “IRBs would be let at about 25% less,” LeRoy says. “That’s a huge difference in your cost of money.”
It’s not clear how much the company saved by availing itself of the IRBs. When Johnson first ran in 2010, then-Democratic Party chair Mike Tate told the Milwaukee Journal Sentinel it could be as much as $1.1 million.
The Johnson campaign did not respond to inquiries from the Wisconsin Examiner seeking comment.
This story has been edited for length. Read the full story at the Wisconsin Examiner.
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