The Texas Enterprise Fund, established by the Legislature in 2003, was created to help bring new businesses and high-wage jobs to Texas. By nearly every measurable criterion, the Enterprise Fund has been overwhelmingly successful at achieving these objectives.
As of June, as a direct result of Enterprise Fund incentive awards, more than 100 companies have moved to or expanded in Texas, resulting in approximately 80,000 new Texas jobs. The greater impact on our economy, however, derives from the capital investments these companies make directly into the Texas economy. That number is nearing $24 billion. Moreover, because of the multiplier effect that results when an out-of-state company moves to Texas, the direct impact on our economy from this program is materially understated.
Even in the face of its success, however, the Enterprise Fund has received mounting criticism based on a recent report from the State Auditor’s Office that suggested that a significant proportion of the cash outlays of the program were issued without proper oversight or failed to comply with the disbursement procedures established in legislation.
Specifically, the state auditor said in its report that $222 million of the total disbursements were issued without “an application.” Readers of the report were left with the impression that these funds were disbursed without requisite oversight. Some media outlets even went so far as to suggest that the recipients of these funds neither requested the funds nor provided the governor’s economic development office — the administrative agency that oversees the program — with supporting materials to justify a grant.
The political impact of the state auditor’s report was profound. Opponents of the program on the right who had made the specious arguments that the Enterprise Fund was a vehicle for “crony capitalism” and “corporate welfare” now believed they had the smoking gun. On the left, opponents of the governor or the attorney general could now make similar claims.
The unvarnished truth, however, is far less tantalizing. Here are the facts:
- All of the incentive awards questioned by the State Auditor’s Office in its report were issued in the program’s initial biennium, 2004-05. During this time, there was no legal requirement for a formal application. A formal application process has been in place since 2005, and all recipients have complied with the process.
- Even though no formal application was required in the 2004-05 biennium, the economic development office demanded that all recipients of funds provide the necessary materials and information that are now requested by the formal application. As a result, nearly all award recipients have filled out either a formal application or a non-formal application — in each case including all of the necessary information required to issue an award under the program.
- One of the awards criticized by the State Auditor’s Office for failing to meet the application process was actually granted as the result of an appropriation by the Legislature.
- In its conclusions, the state auditor said the economic development office “safeguarded state resources by ensuring that it disbursed funds only to recipients with award agreements.” Furthermore, according to the report, “The Office also recovered $14,507,385 in funds (referred to as ‘clawback penalties’) from Texas Enterprise Fund award recipients when it became aware of recipients' noncompliance with requirements in award agreements.”
Certainly, a program of this magnitude should be periodically scrutinized and reviewed. And as a steward of the taxpayers’ money, the Legislature should strive for greater transparency and oversight. As a member of the House Select Committee on Economic Development Incentives, I am in full agreement that the Legislature should implement nearly all of the state auditor’s proposed recommendations.
But let’s be absolutely clear: The Texas Enterprise Fund is good for Texas and its citizens. We’ve traveled the state asking residents, business owners, experts, professors and entrepreneurs if they support this program. The overwhelming consensus is that the Enterprise Fund works, brings new businesses to Texas and creates high-wage jobs for our residents.
Let’s look closely at the facts before we throw the baby out with the bathwater.