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In Light of Audit's Findings, Long Term Viability of Texas Enterprise Fund Questioned

In Light of Audit's Findings, Long Term Viability of Texas Enterprise Fund Questioned

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AUSTIN, Texas — Breitbart Texas Reported earlier this week that the Texas State Auditor’s Office has conducted an audit of the Texas Enterprise Fund (TEF), a business development fund frequently touted by Governor Rick Perry as a helpful asset in spurring job growth in Texas. As reported by the auditors, $222 million of TEF funds were granted to entities who never even submitted a formal application, and oversight over the recipients’ compliance with TEF rules after the funds were distributed was limited, and, in some cases, completely non-existent. Even minimal requirements, like reporting the number of jobs created and their salaries, were ignored.

There is a procedure known as “clawback” for the TEF to reclaim funds from entities that were especially blatant in their noncompliance — about $14 million has been “clawed back” and 23 entities have had their contracts terminated — but the audit stated that the clawbacks should have included an additional $3.8 million, as well as suggesting that many other companies should have been subject to clawbacks too.

The controversy is renewing calls from grassroots conservatives and fiscal watchdog groups to take a sharper look at the TEF and other “economic development” funds under government control. Texas Attorney General Greg Abbott, when launching his campaign for Governor, included in his initial stump speech a statement that government should be “out of the business of picking winners and losers.” Similarly, Bob Hall, a Republican candidate for Texas Senate District 2 who survived a tough primary battle against an incumbent who was viewed as less fiscally conservative, is on record as being highly skeptical of the TEF. In an interview with Breitbart Texas earlier this year, Hall denounced the TEF as “picking winners and losers in the private sector” and “crony capitalism,” and advocated returning to a zero-based budgeting approach focused on the “core functions” of government.

Michael Quinn Sullivan, President of Empower Texans, was another voice calling for the TEF to be phased out. [Disclosure: Sullivan is a Breitbart Texas contributor.] “Sadly, the auditor’s report confirms what we have long said about all such corporate handout programs,” Sullivan told Breitbart Texas. “Whatever fancy words and promises of ‘controls’ and ‘metrics’ placed around them, [they are] ultimately cash transfers to the politically connected. The tax dollars taken from the productive economy would have been far better spent with greater value return than spent by even the best-intentioned bureaucrats.”

“Government agencies simply shouldn’t function as venture capitalists with the taxpayers’ money,” Sullivan continued. “Far better economic development arises from low taxes, sensible regulations, and a common sense tort environment. Legislators should cancel these programs and let those dollars stay in the free market.”

Policy analysts at the Texas Public Policy Foundation, while declining to comment for this specific article, have questioned the efficacy of the TEF several times in the past. [Disclosure: the author of this article was previously employed by the Texas Public Policy Foundation.] For example, when Toyota Motor North America announced it was relocating its headquarters from California to Plano, Texas, with an expected 4,000 jobs, Perry’s office announced that Toyota would receive an “investment” of $40 million from the TEF. TPPF Policy Analyst Vance Ginn noted that Toyota had already decided to move from California when the TEF award was announced, characterizing it as a “secondary” and “short-term incentive” that was “ancillary to their marginal analysis.” 

In an op-ed for the Austin American-Statesman prior to the last legislative session, Bill Peacock, the Director of TPPF’s Center for Economic Freedom and Vice President of Research, challenged the necessity of a long list of subsidy programs provided by the Texas government, including the TEF.  “Eliminating these [programs] would put hundreds of millions of dollars back into taxpayers’ pockets and reduce government disruption of numerous markets,” wrote Peacock. Peacock testified earlier this year before the Texas House Select Committee on Economic Development Incentives, telling the committee, “Texas should reduce or eliminate current economic development programs while restraining growth in overall government spending and regulation. This is the path toward expanding the prosperity of all Texans.” 

JoAnn Fleming, Executive Director of Grassroots America, was outraged at the findings of the TEF audit, telling Breitbart Texas that it showed that “the audit makes clear what we knew all along — cronyism is alive and well in the state capitol.”

“If there’s anything taxpayers are completely fed up with, it’s the fact that special interests are allowed to play by a different set of rules than the rest of us,” said Fleming. “In many cases, the governor’s office relied on ‘self-reported information’ submitted by those hoping to get the cash awards. That’s like asking a fox watching a hen house how many chickens he plans to have for dinner next week!”

“Even worse,” Fleming continued, “we now know that certain special interests weren’t even required to submit formal applications for the money and weren’t required to create jobs in exchange for accepting the funds. It’s a disgusting and disappointing set of revelations.”

Similarly, Dale Huls, board member of the Clear Lake TEA Party questioned how the TEF complied with conservative principles. “How is doling out over $500 Million to 115 businesses a conservative function of government?” he asked. “The tea party folk do not have to be accountants or auditors to recognize ‘crony capitalism’ when we see it!”

Currently, Texas ranks seventh in the nation in handing out economic incentive subsidies, and the TEF is not the only such fund that has had its validity challenged. A recent report by the San Antonio Express-News showed that the Major Events Trust Fund awarded $250 million to bring Formula One racing to Austin, despite significant noncompliance with the application procedures — to wit, never actually filing a properly qualifying application for the funds.

When asked for a comment, Perry’s press secretary Lucy Nashed sent Breitbart Texas the following statement:

“The Texas Enterprise Fund is a critical deal-closing tool that has helped attract businesses to Texas that have in turn created thousands of jobs and billions of dollars in capital investment, and the Legislature has continued to recognize its value by reauthorizing it every session since it was created. This audit confirms that funds awarded through the program have been allocated in accordance with state law. Administrative processes and procedures are regularly reviewed and updated as necessary to ensure effective, efficient and responsible distribution and oversight of all TEF awards.”

Breitbart Texas will continue to follow this story as developments occur.

Follow Sarah Rumpf on Twitter at @rumpfshaker.


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