AUSTIN, Texas — The Texas State Auditor’s Office has completed the first independent audit of the Texas Enterprise Fund (TEF), a business fund known to be touted by Texas Governor Rick Perry. The results of the audit confirm many of the questions raised by critics of the TEF, which is supposed to be used to create jobs in Texas by attracting new business to the state or helping existing Texas-based entities expand. Perry is known for crediting TEF for bringing hundreds of thousands of jobs to the Lone Star State. The recent audit, however, casts doubt on both the oversight measures put in place and the effectiveness of the expenditures themselves.
The TEF was originally created by legislation during the 2003 legislative session with an initial investment of nearly $300 million, and over the years has doled out over half a billion dollars to 115 business entities since its formation.
TEF’s harshest critics reportedly see it as a “treasure trove” for Perry to give significant funding to “favored projects,” according to the Dallas Morning News.
The TEF is currently facing sharp judgement from all sides of the political spectrum. This specific audit was initiated by legislation authored by State Senator Wendy Davis, now the Democratic nominee for Governor.
On the right, Republican gubernatorial candidate and Attorney General Greg Abbott has not shared Perry’s enthusiasm for the program. Abbott has said on multiple occasions that the TEF process needs to be re-evaluated. He said in his initial stump speech that he wants to get government “out of the business of picking winners and losers.” A number of legislators and candidates for legislative offices have even suggested that the program should be phased out entirely. Tea party and conservative grassroots groups across the state have slammed the TEF as “crony capitalism.”
As Morning News reported, TEF grants during the first years of the program’s existence were especially prone to a complete lack of oversight. Some of the first grants awarded were given to businesses and universities even though they never submitted formal applications, and there was little to no compliance with the requirement that the projects show how they were creating jobs in Texas — the mandate that was at the very heart of the original legislative authorization for the program. In many cases, the only real attempt at oversight seems to be asking the companies to self-report jobs they had created or capital they had invested in Texas, but with virtually no documentation submitted to support those claims.
In response to the auditors, aides to Perry have admitted that the program lacked sufficient oversight measures when it was first implemented, but said that they have since added better safeguards for awarding the funds and overseeing how the funds are used. The “process and policies of the TEF have evolved” and it has now adopted “a more standard operating procedure,” Perry aides told the auditor.
Among the problems identified by the audit, $222 million was granted to entities that never submitted formal applications, including Sematech ($40 million), University of Texas at Dallas ($50 million), Cabela’s ($400,000), Triumph Aerostructures ($35 million) and UT Health Science Center and M.D. Anderson Cancer Center ($25 million). Out of 81 projects receiving TEF funds that the audit reviewed, auditors could not identify how many jobs were created in 40 of them. The TEF’s own policies required detailed accounting records, including hire dates, job titles, and compensation and benefits, but repeatedly, entities were allowed to get by with submitting only bare-bones summaries, or in some cases, no proof at all of jobs created.
The TEF has been able to recoup some funds — about $14 million — in what’s called a “clawback” from companies whose noncompliance was especially egregious, and 23 companies had their contracts terminated, but the audit revealed that about they should have collected an additional $3.8 million in clawback funds from these companies, and more companies were probably subject to having their funds clawed back as well.
A copy of the Audit Report on The Texas Enterprise Fund at the Office of the Governor is embedded below.