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Analysis: Controversy on Both Sides of an Election

Thanks to a tough examination from the State Auditor's Office, the Texas Enterprise Fund has become an election issue. But it was an issue before now, and will be an issue during the next legislative session.

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The Texas Enterprise Fund was in trouble for a long time before it was the centerpiece of a harsh state audit.

It is an economic development fund under the control of Gov. Rick Perry, designed to close deals that lure businesses and industries to Texas.

The State Auditor’s report was a scorcher, saying money from the fund was granted with little or no documentation in some cases, that Perry’s office and other state officials did not adequately monitor the beneficiaries to see that they were delivering what they had promised, and that financial and management controls were spotty, especially when the program was getting started.

This is a hot political subject right now. The auditor released the report just weeks before Texans start voting for their next set of statewide officeholders.

The direct damage is to the sitting governor, who is not on the ballot this year. But among the front-runners, Democratic state Sen. Wendy Davis wrote the legislation that sparked the examination of the fund, and Republican Attorney General Greg Abbott was arguably supposed to be one of its watchdogs. One of those two candidates will soon be in charge of this and similar economic development accounts.

In a debate last week, Abbott and Davis wrangled about the fund. He repeated doubts about the state “choosing winners and losers”; she expressed support for such efforts so long as the controls are tight and the politics are kept out.

That is the rub: Economic development officials all over the country use incentive funds to attract and retain job-making enterprises in their jurisdictions. You can like the business argument or not, but it is true that those who offer financial incentives often have an advantage over those who do not.

The political argument cuts both ways. A governor with a deal fund or two or three can generate a lot of economic development news, attracting more attention to the state and arguably bringing in business that would otherwise land elsewhere. For Perry, that is a keystone in the “Texas miracle” that has the state’s economy outperforming its peers over the past decade.

Doing a good job, as they say, is the best politics. The political negative is contained in the phrase “crony capitalism” — the idea that the programs allow politicians to dish out public funds to reward their political supporters.

“They are too concentrated, and the power is in the hands of too small a group of people,” state Sen. Kevin Eltife, R-Tyler, said of the programs. “They are way too political.”

Eltife, a former mayor of Tyler, does believe incentive funds can work at the local level, but said the state can do other things more effectively to attract business, like getting rid of or lowering the unpopular tax on business gross receipts. “I think the funds ought to be eliminated,” he said. “Let’s create incentives for every business in the state.”

During Perry’s long tenure as governor, lawmakers have attempted several times to get rid of the incentive funds. And they are officially reconsidering the state’s economic development programs in anticipation of the January 2015 legislative session.

The House, for instance, is looking — after more than a decade of running the programs — to see if the incentives are producing results. And they are looking at economic development operations in the governor’s office itself with an eye toward how those executive efforts dovetail with local and regional efforts around the state. Some, like state Rep. Cecil Bell Jr., R-Magnolia, say the state has to protect taxpayers but should keep incentive funds to compete for jobs.

But the audit could be the nail in the coffin. Democrats have objected to putting a stack of blank checks in a Republican governor’s pocket. Conservatives have objected to putting blank checks into anyone’s pocket. After several years of prosperity, many seem convinced that Texas is attractive enough without the government enticements.

Kathie Glass, the Libertarian candidate for governor, said she would not even travel the country to sell businesses on the state, much less use incentives. “If people want to come into Texas and do business, “they know where to find us.” she said. “They shouldn’t have to be paid to come here.”

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State government 2014 elections Governor's Office Greg Abbott Texas Legislature Wendy Davis