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When Firms Missed Job Goals, Perry Repeatedly Relaxed Rules

A state audit found the governor's office amended Texas Enterprise Fund awards given to private firms 36 times between 2003 and 2013, often in an effort to reduce the penalties the firms had to pay for falling short of job creation goals.

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Since 2003, Gov. Rick Perry’s Texas Enterprise Fund has given out more than $500 million to private firms in exchange for a promise to create jobs in Texas.

Yet in more than a dozen instances, the governor’s office amended awards to relax the number of jobs they were expected to produce or delaying the deadlines. While both the governor's office and the companies point to unforeseen forces like the recession for upending their plans, critics argue the amendments show a pattern of Perry's office being far too accommodating to companies receiving public tax dollars.

“This is a tiny, handpicked, elite group, and if you’re getting that kind of extraordinary treatment, it seems to me you should live up to the terms of the contract,” said Andrew Wheat, research director for Texans for Public Justice, a liberal watchdog group that has been a longtime Enterprise Fund critic. “Why is it that this little elite group of companies has the governor bending over backwards to accommodate them?”

The governor’s office defended the amendments as a prudent response to changing business climates.

“The goal of the [Texas Enterprise Fund] is to spur long-term job creation,” Perry spokeswoman Lucy Nashed said. “In the long term, that goal is achieved by allowing companies to restructure the terms of their contracts if an unexpected obstacle comes up, while still continuing to create jobs down the line.”

Since the release of a scathing state audit three weeks ago, the 11-year-old Enterprise Fund has drawn fresh attention and become an issue in some elections. Much of the criticism has focused on $172 million of taxpayer money doled out to firms that didn’t have to apply for it. Those cases developed entirely from the project’s first three years, before the Legislature beefed up the fund’s oversight, including requiring formal applications.

Yet the amending of awards has been a constant feature of the Enterprise Fund's administration over the last decade. The state audit found 36 amendments to 30 awards between 2003 and 2013.

Nashed said state policy is to not amend a company’s award contract unless the company is in “good standing,” which means the company has met its job targets until that point or has paid penalties for instances in which it fell short.

For some of the companies that drew amendments to Enterprise Fund award agreements, the worldwide recession of 2008 rendered their original expansion plans as overly optimistic.

In 2005, chemical manufacturer Huntsman International received $2.75 million from the Enterprise Fund to build a research and development campus in The Woodlands and create 326 jobs. Five years later, the governor’s office amended the award agreement, cutting the jobs required to 285, pushing back the job creation deadline and cutting the penalty for missing those targets.

Huntsman ultimately created more than 400 jobs, well above its original target, but paid $106,811 in penalties for missing deadlines, according to the state audit. If not for the amendment to the original agreement, the company would have owed the state more for taking longer than originally expected to create jobs.

“Huntsman's award was amended because effects of the recession caused us to miss a time-specific job growth target,” Huntsman spokeswoman Anne Knisely said. “Consequently, we needed to reset the expectation, which we have far exceeded to date.”

The outcome was more bleak for Rockwell Collins, an aerospace and defense firm that was awarded $1.67 million from the Enterprise Fund in November 2007 to expand its Richardson facility and create “334 new, high-paying jobs,” according to Perry’s announcement at the time. A year later, the agreement had been amended twice. The changes included cutting the award in half to $839,136 and the job requirement by two-thirds to 105 jobs, according to the audit.

Ultimately, Rockwell Collins created zero new jobs but repaid only $616,949 of its Enterprise Fund award, according to information posted on the governor's office website.

Rockwell Collins spokeswoman Cindy Dietz said “the recession, as well as significant declines in defense spending” upended the company’s plans to expand its Richardson facility.

“We have since negotiated a settlement with the state, repaid all the funds and no longer have an obligation to the Texas Enterprise Fund,” Dietz said.

The final outcome of one of the Enterprise Fund's largest awards is murkier and will probably remain so for years. In 2005, Perry announced he was giving $50 million in TEF funds to create the Texas Institute for Genomic Medicine, a public-private partnership between the Texas A&M University System and Lexicon Genetics, a biotech company based in The Woodlands. The bulk of the award, $35 million, went to Lexicon to provide two copies of its mouse cell line library to the institute.

Perry predicted the grant would lead to existing biotech firms in Texas expanding as well as the creation of start-ups. The institute was supposed to create 5,000 jobs, some of them directly by Lexicon, others indirectly in fields like biotechnology that would benefit from the institute’s success.

“By investing taxpayer dollars in high-tech research and development projects like [the Texas Institute for Genomic Medicine], Texas stands to reap economic and scientific benefits far greater than the money spent up front,” Perry said at the time.

Things were rocky from the start. Lexicon missed its job target for 2006 and paid a $16,905 penalty. Then in 2007, Lexicon Genetics changed its name to Lexicon Pharmaceuticals, reflecting a change in the company’s focus away from the work that defined the institute.

Originally, A&M and Lexicon were expected to quickly create jobs. But in 2008, the governor’s office approved an amendment drafted by Lexicon that shifted the job creation responsibility entirely to A&M through 2015, according to the audit. Concerns about the wisdom of the award, as well as donations by Lexicon's major investors to Perry's campaign fund, made the project a flashpoint in the 2010 elections

Nine years later, determining the number of jobs created by the Texas Institute for Genomic Medicine remains a challenge. According to the state audit, the $50 million investment has yielded zero jobs. But both A&M and Perry’s office disputed that assessment. A&M has claimed that the institute has created more than 15,000 indirect jobs. Nashed said it’s too early to determine the impact of the $50 million project. She pointed to the Enterprise Fund award, which is unusual in that it does not require the governor’s office to determine if the appropriate number of jobs was created until the final year of the contract, which for Lexicon is 2018 and for A&M is 2027.

“It’s premature to gauge either entity’s compliance,” Nashed said.

Ben Morpurgo, executive director of the Texas Institute for Genomic Medicine, took issue with a characterization of the project as anything but a success. The institute now sells its genetically altered mice to researchers around the world.

“We have created a powerful and constantly growing repository of cryopreserved mice,” Morpurgo said. “We have created a business model that actually works, and it works well. We see that by the amount of orders that we have.”

Yet Morpurgo said things have not gone as well regarding the institute's relationship with Lexicon Pharmaceuticals.

“Now they’re out of the mouse business so there’s no relationship unfortunately because we don’t know who to contact,” Morpurgo said.

Repeated calls to Lexicon Pharmaceuticals were not returned. 

Disclosure: The Texas A&M University System is a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.

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