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Enterprise Fund Criticism Overblown, Committee Told

A representative from Gov. Rick Perry's office praised a critical state audit of the Texas Enterprise Fund at a hearing Wednesday, but warned against lawmakers restricting how the next governor can use the fund to draw business to Texas.

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Criticism of the Texas Enterprise Fund has been overblown in the wake of a scathing audit, and lawmakers should take care not to respond with restrictions that will hamper its flexibility, a member of Gov. Rick Perry’s office told a Texas House committee Wednesday.

“We want to maintain a very flexible program,” Jonathan Taylor, director of the governor's Economic Development and Tourism Division, told the Select Committee on Economic Development Incentives. “Simply, we want to be able to change those rules to fit the market.”

It was the committee’s first hearing since the release of a state audit of the 11-year-old fund found that the governor's office had doled out more than $200 million in taxpayer funds to firms that either did not submit formal applications, did not promise to directly create a specific number of jobs, or both.

Since its creation in 2003, the Enterprise Fund has given more than $500 million to companies that collectively promised to create thousands of jobs. Perry has repeatedly touted the program as key to the state’s strong economic performance. He said last month that it makes sense for the Legislature to look at the value of state incentive programs when it meets next year.

During the 2013 legislative session, state Sen. Wendy Davis — now the Democratic nominee for governor — successfully sponsored legislation requiring a review of the fund's administration. The review consumed 8,500 hours over 12 months, said Audrey O’Neill of the state auditor’s office.

At Wednesday's hearing, committee members spent more than an hour questioning witnesses from the auditor’s office and Taylor about the audit’s most publicized allegation: that $172 million of taxpayer money was doled out to firms that didn’t have to apply for it. Those awards came during the project’s first three years, before the Legislature beefed up the fund’s oversight, including requiring formal applications.

The audit overstated the problem, Taylor said, because standardized applications weren't required at the time those companies received awards. He said auditors should have made a distinction between a “standardized template application” and documents that effectively functioned like applications, such as a letter from the applicant requesting the funding, he said.

“We did go round and round with the state auditor on what a formal application means,” Taylor said.

But when auditors looked into the awards where no formal applications were submitted, the governor’s office did not provide documents that would be considered proper substitutes, O’Neill and John Young, also with the auditor’s office, told the committee. 

“There’s substantive omissions in the letters that really did not constitute an application,” Young said. “It really does not qualify as an application.”

State Rep. Jason Villalba, R-Dallas, criticized the auditor’s office for not putting more context in its report, blaming its conclusions about formal applications for spawning “awful articles” that confused the public.

“It boggles my mind that something could get out in the public like this and really create a problem for a wonderful program like this,” Villalba said.

But state Rep. Poncho Nevárez, D-Eagle Pass, said the lack of formal applications was not an issue of semantics, no matter what defenders of the governor’s office claimed.

“You can’t be a little pregnant,” Nevarez said. “You’re either all in or you’re not.”

Taylor noted that he agreed with most of the audit’s recommendations and applauded how it was conducted.

“As far as the thoroughness of the audit, I think we can all agree it was fantastic,” Taylor said. “No stones unturned.”

Yet, he made clear that the governor’s office strongly disagreed with the audit’s recommendation an “objective scoring tool” be developed to help determine whether a company should receive an Enterprise Fund award.

Taylor said he needs flexibility so he can offer a company “as little money as I have to to get them here.” That may mean two companies promising to create the same number of jobs might be offered different amounts of money. 

Taylor pointed to Toyota, which received $40 million to move its headquarters to Texas from California even though North Carolina offered more than $100 million.

Without flexibility, Taylor said, companies would be able to “check off a box” and know in advance how much money they could expect to receive. He predicted that such a set-up would turn the Enterprise Fund into a “corporate subsidy” rather than a “competitive incentive process.”

Lawmakers on the committee expressed skepticism at Taylor’s argument.

“I’m not convinced those would tie your hands and make the fund inflexible,” said state Rep. Angie Chen Button, R-Richardson, the committee’s chairwoman. “We don’t intend to micro-mange anything.”

State Rep. René Oliveira, D-Brownsville, said that lawmakers need to find a way to provide more transparency to the Enterprise Fund’s decision-making.

“If you want the kind of flexibility we think you want,” Olivera said to Taylor, “then you have government by fiat."

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