In July of 2013, Gov. Rick Perry announced that he had closed another deal. Chevron would build a 50-story tower in downtown Houston next to one of its existing office buildings. The $662 million capital investment was slated to create 1,752 high-paying jobs.
"The state is providing $12 million through the Texas Enterprise Fund to close the deal on this expansion and job creation," Perry said in a press release at the time.
A Chevron executive added: “our new office building underscores Chevron’s long-term commitment to Houston and Texas.”
Nearly three years later, 1600 Louisiana Street, where the 1.7 million square foot building was supposed to rise in the Houston skyline, remains a grassy lot. The company, it turns out, was not actually required to build its new tower in exchange for drawing state funds.
What's more, Chevron has announced layoffs of more than 1,500 workers in Houston over the past year, prompting questions about whether the petroleum giant employs fewer area workers than it did before Perry allowed it to tap taxpayer funds.
And yet Chevron remains in full compliance with its Enterprise Fund agreement with the state, according to Gov. Greg Abbott's office. A close examination of the 14-page contract reveals language so vague that the company does not legally have to deliver on much of what it promised publicly.
Texas has doled out more than half a billion dollars through the Texas Enterprise Fund since 2003, with dozens of firms agreeing to create jobs in Texas in exchange for a subsidy. The fund has long been championed by Perry as a way to reel in businesses that might otherwise land elsewhere. It drew close scrutiny two years ago, in the Republican’s final days in office, after an audit found the fund riddled with weak oversight. Critics honed in on the news that grants were awarded to companies that didn’t formally apply and that state agencies repeatedly failed to check whether companies were adhering to their contracts.
Yet some also expressed concern over vague or loose wording in contracts. Officials have since sought to overhaul the program. The State Auditor’s Office, in a recent report, said Abbott’s office has “fully implemented” its recommendations, with changes that included writing contracts that are, on average, twice as long, due in part to beefed-up clauses and more detailed definitions of key terms.
In the Chevron case, Abbott is left to honor an agreement crafted by his predecessor that was publicly tied to the construction of a new office building but doesn’t actually require the company to build anything at all, and may be awarding the company for adding jobs in Houston while simultaneously cutting other positions in the same city. His office declined to say whether the governor approves of such an agreement, among the largest Perry awarded through the fund.
“If any company does not fulfill its legal obligation to the state, the Office of the Governor will take appropriate actions to ensure Texas taxpayer dollars are recouped,” spokesman John Wittman said in an email.
So far, Chevron has received $3 million of the $12 million state-funded award, according to Abbott's office.
It’s not clear when — or if — the company will ever break ground on a new Houston tower.
“Chevron does not anticipate building a new office building in Houston in the near future,” spokesman Cameron Van Ast said in a statement. "Our commitment to Houston and Texas is unchanged: we expect to be a long-term partner to the city and state."
At first glance, the state's contract with Chevron might appear to ensure that the petroleum giant builds something in Houston. One provision says Texas could terminate the contract and require the company to repay the money with interest if Chevron “fails to invest and expand” its “facility” by the end of 2017.
But a closer look at that language shows that “invest and expand the facility” could include building a new tower, leasing more space in downtown Houston or “expanding the use of its existing owned office buildings.” In short: the definition is so broad that it could mean almost anything.
Although Chevron vowed to create high-paying jobs in Houston, the contract does not address how many total jobs the company must maintain in the city. Instead, Chevron must only keep its statewide workforce above 8,243, the amount of people it employed in Texas three years ago when the Enterprise Fund award was announced.
And while the contract does set some job creation quotas for Chevron, experts said those looked surprisingly loose. Enterprise Fund contracts usually include clawback provisions that empower the state to seek the return of funds if a company doesn't follow through on its end of the agreement. But the wording of the Chevron agreement provides so many ways for the company to meet its job creation goals, it may be able to do so even while cutting its Houston workforce, according to critics.
“No one has actually examined what it takes (if anything) to actually trigger the clawback provisions” wrote Dick Lavine, a fiscal analyst with the Center for Public Policy Priorities, a liberal, Austin-based think tank, in an email. “For instance, how can you keep enough Houston jobs to qualify for creating jobs, even though you actually have fewer Houston workers?”
Verifying whether Chevron is in compliance with the job creation targets in the contract is difficult. That's both because of the way the contract is written and because neither Chevron nor the state will release the most recent records related to the size of the company's workforce.
The contract sets cumulative job-creation targets for each year up until 2020 — 455 jobs by the end of 2015, for instance, and 612 by the end of 2016. To qualify, those jobs must pay above a certain amount and be based in Houston. Yet nothing in the contract requires the company to maintain those new jobs for any specific period of time.
If Chevron fails to meet a quota, it must pay back $1,610 for every missing job. But if it exceeds the target in any given year, it gets a credit to use toward its quota for the following year, even if the company eliminates those same jobs in the interim.
In the first two years of the agreement, Chevron, despite not building anything, exceeded the goals in its Enterprise Fund award contract, records from the governor’s office show. By the end of 2014, amid an oil drilling boom not seen in decades, it had earned 828 surplus credits that it could apply to slower years.
Crashing oil prices made 2015 one of those years. In August, Chevron announced 950 Houston layoffs.
Last year, Chevron shifted 100 jobs from San Ramon to Houston, according to media reports. Yet the company's recent layoffs were large enough that its Houston workforce may now be near or below what it was in 2013, the year Chevron launched its partnership with the state aimed at creating 1,752 jobs in the city.
Chevron somehow met its job target for the end of 2015, Abbott’s office said. It’s not clear how because his office would not immediately release records of its most recent annual state-mandated evaluation, completed early this year. The Texass Tribune requested the records nearly a month ago and is still awaiting an opinion from Attorney General Ken Paxton on whether they can be released.
Chevron declined to answer questions about precisely how many people it currently employs in Houston or statewide. In a statement, spokesman Van Ast said, “Even with the recent workforce reduction announcements, Chevron anticipates an overall net increase of jobs” since the grant.
But Wittman, the Abbott spokesman, confirmed that Chevron could still meet its job-creation quota even under a scenario in which it had fewer Houston workers now than it did before receiving the grant, as long as its statewide workforce stayed above the 8,243 threshold in the contract and the company kept enough high-paying positions in Houston to count toward jobs “created” by the subsidy. Wittman declined to confirm if that narrow scenario is how Chevron has remained in compliance of its Enterprise Fund award.
The Greater Houston Partnership, which signed onto the Chevron deal as an “authorized community representative,” said it was not concerned about Chevron’s progress — or lack thereof — on any upgrades downtown.
“We appreciate Chevron’s very substantial commitment to the Houston region and to its downtown campus,” Greater Houston Partnership President and CEO Bob Harvey said in a statement. “The Texas Enterprise Fund is a critical deal-closing tool to attract jobs and investment to Houston and to the State. The fund is transparent and performance-based, which is what taxpayers appropriately demand and what companies expect.”
But experts argue that the grant has not pushed Chevron to invest resources in Texas that it wouldn’t have poured in anyway. Instead, the volatile oil market is driving the company's decision.
“So much for incentives stimulating an economy that’s suffering,” said Greg LeRoy, executive director of Good Jobs First, a Washington D.C.-based group that studies tax incentives. “It’s doing none of that. It’s mirroring what’s occurring” in the market.
Disclosure: The Center for Public Policy Priorities is a corporate sponsor of The Texas Tribune. The Greater Houston Partnership was a corporate sponsor in 2011. A complete list of Tribune donors and sponsors can be viewed here.