Texas is consistently ranked first or among the first every year by various organizations as one of the most business friendly states. It continues to gain new residents and businesses because of its no personal income tax, low taxes overall and less regulatory burdens compared to other states.
But it could do a lot better, reform advocates note, by getting rid of the Texas Enterprise Fund (TEF) and increasing business tax cuts.
What former Gov. Rick Perry used to refer as a “deal closer” to entice businesses to relocate to Texas, the watchdog group Texans For Fiscal Responsibility argues is “crony corporate welfare” that doesn’t benefit taxpayers, and the Texas Public Policy Foundation argues it should be eliminated.
Since 2003, when the TEF was created, the agency has distributed more than $600 million in aggregate grants to corporations. Awards vary in size, from Maverick Arms receiving a $75,000 grant in 2014 to the Professional Golfers’ Association of America being offered $1.5 million in 2018.
TEF asserts that taxpayer-funded grants enable Texas to level the playing field in a targeted approach, adding little risk to taxpayers. As of April 2020, TEF grants resulted in 103,202 committed direct jobs and $33.5 billion in committed capital investment.
Also, as of April 2020, the TEF allocated $678.5 million and disbursed $522.5 million in grants, and recovered just under $31 million in liquidated damages (clawbacks) and nearly $49 million in other repayments. The available balance for fiscal year 2020-21 was $187,169,519.
But these types of funds, the Better Cities Project argues, actually impose additional costs on cities “in the form of reduced revenues and increased liabilities.”
John C. Mozena, president of the Center for Economic Accountability, said that these types of grants “make local economies less free, less fair, less inclusive, less resilient, less entrepreneurial, less innovative and more biased in favor of large incumbent businesses.
“Academic research and real-world experience demonstrate that economic development incentives do not create any more jobs or economic growth than would have happened otherwise,” Mozena added.
In 2014, the Texas Auditor’s Office first raised concerns about TEF’s management and the standards being used to allocate taxpayer money, including some early recipients receiving grants without ever submitting formal applications.
In 2019, a report published by researchers from the University of Austin found that a number of companies amended their TEF agreements “usually committing to fewer jobs created, or their hiring schedule, or how headcount should be computed (with some renegotiated deals allowing firms to count employees in subsidiaries that weren’t party to original TEF-subsidized project). In many cases, such contract amendments are made right before a company would otherwise be subject to clawback provisions. For example, in one case an incentive agreement was changed to reduce the number of jobs required one day before an employment deadline.”
The authors noted that grant recipients were also resistant to provide information through public records requests, especially after a contract had been amended.
“This preliminary finding raises important transparency issues regarding the objective benefits of the program,” the Texas Public Policy Foundation notes in its analysis of the TEF.
“Business incentives supporters argue that since the race is rigged, Texas must follow suit if it is to compete with other states. But when there is no upper limit, when each subsidy justifies the next, shouldn’t lawmakers take a step back? The interstate subsidy race represents an ever-spiraling stairway to more government intervention in the market,” TPPF adds.
The foundation argues that the TEF should be eliminated and has proposed an alternative solution called the Texas Model.
The Taxpayers Protection Alliance also has criticized corporate welfare programs offered by county officials that offset taxes for billion-dollar corporations while increasing taxes on residents.
Last year, after Travis County officials awarded Tesla $15 million in property tax breaks and the local school district board awarded it $47 million in property tax abatements, the alliance said the deal was “dubious” and only benefited “the connected few,” while property owners’ taxes skyrocketed.
The problem, the Better Cities Project notes, is that no meaningful measurement exists to quantify incentives to economic well-being.