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Democrats call for Justice Dept. probe into state enterprise fund


UPDATE 5:25 pm: Jerry Strickland, a spokesman for Attorney General’s Office, said the lawmakers appear to be engaged in a partisan effort. He said they have failed to recognize that the attorney general has ruled 40 times in the past decade that documents from the Texas Enterprise Fund must be made public.

“Yet again, the Texas Democratic delegation is more interested in political grandstanding than correctly understanding the law or the facts surrounding an issue,” Strickland said.

Regarding the Vought documents, Strickland pointed out that the attorney general reversed it’s December 2004 decision withholding records, after lawyers for The News pointed out that Vought already had received the contract and funding. The earlier ruling had been based on the Governor’s Office assertion that the contract was still pending and competitive.

The Vought information was ordered released in April 2005.

“The Texas Democratic delegation should spend more time understanding the facts of this issue before asking for investigations into documents that have repeatedly been released to the media and the general public,” Strickland said.

ORIGINAL POST 3:30 pm: Six U.S. representatives are calling on Attorney General Eric Holder to investigate the questionable dealings of the state’s job-closing incentive fund.

Part of the request, made by Texas Democrats, is aimed at Texas Attorney General Greg Abbott, who is now the Republican frontrunner in the governor’s race.

The Democrats are asking for the Justice Department to look into whether the Texas Enterprise Fund’s failure to follow guidelines in state law might warrant criminal charges.

They also want an examination of Abbott’s decision in 2004 to deny a public information request by The Dallas Morning News that would have shed light on problems, including the fact that some companies were receiving money without even filing an application.

The Texas Enterprise Fund was created in 2003 as a business incentive, largely administered by Gov. Rick Perry, specifically to create jobs and foster capital investments.

But an independent audit released two weeks ago showed that the fund handed out $222 million to a handful of companies and universities that never filed an application and that there was little criteria for winning an award and little state monitoring once a contract was signed.

Vought Aircraft was among seven entities that never filled out an application. It received $35 million, some of which eventually had to be paid back after the company failing to meet job creation benchmarks.

Another recipient that never filed an application was the semiconductor company Sematech, receiving $40 million. Sematech moved to New York shortly after spending the incentive money.

The News asked for the applications submitted by those companies from the governor’s office in 2004. The governor’s office appealed to the attorney general, saying it shouldn’t have to release the information because it included proprietary information from the companies that could help their competitors if made public.

Instead of saying there were no applications, the attorney general issued an opinion saying the information produced by the companies was proprietary and didn’t need to be released.

It’s that action that the congressional members want independently assessed, saying it is, “a serious matter we feel deserves immediate and independent investigation by your office.”

“We also believe that federal intervention is warranted because of the possible unethical and illegal actions by the Texas Enterprise Fund (“TEF”) and the Office of the Attorney General (OAG),” the letter stated.

It did not specify what federal laws might have been violated by the state actions. In addition, federal money was not part of the awards; all of the money provided to the companies came from state taxpayers.

The letter was signed by Marc Veasey of Fort Worth, Sheila Jackson Lee, Al Green and Gene Green of Houston, as well as Ruben Hinojosa of Mercedes and Joaquin Castro of San Antonio.

Ag Eric Holder – Tef Oag Letter (1)

Audit: Perry’s business fund gave millions to firms, universities that never sent an application

Governor Rick Perry at the Americans for Prosperity conference at the Omni Hotel in Dallas earlier this summer. (Vernon Bryant/The Dallas Morning News)

AUSTIN – The first independent audit of the Texas Enterprise Fund shows that the governor’s job-creating fund awarded $222 million — almost half the money granted — to entities that never submitted applications or specific promises to create jobs.

The 98-page report by the state auditor, released to lawmakers Thursday, paints a picture of a $500 million fund that, at least in its early years, gave away taxpayer money without a set evaluation process or a consistent criteria.

Early grants were awarded to companies or universities without their submitting formal applications, and some large projects were never required to create a single job — although that is the legislative mandate by which the fund was started.

Numerous contracts showed inconsistent requirements, weak compliance monitoring and led the auditor to state that it cannot verify many of the jobs or investments that were credited to the program.

Critics have complained that the Texas Enterprise Fund was a loosely controlled treasure trove for Perry to dole out state money to favored projects. The audit did little to dispel that.

In answer to auditors, Perry’s office acknowledged that weak controls were in place when the fund first began in 2003. But the fund has now implemented recommendations made by the auditors, aides said.

The “process and policies of the TEF have evolved” and it has now adopted “a more standard operating procedure,” Perry aides told the auditor.

The fund was created in 2003 and placed under the auspices of the governor to entice businesses to relocate or expand in Texas. Lawmakers specified the awards were to target companies that could promise job expansion and capital investment and that were also being pursued by other states.

In the past decade, the fund has given grants of $505 million to 115 entities, and is credited with creating 48,317 jobs.

But the government role in picking “winners and losers” has come under fire. The audit was ordered under legislation authored by Sen. Wendy Davis, now the Democratic nominee for governor. The Republican candidate, Attorney General Greg Abbott, has also said the incentive programs need to be re-evaluated.

In addition, lawmakers in advance of next year’s session are studying whether to keep incentive programs and, if so, how to structure them.

A Perry spokesman defended the fund as an important factor in Texas’ economic growth.

“The Legislature has continued to recognize its value by reauthorizing it every session since it was created,” said spokesman Felix Browne. “This audit confirms that funds awarded through the program have been allocated in accordance with state law. Administrative processes and procedures are regularly reviewed and updated as necessary to ensure effective, efficient and responsible distribution and oversight of all TEF awards.”

The audit pointed to a process that initially lacked written standards for assessing which business proposals should merit funding. Many of the entities that received large and early grants didn’t even fill out a formal application to receive the funds.

In addition, auditors could not “verify applicants’ assertions” that there were competitors for the projects outside of Texas.

The audit listed Sematech ($40 million) and the University of Texas at Dallas ($50 million in a deal requested by Dallas-based Texas Instruments) as having received large grants without filling out an application or promising new jobs.

In the UTD deal, Texas Instruments asked that the enterprise fund money be directed to the university to strengthen its engineering department. The company agreed at the time to invest $300 million to create a microchip plant in Richardson but did not pledge a specific number of jobs there.

Cabela’s ($400,000), Triumph Aerostructures ($35 million) and UT Health Science Center and M.D. Anderson Cancer Center ($25 million) also never submitted a formal application.

Once contracts were signed, most recipients were required to create jobs or invest capital, but many of companies were allowed to self-report on their compliance without submitting documents to verify their assertions, the audit said.

In half of the contracts reviewed — 40 of 81 projects — auditors couldn’t verify how many jobs had been created. In some cases, recipients provided only a summary of new jobs without being asked to show pay records.

The enterprise fund accepted the summaries, despite its own policies that require a detailed accounting, including job titles, hire dates and compensation.

The audit states that because of the weak documentation and monitoring, “it was not always possible to determine whether award decisions were supported, or to determine the number of jobs that recipients of the awards from the Texas Enterprise Fund created.”

The fund has recouped $14 million in “clawbacks” from companies that failed to meet their contract obligations, and another 23 recipients had their contracts terminated by the state.

But other companies could be in noncompliance with their contracts, said auditor, pointing to the lack of verification made it difficult to identify other shortcomings or failure to meet goals.

Among other points:

When contracts were amended — such as during the economic downturn to reduce the hiring goals — the fund was required by law to inform the lieutenant governor and House speaker, but it sometimes lacked documents to show those offices had been notified.

While the state terminated 23 contracts, resulting in $19 million being paid back, auditors found the state should have collected another $3.8 million.

The Legislature required a written report on the fund every two years to monitor its success. But the auditor found those reports often omitted information and appeared to have skewed some numbers to place it in a more favorable light.

For instance, the 2013 report showed that the fund had 66,000 jobs in contracts, instead of saying that companies actually had reported creating 48,000 jobs. It omitted the amount of capital investment, median wages of jobs created and whether those jobs carried health benefits.

In response, the governor’s office said that it used professional judgment in assessing the required level of monitoring, which was thorough enough to hit noncompliant companies with 103 “clawback” penalties.

It said early awards were determined though informal procedures that were “not fully documented,” but that also were refined as the incentive program matured. The procedures allowed flexibility in dealing with a wide range of different types of investments, the governor’s office said.

State Auditor's Report on Texas Enterprise Fund

Patrick says he, not Van de Putte, is darling of Texas business

Dan Patrick, shown speaking to the Texas GOP convention in June, said Friday he has the backing of "virtually every business association of any size" in Texas. (Rex C. Curry/Special contributor)

Sen. Dan Patrick says business is in his corner. Responding to news reports of possible inroads made by his Democratic opponent, Sen. Leticia Van de Putte, Patrick on Friday held a rare press conference to dismiss the notion that any significant chunk of Texas business prefers Van de Putte.

“In this race for lieutenant governor, there’s not a debate, there’s not an argument, there’s not a discussion on who the business community is supporting … and it’s because of our pro-business record,” said Patrick, the Republican nominee for the state’s No. 2 elective office.

Patrick, a tea party-backed insurgent, toppled establishment Republican Lt. Gov. David Dewhurst in a May runoff.

He appeared at a news conference in Austin flanked by leaders of general business associations and groups representing specific industry sectors, such as manufacturers, builders, refiners and bankers.

Chief among the prizes he displayed was Will Newton, director of the state chapter of the National Federation of Independent Business, a small business group.

In a story last month, online political news outlet Texas Tribune paraphrased Newton as saying there was no telling which of the two lieutenant governor candidates his 24,000 members would endorse because both had worked on its pet bills in the past.

On Friday, Newton said his membership “overwhelmingly asked us to endorse Sen. Patrick.” He cited the Houston lawmaker’s support for exempting most small businesses from the state’s business-franchise or “margins” tax and his advocacy of property-tax relief.

Patrick added his own partisan spin, casting Texas’ strong economy as the product of Republican leaders’ “conservative plan” on taxes, business regulations and lawsuit limits.

On Tuesday, former General Motors chief executive Ed Whitacre Jr. co-hosted a fundraiser for Democrat Leticia Van de Putte. (2010 photo by Bill Pugliano/Getty Images)

He noted that Van de Putte voted against a 2003 constitutional amendment about medical-malpractice suits. It capped at $250,000 the amount any doctor, hospital or other care provider must pay for non-economic damages, such as pain and suffering.

Van de Putte “would repeal it if she could,” Patrick said of the business-backed amendment.

Van de Putte spokesman Emmanuel Garcia countered that Patrick has called for repeal of Gov. Rick Perry’s deal-closing funds, the Texas Enterprise Fund and Emerging Technology Fund. Van de Putte supports preserving the funds, which Garcia said helped bring a Toyota pickup-truck factory to San Antonio, her hometown, and a rocket-launching facility that Space X plans to build in South Texas.

Garcia also noted that two high-profile Texas business executives — former General Motors chief executive Ed Whitacre Jr. and road builder H.B. Zachry Jr. — co-hosted a fundraiser for Van de Putte in San Antonio on Tuesday. Executives are worried about the quality of future workers, and they frown on Patrick’s support of more than $5 billion in budget cuts to public schools approved in 2011, Garcia said.

“If you care about business, then you care about the workforce — and that means you support neighborhood schools,” he said.

Patrick, though, said Republican leaders are providing a “bright future” for Texans worried about jobs and their children’s prospects. He noted that last year, as chairman of the Senate Education Committee, he successfully steered to passage a compromise bill that overhauled school testing and high school graduation requirements. The measure stresses preparation for careers as well as college, Patrick said.

“The ‘Big W,’ as I call it — the workforce of the future,” he said.

Patrick said that, contrary to published reports such as this one, which said he has taken a “stealth approach” to the fall campaign, he’s been on an intensive listening tour.

“Over the last several months, I’ve been the hardest working guy on the campaign trail,” he said, according to an audio tape of his Friday appearance, which the Houston Chronicle posted online here.

Since winning the runoff in May, though, Patrick has not run a TV ad. Until Friday, he had not held a press conference. And until reporters received word of the press conference late Thursday, his campaign had alerted the press about only one other Patrick appearance — a July 16 speech to a state gathering of the Future Farmers of America.

Senate committee votes for audit of Texas Enterprise Fund

A job creation fund formed at the urging of Gov. Rick Perry would face a state audit under legislation the Senate Economic Development Committee unanimously approved Wednesday.

Sen. Wendy Davis, D-Fort Worth, said the Texas Enterprise Fund audit called for in her Senate Bill 1390 is in response to questions about the accountability of the fund. Nearly $500 million in taxpayer money has been spent since the fund’s creation in 2003 but it has yet to face a comprehensive state audit, Davis said.

Perry uses the fund as a deal-closing account to lure companies and jobs to Texas. Companies receive monetary grants and must meet job targets by certain dates.

Davis’ proposal requires the state auditor to report back to the Legislature with findings by Jan. 1, 2015. The audit report will look at the grant approval process; contract compliance by grant recipients; grant agreements that have been amended to reduce job creation goals or extend time for a company to comply; and grant money returned to the state.

Davis said “it is critical that we put the fund under a microscope to ensure that every penny of these grants is being best used to attract good-paying jobs to Texas.” The bill now goes to the full Senate.

Rick Perry and top Texas officials collect millions from interests benefitting from taxpayer fund

Interests that have received millions from the state’s high-tech enterprise fund have delivered $3.6 million in campaign contributions to Gov. Rick Perry and the state’s other two top elected officials. A new study Texans for Public Justice, a non-profit group that tracks political donations, finds that Perry, Lt. Gov. David Dewhurst and House Speaker Joe Straus have each benefitted from those getting state grants from the Texas Enterprise Fund. Perry is the largest beneficiary – collecting $2 million since establishment of the taxpayer fund, which provides venture capital to select technology companies. Critics of the program – and of similar corporate and cancer-treatment subsidy funds — have raised questions about pay-to-play cronyism and the wisdom of the state picking winners and losers.

Perry has taken the lead in steering money to preferred companies. The governor, Dewhurst and Straus oversee the fund’s grant-awarding process. Perry’s biggest donor is Houston Texans owner Robert McNair, a major investor in Lexicon Pharmaceuticals. Lexicon is a partner with the Texas Institute of Genomic Medicine, which received $50 million from the enterprise fund in 2005. Other big Perry donors that have benefitted from enterprise-fund grants include Houston investor William McMinn, Mississippi chicken-processor Joe Sanderson and Houston businessman Gordon Cain. Perry spokesmen have said there’s no connection between the state grants and campaign contributions to the governor.

Dewhurst collected $1.3 million from the fund. His top enterprise-fund contributor is San Antonio businessman and school-voucher supporter James Leininger, who invested in the biotech firm Gradalis. Gradalis’ investors have given big to both Perry and Dewhurst. The tech fund gave Gradalis $1.75 million in 2009 and a year later awarded $3 million to a company in which Gradalis owned a 10 percent share. Another Gradalis investor, John McHale of Austin, has a long history of giving to President Obama and the Democratic Party. But McHale departed from his partisan giving to contribute $100,000 to Perry’s reelection race in 2010 and another $25,000 last year. House Speaker Straus collected the least amount of money from interests with ties to the fund – $233,000. The state has given $300 million to the fund since it’s inception during the Perry administration. The top three officeholders are all Republicans and the Texas Republican Party has received more than $1.6 million from those affiliated with the tech fund.

GOP leaders’ initial budgets would give no new money to Perry’s pet deal-closing funds

Gov. Rick Perry, shown speaking to reporters last week (Louis DeLuca/Staff photographer)

Updated at 12:55 p.m.: A spokesman says Gov. Rick Perry and his office will try to “move forward” the business-incentive programs, in consultation with legislators.

“Budgets as introduced are always a starting point and our office expects to have to make our case for important programs, just as other agencies have to make theirs,” said Josh Havens, Perry’s deputy press secretary. “Ultimately, the governor believes these incentive funds are important to our state’s economic strength and job creation prospects and we’ll work with lawmakers to see them move forward.”

Original item at 11:28 a.m.: Legislative leaders have proposed to give no new money for economic-development incentives over the next two years, effectively forcing Gov. Rick Perry to sell lawmakers on the programs, which are among his favorites.

A House official who briefed reporters Tuesday on the GOP leadership’s initial two-year budget plans said lawmakers question whether the Enterprise Fund, Emerging Technology Fund and film, TV and video-game incentives are delivering benefits as promised. In the Emerging Technology Fund in particular, the official said, House leaders want better accounting of which recipients of state money have gone bankrupt and which ones are thriving.

The tussle is hardly new. Last session, budget writers offered no new money to the deal-closing Enterprise Fund and the tech fund.

However, the scope of the questioning has grown wider. Last session, even amid making $12 billion of cuts to state programs, budget writers found $35 million for film, TV and video-game incentives. Not this time. Not so far. The Film Commission and the Texas Music Office would share $4.2 million in operations money but receive no grant funding under the House and Senate’s initial budgets.

On Monday, leaders announced they’re taking a similar approach — money just for current overhead, nothing for new grants — at the Cancer Prevention and Research Institute of Texas. The troubled agency will have to be revamped to regain lawmakers’ trust, said Lt. Gov. David Dewhurst; Senate Finance Committee Chairman Tommy Williams, R-The Woodlands; and House Appropriations Committee Chairman Jim Pitts, R-Waxahachie.

In a similar rebuff to Comptroller Susan Combs, who has championed a new Formula One race in Austin, the leaders inserted no new money for a Major Events fund. Last session, it received $35 million.

The enterprise and tech funds would be allowed to continue to draw down their “unexpended balances,” estimated at $7 million and $120 million respectively, the House official said.

“They can make their case for it,” the official said of Perry and Combs.

In a major difference between the two chambers’ initial budgets, the House also provides no money for standardized testing of public school students, while senators offer $98.4 million for the tests in 2014-2015.

The House is expected to eventually cough up money for a rejiggered accountability system in the schools, though it’s unclear what shape it will take, the official said.

Last week, Speaker Joe Straus, R-San Antonio, said he sees “near unanimity” in his chamber for a major re-do of the testing system. Straus said many teachers and parents complain the tests are taking too much time and pushing students to rote memorization, at the cost of broader comprehension of course subjects.