Eliminate the Texas Enterprise Fund, Cut Taxes Instead

January 20, 2021
TFR Staff
Corporate Welfare, Property Tax

Compared to most states, Texas is among the most business friendly with no tax on personal income, fewer regulatory barriers relative to many of its neighbors, and an engaged and enterprising workforce.

However, the state could be even more business and taxpayer friendly if it halted its effort to be friendlier to a few, at the expense of the many, through the use of a crony corporate welfare program known as the Texas Enterprise Fund.

Created in 2003, the Texas Enterprise hands out cash to businesses that pledge to deliver significant numbers of jobs and significant capital investment in the Lone Star State. Referred to as a “deal closer” by former Gov. Rick Perry, the fund and its distributions have been cited by the state’s governors as necessary to enticing businesses to come to the Lone Star State, but is that really the case?

State records show over $500 million has been disbursed by the TEF in since its inception. Those projects range from $50 million to the Texas A&M University System and Lexicon Pharmaceuticals in 2005 to $1,015,560 to Jacobs Engineering in 2019.

Those disbursements, made according to an analytical model which factors in the potential direct and indirect jobs, capital investment, and timeframe of the project, ostensibly ensure Texans receive a return on the investment of these direct dollars.

And should things go awry, the state preserves the ability to clawback the cash provided to the business.

However, a 2014 report from the State Auditor’s Office raised numerous questions about the management of the TEF and the standards required to receive the taxpayer dollars. In fact, the report showed a number of early recipients never even submitted formal applications and yet received sizable grants of taxpayer money.

“It was not always possible to determine whether award decisions were supported, or to determine the number of jobs that recipients of awards from the Texas Enterprise Fund have created,” reads the report.

Though the Texas lawmakers pledged to reform, a later study shows continued problems with the TEF, specifically with companies paring down their commitments after being approved and receiving taxpayer cash.

According to a study by the Washington Center for Equitable Growth, “large number of companies have renegotiated 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 study’s authors posit that under the TEF’s current practices, the “clawback” provision is an ineffective safeguard of taxpayer money.

But what if such tax dollars were never taken in the first place? In other words, what if instead of the government pledging to take money from private citizens under the belief that it could spend them better and wiser than they could themselves?

Perhaps more accurately, what if instead of engaging in wealth redistribution, Texas lawmakers took the dollars they currently spend on corporate welfare and cut taxes the same amount instead?

A 2018 study by George Mason University’s Mercatus Center asked and answered that very question—showing the Lone Star State could cut taxes significantly if corporate welfare schemes like the Texas Enterprise Fund were to be eliminated.

According to the study, Texas could cut business taxes by nearly 25 percent—a move that would benefit not only enterprising individuals seeking to bring their business to our state, but also those who have already been established and employing Texans.

Texas lawmakers know that government doesn’t create jobs—businesses create jobs. And a level playing field for all Texas businesses would lead to individuals and business owners having the ability to make investment decisions themselves in the free market and leading to more and better-paying jobs for Texans.

Texas is already a strong competitor for businesses to relocate and expand within. It would be even stronger if it got out of the business of picking winners and losers.