Auditor: Perry’s Business Fund Doled Out Millions Without Proper Oversight

^{*Editor’s note: This story has been updated with a comment from state Sen. Wendy Davis.}

A damning state audit has found an economic incentive program long championed by Gov. Rick Perry riddled with weak oversight policies, including more than $170 million awarded to recipients that never formally applied for the funds.

The Texas State Auditor’s report of the Texas Enterprise Fund describes a system in which many recipients of financial awards were decided outside of formal channels and were often not properly monitored to ensure they were delivering the number of jobs or the type of jobs they had promised.

“It was not always possible to determine how the Office made awarding decisions,” says the report, which was released Thursday.

In many cases, the governor’s office relied on “self-reported information that recipients submitted” to determine whether companies were making the investments they had agreed to make in exchange for state funding. Auditors also faulted the governor’s office for not implementing an “objective scoring tool” to determine whether applicants were worthy of awards.

The report suggests that the governor’s office was, at best, sloppy or, at worst, misleading in providing information to lawmakers and the public about how the program was run. A January 2013 biennial report on the program only reported the number of jobs that firms receiving incentives intended to create, and left out several other details, including that only 73 percent of those jobs had been created.

“The Office also did not consistently provide decision makers with complete and accurate information related to potential Texas Enterprise Fund awards,” the report says.

In a statement Thursday, Perry spokeswoman Lucy Nashed said the Enterprise Fund has drawn new businesses to Texas that have created thousands of jobs.

“This audit confirms that funds awarded through the program have been allocated in accordance with state law,” Nashed said. “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 was conducted following a bill passed by state Sen. Wendy Davis, the Democratic nominee for governor, requiring a formal review to address questions about whether the fund was properly administered.

“This is exactly why we need to root out the old insider network in Austin,” Davis said in a statement on the audit. “As governor, I will protect taxpayers by ensuring that the Texas Enterprise Fund is working with proper oversight and transparency to create good paying jobs and to attract new businesses that will ensure Texas continues to lead in the 21st century.”

Auditors reviewed the Enterprise Fund’s awards and files from September 2003 to August 2013 and found dozens of instances in which oversight of how fund recipients were using the awards was lacking.

Among the findings:

• Forty-four percent of the $505.8 million doled out by the fund over 10 years — $223.3 million in awards — was given to 11 companies that either did not have to submit a formal application or did not have to promise to create a specific number of direct jobs, or both. All of those awards were given in the first three years of the program after the Legislature created it in 2003.
• Of 110 award agreements that auditors “tested,” 97 percent didn’t include a definition for “full time,” even though the agreements required recipients to create full-time jobs.
• The governor’s office did a poor job of recovering funds from grant recipients that did not fulfill the requirements of the program. As of March 2014, the office had collected $19.2 million in “termination repayments” associated with 23 awards. Yet auditors found that those collections were $3.8 million short of what the state was actually owed.
• From 2004 to 2012, the governor’s office issued 103 “clawback penalties” totaling $14.5 million to firms that had not reached job-creation goals. Yet auditors found that the governor’s office may be leaving money on the table, as they discovered instances in which it was not clear that Enterprise Fund recipients were being consistently monitored.
• Some award agreements were missing provisions requiring that money not be rewarded until after the recipient had met all the job-creation requirements.
• Auditors found instances in which it wasn’t clear that the lieutenant governor and the speaker of the House had been notified that an award agreement had been amended, even though such notification is required under state law.

Texas lawmakers have expressed strong interest in revamping the state’s incentive programs next year. In an interview at The Texas Tribune Festival on Sunday, Perry said he was comfortable with such scrutiny, as well as a possible drawing back of his signature programs once he’s out of office.

“Do these incentive questions need to go on in perpetuity? I would suggest to you it’s a good conversation to have,” Perry said. He added later, “I think if they want to change it, if they want to unilaterally get out of the economic incentive business, that’s their call.”