Criticism Follows Reports on Incentive Programs

State Republican leaders have portrayed Texas as a beacon of budget-slashing conservatism, but their loose oversight over hundreds of millions of dollars in economic development funds, cancer research grants and plain old tax money have emerged as a flashpoint in this year’s elections and have given fuel to critics on both the left and the right. 

Between a scathing state auditor’s report of the Texas Enterprise Fund released Thursday, and a recent San Antonio Express-News investigation into the state’s efforts to land a Formula One race, a cloud hangs over more than $400 million in economic incentives issued by Gov. Rick Perry and others. Beyond that, a general impression that untold millions of dollars in state subsidies have been handed out in the absence of routine due diligence has detractors arguing that Texans have little reason to feel confident that taxpayer money is being spent wisely.

“We just don’t have the proper oversight and protocols,” said JoAnn Fleming, chairwoman of the Legislature’s TEA Party Caucus advisory committee. “For us to have special interests floating through our Capitol and just being able to do a knock-knock, wink-wink and a handshake, that’ just inappropriate. It’s disgusting, really.” 

For Democrats, the controversies provide ammunition on the campaign trail that they hope can help them rally voters around their candidates, particularly state Sen. Wendy Davis’ bid against Republican Attorney General Greg Abbott to replace Perry as governor.

“Between the Enterprise Fund, CPRIT and the F1 Track, it is harder for an African-American senior citizen without a driver's license to cast a ballot in Texas than for a billion-dollar Wall Street firm to get a multimillion-dollar taxpayer handout under Perry and Abbott,” said Democratic strategist Jeff Rotkoff.

The latest twist came this week when state auditors unveiled a blistering report about the Texas Enterprise Fund, the job-luring program Perry has touted for years as a key catalyst in the state’s strong economic performance. The report found weak oversight practices throughout the governor’s office in its handling of the financial incentive agreements, including more than $170 million awarded to recipients that never officially applied for the funds. Auditors also found multiple instances in which the governor’s office relied on “self-reported information” by award recipients to determine whether companies were making the investments they had agreed to make in exchange for state funding.

The fallout from the report exposed a rare division between Perry and Lt. Gov. David Dewhurst. While Perry's office argued Thursday that the report showed that his office operated the program in accordance with state law, Dewhurst — who co-chairs the Legislative Audit Committee that oversees the state auditor — made clear he views the report's findings differently.

"I'm deeply disappointed that the execution of many of these grants fell short of appropriate standards and the degree of accountability required for the use of Texas taxpayer dollars," Dewhurst said in a statement. "I support all of the Auditor's recommendations and expect them to be fully implemented before I will approve any more Texas Enterprise Fund grants."

While much of the criticism has been aimed at Perry, he’s far from the only one in the crossfire. Democrats have been quick to argue that the report implicates Abbott as much as Perry. They’ve pointed to a state law that includes a monthly “inspection of accounts” among the duties of the attorney general’s office. 

“Greg Abbott has done nothing to fulfill this direct legal mandate. He has never inspected payments approved by the Texas Enterprise Fund and made by the State Comptroller, nor has he ever investigated or recovered TEF funds improperly obtained,” said Matt Angle, an adviser to Davis’ campaign and head of the Lone Star Project, which supports Texas Democrats.

Jerry Strickland, a spokesman for the Attorney General’s office, said that office had received the state auditor’s report and is reviewing the matter. He noted that some of those “inspection” responsibilities outlined in state law date back more than a century and have since been transferred to the state auditor. Yet the attorney general still plays a role in recovering state funds, he said.

“Those legal actions will continue, and the attorney general's office remains committed to using all available legal resources to recover funds owed to the State,” Strickland said.

On the campaign trail, Abbott has expressed discomfort with the state "picking winners and losers" in the marketplace and suggested he might end the state's incentive programs. Davis, who filed the bill that required this week's audit of the TEF, said last week that she favors continuing state incentive programs — but differently than they are handled now. 

“Greg Abbott has said the government ought not be in the business of picking winners and losers,” Davis said, when asked about incentive programs like the Texas Enterprise Fund at the Texas Tribune Festival. “But we absolutely ought to be in the business of picking winners.”

Democrats have also criticized Abbott for failing to stop spending abuses at CPRIT, the Cancer Prevention and Research Institute of Texas, despite being part of its oversight board. A criminal investigation of CPRIT led to the indictment of a CPRIT executive in connection with a grant that didn't follow proper procedures.

Abbott aides say Democrats have mischaracterized the attorney general's role and note that his office took part in the criminal investigation that ultimately produced the indictment.

The Texas Enterprise Fund isn’t the only subsidy-granting entity generating headlines. The state’s Major Events Trust Fund, overseen by Combs, has been tapped for $250 million over 10 years to help defray the costs to host Formula One racing in Austin. The investors in the Circuit of the Americas track, where the F1 events take place, include Republican megadonor Red McCombs and Austin investor Bobby Epstein. In a TV interview, Epstein said a  “verbal application” submitted to Formula One made the subsidies possible.

Combs’ office has been criticized for its role in approving that spending, as well as several other state economic development subsidies for events that critics have argued were in little danger of ever relocating to another state. Among the most controversial examples is Combs’ granting of $2 million to help defray the costs of the Cotton Bowl, a postseason college football game held in the Dallas-Fort Worth area since 1937.

"I think the comptroller feels the process has been followed, the statute lays out certain requirements and the agency has followed the requirements very carefully," Combs spokesman Chris Bryan said. "It would be the decision of legislators as to whether or not they would address that."  

Mike Collier, the Democratic candidate for comptroller, accused the current comptroller of distorting how state law outlines the office’s role by framing it as a passive authorizer of state subsidies.

The comptroller's job “is to never release payment until there is satisfactory documentary evidence that the payment is properly authorized,” Collier said. “If the comptroller doesn't guard our money, then absolutely nobody is guarding our money, and that is the fundamental reason corruption is rampant in Texas politics.”

Collier has called for the Major Events Trust Fund and other such funds under the comptroller’s office to be moved to another state agency, which he has argued would strengthen the comptroller’s oversight role of those funds.

His Republican opponent, state Sen. Glenn Hegar, has been less vocal about the issue. His campaign pointed to Hegar’s vote last year for Senate Bill 1678, which added additional requirements that an event must meet before it could qualify for Major Events Trust Fund money. 

“If elected comptroller, I will follow the administrative rules and statutes required under state law set by the Legislature to properly administer the Major Events Trust Fund,” Hegar said. “If the state is going to operate these types of programs, they must be transparent and provide accountability to the taxpayers.”

Disclosure: Red McCombs and Bobby Epstein are major donors to The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.