Tax Breaks for Sporting Events Raise Questions

When lawmakers gave Comptroller Susan Combs more power to spend tax money to attract sporting events and conventions to the state, the idea was to generate economic development in Texas that might go somewhere else.

But in recent years Combs has used that power to approve millions of dollars in expenditures on events that originated here and don’t appear to be leaving Texas anytime soon.

Over the last two years, Combs, a Republican, has signed off on spending $2 million in state tax money to help defray the costs of the Cotton Bowl, a postseason college football game held in the Dallas-Fort Worth area since 1937; $1.5 million to help finance the Alamo Bowl college football games, played in San Antonio since its inception in 1993; and $2 million to stage two NASCAR auto races — the AAA Texas 500 and the Samsung Mobile 500 — that were specifically designed for Texas Motor Speedway in Fort Worth.

Several horse associations in Fort Worth and Amarillo have also used such funds to defray costs of events held in those cities year after year — funds that went directly to the private associations hosting the shows, officials say.

Combs’ office says the event fund expenditures, which hit an all-time high of $78 million last year, are authorized by the Legislature and supported by the cities in which events are being held. The cities also say the fund has been an invaluable tool in attracting and retaining marquee events.

The money used to lure such events comes from several “trust fund” accounts designed to bring out-of-state visitors to Texas. The accounts are fattened with sales, alcohol and hotel occupancy taxes that the events bring in from people traveling to Texas. Local governments or nonprofits they authorize must approve the eligible projects, and the cities hosting them are required to chip in some of their own tax receipts into the fund.

Critics are raising questions about whether such payouts violate at least the spirit of the economic development overhaul that was passed in 2009.

“Looking at some of those events, clearly they already would have been here already, so why are we spending tax dollars to bring them here?” said Texas Land Commissioner Jerry Patterson, a Republican who has repeatedly questioned Combs’ oversight of the tax incentive funding. “Is this Susan Combs’ slush fund? We need to know that. And who is doing the oversight?” (Patterson has been a frequent critic of Combs, whom he might face in a race for lieutenant governor in 2014).

The biggest rub is whether the location of events like the Cotton Bowl, inextricably linked to Texas, were truly subjected to a “highly competitive” process that involved cities in other states. That’s what the law requires.

Robert Wood, who oversees the program at the comptroller’s office, said that there are no set standards and that the state agency relies exclusively on what the local governmental entities tell him.

“The statute doesn’t specify what that highly competitive process is. The Legislature didn’t lay that out. Our role as the administrator is to simply, to the extent we can, say there was one,” Wood said. “And since we’re not involved in that part, what we basically rely on is that local organizing committee or the city or county to tell us that there was a highly competitive process involved.”

In the case of the Cotton Bowl, for example, Wood provided 2010 and 2011 letters from the city of Arlington, the Southeastern Conference and the Big 12 Conference all affirming that the North Texas region — where the bowl game has been held for more than seven decades — had been chosen through a “highly competitive selection process.”

But they are essentially form letters that use identical language each year, and they don’t mention the other cities that were considered or go into any detail about the process used. The strikingly similar letters from the SEC and Big 12 — which each field teams in the yearly game — differ only in the descriptions of their respective conferences, and otherwise use identical passages — the provenance of which could not be determined. (See the embedded documents below.)

Big 12 spokesman Bob Burda knew nothing of the letters and couldn’t comment, and the SEC did not return a phone message left by the Tribune.

Wood said the teams that play in the bowls could conceivably pick another venue outside Texas. He said the qualification for funding was based on the fact that teams from two national leagues brought in out-of-state fans to a Texas stadium. It’s not up to the comptroller’s office, he said, to truth-test claims that a bonafide competition over the site’s selection actually took place.

“It’s not up to me to believe or not to believe,” Wood said.

But Sen. Kirk Watson, D-Austin, author of the 2009 legislation, said he was concerned that the comptroller’s office appears to be allowing “the people who want the money to define ‘highly competitive.’ ” He also said the ever-increasing amount of the expenditures raises questions about whether the proper oversight is in place.

“What I intended to do is give the comptroller the flexibility to draft a program in an appropriate way,” Watson said. “It may be that the Legislature needs to look at it to make sure it is being properly administered.”

Combs has already come under fire for her handling of tax incentives dangled before the promoters of a Formula 1 auto race in Austin. After a ruckus was raised over her 2010 vow to provide $25 million a year in funding for the project, Combs backed away and said she wants to see how the first race goes next November.

In the last decade, the comptroller’s office has used the funding mechanism to help the lure the Super Bowl (to Houston in 2004 and Dallas in 2011), NCAA Final Four basketball tournaments, swimming championships and various all-star games.

Those are the type of “unique, one of a kind” events that were envisioned by the legislation that passed in 2009, according to a state House analysis of the bill.

But since the law went on the books in September of 2009, expenditures from the fund have risen dramatically — from $5.7 million the year the bill passed to $78 million in fiscal 2011. And the program has been used to attract far less unique events, like the Association of Kentucky Fried Chicken Franchisees, lured to San Antonio with the help of  $255,215 in tax incentives, and the International Convention of Alcoholic Anonymous, also held in San Antonio, for which the comptroller approved spending $4.5 million.

All told, the various funds, including the Major Events Trust Fund, the Events Trust Fund and their precursor programs have awarded $201 million since 2004, which includes the city's portion, records show.

Every event, and each city, uses the funds in various ways. In some cases the money goes to defray the cost of security, emergency preparedness and event advertising. Some entities also use the money to upgrade their facilities.

But the statute is generous and broad, allowing for reimbursement of “costs relating to the preparations necessary or desirable for the conduct of the event and the payment of costs of conducting the event.”

And in many cases, the private entities hosting the events end up getting the money. In Fort Worth, for example, the comptroller has approved millions of dollars in state tax funding for shows put on by the National Cutting Horse Association, the American Paint Horse Association (both based in Fort Worth) and other equestrian groups.

In every case with the horse associations, the state's share of the tax revenue went to the associations, used largely to pay out show prizes and increase their attractiveness to visitors, according to city convention officials.

Kirk Slaughter, Fort Worth’s public events director, acknowledged that in many cases the associations are receiving funding to promote shows they have always held in the city. But he said his counterparts in other cities around the country would love to steal them away.

“There is no doubt that the trust fund is a very, very powerful tool for keeping some of the major events here in the state of Texas. It gives us a competitive edge over some of these other states,” Slaughter said. “It keeps that spending coming here instead of the spending going to Tulsa or to Las Vegas.”

Becca Aaronson created the interactive graphic for this story.