Troubling audit for Enterprise Fund

In the 11 years since the Legislature created the Texas Enterprise Fund and seeded it with $295 million in taxpayer money, Gov. Rick Perry has often touted its usefulness in bringing businesses and jobs to the state.

Now a report from the State Auditor’s Office says the “absence of an adequate control structure” within the governor’s office has meant that Texas has been unable to properly administer the fund, establish the right award agreements or account for how many jobs it has helped create.

That’s a colossal failure not just for Perry but for all Texans and their elected legislators, who should have demanded long before now that the Enterprise Fund be regularly audited and any deficiencies corrected.

Instead, the Legislature repeatedly added money to replenish the fund.

The auditor’s report, released last week, says that $222 million — 44 percent of the $506.8 million spent from the fund on 115 projects through August, 2013 — went to entities that never completed formal applications or were not required to create jobs.

Perry asked the Legislature in 2003 to create the “deal-closing” fund, and state Sen. Kim Brimer, R-Fort Worth, introduced the bill that eventually made it happen.

There were warnings that it could go wrong. State Sen. Steve Ogden, R-Bryan, argued that the fund would cater to special interests who would “go hire a bunch of lobbyists” to obtain tax breaks as tradeoffs for doing business in Texas.

But it wasn’t until last year, under a bill sponsored by state Sen. Wendy Davis, D-Fort Worth, that lawmakers demanded an audit. Davis, who defeated Brimer in a high-profile 2008 election, is now the Democratic nominee for governor.

Since the release of the audit, she has said her Republican opponent, Attorney General Greg Abbott, played a role in allowing the Enterprise Fund to operate with lax standards. Abbott’s office has said that is “political posturing” on her part.

Perry’s office has said all of the fund’s awards were “allocated in accordance with state law” and monitoring standards have improved during the fund’s lifetime.

Perry will leave office in January, having decided not to run for re-election this year. It is widely believed that he is gearing up for a second run for the Republican presidential nomination.

While Perry has had sole authority to negotiate and issue awards from the Enterprise Fund, the lieutenant governor and House speaker are required to sign off on all agreements.

Lt. Gov. David Dewhurst, R-Houston, said he would not approve any more grants until the auditor’s corrective recommendations are implemented. Dewhurst this year lost his bid for re-election.

House Speaker Joe Straus has appointed a special committee to examine all of the state’s business incentive funds and ensure they are “effective, efficient and transparent,” his office said.

It does little good to point fingers of blame. The audit report’s bottom line is disappointing all around.

While there can be no doubt that the Enterprise Fund has had a great many successes, there is no room for sloppiness in spending state money.

A job-creating fund that is inefficient because it lacks proper controls is not only wasteful but embarrassing.

How could our state leaders, who were properly warned during that 2003 debate, have allowed this to happen?

The audit report says some of the awards lacked documentation. More than half of those reviewed had errors that led to inaccurate estimates of how much benefit the state could expect to receive for its money.

Miscalculations of the potential tax revenue from companies recruited though use of the fund means some grantees may have received more than the state could recoup.

Grant recipients fell 18,000 jobs short of the 66,000 they were expected to create last year under their agreements.

Of the 115 awards between 2003 and last year, 23 have been terminated or are inactive. The state recovered $19.2 million from those awards, but the audit report said Texas should have been repaid an additional $3.8 million.

There’s no doubt that financial incentives are useful in today’s business recruiting environment.

But there’s also no doubt that strict financial controls are absolutely necessary.