Two-thirds of companies that have received $368 million in Texas state funds failed to deliver on their job-creation promises by the end of 2009, a study by the nonpartisan Texans for Public Justice in Austin found. During last year’s recession, the report says, the default rate by state-funded companies jumped from 42 percent to 66 percent.
“Phantom Jobs: The Texas Enterprise Fund’s Broken Promises,” analyzed the 2009 compliance reports filed by 50 Texas Enterprise Fund recipients that faced job-target deadlines by the end of last year. Researchers compared the recipients’ performance reports to what they pledged in their original Enterprise Fund contracts. Thirty-three of the 50 state-funded enterprises failed to deliver contractual job promises.
The office of Gov. Rick Perry (R), which runs the program, terminated six hopeless projects outright (12 percent). Thirteen projects still operating under their original contracts reported they did not produce the jobs they had promised (26 percent). Finally, the Governor’s Office amended 14 Enterprise Fund contracts (28 percent) to extend job-promise deadlines or slash job promises.
Exaggerated Jobs Claims
The 14 amended projects originally promised to deliver 9,793 new Texas jobs by 2009. But subsequent amendments canceled 39 percent of these job promises, the study found. Although Perry claimed in January the Enterprise Fund had created 54,600 jobs, the report found that the most generous reading of 2009 compliance reports offers evidence of at most 30,691 Enterprise Fund jobs.
Development initiatives supporter Edward Faser, who heads the Urban and Regional Planning program at the University of Illinois at Urbana-Champaign, says giving discretionary incentives to specific companies is superior to incentives buried in the tax code because they offer more potential for transparency and accountability. But he says politicians and administrators must be up-front about what targets are met or not met. Fraser previously helped administer North Carolina’s economic development programs.
“This doesn’t sound like a best-practices program where implementation is concerned,” Faser says.
The governor’s office did not respond to requests to comment for this story. After the report was published in September, a spokesperson for the governor responded to its findings by telling the Dallas Morning News, “Texas cannot control national economic trends or individual business pressures, but [Enterprise Fund] contracts demand job creation in return for funding.”
Republican State Sen. Mike Jackson and Democratic State Rep. Mark Strama, who head committees overseeing the Texas Enterprise Fund, did not respond to requests for comment.
‘Phantom’ Jobs Reporting
“The title of our ‘Phantom Jobs’ report was partly inspired by political equations of job promises with actual paychecks,” says Texans for Public Justice Director Craig McDonald. “Many kinds of phantom jobs haunt this program.”
Vought Aircraft, for example, reported it produced just 864 of the 3,000 new jobs it promised. Using a compensation multiplier inserted into a contract amendment that it signed last year, Vought pumped up these 864 real jobs into credit for creating 2,056 jobs. Vought’s phantom jobs outnumber the actual new people that it hired.
Alloy Polymers bought a chemical plant outside Houston in 2007 and treated the 32 workers already employed there as if they were “new” Texas workers. Conversely, Austin-based Sematech continued to count jobs at a chip fabrication plant after it sold that factory in 2007.
The Enterprise Fund awarded $75 million for two research facilities that claim to have produced a total of 7,508 jobs. Just don’t look for all these workers at the state-funded research centers. A Texas A&M University project claims credit for every new job in the state that falls into 24 industry categories known as the “Governor’s Biotech Cluster.” A state-sponsored biomedical center affiliated with MD Anderson Cancer Center claims credit for every new job at MD Anderson, despite the fact that its payroll began growing long before the creation of the Enterprise Fund.
Although Perry portrays this jobs program as a success, legislative resistance is growing. Even with Perry’s party controlling both legislative chambers, lawmakers spurned the governor’s request for $261 million in new Enterprise Fund funding last year. Texas faces an estimated two-year budget gap ranging between $10 billion and $20 billion. Perry recently proposed a $20 million cut in Enterprise Fund appropriations.
“Many of these incentive programs are viewed as political slush funds,” says Tommy Cafcas of Washington-based Good Jobs First. “Northrop Grumman contributed to Virginia Governor Bob McDonnell’s inaugural committee, for example, before landing $3 million from that state’s Governor’s Opportunity Fund. With so much mutual back scratching, states are slow to recover clawbacks from non-performing grant recipients. While subsidies can combat uneven development, they should be used sparingly, transparently and with complete accountability to taxpayers.”
Andrew Wheat ([email protected]) is research director for Texans for Public Justice.
“Phantom Jobs: The Texas Enterprise Fund’s Broken Promises,” Texans for Public Justice: http://info.tpj.org/watchyourassets/enterprise3/index.html