The House Select Committee on Economic Development Incentives submitted an interim report to review Texas’s many state and local incentive programs and evaluate each for both effectiveness and efficiency. This evaluation includes observations of economic cost and benefit – not only in expenditures and tax revenue, but also in terms of competitiveness, job creation and job quality, direct and indirect investment, publicity, and other positive and negative consequences resulting from the programs. Additionally, the committee reviewed best practices for the proper scope of transparency and committed to ensuring that money collected from taxpayers would be allocated appropriately and to the benefit of the citizens of Texas. Finally, the committee was charged with identifying opportunities for further economic development and recommending ways to efficiently promote these opportunities
 
To guide the committee’s investigations, the Speaker provided the following charges:

  • Determine the types or categories of economic development projects that provide the greatest benefit to the state. Make recommendations where appropriate to focus on or target the types or categories of economic development projects that provide the greatest long-term benefit to the state.
  • Catalog and evaluate economic development incentive grants awarded at the state level and assess their relative success, recognizing adjustments or modifications made to the initial criteria outlined in the award contracts.
  • Examine the agencies administering economic development incentive programs and make recommendations where consolidating or moving functions improves efficiency.
  • Identify any problems in coordination between state and local economic development entities. Make recommendations to improve coordination where beneficial.
  • Review best practices of economic development incentive programs and make recommendations on changes to existing programs where appropriate.

Overall Recommedations

  •  The committee recommends that all existing incentive programs that have a formal application process, have a sunset date and a required independent audit of the program to be completed two years prior to the sunset date of the incentive. The sunset process adopted should be careful to take into account existing commitments. Additionally, when considering whether to sunset or continue an incentive, performance based measures should be considered.
  • Further, the committee recommends all new incentive programs created to have a sunset date. The committee recommends tighter guidelines be placed on incentives being used for true economic development purposes and not simple relocations within a region.
  • The committee recommends the creation of one standardized application for the major incentive programs in the state.
  • Additionally, the committee recommends the creation of a website with information about all incentive programs spread throughout all agencies offered in Texas available on one easily accessible site.
  • The committee recommends examining the permitting process at the Texas Commission on Environmental Quality to see if the process is working as efficiently and effectively as possible.
  • The committee recommends realigning programs to foster more partnerships between the state, institutes of education, and private industry to meet the needs of potential employers.
  • The committee also recommends further study into policies that hinder economic development in certain areas. For example, the defense and aerospace industry.
  • When considering a restructuring of current economic development incentive programs, the committee recommends the programs are set up in a way that allows them to remain fluid, easily adapting to an ever-changing market place. For example, it is clear that there are certain areas that we should focus our attention on, however, by strictly mandating a certain percentage of funds go toward a specific industry; we are tying our hands and limiting the state's ability to quickly react to the market.
  • The committee feels there should be a strong oversight committee to provide direction of funding to reflect the needs of the state’s economic landscape with the flexibility to allocate funds for small business development, business retention, or to rural areas. The committee should be designed to ensure openness and fairness in the process.

Texas Enterprise Fund Recommendations
 
The Texas Enterprise Fund has been utilized to bring jobs to our state. The program has been criticized as a result of perceived politics involved in the process and a lack of statutory requirements in place for the application process. Additionally, the fund is not used for small business development or retention. The committee recommends a restructuring of the program and a possible consolidation with other incentives. It is important to maintain a program that can be used as a "deal-closing fund” and to provide flexibility. The restructured program should be transparent to ensure a competitive and open award selection process. It is also recommended that an independent oversight committee provide direction of funding to reflect the needs of the state’s economic landscape with the flexibility to allocate funds for small business development, business retention, or to rural areas. Further, any changes should include a sunset date, a regular review process and audit to be completed two years prior to the sunset date.
 
Texas Emerging Technologies Fund Recommendations
 
The Texas Emerging Technology Fund has been utilized to spark innovation and partnerships with our Texas Universities. The committee recommends a restructuring of the program and possible consolidation with other incentives. It is important to maintain a program that places a focus on innovation and technology, however the current level of perceived politics involved in the selection process is worrisome to the committee. Additionally, awards do not appear to be evenly dispersed throughout all regions of the state. It is also recommended that an independent oversight committee provide direction of funding to reflect the needs of the state’s economic landscape. The restructured program should include clear guidelines to ensure transparency, as well as a sunset date, sunset review process, and a regularly scheduled independent audit of the program that falls two years prior to the sunset date.
 
Texas Economic Development Act (Chapter 313) Recommendations
 
The committee agrees with the findings and recommendations found in the Audit report released by the State Auditor's office on November 21, 2014. The committee would like to emphasize the need to make the process more transparent. For example, members of the school board and their staff should be required to reveal any conflicts of interest, as they are the ones ultimately deciding to approve projects. Additionally, there is no required verification process in place for the school districts to confirm that the company is living up to their end of the bargain in job creation. The committee recommends a required verification of the jobs created. Additionally, the committee recommends a further study into the use of Chapter 313 agreements for wind energy and consideration of a more appropriate incentive for the industry.

Texas Moving Image Industry Incentive Program Recommendations
 
The committee recommends the implementation of clear guidelines defining projects that qualify for the program. Additionally, the committee recommends the program have a sunset date with a required audit two years prior to the sunset date. Further, the committee recommends including the program when considering a consolidation of existing economic development incentive programs.
 
Events Trust Fund Recommendations
 
The committee recommends the program have a sunset date with a required audit two years prior to the sunset date. Additionally the committee recommends renaming the Event Trust Fund to more accurately depict the program as it is, a reimbursement.
 
Major Events Trust Fund Recommendations
 
The committee recommends the program have a sunset date with a required audit two years prior to the sunset date. Additionally the committee recommends renaming the Event Trust Fund to more accurately depict the program as it is, a reimbursement.
 
Texas Economic Development Bank Recommendations
 
The committee recommends each program within the Economic Development Bank to have sunset date with a required independent audit two years prior to the sunset date. The committee recommends the elimination of the following programs to further improve efficiency and effectiveness:

  • Product Development and Small Business Incubator Fund: This fund provides financing to help develop, produce or improve certain types of products created by small businesses. The fund offers low interest loans as opposed to buying equity in the company. The committee recommends eliminating the funding for future projects and eliminating the program once the term of current outstanding loans expires.
  • Capital Access Program: The Cap Access program was designed to provide micro loans to small/mid-sized businesses most lenders will not lend to. However, the program has not made a loan since 2007, and there are many nonprofits and small community banks that have met this need in the private sector. The program currently does not have funds associated with it since it has been inactive since 2007. The committee recommends the elimination of this program.
  • Texas Small Business Industrial Development Corporation: TSBIDC was formed to oversee the use of funds from the Texas Public Facilities Capital Access program, which was created in 1986. The program was funded with tax exempt bonds and the money was used to make loans to communities and certain 501(c)(3)s for infrastructure projects. The program only has $750,000 left of $100 million, and the board is scheduled to meet in January to make a loan or loans with the remaining dollars. The Committee agrees with the Economic Development Bank staff's recommendation to close out the program and eliminate it.
  • Linked Deposit Program: This program was created in 1995 to encourage lending to HUBs and other small businesses that struggle to receive capital. The program has made only 19 loans  over its 20 year history, and currently does not have funds associated with it due to it being inactive for the past 9 years. The committee recommends the elimination of this program.

Spaceport Trust Fund Recommendations
 
The committee recommends the program have sunset date with a required audit two years prior to the sunset date.
 
Freeport Exemptions Recommendations
 
The committee recommends the continuation of the program.
 
Skills Development Fund Recommendations
 
The committee recommends the program have sunset date with a required audit two years prior to the sunset date. Additionally the committee recommends exploring innovative ways to encourage more partnerships between institutes of education, private business, and the state.