The State Auditor’s Office (SAO) conducted an audit report on Selected Major Agreements under the Texas Economic Development Act (Texas Tax Code, Chapter 313). Oversight of those agreements relies primarily on self-reported information that businesses certify, according the SAO report. The SAO findings included that overall accountability and transparency of agreements could be strengthened in several areas – the overall conclusion in the report is summarized below.
The Comptroller’s Office agreed with the recommendations addressed in the SAO report while the TEA and the school districts audited did not agree with certain findings and recommendations addressed to them.
School districts comments reflected some concern that the SAO “has consistently sought to impose new and unauthorized verification requirements” on the districts. Additional responses pointed out that “the admonitions set forth in Texas Tax Code 313.004(3)(A) that school districts strictly interpret the criteria set forth in Chapter 313” leads to reluctance to impose additional requirements that are in excess of those currently in place.
Among the Comptroller responses was an agreement that the SAO finding that determining tax credit amounts and the requirements for receiving a tax credit should be clear. The agency will provide additional guidance to districts regarding their obligations under Chapter 313, and appropriate guidance for districts to determine and companies to be eligible to receive a tax credit. Agreements executed after the effective date of HB 3390 (January 1, 2014) are not eligible for a tax credit. The Comptroller’s office did note that the repealed rule is still the appropriate guide for school districts and further action is not required in rule.
Spotlight on SAO Overall Conclusion
The Texas Economic Development Act (Texas Tax Code, Chapter 313) has encouraged capital investment and job creation by businesses that have appraisal limitation agreements (agreements) with school districts. Oversight of those agreements relies primarily on self-reported information that businesses certify.
The SAO found that overall accountability and transparency of agreements could be strengthened in the following areas:
– Verification of information. As discussed above, the school districts audited relied primarily on certifications that businesses submit. Statute does not require school districts to verify that information.
– Disclosing conflicts of interests. The ethics policies for each school district audited varied, and the Comptroller's Office and TEA did not require their staff to disclose potential conflicts of interest or affirm that no conflicts existed with the businesses and the consultants associated with the agreements.
– Issuing tax credits. From tax year 2006 through tax year 2013, 47 school districts processed approximately $26 million in tax credits to businesses with which they had agreements. At the direction of TEA, most school districts paid tax credits directly to businesses. However, as specified by Texas Tax Code, Chapter 313, their agreements required the school districts to direct their collectors of taxes to apply tax credits to a business's future property taxes.
– Developing agreements. The agreements audited included provisions that complied with Texas Tax Code, Chapter 313, and were approved by the members or trustees of a school district's board. However, agreements did not consistently:
— Specify the agreed-upon investment amounts, the description and address of the property, and the anticipated number of jobs to be created. (That information was in the applications for agreements.)
— Describe how school districts would determine and issue tax credits to businesses.
— Require businesses to obtain written approval from the Comptroller's Office and the school district to add new property to the agreement.
— Require school districts to determine the eligibility of any new business to which an existing agreement would be transferred.
In addition, opportunities exist to improve certain administrative processes at each school district audited. While the issues identified in those processes may not be material to determining compliance with Texas Tax Code, Chapter 313, they are significant to each school district's management of agreements.
Auditors also communicated other, less significant issues separately in writing to each school district audited, the Comptroller's Office, and TEA.