Freshman Congresswoman Alexandria Ocasio-Cortez (D-NY) created all kinds of hullabaloo late last year when she effectively torpedoed Amazon’s plan to build a second headquarters in New York City.
Amazon had, for a few years, been gallivanting across the country soliciting cities to come up with the best carve-ins and hand-outs they could muster, just to lure one of the world’s largest companies — and its 25,000 jobs — to their area.
Eventually, the world’s richest man, Jeff Bezos, settled on America’s largest city.
The trump card for Bezos was apparently two-fold: the prime location and $3 billion in taxpayer-funded incentives and subsidies. But this did not sit well with Ocasio-Cortez, who represents Queens where the headquarters was set to go.
She launched a public relations campaign to oppose the decision and Amazon eventually folded, taking their 25,000 jobs to Arlington, VA instead. While this may have been the most notable recent example of subsidies moving from taxpayer’s pockets, through the government middleman, and into the coffers of big companies, it is actually more common than some might realize.
In fact, it also happens in Texas.
Some big-name companies in Texas receive anywhere between hundreds of thousands and millions of dollars in subsidies and incentives.
One mechanism by which Texas doles out these incentives is through the Texas Enterprise Fund (TEF).
The fund was created in 2003 by the state legislature as a “business incentive” mechanism to attract companies to Texas for the purpose of job creation.
The official government website states that, “The fund serves as a financial incentive for those companies whose projects would contribute significant capital investment and new employment opportunities to the state’s economy.”
In order for companies to receive compensation, every expenditure must be approved by the Governor, Lt. Governor, and Speaker of the House.
Companies applying for TEF funding “must have community involvement from the city, county, and/or school district, primarily in the form of local economic incentive offers.” The designated bar for job creation that companies must meet to be considered is 75 jobs in urban areas and 25 in rural.
The TEF supplies “deal-closing” grants to companies it deems worthy of receiving public investment. It has dished out $506,583,696 in taxpayer-funded grant money since its inception in 2003.
Most recently, Allstate received a $2.6 million commitment from the state for its operations in Irving. The final investment depends on recipient performance.
In 2018, Apple made headlines when it announced it was expanding its operations in Texas.
Apple, which has almost $1 trillion in market cap and $225 billion cash on hand, received a $25 million commitment from the state for its Williamson County facility as well as 15 years worth of property tax abatement. This deal came at a time when Texans have been agitating for lowering their own property taxes.
Apple has pledged that this second campus will bring in an additional 5,000 tech jobs to the state.
Other notable TEF grants are a 2014 expenditure of $40 million to Toyota for the relocation of its automotive headquarters in Plano; $21 million to Apple for its main Austin campus location in 2012; $10.8 million to Samsung in 2010, also in Austin; and $22 million to Rackspace of San Antonio in 2007.
Right after the TEF launched, it sent $50 million to Texas Instruments, followed by a string of payments between $20 million and $50 million to companies like the Triumph Aerostructures, Bank of America, Sematech, as well as Texas A&M University and the University of Texas.
In its 2019 report, TEF states that 94,347 jobs have been created in Texas by these taxpayer-subsidized businesses. That’s an average of just under 6,000 per year of its existence.
In 2018, former House Speaker Joe Straus criticized the TEF for favoring the Dallas-Fort Worth area.
In a letter to the Governor, Straus said that 39 percent of cash awards went to the DFW area. Governor Greg Abbott countered that San Antonio (from which Straus hails) bids had a higher approval rate than other cities.
A February 2019 study by two professors found that recipients of TEF money often renegotiated their commitments behind closed doors after the original deal had been struck.
Some examples include:
- Lockheed Martin renegotiating a 31 percent reduction in its initial job creation commitment after the deal had already been struck, which was met with a similar percentage reduction in the state’s allotment.
- Fort Worth-based Ferris Manufacturing renegotiating a 20 percent decrease in their original job commitment with only a 6.6 percent reduction in funding.
- Comerica renegotiating its original job creation commitment in 2007 so that other jobs, including the already-employed CEO, would count toward their job target.
Also compounding some of the controversies around TEF is a 2014 study from the state auditor that found that companies that had never applied for funding received cash awards from TEF.
Governor Abbott touted TEF on Twitter in February, saying, “Business expansions in Texas from Amarillo to Brownsville, in Lufkin and Mt. Pleasant, Temple and Paris, are a result of the Texas Enterprise Fund, which promotes economic diversification.”
Nan Tolson, deputy press secretary for Governor Abbott’s office, said in a statement to The Texan, “The unique, deal-closing nature of the TEF attracts new projects to Texas and encourages expansion of existing businesses in the state, thus leading to significant job creation and capital investment.”
The 2019 TEF report details $27.4 billion in committed capital investment by the TEF’s beneficiaries.
“Additionally, when Governor Abbott took office he instituted reforms to the grant process to create greater transparency and ensure taxpayer dollars are protected,” Tolson went on to say.
Tolson concluded by saying, “The Texas Enterprise Fund is an important part of what keeps the Lone Star State an economic powerhouse.”
In 2017, Texas had a $1.7 trillion GDP — akin to that of Canada and second in the U.S. only to California.
Some groups, however, do not believe the government should be picking favorites using taxpayer money.
One such group is Americans for Prosperity (AFP), whose state director, Jerome Greener, told The Texan, “Government is supposed to be an impartial referee.” He added, “When they engage in handing out tax dollars or make special carve-outs for well-connected special interests, they are picking winners and losers, and taxpayers lose and get stuck with the bill.”
AFP advocated against tax incentives to businesses during the last session — specifically focusing on chapters 312 and 313 of the state’s tax code, which allows local governments to offer property tax rebates and other incentives to companies.
However, the TEF received relatively little attention this past session from opponents of corporate welfare as it has in previous sessions.
As recently as 2017, the House budget proposed eliminating all unspent funds in TEF. And the Texas Public Policy Foundation, a conservative think tank based in Austin, developed a policy guide to combating corporate welfare prior to the 85th Legislature.
The centerpiece of its plan was the elimination of the TEF altogether.
Mark Thomas, president and CEO of the Taylor Economic Development Corporation, had a different take. He sees the Texas Enterprise Fund as “just another tool in Texas’ toolbelt when competing with other states for business.”
“The state uses multiple analyses to assess the return-on-investment a given deal will produce,” Thomas told The Texan. According to Thomas, having the TEF “can really level the playing field with other states.”
In the near future, the TEF could play a role in the new $3.2 billion investment Texas Instruments is considering with its new semiconductor factory — which would be the second such taxpayer-funded investment from TEF to the renowned Texas company.
The TEF continues to — depending on how you look at it — either provide incentives to industry for the purpose of creating jobs in Texas or dole out taxpayer-funded sweetheart deals to government-preferred businesses at the expense of the free market.
Regardless, it is Texas taxpayers who reap both the rewards and the consequences of the 16-year-old program.
Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad chairing the Edmund Burke fan club.