Wednesday, February 02, 2011

Economic development money in Legislature's cross hairs

Interesting article on whether the state should use unspent balances carried over for 1) the Emerging Technology Fund; and 2) the Enterprise Fund. Will business win this one even as folks lose their jobs and schools and universities see significant cuts?

Economic development money in Legislature's cross hairs
Budget contraints, management questions paint target on Perry-championed program.

By Laylan Copelin

Updated: 5:10 a.m. Monday, Jan. 31, 2011
Published: 8:14 p.m. Sunday, Jan. 30, 2011

The state's budget woes are putting economic development funds in the Legislature's cross hairs.

Lawmakers of both political parties are debating whether Texas can afford to continue to use tax dollars to lure out-of-state businesses and subsidize high-tech startups as the Legislature considers steep cuts in education, public safety, health care and other state services.

The House's initial budget proposal includes only unspent balances carried over for the state's Emerging Technology Fund and the Enterprise Fund, the two largest economic development funds, both managed by Gov. Rick Perry.

The Senate version diverts a third of the Enterprise Fund's $151 million carryover balance to job training programs.

Without additional money, the technology fund would burn through its $21 million balance in a matter of weeks, and the larger Enterprise Fund — once touted as the largest deal-closing fund in the country — could be exhausted over the next couple of years.

And key budget leaders warn that they aren't likely to find additional money this session, given the demands of other state services.

"We want Texas to grow, but we don't have the money," said Jim Pitts, R-Waxahachie , the House Appropriations Committee chairman.

Senate Finance Committee Chairman Steve Ogden, R-Bryan , agrees.

"I think it's going to be a tough sale. The truth is, the Emerging Tech and Enterprise funds don't have a lot of popularity in the Senate," he said.

Ogden, who says he doesn't favor the funds even in good economic times, included the provision to divert Enterprise Fund money to job training.

Legislation has been filed to eliminate the funds altogether. And the Texas Conservative Coalition Research Institute, a group of lawmakers and business leaders, recommended suspending Enterprise Fund operations by transferring all of its money to other programs.

Adding a couple of hundred million dollars for economic incentives might seem like a small amount out of $79 billion in general tax revenue. But paying for incentives becomes politically difficult amid talk of closing public schools, reducing college scholarships and cutting higher education by double digits.

Kevin Eltife, R-Tyler , a member of the Senate Economic Development Committee , sounds a common refrain heard at the Capitol.

"It's needed, but it's not a priority," he said of the economic incentives. "There are a lot of needs in this state that I would put way above these funds."

Sen. Kirk Watson, D-Austin , a member of the same committee , is a supporter of using tax dollars for economic development, but not at the expense of other state services.

He warned, "I don't anticipate in this session that you are going to see significant money restored to these funds."

Mike Jackson, chairman of the Senate Economic Development Committee , disagrees.

He said it would be wrong to retreat on economic incentives as Texas emerges from the recession.

"I'm certainly not going to be one who espouses that we just shut down all of our economic activity just because we are in a little hole right now," said Jackson, R-La Porte .

It is a debate going on around the country as states weigh how best to compete for jobs and new technology industries as they face severe budget constraints due to the national economic climate.

Austin has a stake in the debate because as a high-tech center, it has benefited from the Emerging Technology Fund. Several companies, including Facebook and the solar manufacturer SunPower , expanded here with grants from the Enterprise Fund.

The state's economic incentives, however, are as much about headlines as bottom lines.

According to the state comptroller, only about 1 percent of the state's job growth can be attributed to incentives.

The state's pro-business climate is credited as the fuel for Texas' economic engine.

"The Texas economy will continue to grow with or without incentives," Comptroller Susan Combs wrote in a recent report.

Complicating the debate is Perry's handling of those funds.

Since 2003, Perry has functioned as the state's salesman-in-chief, after the Legislature created the Enterprise Fund and followed up two years later with the Emerging Technology Fund.

The governor — with agreement from the lieutenant governor and House speaker — can commit tax dollars to help local communities recruit out-of-state businesses. He also can invest tax dollars in high-tech startups recommended by a committee of Perry appointees.

Yet Perry has been criticized for circumventing the review process, first when he awarded $50 million to his alma mater, Texas A&M, without any review and last year when an Austin company, Convergen LifeSciences , got the second-largest award to an individual company ($4.5 million) despite being turned down by a regional review board.

His opponents have accused the governor of favoring his political supporters with state awards, a charge Perry denies.

Finally, the governor's office had to "bolster" its ethics policy after it discovered that Alan Kirchhoff , its economic development director until last summer, had been given stock in a company owned by one of Perry's appointees who review grant applications. Investigators found no criminal wrongdoing.

In her report to the Legislature last month, Combs noted "a perception of outside influence" in both funds.

Watson and Eltife are suggesting a review board independent of Perry and the state leadership that would recommend projects to be funded. The state leadership still would make the final decision.

"It's a lot of money that we're supposed to be using to incentivize job creation in this state," Eltife said. "I think an independent panel might take some of the politics out of the process."

Watson agreed.

"Those who support programs like this ought to see this as an opportunity, a respite if you will, that will allow them to use this time to craft an accountable, transparent process that the public can trust," he said.

Mark Strama, D-Austin , chairman of the House Technology Committee, said the state's secretive review process should be put under Texas' open meetings and open records laws.

In his speeches recently, Perry has stuck to broad themes about maintaining the state's business climate of low taxes and minimal regulation and its pro-business legal climate.

He has not said what should happen to the funds. His press secretary, Katherine Cesinger, did not respond to questions about the future of the funds.

But Perry is sure to weigh in, at least behind the scenes, before the Legislature completes the budget.

"I would not be surprised if that wasn't an object of discussion between us and the governor before it is all over," Ogden said.

Ultimately, the Republican-dominated Legislature might hesitate to appear to curb a governor who has just won a historic third full term and who is flexing his political muscle on the national stage.

And then there's the politics of passing a budget.

Pitts joked that he probably could have passed the bare-bones version last week in the conservative House with its freshman class of tea party members.

But Ogden noted that he needs at least 21 of the 31 senators to bring up the budget for a vote.

That gives Perry and his legislative allies leverage to put additional money toward his programs.

"If that will help me pick up some votes in the Senate, I'll put it in the bill," Ogden said. "If it won't, I won't."; 445-3617

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