Getting Out of Grover's Tub

Chapter 13: $5.7 Billion Bailout

In February, 2009, Barack Obama rolled out an $800 billion stimulus package. His goal was to spur consumer demand and keep jobs. Rick Perry joined South Carolina’s Governor Mark Sandford on a national tour to condemn Barack’s Bailout, telling all of Texas that the stimulus moved America “toward a “bailout mentality” where we look to government rather than ourselves for solutions.” So, why then does he maintain his own $5.7 billion bailout back in Texas?

When I first got to the legislature, I was on the business and commerce committee. A bill came from the House, along with the bill’s author, threatening everyone to vote for a major subsidy for business.

The subsidy was designed around Intel. The argument was that Intel would create jobs, but the state would have to give them a major subsidy to come here.

When I asked Intel’s vice president what made Intel locate in a particular state, he said two things: first, an educated work force. “If we don’t have an educated work force then we have to educate them on our dime,” he said. “No company wants to do that.”

Next, he said infrastructure. “We work in a just-in-time-environment. We have to get our product to market,” the vice president said. “If we don’t, Korea, China or Japan will beat us. We make small products that are highly valuable and we’ve got to get them to where products are being put together, assembled and sold.”

I asked, “where do these tax breaks come in?” “Essentially,” he said, “We pit one state against another and the one that gives us the most money wins.”

As the 81st Legislative Session came to an end in 2009, one of the last bills the Senate considered was a measure to continue a major bailout and deliver $675 million in cash to companies that basically don’t need it because they were coming to Texas anyway.

Here’s how the program works:

The bill, H.B. 3676 extended the Texas Economic Development Act, a program which allows Texas school districts to enter into Chapter 313 tax subsidy agreements with businesses. Under the program, those businesses are allowed to forgo paying property taxes in return for locating in that school district’s area.

Plus, for each job proposed to be created under current agreements, the cost to the state is more than $376,000. The Comptroller recently reported on the cost per job of these 313 agreements:

Number of projects Number of jobs proposed on application Cost to state in foregone property taxes Cost per job proposed
R&D 4 295 $17,185,000 $58,254
Manufacturing 23 4,328 $874,897,000 $202,148
Nuclear power 2 500 $501,245,000 $1,002,490
Renewable energy 61 467 $713,444,000 $1,527,717
TOTAL 90 5,590 $2,106,771,000 $376,882

Source: Texas Comptroller

These agreements operate under almost no state oversight. Under the program, school districts can ignore the Texas Comptroller’s recommendation against approval of an agreement. So regardless of whether it makes economic sense or is even eligible under the statute, districts can choose to proceed with an agreement to write up to $2.4 billion in subsidies on the taxpayer’s checkbook.

Since the corporate subsidy program started in 2001 with passage of H.B. 1200, agreements made under the Act are expected to cost the state nearly $5.7 billion ? at a cost of $376,000 per job. By contrast, under the Texas Enterprise Fund, about $377 million has been invested at about $7,000 per job, with state oversight and reporting.

Extending the Act to 2015 under will cost the state a total of $675 million dollars per biennium.

The Act invites corruption by allowing corporate lobbyists go one-on-one with school board trustees. After the trustees enter into agreements, they then send the bill for the bailout to Austin for taxpayers to pick up.

Rather than investing in the very workforce and infrastructure that Texas so desperately needs, Grover Norquist’s disciples chose to continue subsidizing the world’s major corporations.

At what cost was this choice made? That $675 million could have paid for another 65,000 Texans to go to college to educate the workforce that Intel says is the single most important factor in where companies locate.

What’s another choice? We could have put $200 million into the Texas Department of Transportation (TxDOT) to pay for $4 billion in bonds to build just in time mobility that Intel said was the second most important factor in where companies locate. Sadly, diversions that have plagued the agency will continue, and soon, maybe as soon as 2012, there will simply be no more money to build roads in the state of Texas.

Or, for less than $675 million, we could have insured another 376,000 Texas kids under Medicaid.

What happens when we choose last?

What happens is we are dead last in population with a high school diploma, 46th in average SAT scores, and increasingly, a society where not nearly enough get the education they need to compete in a 21st Century world.

Choosing last is not the right choice.

Texas deserves better.