Senator Eliot Shapleigh - El Paso, Texas

By DAVE MICHAELS / The Dallas Morning News

AUSTIN – Gov. Rick Perry pressed for creation of the Texas Enterprise Fund nearly two years ago with the promise that it would improve the state's economy, increase tax receipts and generate jobs.

In the last 16 months, he's disbursed $100 million in grants to companies that said they would create thousands of new jobs in Texas. Mr. Perry praises his fund, the largest of its kind in the nation, for spurring 15,000 new positions and luring more than $6 billion in corporate investment to Texas.

Those figures may yet come to pass. But a review of the program by The Dallas Morning News has found that the state paid millions of dollars without securing pledges that any new jobs would be created.

One company promised to create jobs but the state didn't make the promise legally binding. Another will get $5 million for moving its headquarters to Texas even though company officials have said the move had nothing to do with the grant.

To date, 275 jobs have actually surfaced, although Mr. Perry has announced 15 grants to companies that promised to bring economic activity to the state. Texas has signed just five contracts with companies that promise to create 8,500 jobs.

And some grant recipients are allowed to credit themselves for so-called indirect jobs – positions that appear in the economy as a result of innovations made by a company.

"The issue of quantifying [jobs] has always been problematic," said Sen. Steve Ogden, R-Bryan, chairman of the Senate finance committee. He said he would prefer guidelines that emphasize a company's investment in a project rather than jobs.

Mr. Perry calls the fund an unqualified success and plans to seek more money from the Legislature next year. His staff cautions that companies cannot create the jobs immediately.

"If you are not creating jobs in your state, you are not creating the resources that pay the taxes, that in turn pay for the programs that a state is involved in," Mr. Perry said recently. "I happen to think a governor can never sacrifice a long-term view in funding short-term needs."

Recent studies by economist Ray Perryman of the Perryman Group in Waco concluded that it would take seven to 10 years for the state to recapture its investment in several projects.

And the fund has been vital to bringing jobs to Texas that would have gone elsewhere, Mr. Perry said.

Over the last year, Citgo Petroleum Corp., Home Depot, Texas Instruments and Vought Aircraft announced that they would move or expand operations in Texas with the help of an enterprise fund grant.

Mr. Perryman's studies predict that the fund's investments will spawn far more than 15,000 jobs. Sematech, TI and Vought projects will create 38,035 new jobs in Texas, his studies show. He calculated the companies would create jobs at other businesses, such as suppliers, public utilities, restaurants and retailers.

"Any state would kill to have one of these projects every two years," said Phil Wilson, Mr. Perry's deputy chief of staff. "We have four."

Incentives needed?

But Citgo officials have made conflicting statements about whether the company needs a $5 million grant it will receive to consolidate its operations in Houston.

After the announcement, in April, company officials said the move was a "strategic decision" not based on incentives. The company, formerly based in Tulsa, simply wanted to be closer to its refineries in Texas and Louisiana.

This month, a Citgo spokesman said the money received through the enterprise grant played into the company's decision. "Incentives were part of the overall strategy," said Citgo spokesman David McCollum.

Robert Black, a spokesman for Mr. Perry, said that if the enterprise fund had not reached out, Citgo would still be in Tulsa. "The enterprise fund was instrumental in bringing Citgo's headquarters to Texas," Mr. Black said.

But Kim MacLeod, a spokeswoman for Tulsa Mayor Bill LaFortune, said Citgo never responded to Tulsa's offer of incentives. "From his [Mayor LaFortune's] conversations with the executives of Citgo, it was clear to him that incentives were not the issue," Ms. MacLeod said.

Mr. Perry also announced an award of $9.8 million to a universities-driven project that promises no jobs. Project leaders say the research could spin off jobs in the future.

Leaders of Lonestar Education and Research Network, or LEARN, said they are still not sure how they wound up in the Enterprise Fund. Funding was to come from a source created specifically for technology, the Telecommunications Infrastructure Fund – an account eliminated last year in the budget cuts.

"I heard not much of anything for months, and then someone called and said there is a rider in the higher education funding legislation that authorizes use of the enterprise fund," said Dan Updegrove, chairman of LEARN.

In Brownwood, where Superior Essex will receive a $250,000 grant to bring in manufacturing jobs, public officials said the company probably would have expanded without government incentives. The company makes copper and fiber-optic cable.

"There is a good possibility they would have expanded some, but not as much," said James Campbell, the director of Brownwood's economic development corporation, which requested the grant. "As long as the company is willing to create new, high-paying jobs, that alone could create an economic incentive from us."

Counting the jobs

Contracts are still being worked out for most of Mr. Perry's 15 grant announcements. Of those, three were given to companies that are consolidating operations in Texas. It is unclear how many new jobs are created for Texans vs. employees moved here from other states.

"What you are doing is subsidizing the loss of jobs" from elsewhere, said Alan Peters, chairman of the graduate program in urban and regional planning at the University of Iowa.

Vought, the aircraft manufacturer, received $35 million for committing to add 3,000 employees in Dallas and Grand Prairie. A Vought spokesman said 329 employees are moving from Nashville and Stuart, Fla., where the company is closing plants.

Vought has until 2009 to bring its employment in the Dallas area up to 6,000 people. After that, it will pay annual, interest-free penalties to the state. If no employees are added by 2019, Vought will have paid penalties totaling $33 million.

Still, that means Vought would get $2 million for doing nothing.

Mr. Black said the governor is confident in the deal. "In negotiations, there is give and take on both sides," he said.

Some Democrats criticize devoting so much money to corporate incentives. Investing in public education would produce a greater return for the state, they said. The state spends about $30 billion a year on education.

"It was the wrong priority," said Rep. Jim Dunnam, D-Waco. "It seems to me this is a public relations tool for the governor, where he can get on TV and hand out money."

Lt. Gov. David Dewhurst, who must sign off on enterprise fund awards, said the Senate would likely approve more money for the fund, perhaps "close to what was funded last biennium" – $295 million.

"I believe that out of next biennium's budget of over $120 billion, we can find some money to go into an enterprise fund to make Texas competitive on job creation," Mr. Dewhurst said.

Fighting for firms

The competition among state governments for companies is vigorous. Many firms hire consultants that "do nothing but go headhunting," said Scott Dunkelberger, deputy secretary for economic development in Pennsylvania.

"They shop projects around the states and see what they can get," Mr. Dunkelberger said. "That's the reality of it."

Some state officials say they wish they didn't have to subsidize private business.

In a recent speech, Mr. Perry said Texas' skilled workforce and low tax rates should be enough to attract companies. But with other states doling out subsidies, Texas will not "unilaterally disarm and disadvantage itself in the effort to attract jobs, growth and additional revenue," he said.

And jobs have become such a political football that governors and lawmakers are pressured to act.

Still, some economists say that incentives do not play into a company's decision to relocate or expand. Even in cases where incentives appear to be a decisive factor, it is impossible to independently analyze the company's data.

"I don't think the incentives are ever the deal closer," said Kathy Hayes, a professor of public finance at Southern Methodist University. "But that is one of those negotiating details you cannot really tell unless you are at the table."

While some states offer property and sales tax breaks to companies, grants remain the most attractive inducement because they help a project at inception, not years later.

States such as North Carolina and Pennsylvania have grant programs similar to Texas', although they devote far less money. Pennsylvania dedicates $50 million and North Carolina $20 million. Unlike Texas, Pennsylvania does not fund indirect job creation.

Even in Texas, the policy of subsidizing indirect jobs is not uniformly popular.

"An indirect job is a very difficult thing to track," said Mr. Campbell of the Brownwood economic development corporation "There is just no legal way to get certified reporting from those companies."

Mr. Black said the state would scrutinize any jobs claimed by Sematech, an advanced-technology research consortium that received $40 million to stay in Austin. The nonprofit operation was established in the 1980s with government money. It pays no property taxes and threatened to leave Texas for an incentive-rich offer from New York.

Sematech has until 2014 to create 4,000 new, indirect jobs in Texas. Sematech would owe the state $10,000 for every indirect job it fails to create, according to the company's agreement with the state.

Home-court advantage

Like Sematech, Texas Instruments threatened to build a plant outside its hometown. TI has been in Dallas since the 1930s.

Last year, it entertained suitors from 25 states and Singapore for a new chip plant. The company ideally wanted to build near existing Dallas-area facilities.

"Texas had home-court advantage because we have a substantial amount of our research and advanced manufacturing already here," said Phil Ritter, senior vice president at TI.

TI also wanted to strengthen the engineering department at the University of Texas at Dallas, a school established in 1969 by the company's founders. So the company requested a $50 million enterprise fund grant – for UTD.

On Thursday, TI broke ground for its $300 million chip plant in Richardson. Eventually, the plant will manufacture 300-millimeter silicon wafers used to make chips for wireless phones and other devices.

Without the enterprise fund's investment in UTD, the company's Richardson facility might have gone elsewhere, Mr. Ritter said.

Texas Instruments has pledged to employ 1,000 people. Its contract with the state obligates TI to invest $300 million in the plant but does not impose a specific employment target.

Mr. Ritter said TI would not agree to a job target because employment needs in the semiconductor industry are unpredictable. But he believes the company will meet its target.

"It is a challenge to tie job creation to some specific things in a contract," Mr. Ritter said.

E-mail dmichaels@dallasnews.com

MEASURING GROWTH

Gov. Rick Perry says the Texas Enterprise Fund, his $295 million vehicle for luring new jobs to the state, has created 15,000 jobs. A closer look shows 275 jobs created to date by three companies, and some projects have been funded that promise no new jobs. A look at the 15 grants Mr. Perry has announced since June 2003:

PROJECTS THAT HAVE CREATED JOBS

•Citgo Petroleum: Gets $5 million to move its headquarters and 820 jobs to Houston from Tulsa, Okla. The company has moved 150 employees.

•Home Depot: Gets $8.5 million to locate data processing and call centers in Austin and New Braunfels. So far, 60 jobs have been created. OfÞcials say more are coming later this year.

•Superior Essex: Brought 65 new jobs to Brownwood - 15 more than promised - for the manufacturing of copper and Þber-optic cable. The company’s grant was $250,000.

PROJECTS THAT HAVE PROMISED JOBS

•Cabela’s: Will get a grant of $400,000 if it hires 400 employees at new hunting supply megastores in Buda and Fort Worth. Cabela’s hopes to break ground in Fort Worth this summer.

•Huntsman: For a $2.75 million grant, the chemical company promised to relocate 326 corporate and research jobs to The Woodlands by the end of 2005.

•Lee Container: Will receive a $300,000 grant to manufacture plastic containers in Nacogdoches. About 100 jobs are promised.

•Koyo Steering: The state is committed to give the company $333,000 to build a manufacturing plant in Ennis. The company promises 200 jobs when the plant is built.

•Maxim Integrated Products: Will get $1.5 million to take over a vacant chip plant in San Antonio. The company has not hired anyone but has begun converting the factory for use. It promises 500 jobs.

•Sematech: The Austin semiconductor research consortium promises its research will spur 4,000 jobs at other companies by 2014. It was awarded a $40 million grant.

•Texas Energy Center: For a $3.6 million grant, it promised 1,500 jobs for the research of new energy sources. The center is recruiting companies that would work out of its campus in Sugar Land.

•Texas Instruments: Pledged to employ 1,000 people at a new $300 million chip plant in Richardson in return for a $50 million grant to the University of Texas at Dallas.

•University of Texas Health Science Center: The Houston center will get $25 million in exchange for 2,250 jobs developing medical imaging technology. OfÞcials say 450 jobs will be created when the center opens, as early as 2007.

•Vought Aircraft Industries: It has until 2009 to create 3,000 jobs in a consolidation and expansion of manufacturing activities in Dallas. Vought got $35 million from the fund.

•Baylor College of Medicine: The Houston hospital received $2 million for a bovine gene-mapping project. No jobs were promised or required.

•Lonestar Education and Research Network: The consortium of Texas universities got $7.3 million to develop higher-speed Internet networks between schools. An additional $2.5 million will go toward a related project. No jobs were promised or required.