AUSTIN, Texas—While Republican Gov. Rick Perry firmly opposes accepting federal economic stimulus money for the state's unemployment system, his Texas Enterprise Fund for businesses steadily pulls in tens of millions of dollars from the dwindling Texas unemployment tax pool.

That arrangement is getting more scrutiny at the Capitol as more Texans lose their jobs, as Perry's opposition to federal government money persists and as the enterprise fund and its sister account, the Emerging Technology Fund, overseen by the governor increasingly come under fire from legislators.

Under existing law, one-tenth of 1 percent of taxable wages paid by businesses to the Texas Unemployment Trust Fund goes into a holding account. Each October, if the amount of money in the unemployment insurance fund is above a certain level, 75 percent of that holding account money goes to the Texas Enterprise Fund and 25 percent to a skills development fund to help retrain workers.

For Perry's enterprise fund—a deal-closing account and a cornerstone in his efforts to create jobs and lure businesses to Texas—it brings in as much as $120 million for a two-year state budget cycle.

Now Democrats and Republicans in the Legislature are questioning whether the division of money is a fair amount and whether unemployment tax money should go to the enterprise fund at all—especially since it came to light that Perry moved money from the enterprise fund into the
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emerging technology fund and gave $50 million in January to the Texas A&M University System, his alma mater, for a biotech manufacturing center.

House Appropriations Chairman Jim Pitts, a Waxahachie Republican, questioned Perry's staff at length about that transfer last week and moved for more legislative oversight of the job creation funds. He said he worried about how unemployment taxes going into the funds were being spent.

The unemployment fund is projected to have only $48 million, or $812 million less than it should, by October, triggering a higher tax on employers.

Meanwhile, Perry opposes accepting $550 million in federal economic stimulus money for the unemployment system because he says it will require the state to change its unemployment coverage rules and commit Texas businesses to paying higher taxes for years to come.

"He's being hypocritical, because what he has said is he doesn't want taxes raised on businesses, yet he is taking dollars from businesses and giving it essentially to another business," said Democratic Rep. Garnet Coleman of Houston, a longtime critic of the enterprise fund.

Coleman said he thinks no unemployment money should be diverted to other funds during a recession.

Perry spokeswoman Allison Castle said Tuesday that lawmakers, not the governor, determine the funding source for the enterprise fund and that Perry is not voicing a preference on whether he receives unemployment tax money. (A large chunk of the money comes from general state revenue.) But Perry wants to continue putting millions of dollars into "the most successful, proven job creation fund in the state's history," she said.

Perry asked for $260 million for the enterprise fund in the upcoming budget; Pitts is recommending $136 million.

A Texas House committee charged with overseeing federal economic stimulus money, chaired by Democratic Rep. Jim Dunnam of Waco, said in a staff memo last week that one way to keep the unemployment fund replenished is to return money diverted to the enterprise fund.

"Currently the Governor's Enterprise Fund has a balance of $245 million which could be moved to the Trust Fund to help avoid or reduce the increase in unemployment taxes on all Texas businesses," a staff memo said.

Perry's office disagrees because it's only a short-term remedy, Castle said.

Then there is the question of whether to change how that unemployment money from the holding account is split between the enterprise fund and job skills development.

Rep. Norma Chavez, an El Paso Democrat, filed legislation seeking to split the holding account money—up to $160 million per two-year budget cycle—50-50 between the enterprise fund and the job skills development fund. She sponsored the legislation that created the current holding account split, working with Perry's office in 2005, she said.

In 2007, Chavez won passage of a proposal to maintain the division at 67 percent in favor of the enterprise fund and 33 percent for skills development. It would have kept the 75-25 split from taking effect. Perry vetoed her proposal.

"I was very upset," Chavez said, adding that Perry's office would have never had unemployment fund money in the first place if not for her original bill. "The governor never throughout the process told me there was a problem."

Castle, in Perry's office, said his veto wasn't a statement on whether he wanted money to come to the enterprise fund from the unemployment fund. It was just that he didn't want to lose more than $12 million that would have left the enterprise fund. Perry made similar remarks in his veto message at the time.

Chavez said she expects heightened interest in the holding account this legislative session because of the recent concerns over the enterprise fund.

"The Texas Enterprise Fund is lacking sincere accountability," she said.