Imagine your child running a lemonade stand and being forced to pay taxes on it. Now imagine your next-door-neighbor’s kid opens a lemonade stand, where the pitchers and timber are paid for by your kid’s taxes.
That’s how the Texas Enterprise Fund works.
The state legislature taxes individuals and businesses, gives the governor an allowance for the TEF, and then the governor hands out money to corporations he wants to move to Texas. Proponents of the program say the long-term economic impact benefits everyone.
We’re not saying its good or bad economics, but you can certainly see why it angers a lot of people.
This morning, Governor Greg Abbott put out a press release, praising the relocation of Toyota from California to Texas. They’re bringing with them 4,000 jobs, though he didn’t specify how many of them were already filled by Californians moving with the company.
Toyota has been building trucks in Texas since 2006. You may have seen the bumper stickers “Born in Texas, Made by Texans.”
But today marks the grand opening of the North American Headquarters in Plano. It’s a pretty big deal, and having such a powerhouse based in Texas will certainly strengthen the state’s already robust economy.
This particular story goes back to 2014, when then-Governor Rick Perry granted $40 million to Toyota to entice them to move here.
At that time, there was an undercurrent of grassroots opposition to the fund. People wondered, why should they, in Amarillo, or El Paso, or Austin have to pay taxes to help a multi-hundred-billion-dollar company move to north Dallas?
And why should Chevy and Ford dealers have to pay to make Texas the home base for their competitor?
This became an issue in the 2014 election, when Sen. Wendy Davis ran for governor against then-Attorney General Greg Abbott. Davis, a Democrat, proposed auditing the fund, since it had never been audited before.
Though she lost the election, it was an issue with bipartisan appeal.
So when lawmakers got back to the Capitol for their biennial session in January 2015, the House took a vote on abolishing the TEF altogether.
The vote failed because too many believed that one, the fund is a short-term investment for a long-term economic payoff, and two, the loss of this tool would put Texas at a disadvantage when negotiating against other states with similar funds.
Of course, this sounds an awful lot like the argument surrounding sports stadiums across the country, but that’s another issue for another day.
Here’s a quick rundown of the arguments on the House floor that day:
Rep. Matt Rinaldi laid out an amendment to the state budget which would have zeroed-out the TEF, calling it “a corporate welfare fund that is antithetical to the idea of free markets.” He continued,
“First, the government is inefficient at producing public goods, its terrible at manipulating the market for private goods. Money is more efficiently used for job creation in the hands of the individual business taxpayers that provided the money in the first place. Government agencies shouldn’t function as venture capitalists with the taxpayers’ money.
Eliminating this program in the long term would put hundreds of millions of dollars back in the taxpayers’ pockets, and reduce the government disruption of numerous markets.”
Rep. Drew Springer rose in defense of the fund pointing out that the state of North Carolina had offered Toyota $100 million, yet they still chose Texas which had only offered $40 million. He said this is an example of how successful the program is, despite its being more fiscally conservative.
Rinaldi responded that they chose Texas over North Carolina because of our strong business climate. He then read a statement from Toyota in which they called the TEF “a secondary and short-term incentive” that was “ancillary to their marginal analysis.”
“[Toyota] had already decided to move when the incentive was announced,” said Rinaldi.
Springer tried a different approach, telling Rinaldi to think of all the employees that moved to Texas and bought houses. He said they will generate millions and millions of dollars that will benefit the state.
“We know that we have problems with the Enterprise Fund,” Springer said, “and I know that you’ve weighed in on some of those, but we’ve talked about the fact that the fund is too slow, the fact that the Fund has benefited the [DFW-San Antonio-Houston] triangle, and we want to see it expanded out to where it benefits the entire state… Do you know that we have basically paid $7,400 per job in the state of Texas?”
Rinaldi responded, “I’ve never seen a study that actually nets out the number of jobs that would have been created had the money not been taken from the taxpayers in the first place.”
In closing his argument, Springer admitted the state gets to pick and choose which companies will get the money.
Springer: “We don’t give this money to everybody. Are you aware of the percentage of companies that apply that actually get these funds? Its down around 30%”
Rep. Larry Phillips then spoke in opposition to Rinaldi’s amendment, saying, “We have to compete with all other states around us because 49 other states are doing this… We don’t need unilateral disarmament.”
Finally, Rep. Pat Fallon, Rinaldi’s deskmate, said, “I agree with every single thing you said, in theory, because in a perfect world, we shouldn’t be picking winners and losers in the government. The problem is with the other 49 states. Wouldn’t you agree that if the other 49 states are doing this, that it would put, possibly, Texas at an economic disadvantage because they’re doing it and we’re not? See that’s the issue I have.”
“We’re taking the money away from taxpayers that have a greater job-producing effect. For example, if you are handing out $40 million to a company and government’s choosing who’s going to get the ability to create jobs with that money, they’re taking away $40 million from small businesses that would otherwise create jobs.
So what you’re saying essentially is government is more efficient at creating jobs than the private market is with the same amount of money.”
Rinaldi’s amendment was tabled (killed) 119-22.
In 2017, when lawmakers met again to discuss the next biennial budget, Rep. Sergio Muñoz offered an amendment to zero-out the fund, preempting a similar planned attempt by the conservative Freedom Caucus.
In a stark contrast to the previous session, this amendment passed without debate. However, budget negotiators between the House and Senate put the money back in the final proposal which eventually passed.
The debate is guaranteed to rage on throughout the election season and into the next legislative session.
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