Update: The Dallas Morning News reporting this morning (April 10, 2013) that the Texas House voted to loosen job reporting for the Emerging Technology Fund. To protect start-up companies from “rivals,” the bill will no longer require award recipients to post the exact number of jobs they have created. Instead, the governor’s office “could choose increments of 10 — as in, say, 10 to 20 jobs at a particular company, or it could report a number that’s within 5 percent, plus or minus, of the actual number of jobs created at a firm.”
In the wake of the November presidential election defeat, the Texas GOP sent out a memo to local chapters: “Please stop holding party meetings in country clubs.” Last month, we covered the RNC’s new report, Grow The GOP, and how they want Republican candidates to be more “authentic” and “caring.” While it appears the Republican Party is really wanting to find ways to change/improve its image and eliminate negative stereotypes, news keeps popping up of Texas Republican officials doing the exact opposite. On Saturday, in my interview with Texas gubernatorial candidate Tom Pauken, he accused Gov. Rick Perry of practicing corporate welfare/cronyism. Also, the Dallas Morning News released a report yesterday showing Gov. Perry, Lt. Gov. David Dewhurst, and Texas House Speaker Joe Straus benefiting heavily from campaign contributions through companies (their PACs, investors, owners) whom received grants/awards from special Texas funds. So, are the accusations true? Are three of the most powerful elected officials in Texas benefiting from corporate kickbacks?
What is corporate welfare or cronyism?
The definitions offered vary slightly, but cronyism can be summed up as “the appointment of friends and associates to positions of authority or offering of political favors, without proper regard to their qualifications.” Among political insiders, it is called “playing the game.” The game is simple. You scratch my back, and I will scratch yours, or viceversa, and it has been played as long as governments have existed. A more recent example would be Pres. Obama’s appointment of big campaign fund raisers to jobs in his administration. Definitions for corporate welfare vary as well, but the Cato Institute defines it as government spending programs “that provide payments or unique benefits and advantages to specific companies or industries.” In short, some companies or industries get special treatment while others do not. Farm subsidies for corn ethanol or Department of Energy loans to “green energy companies” are examples of how it currently exists within our governments.
Corporate welfare in Texas
Mr. Pauken and the Dallas Morning News pointed to two specific funds, the Texas Enterprise Fund and the Emerging Technology Fund. Created to “to help Texas create jobs” and “strengthen the state’s economy,” the TEF and ETF have together awarded roughly $900 million to various companies in return for direct investment and job creation within the State of Texas. The sizes and industries of the companies range widely, but quite a few large corporations have received taxpayer money as well, including Apple, Facebook, Bank of America, Visa, Samsung, and more. According to the State, to be eligible for the TEF award a company’s project “must demonstrate a significant return on the state’s investment and strong local support. The review process will consider a variety of factors, including job creation and wages, capital investment, financial strength of the applicant, applicant’s business history, analysis of the relevant business sector, and public and private sector financial support.” The ETF differs slightly as it is geared towards “early stage companies” with a focus on “industry/academia collaboration.” It must be noted that these are not loans, but awards or grants given to specific companies. If any of the companies do not fulfill their obligations or terminate the agreement, the State will “demand a repayment of the grant disbursement through a letter of credit put in place at the time of the original agreement.”
Cronyism in Texas
While you may or may not agree upon the merits the grant/award system, it is, by definition, a form of corporate welfare. But, does corporate welfare automatically indicate the presence of cronyism? For the Texas Enterprise Fund, in Texas Gov. Code Ann. § 481.078 : Texas Statutes – Section 481.078, award recipients are selected by the governor “only with the express written prior approval of the lieutenant governor and speaker of the house of representatives.” Therefore, all three are responsible for awarding tax payer money to companies. In yesterday’s DMN report, the Texans for Public Justice found $3.6 million in donations to Perry, Dewhurst, and Straus from TEF and ETF award recipients (their PAC’s, employees, investors). We at Hardhatters did our own research to find out who was giving to who. We examined, using the Texas Ethics Commission and Federal Elections Commission, as many PACs, investors, board members, executives, and employees as could be found related to these recipients. What was discovered was that the Texans for Public Justice contribution tally was less than half of what has been donated. Our calculations show over $10 million has been given to Perry, Dewhurst, and Straus.
Click the image below to view all of the recipients/contributors:
Of the nearly $900 million that has been awarded, nearly half was given to companies with a history (both before and after the award date) of donating to the campaigns (state and Federal) of Perry, Dewhurst, and Straus.
In October of 2011, during Perry’s presidential bid, Texans for Public Justice released a similar report examining Perry’s donors and the Texas Enterprise Fund. Perry campaign spokeswoman Katherine Cesinger said, “The report from the liberal TPJ group, which hypocritically refuses to release its own donors, draws false and unsupportable conclusions.” While it is not possible at this time to determine if there are any correlations between the campaign donations and the awards, the numbers do raise eyebrows. Some of the donations came after the award was given. However, one could say that money buys loyalty, or loyalty buys money. It is your basic chicken or the egg argument.
Terminations and Bankruptcies
One sad discovery was the loss of tax payer money to companies going bankrupt or terminating the agreements. Currently, eight companies have filed for Chapter 7 (liquidation) bankruptcy or ceased operations, four have no performed their duties, and six companies have had their agreements terminated. The total potential tax payer loss was just over $14.2 million (updated).
In response to the latest bankruptcy, Perry spokeswoman Lucy Nashed defended the program, “Nobody expected that there wouldn’t be some companies that didn’t make it. This type of fund will always have companies like that, but I think the amount of money that we’re bringing in from outside funding and the increase in the state’s investment value is significant.” However, at a campaign stop in Iowa, Gov. Perry criticized subsidies for ethanol saying, “I do not think it is the federal government’s business to be picking winners and losers in frankly any of our energy sources.” It appears a few losers were chosen in Texas as well.
What is to be learned?
Nobody can deny that Republicans AND Democrats are both guilty of having relationships with and receiving contributions from large corporations. Unfortunately, only Republicans have been publicly stereotyped as big oil, Wall street, corporate elites. Government subsidies or “investments” may seem all well and good, but it seems unsympathetic for governments to play Monopoly with tax payer money. While cronyism among the Big Three can’t be proven, only suspected, Republicans should begin to second look at what constituents they are trying to reach. If they are to follow the Texas GOP and RNC’s recommendations and come down from the mountain to our level, then they should start thinking about whose money they are using. Does Apple, Bank of America, GE, and other multi-billion dollar corporations really need our millions just to come to Texas? For example, in return for a $10.8 million award, Samsung is supposed to invest $2.5 billion in Texas. That award accounts for only 0.4% of Samsung’s investment. Would withholding such a small amount really be a deal breaker? That $10.8 million could have been used to buy books for schools or helped repair a road instead. In the eyes of many of these companies, the millions given out are just pennies. In the eyes of the officials giving out the millions, its free because its not their money. It is ours.
If Republicans are really serious about reclaiming victory, and, if the Big Three are really as conservative as they claim to be, then it is time to change focus. Drop the country clubs, drop the executive suites, drop the owners’ boxes, and come back home.