How A "Typo" Resulted In A $7 Billion Corporate Welfare Program In Texas

Throughout the 90s, Texas was frequently listed as a finalist in Site Selection magazine's annual Governor's Cup competition which served as a proxy for how "business friendly" a state was.  According to the magazine, the ranking was based upon the "Conway Project Database" and tracked the number of projects started in a state each year that met certain financial thresholds.

The Governors Cups reflect yearly project totals as tracked by the Conway Projects Database. Qualifying projects must meet one or more of these criteria for inclusion in the database: a minimum capital investment of $1 million, 20 or more new jobs created, and 20,000 or more square feet of new space.    

Unfortunately, everything went awry in 2000 when, according to the Observer, the Lonestar State dipped from the top of the annual ranking to 37th in the country. 

For years, Texas had been a perennial finalist for the Governor’s Cup, awarded annually by Site Selection magazine to the state with the year’s most million-dollar development projects. But by 2000, Texas had dropped to 37th.

Out of fear that it was losing its competitive edge to Louisiana, Arizona and other states, Texas then passed the Texas Economic Development Act (often called “Chapter 313”) which was meant to attract new businesses to the state by offering big breaks on property tax bills.  The Governor's Cup ranking was a key piece of evidence used by proponents of the program to sway lawmakers and was frequently cited in the media to support the initiative.  

Since then, Chapter 313 has seemingly met/exceeded expectations and has returned Texas to the top of the 2015 "Governor's Cup" rankings.

Texas

 

Of course, there is just one problem.  According to a new Senate committee report, Texas should have never been ranked 37th in the 2000 issue of Site Selection magazine but rather 8th, an error that lawmakers have attributed to a "typo" by the publisher. 

But according to a new Senate committee report, that number was wildly inaccurate.

 

Lieutenant Governor Dan Patrick included a review of the Chapter 313 program in his interim charges for the Legislature, and the Senate Committee on Natural Resources and Economic Development released its findings in mid-November. The report is critical of the program for a number of reasons, but its greatest revelation is that Chapter 313 was initially sold to lawmakers on a lie — or, at least, a typo.

 

The committee’s review of the March 2001 issue of Site Selection, and its database of new manufacturing plants in each state, shows that Texas actually ranked eighth in the country, not 37th. The report traces the lower ranking to a single chart in the issue, which says Texas attracted just three new corporate facilities from 1998 to 2000 — even though the magazine notes elsewhere that Texas drew 71 new projects in 2000 alone. The publisher’s database manager, Karen Medernach, acknowledged the error in a phone interview in October, according to a footnote in the report.

 

“The unavoidable conclusion,” according to the report, “is that the case for passing the largest economic development incentive program in the State’s history may have been based on the fear incited by a magazine’s typographical error.”

Unfortunately, that ranking played a key role in the passage of the Texas Economic Development Act that has resulted in $7BN worth of financial incentives provided to companies that very well may have relocated to Texas anyway.

Dick Lavine, an analyst at the Center for Public Policy Priorities who has been critical of Chapter 313 since its inception, told the Observer that the No. 37 ranking really was central to the argument in favor of the program.

 

“That was a major part of [former state Senator] Kim Brimer’s pitch, that we had always ranked high in Governor’s Cup rankings and we had suddenly plummeted. He pinpointed property taxes as the problem, and his bill, HB 1200, as the solution,” Lavine said. “This mammoth program, which is costing the state literally hundreds of millions of dollars in foregone property taxes, may have been justified by a typo in Site Selection magazine.”

 

In fact, the total cost of the program is $7.1 billion, according to the report, counting only deals in place before October. That number will continue to climb, and the law provides no limit.

Oh well, what's $7BN to taxpayers...just another rounding error.

But, we hope Site Selection magazine isn't being too hard on themselves...everyone makes publishing mistakes from time to time.

Hillary