A Performance Audit
An Audit Report on Selected Major Agreements Under the Texas Economic Development Act
July 2019
Summary Analysis
Under the Texas Economic Development Act (Texas Tax Code, Chapter 313), independent school districts (ISDs) have entered into agreements with businesses for limitations on the appraised value for property (agreements), and those agreements have enabled capital investments and job creation benefiting the local and state economy.
The State Auditor’s Office selected and audited four agreements at three ISDs and determined that the ISDs processed applications, executed agreements, and disclosed conflicts of interests as required. However, the Office of the Comptroller of Public Accounts (Comptroller’s Office) should specify the appropriate actions that ISDs should take to correct an issue with reinvestment zone compliance identified in the agreements. In addition, Floydada ISD and Calhoun County ISD did not follow Texas Education Code, Section 42.005, for computing average daily attendance when calculating supplemental payments, as required by Texas Tax Code, Section 313.027(i).
All three ISDs performed required monitoring and submitted all required monitoring reports to the Comptroller’s Office. However, the Comptroller’s Office does not provide guidance to the ISDs to address issues resulting from business eligibility reports prior to submitting monitoring reports.
The four agreements for limitations on appraised value of property (agreements) audited included:
- Barbers Hill Independent School District’s (ISD) agreements with Lone Star NGL Asset Holding II LLC (Application No. 1016 and Application No. 1034).
- Calhoun County ISD’s agreement with Formosa Plastics Corporation, Texas (Application No. 1048).
- Floydada ISD’s agreement with South Plains Wind Energy LLC and South Plains Wind Energy II LLC (Application No. 1004).
Each ISD hired a consultant to assist in the administration of the agreements selected, including (1) addressing reporting requirements and (2) performing annual calculations of revenue protection payments and supplemental payments.
The ISDs processed the applications and developed agreements appropriately.
Forty-one current agreements executed between January 1, 2014, and January 24, 2016, contain a clause requiring qualified property to be located in a reinvestment zone until the final termination date of the agreement. All 41 agreements containing this clause have durations of 15 to 19 years. However, the Comptroller’s Office has asserted that, according to Texas Tax Code, Chapter 312, a reinvestment zone can last only up to 10 years. As a result, for 3 of the 4 agreements audited, the properties are located in areas where the reinvestment zone designation had expired. Additionally, for the remaining 38 agreements that include the clause, the reinvestment zones will also expire before the agreements end.
While Barbers Hill ISD, Floydada ISD, and Calhoun County ISD complied with requirements for calculating revenue protection payments, two (Floydada ISD and Calhoun County ISD) of the four agreements were not in compliance with the Texas Education Code in calculating a component used to determine supplemental payments from businesses.
Specifically, for their agreements, Floydada ISD and Calhoun County ISDs did not calculate average daily attendance (ADA), which is used in determining supplemental payments, according to the methodologies in Texas Education Code, Section 42.005. Both the Comptroller’s Office’s agreement template and Texas Tax Code, Section 313.027(i), require the ISDs to follow those methodologies.
All three ISDs had effective processes for disclosing conflicts of interest. Specifically, all three ISDs complied with Texas Local Government Code, Chapters 171 and 176, which requires board members to disclose conflicts of interest.
All three ISDs submitted all required monitoring reports. However, for one of the four agreements audited, Floydada ISD submitted to the Comptroller’s Office an incomplete report noting that the business was not current with its Texas franchise tax requirements. While the Comptroller’s Office has included in its agreement template some procedures to address certain noncompliance issues, it has not provided guidance on how to handle situations in which incomplete monitoring reports are submitted.