An Audit Report on Selected Major Agreements Under the Texas Economic Development Act
Report Number 15-009
The Texas Economic Development Act (Texas Tax Code, Chapter 313) has encouraged capital investment and job creation by businesses that have appraisal limitation agreements (agreements) with school districts. Oversight of those agreements relies primarily on self-reported information that businesses certify.
County appraisal districts reported to the Office of the Comptroller of Public Accounts (Comptroller's Office) that, from tax year 2005 through tax year 2013, an estimated $905.2 million in property tax revenue was lost as a result of agreements. In addition, as of December 31, 2013, businesses associated with approximately 242 executed agreements and 57 applications for agreements may be entitled to receive an estimated $786 million in tax credits from tax year 2014 through tax year 2030.
To determine whether businesses with agreements complied with Texas Tax Code, Chapter 313, the four school districts audited relied primarily on the certification of the annual eligibility forms and biennial progress reports that businesses submitted to confirm the businesses' capital investment and the number of jobs they committed to create or had created. Statute does not require school districts to verify that information, and the school districts audited did not perform verifications.
School districts provide the information that businesses submit to the Comptroller's Office and the Texas Education Agency (TEA) as the basis for additional state aid paid to the school districts for (1) property tax revenue losses associated with agreements and (2) tax credits associated with agreements. Because school districts certify that information provided is true and correct, neither the Comptroller's Office nor TEA verifies the information.
Each of the four school districts audited hired the same consultant to compile information that businesses reported.
Based on the information in their annual eligibility forms and biennial progress reports, the businesses with agreements certified that they met certain elements and complied with various requirements of Texas Tax Code, Chapter 313. The school districts associated with the agreements accepted the submissions.
Overall accountability and transparency of agreements could be strengthened in the following areas:
- Verification of information. As discussed above, the school districts audited relied primarily on certifications that businesses submit. Statute does not require school districts to verify that information, and the school districts audited did not perform verifications.
- Disclosing conflicts of interests. The ethics policies for each school district audited varied, and the Comptroller's Office and TEA did not require their staff to disclose potential conflicts of interest or affirm that no conflicts existed with the businesses and the consultants associated with the agreements.
- Issuing tax credits. From tax year 2006 through tax year 2013, 47 school districts processed approximately $26 million in tax credits to businesses with which they had agreements. At the direction of TEA, most school districts paid tax credits directly to businesses. However, as specified by Texas Tax Code, Chapter 313, their agreements required the school districts to direct their collectors of taxes to apply tax credits to a business's future property taxes.
- Developing agreements. The agreements audited included provisions that complied with Texas Tax Code, Chapter 313, and were approved by the members or trustees of a school district's board. However, agreements did not consistently:
-- Specify the agreed-upon investment amounts, the description and address of the property, and the anticipated number of jobs to be created. (That information was in the applications for agreements.)
-- Describe how school districts would determine and issue tax credits to businesses.
-- Require businesses to obtain written approval from the Comptroller's Office and the school district to add new property to the agreement.
-- Require school districts to determine the eligibility of any new business to which an existing agreement would be transferred.
In addition, opportunities exist to improve certain administrative processes at each school district audited. While the issues identified in those processes may not be material to determining compliance with Texas Tax Code, Chapter 313, they are significant to each school district's management of agreements.
Auditors also communicated other, less significant issues separately in writing to each school district audited, the Comptroller's Office, and TEA.