A Performance Audit
An Audit Report on Selected Major Agreements Under the Texas Economic Development Act
Under the Texas Economic Development Act (Texas Tax Code, Chapter 313), businesses have made capital investments and created jobs through their agreements for limitations on the appraised value of property (agreements) with school districts. Oversight of those agreements relies primarily on self-reported information that businesses certify.
As of December 31, 2015, there were 282 executed agreements between 147 school districts and 193 businesses. County appraisal districts reported to the Office of the Comptroller of Public Accounts (Comptroller’s Office) that, from tax year 2005 through tax year 2015, an estimated $1.403 billion in property tax revenue was not collected as a result of agreements. As of December 31, 2015, businesses associated with approximately 282 executed agreements and 1 application for an agreement may be entitled to receive an estimated $590 million in tax credits from tax year 2006 through tax year 2031.
The three school districts audited—the Port Neches-Groves Independent School District, the Sabine Pass Independent School District, and the Clyde Consolidated Independent School District.
Auditors identified the following areas related to the overall accountability and transparency of agreements that could be strengthened.
• Oversight of agreements under Texas Tax Code, Chapter 313, is based primarily on information that businesses certify.
• There are no statutory requirements to verify information that businesses report and certify.
• Additional state aid provided to school districts is based primarily on information that businesses report and certify.
• The school districts audited had conflicts of interest policies that complied with statute; however, auditors identified weaknesses in those policies.
• Agreements executed prior to January 2014 may not be subject to statutory job-creation monitoring requirements.
For the school districts audited, monitoring relied primarily on information that businesses certified on annual eligibility reports and biennial progress reports that neither the school districts nor their consultants verified.
The school districts documented their determinations of how the agreements would comply with the purpose and intent of Texas Tax Code, Chapter 313.
To make those determinations, the school districts relied primarily on their consultant to verify the certified information that the businesses provided in their original and amended applications for agreements.
The three school districts audited executed their agreements with businesses in compliance with Texas Tax Code, Section 313.027.
However, the agreements did not include certain provisions that would increase accountability and transparency.
Sabina, Golden Pass LNG, and Mesquite Wind and Post Oak Wind submitted annual eligibility reports and biennial progress reports to the school districts audited, as the Comptroller’s Office required. The three school districts audited submitted all annual and biennial reports as required to the Comptroller’s Office.
However, auditors identified discrepancies between the market values that the school districts audited reported in their cost data reports and the values that Sabina, Golden Pass LNG, and Mesquite Wind and Post Oak Wind reported in their annual and biennial progress reports.
The school districts audited did not comply with statute regarding how tax credits should be provided to the businesses. Texas Tax Code, Section 313.104, required the school districts to direct the tax assessor-collector for the school district to apply the tax credits against the future taxes imposed on the qualified property
The school districts paid tax credits directly to the businesses with which they had agreements, instead of applying tax credits to future property tax bills as statute required.
The audited school districts’ current conflict of interest policies included all statutory requirements in Texas Local Government Code, Chapters 171 and 176; however, those policies did not require the filing of disclosure statements on a regular basis or affirmations that conflicts did not exist on an annual basis. That increases the risk that a conflict of interest could exist but is not disclosed.
Opportunities exist for the three school districts audited to strengthen certain administrative processes. While the issues discussed below may not be material to determining compliance with statute, they are significant to each school district’s management of Chapter 313 agreements.
The school districts did not have a process for reviewing information related to revenue protection payments and payments in lieu of taxes. Therefore, they did not always ensure that their consultant accurately calculated the amounts that they should have billed for revenue protection payments and payments in lieu of taxes.
Auditors followed up on 11 recommendations addressed to the Comptroller’s Office in An Audit Report on Selected Major Agreements Under the Texas Economic Development Act (State Auditor’s Office Report No. 15-009, November 2014). Auditors determined that:
• Ten of the recommendations were fully implemented.
• One recommendation was no longer applicable due to a change in statute.
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