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), independent school districts (ISDs) have entered into agreements with businesses for limitations on the appraised values for property (agreements). Those agreements have enabled capital investments and job creation benefiting the local and state economies.
The State Auditor's Office selected and audited agreements at three ISDs. For those three agreements, auditors reviewed the corresponding applications and the agreements to verify whether they complied with applicable Texas Tax Code, Chapter 313, requirements and requirements of the Office of the Comptroller of Public Accounts (Comptroller's Office).
The property valuation limitation amount and minimum qualified investment amount in Edinburg Consolidated Independent School District's (Edinburg CISD) agreement were lower than statutory minimums. McCamey ISD and Deer Park ISD processed applications and developed agreements as required.
All three ISDs' conflicts of interest policies complied with statutory requirements, and the ISDs had processes in place for disclosing conflicts of interest.
All three ISDs (1) either ensured payments were received by their due dates or followed processes to collect late payments and (2) correctly and accurately calculated payments in accordance with the agreements.
All three ISDs submitted all required monitoring reports to the Comptroller's Office.
A property value limitation agreement (agreement) allows a business to pay a reduced amount of taxes to an Independent School District (ISD) in return for creating jobs and capital investment that enhances the local and state economies. Chapter 1-A provides information on the process for establishing such agreements.
Chapter 1-B provides background information on the three agreements audited. The three agreements audited included:
- Deer Park ISD's agreement with Equistar Chemicals, LP (Application No. 1139).
- Edinburg Consolidated Independent School District's (Edinburg CISD's) agreement with Hidalgo Wind Farm, LLC (Application No. 1003).
- McCamey ISD's agreement with SPD Solar Texas 2, LLC (Application No. 1073).
The Property Valuation Limitation and Minimum Qualified Investment Amounts in Edinburg's CISD's Agreement Did Not Comply with Statute
The property valuation limitation (limitation) amount and the minimum qualified investment (investment) amount in Edinburg CISD's agreement were lower than the statutory minimums.
The property valuation limitation amount caps the property value for the business's maintenance and operations property taxes owed to the ISD. Edinburg CISD's agreement did not set the correct limitation amount of at least $30 million as required by Texas Tax Code, Section 313.054. Instead, the agreement set the limitation amount at $25 million. As a result, the business's property tax liability was reduced by a greater amount than allowed by statute.
A minimum qualified investment amount is the amount that the applicant must invest within the agreement's qualified time period. Edinburg CISD did not ensure that the agreement established an investment amount of at least $30 million, as required by Texas Tax Code, Section 313.053. Instead, the agreement set the investment amount at $25 million.
Edinburg CISD verified that the agreement included other required provisions.
McCamey ISD Complied with Most Requirements for Processing Agreement Applications and Developing Agreements
McCamey ISD obtained its Board's approval of the agreement and verified that (1) the applicant was eligible, (2) information about the applicant and proposed project was true and correct, and (3) granting the application was in the best interest of the district, as required by Texas Tax Code, Chapter 313. Additionally, McCamey ISD's agreement contained all required provisions, such as requiring the property owner to maintain a viable presence.
However, McCamey ISD was unable to provide documentation supporting that the amount of the application fee did not exceed its costs of application processing, as required by Texas Tax Code, Section 313.031(b).
Deer Park ISD Complied with Requirements for Processing Applications for Agreements and Developing Agreements
Deer Park ISD obtained its Board's approval of the agreement and verified that (1) the applicant was eligible, (2) information about the applicant and proposed project was true and correct, and (3) granting the application was in the best interest of the district, as required by Texas Tax Code, Chapter 313. Additionally, it verified that its agreement contained all required provisions, such as requiring the property owner to maintain a viable presence.
Deer Park ISD's and Edinburg CISD's conflicts of interest policies included all requirements in Texas Local Government Code, Chapters 171 and 176, and all Board members confirmed that they did not have any conflicts during Board meetings prior to approving the agreements.
When McCamey ISD's agreement was approved, no Board members disclosed that they had a conflict related to the agreement. Statute requires that local officials and officers disclose only if a conflict exists.
In addition, since the agreement was approved, McCamey ISD implemented a conflicts of interest policy that included all Local Government Code requirements and required all Board members to complete conflicts of interest statements whether they had a conflict or not. All Board members confirmed they did not have conflicts of interest prior to approving the most recent amendment to the agreement.
However, McCamey ISD did not comply with its policy requiring newly elected or appointed members of its Board to submit conflicts of interest statements for agreements in place or under consideration.
All three ISDs (1) either ensured that payments were received by their due dates or followed processes to collect late payments and (2) accurately calculated payments in accordance with the agreements.
McCamey ISD Submitted All Required Reports; However, It Should Develop a Review Process to Verify the Accuracy of Those Reports
McCamey ISD submitted all required reports to the Comptroller's Office. However, certain information in some of the reports it submitted was inaccurate or inconsistent.
Deer Park ISD and Edinburg CISD submitted all required monitoring reports for their agreements to the Comptroller's Office. In addition, the information in those reports was accurate and consistent.
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