The Economist: Of Babies and Bathwater
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Over the past months, several important State-funded initiatives have come under scrutiny: the Texas Enterprise Fund, the Texas Emerging Technology Fund, and the Cancer Prevention and Research Institute of Texas. Questions have been voiced regarding the appropriateness of these uses of taxpayer dollars, and some have even called for scaling them back or even eliminating them. However, shutting down or severely curtailing these three important programs would be a classic case of tossing the proverbial baby out with the bathwater. While there may well be ways to improve oversight and efficiency, there is ample evidence of their role in economic development.
The Texas Enterprise Fund and Emerging Technology Fund have been highly important to the state’s overall economy in recent years. The Texas Enterprise Fund (TEF) was created by the 78th Legislature in 2003 to provide financial resources to help strengthen the state’s economy. The purpose of the TEF is to serve as a “deal closing” fund, offering the type of incremental incentive which is essential in today’s competitive market for quality corporate locations. It is structured such that it can only be used when another state is competing with Texas for the expansion/location, and there are stringent requirements related to job creation or protection. Since its inception, $487.4 million in awards have secured more than 66,000 direct jobs; add to that the ripple effects rippling through the economy and that jobs number is multiplied. The companies involved have also invested some $17.4 billion in the state, stimulating jobs across a spectrum of industries. Detractors have said that we don’t need this program because we are successful. I would remind them that, before we implemented it, we ranked in the bottom quarter of the country and went six years without a single major location.
The Texas Emerging Technology Fund (ETF), which was launched in September 2005, has enabled the state to advance the development and commercialization of many of the most innovative technologies. With the ETF, the state takes an equity position in the company involved, so there is every chance that taxpayer dollars will be returned (and then some) given the diverse set of projects which have been included. The ETF has greatly expanded Texas’ global competitiveness and will continue to benefit the state economically while also providing opportunities for medical and scientific breakthroughs designed to greatly enhance our quality of life. The biggest rap I hear on the ETF is that not all of the firms have succeeded. I can only say, “Of course, there are failures!!” Keep in mind that this fund invests in early-stage companies to try to give Texas a leg up on future growth. All early stage funds, including those managed by the most successful investors in the world, have some failures. These are risky investments, but even a single success can redefine the fortunes of Texas for decades to come,
The Cancer Prevention and Research Institute of Texas (CPRIT) is helping establish Texas as a center for cancer prevention and research. We have studied the economic benefits of CPRIT on several occasions, and recently found that the current total annual impact of all prevention and research programs (including initial outlays and downstream effects) associated with CPRIT on Texas business activity was $2.9 billion in output and 33,431 jobs. This incremental business activity also generates taxes for the State and local governments. For Texas, tax receipts associated with CPRIT activities from all sources in 2012 total $159.7 million, while local public entities receive $73.5 million. By the tenth year, these annual increases rise to $508.9 million and $239.2 million, respectively.
Since the Enterprise Fund was created, Texas has been a perennial leader among the states in job creation, exports, and Fortune 500 companies. Moreover, in the past several years, the Lone Star State has often been the top destination for the relocation of people and industries. Our diverse economy and presence in growth industries is a primary reason Texas was able to escape the worst of the national downturn. The Texas Enterprise Fund and the Emerging Technology Fund are a notable component of this success.
In an imperfect world with imperfect information, imperfect decisions are the unavoidable result. Virtually any undertaking of the size and scope of the TEF, ETF, or CPRIT will involve some degree of controversy and money spent for projects with unsuccessful outcomes. Looking for ways to improve oversight is, of course, desirable and appropriate. Investing taxpayer resources is a public trust, and, if there are problems, by all means fix them!! However, it is important to maintain the proper perspective: the state’s economic development program is widely viewed as extremely successful, and Texas’ success is proof positive that it’s working. We do not need to throw the babies out with the bathwater.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.