Over the past year or so both Democrats and Republicans have been vocally critical of the Texas Enterprise Fund, the Texas Emerging Technology Fund, and, more generally, the state’s Perry-era practice of encouraging economic development via direct subsidies and incentives. For some critics, such practices are conceptually indefensible–the government shouldn’t be in the business of picking winners and losers—and should be ended outright. Others are in the reform camp, arguing that the concept is defensible but the programs need better management and oversight, as documented in the Texas State Auditor’s report last year. I’m in the latter camp. My feeling is that this implicit industrial policy has done more good than harm in Texas, although there’s always room for improvement and, in this case, room for reforms. For example, I would scrap film incentives yesterday. So would Senate Finance Chair Jane Nelson, perhaps: the Senate’s base budget bill proposes just $10m for the film incentive program, compared to $95m in the last biennial budget. But as Aman Batheja reports over at the Texas Tribune, the governor’s office takes a different view:
Amid growing talk of curtailing state incentive programs, a representative from Gov. Greg Abbott’s office told Senate budget writers Tuesday that Texas’ film incentive program needs at least $70 million — but ideally $95 million — in the state’s next two-year budget to keep the state’s film industry thriving.
“We think this program is very important,” Stacey Napier, director of administration in Abbott’s office, told the Senate Finance Committee. “We do have data to show the program is working. It’s bringing in tax revenue.”
Last week, Abbott proposed to scrap the TETF altogether and divide the money remaining in the fund (about $100m), with half going to the TEF and the other half to the Higher Education Coordinating Board, with the idea being to use that money to recruit extra-prestigious faculty. That seemed like a reasonable plan. Conceptually speaking, the TETF, which restricts its awards to industries like biotech and aerospace, is less slushy than the free-ranging TEF. However, the TETF is the smaller of the two. Ending it would count as a major reform, but wouldn’t much restrict the state’s ability to offer incentives. Also, as noted, the TETF is designed to invest in promising industries rather than closing specific deals; about half of the money it’s awarded, since its creation in 2005, has gone to universities to support research. TEF awards are more like deals than investments: the state announces a $10m grant to, say, Toyota, which is going to build a plant in San Antonio that will employ 3,000 people.
Film incentives are like TEF grants in the sense that they’re specific: the awards are granted to productions that meet specific criteria, about what percentage of filming will take place in Texas, how many workers will be hired in Texas, whether Texas will look reasonable on camera, etc. But as Batheja notes, supporters have defended film incentives because they are unique: because the awards are granted after the production is finished, the system can’t be gamed. That’s a fair point; TEF awardees have routinely failed to deliver the promised number of jobs and so on. And it’s why Napier, in her testimony to the Senate Finance committee, was able to say that the data exists and that based on the data, the film incentives program bring in more money than they cost.
By the same token, though, film incentives are only deals, not investments at all. They’re different, in other words, from TETF awards, but they’re also slightly different from the typical TEF grant. The hypothetical TEF award described above wouldn’t obligate Toyota to maintain its operations in Texas for fifty years, but it would logically improve the odds that a Toyota, having incurred the capital costs of the new plant and trained workers to operate it, will find it easier to stay in Texas than to up sticks. For obvious reasons there’s no such possibility in the case of film incentives. They’re straight-up deals. And they may be deals worth making. But Abbott’s preferences on incentives—in favor of film, skeptical of TETF–suggest a philosophical approach that, for better or worse, is a departure from Perry’s, and would represent a significant change of course.