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An Audit Report on Selected Major Agreements Under the Texas Economic Development Act

August 2017

Summary Analysis

In response to amendments the 83rd Legislature made to Texas Tax Code, Chapter 313, the Office of the Comptroller of Public Accounts (Comptroller’s Office) developed processes (1) to determine whether an application for an agreement for a limitation on the appraised value of properties (agreement) met the requirements for a certificate for limitation of appraised value to be issued, and (2) for businesses to report on their compliance with job-creation requirements. Auditors identified discrepancies in the biennial report regarding agreements that the Comptroller’s Office published in January 2017.

The State Auditor’s Office audited three agreements at three independent school districts (ISDs) and determined that Corrigan-Camden ISD complied with Texas Tax Code, Chapter 313, in its execution and administration of the audited agreement; and Port Arthur ISD and Roscoe Collegiate ISD generally complied with Texas Tax Code, Chapter 313, in their execution and administration of the audited agreements.

 Jump to Overall Conclusion

In 2001, the 77th Legislature enacted the Texas Economic Development Act (Texas Tax Code, Chapter 313), which permitted independent school districts (ISDs) to offer eight-year limitations on the appraised value of a property for the maintenance and operations portion of the ISDs’ property taxes (the properties remain fully taxable for the purposes of any ISD debt service tax).

The 83rd Legislature amended Texas Tax Code, Chapter 313, and new requirements were applicable to applications for agreements completed on or after January 1, 2014. The new requirements also established additional monitoring and reporting requirements for the Office of the Comptroller of Public Accounts (Comptroller’s Office).

In January 2017, the Comptroller’s Office reported that, as of May 2016, businesses with agreements had projected an investment of approximately $145.7 billion in the state and committed to create 6,562 qualifying jobs over the life of their agreements.

Jump to Introduction 

The Comptroller’s Office established processes to address new requirements for agreements that the 83rd Legislature established. Specifically, the Comptroller’s Office:

•   Developed processes related to applications for agreements.

•   Developed processes for reporting related to agreements, but it should strengthen certain aspects of those processes.

•   Developed a process for businesses with agreements to report their compliance with the job-creation requirements in their agreements. However, businesses with agreements did not always submit job-creation information or did not always submit that information in a timely manner, and the Comptroller’s Office did not always follow up.

The Comptroller’s Office had adequate information security controls, but it should strengthen certain information technology controls related to agreements.

Statute does not require independent verification of the information that businesses and ISDs submit to the Comptroller’s Office.

Jump to Chapter 1 

Corrigan-Camden ISD complied with statute in its execution and administration of the audited agreement.

•   Corrigan-Camden ISD’s monitoring and oversight of the agreement relied primarily on information that the business certified on annual eligibility reports and a biennial progress report.

•   Corrigan-Camden ISD documented its process for considering the application for agreement.

•   Corrigan-Camden ISD should strengthen certain controls related to conflicts of interest.

•   The agreement audited at Corrigan-Camden ISD included all provisions required by statute.

•   Corrigan-Camden ISD collected required payments in lieu of taxes. As of January 2017, Corrigan-Camden ISD had collected a total of $276,000 from payments in lieu of taxes.

Jump to Chapter 2 

Port Arthur ISD and Roscoe Collegiate ISD generally complied with statute in their execution and administration of the audited agreements.

•   The businesses associated with the agreements certified that they complied with certain requirements of Texas Tax Code, Chapter 313, and Port Arthur ISD and Roscoe Collegiate ISD accepted those certifications.

•   Port Arthur ISD and Roscoe Collegiate ISD should strengthen certain aspects of oversight and monitoring related to agreements.

•   Port Arthur ISD and Roscoe Collegiate ISD documented their processes for considering the applications for the agreements.

•   Port Arthur ISD and Roscoe Collegiate ISD should strengthen certain controls related to conflicts of interest.

•   Roscoe Collegiate ISD also did not always comply with its policies to identify and report conflicts of interest. Auditors identified two instances in which conflicts of interest were present, however individuals did not complete a disclosure statement or did not complete a disclosure statement in a timely manner.

•   The agreements audited at Port Arthur ISD and Roscoe Collegiate ISD included all provisions required by statute in effect at the time of their execution.

•   Port Arthur ISD and Roscoe Collegiate ISD should strengthen controls over processing tax credits.

•   Port Arthur ISD and Roscoe Collegiate ISD should strengthen certain controls over revenue protection payments and payments in lieu of taxes.

Jump to Chapter 4 

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