A Performance Audit
An Audit Report on Selected Major Agreements Under the Texas Economic Development Act
July 2018
Summary Analysis
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 for property (agreements) with independent school districts (ISDs). The State Auditor’s Office audited three agreements under the Texas Economic Development Act (Texas Tax Code, Chapter 313) at three ISDs and determined the following:
- Processing Applications for Agreements and Developing Agreements. The agreements audited and their corresponding applications included statutorily required provisions and were approved by the school boards.
- Disclosing Conflicts of Interest. The ISDs audited complied with statutory requirements and had processes in place for disclosing conflicts of interest. The ISDs also complied with their policies and procedures for disclosing conflicts of interest. However, auditors identified areas in which the ISDs could strengthen those policies and procedures.
- Administrative Processes. The ISDs audited relied on consultants’ calculations for revenue protection payments and payments in lieu of taxes. One ISD, Dimmitt ISD, had no errors in processing those payments for fiscal years 2016 and 2017. Two of the ISDs, Highland ISD and Pecos-Barstow-Toyah ISD, had errors in processing those payments.
- Compliance Reporting. The ISDs submitted the required reports to the Office of the Comptroller of Public Accounts (Comptroller’s Office). In addition, Dimmitt ISD’s consultant provided documentation showing that it verified historical information in the reports tested. However, the consultants for Pecos-Barstow-Toyah ISD and Highland ISD did not provide documentation supporting that they verified historical information in the reports tested.
In addition, auditors determined that the Texas Education Agency complied with applicable statutory requirements regarding facilities impact evaluations for the selected ISDs’ Chapter 313 agreements and resolved a prior year finding related to providing guidance on tax credits to ISDs.
The three agreements for limitations on the appraised value of property (agreements) audited include:
- Dimmitt Independent School District’s (ISD) agreement with Bethel Wind Farm, LLC (Application No. 1085).
- Highland ISD’s agreement with Sweetwater Wind Power, L.L.C. (Application No. 55).
- Pecos-Barstow-Toyah ISD’s agreement with Regency Field Services, LLC (Application No. 1030).
The ISDs audited ensured that: (1) their processes to review applications that the businesses submitted complied with the requirements in Chapter 313 of the Texas Tax Code; (2) the applications complied with the purpose and intent of the Texas Economic Development Act; and (3) the Chapter 313 agreements and amendments between the ISDs and the businesses contained all provisions required by statute at the time of the agreements.
The audited ISDs’ conflict of interest policies included all requirements in Texas Local Government Code, Chapters 171 and 176. In addition, each ISD filed conflict of interest statements when required by their written policies and procedures. The practices for disclosing conflicts of interest varied among the three ISDs audited. Specifically:
- The practice of both Pecos-Barstow-Toyah ISD and Highland ISD was to require school board members to submit conflict of interest statements whether or not a conflict existed. That practice exceeded the ISDs’ documented policies, which required a conflict of interest statement submission only when a conflict existed. No conflicts were identified for the agreements audited at those two ISDs. Ensuring that their documented policies are consistent with their practices would help the ISDs apply their conflict of interest processes consistently.
- Dimmitt ISD’s practices required school board members to submit conflicts of interest statements only when a conflict existed (which was consistent with its policies), and it asserted that no conflicts were identified for its agreement with Bethel Wind Farm, LLC. Statute does not mandate the submission of conflicts of interest statements when conflicts do not exist. However, requiring school board members to submit conflict of interest statements prior to voting on approval of an agreement or subsequent associated amendments, regardless of whether a conflict exists, would help Dimmitt ISD to ensure that it identifies any potential conflicts of interest.
All three ISDs audited relied on the consultants’ calculations of revenue protection payments and payments in lieu of taxes collected from the businesses. The consultants for Dimmitt ISD used the correct information to calculate those payments for fiscal years 2016 and 2017.
However, the consultants for Highland ISD and Pecos-Barstow-Toyah ISD did not always use the correct information in their calculations, and did not work with their consultants to establish a process to verify the accuracy of those calculations. In addition, auditors were not able to determine whether Highland ISD received all of the payments in lieu of taxes that it should have received.
The three ISDs audited submitted required annual and biennial reports to the Comptroller’s Office. Dimmitt ISD’s consultant provided documentation showing that it verified historical information in the reports tested.
However, the consultants for Pecos-Barstow-Toyah ISD and Highland ISD did not provide documentation supporting the verification of historical information in the reports tested.
The Texas Education Agency complied with statutory requirements related to evaluating the impact of Chapter 313 agreements on ISD facilities. It also issued updated guidance related to the issuance of tax credits that aligned with Texas Tax Code, Chapter 313.
Graphics, Media, Supporting documents