How the Texas Enterprise Fund Works, and Why Blue Origin Got $18 Million
The state's "deal-closing" fund pays companies only after they hit job and wage targets. Here is how it works, using Blue Origin's Hutto campus as an example.
When Gov. Greg Abbott announced on Oct. 8 that Blue Origin will build an advanced manufacturing and operations campus in Hutto, the headline numbers were large: a $554.78 million investment and more than 2,000 new jobs, according to the governor's office. The state extended an $18,171,000 Texas Enterprise Fund grant and a $10,000 Veteran Created Job Bonus.
Texas makes deals like this often. Here is how the fund works, based on the governor's office description of the program.
A "deal-closing" grant
The Texas Enterprise Fund is a cash grant meant to close a deal when a single Texas site is competing with at least one site in another state or country. The company must not have already decided. Signing a lease, buying land, hiring workers or announcing the location count as a decision and disqualify it.
Who qualifies
A project must create more than 75 full-time jobs in an urban area or 25 in a rural area. The average wage for the new jobs must meet or beat the county's average wage for the life of the grant. The company must plan significant capital investment, be well established and financially sound, and work in an advanced industry with real options elsewhere. The city, county or school district must support the project, usually with local incentives of its own.
Who decides
Applicants go through an 11-step review covering finances, taxes, legal issues, credit and the business climate in competing locations. The governor, lieutenant governor and House speaker must all agree before a grant is offered.
Paid after performance
No money is paid up front. Companies sign a contract that obligates them to create the promised jobs at the promised wages. The state pays only after they meet targets for each period, usually once a year, and they must keep those jobs. If a company falls short, the governor's office can claw back money already paid.
Grant amounts are set by a uniform model based on the average wage of new workers, the number of jobs and the hiring timeline, adjusted for total capital investment.
Recent examples
By Dock Line's math, Blue Origin's $18.17 million grant works out to no more than about $9,100 for each of the more than 2,000 promised jobs. In August, SpaceX received a $30 million grant for the first phase of a semiconductor plant in Grimes County that the governor's office says will cost more than $16.8 billion and create 3,000 jobs. Earlier today we reported on Lockheed Martin's Grand Prairie expansion.
Is it a good deal?
Conservatives are right to be wary of government picking winners. The case for this fund is that it pays only for results and can take money back when promises are broken. Taxpayers should still watch whether the jobs arrive and whether the clawbacks are enforced. For the bigger picture, read our latest on Texas job growth.
Hero image: NASA (artist's conception) via Wikimedia Commons, public domain (U.S. government work), cropped and resized.
