Exposing the misuse and abuse of the public commons

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January **, 2010

Recession Pounds Perry’s Jobs Fund

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Amended Deals

Allied Production Solutions
TEF agreed in October 2007 to award $800,000 in tax dollars to Allied Production Solutions, LP, which makes equipment for the oil and gas industry.²⁷ Allied pledged to invest $16 million to move its Oklahoma headquarters just over the Texas line to Gainesville, and to build a metal-tank factory there, too.  The contract calls for 200 new jobs in Gainesville by the end of 2010. By the end of 2008, Allied reported that it created 106 jobs in Gainesville.  Among these new hires, Allied listed five Oklahoma residents. It also listed four new workers with addresses near Wichita Falls—some 85 miles from the plant—and a fifth worker residing 185 miles away in Palestine, Texas.  Counting the out-of-state residents as well as the employees with brutal commutes, Allied fell 39 jobs short of its 2008 commitment. The agreement authorizes TEF to penalize Allied $1,053 for every missing job. Instead, TEF moved the goal posts. It amended Allied’s contract in August 2009 because “the current global economic recession and banking crisis has caused significant unemployment in the State of Texas, and the… job creation commitments in the [original] Agreement are no longer feasible.” The amended agreement, which says Allied had fallen $3.6 million short of its investment target, gives the company two additional years to meet its job targets.

Lockheed Martin Corp.
TEF awarded $5.48 million to Maryland-based Lockheed Martin Corp. in 2007 to invest $58 million in a new Houston plant for its NASA Orion contract. Lockheed pledged to create 800 new jobs by the end of 2008.²⁸ The company reported 703 new employees at the end of 2008,²⁹ for an apparent shortfall of 97 jobs. Yet the same report says, “We are pleased to inform you that we exceeded the 600 job creation … level by 17%.” Asked why the compliance report’s job target was so much lower than the one cited in its TEF agreement, Lockheed’s point man on Orion finances, Terry Ahern, said Lockheed amended its TEF contract “when we got hit by federal cutbacks.” Oddly, the Governor’s Office had not provided this amendment in response to an October 2009 Public Information Act request for all TEF amendments. The Governor’s Office later said it had not done so because the amendment—which Lockheed relied on in a compliance report filed in early 2009—was under negotiation for more than a year and not signed until late 2009. The rocket scientists negotiating with TEF rightfully concluded that the amendment that they sought to weaken their job targets was a fait accompli.

Martifer Energy Systems
TEF awarded Portugal-based Martifer Energy Systems $945,000 in September 2008 to invest $40 million to build a San Angelo plant that makes wind towers. Martifer promised to create 225 new jobs by 2012, including 10 by the end of 2008. With those jobs blowing in the wind in January 2009, TEF had cause to terminate the deal. Instead, it amended the agreement to give Martifer four extra months to produce the jobs. Martifer’s compliance report filed in May certified that it had created just five of the 10 promised jobs. Noting that “the world has entered one of the biggest economic crisis [stet] of modern times,” the Portuguese company promised to create 11 more jobs “once the individuals who will fill such positions obtain Unites [stet] States work visas.” TEF reported in October 2009 that it recovered $4,305 from Martifer for the shortfall,³⁰ or less than 1 percent of the company’s state funding to date.

Rackspace US
TEF awarded $22 million in 2007 to Internet-hosting giant Rackspace of San Antonio to invest more than $100 million in a new headquarters for itself. The deal promised 4,000 new jobs by 2012. Rackspace reported that it exceeded its 2008 target of 475 new jobs by 54 extra employees. Citing the “current global economic recession and banking crisis,” however, the parties amended the deal in July 2009 to dilute job commitments that were “no longer feasible.” While Rackspace promised 4,000 new jobs by 2012 in the original deal, the company now commits to just 1,225 jobs in this period (for $8.5 million in state funding). The amended deal still pays Rackspace $22 million if it can create 4,000 new jobs—giving it three additional years to hit this target.³¹ The amended deal downgrades higher job numbers that were contractual commitments in the original deal to optional bonuses.

Rockwell Collins
Iowa-based Rockwell Collins makes communications and aviation electronics systems. TEF awarded the company almost $1.7 million in late 2007 to invest $6.7 million to expand its Richardson facility. The deal promised that by the end of 2009 Rockwell would add 334 new jobs to the 947 workers that the company already employed in Texas. In a March 2008 amendment, the parties agreed to lower the baseline used to count new Rockwell employees. The revisionist amendment says that the original agreement overstated the number of Texas employees that Rockwell had at the time by 15 workers.³² Shortly before this revision, Rockwell reported that it had created 128 new jobs for 2008--121 short of its target.³³ In the same report, the company said it was trying to negotiate yet another amendment “to take into account headcount issues related to the country’s economic downturn.”

Texas Energy Center
TEF awarded the non-profit Texas Energy Center $3.6 million in 2004 to invest $20 million in its Sugar Land facility for research on new energy technologies. The Center is supposed to indirectly spur the creation of 1,500 jobs. Under the original deal, these jobs were to be in place by the first day of 2009. At that time the Center claimed to have spawned 1,350 jobs. An amendment that the parties signed in late 2005, however, converted this apparent job deficit into a surplus. The amendment only required 525 indirect jobs by the start of 2009. Unlike the original agreement, the amendment also allowed the Center to aggregate part-time positions into so-called “full-time equivalents.” Part-timers boosted the Center’s 1,350 jobs on New Year’s Day 2009 up to 1,405 jobs.³⁴ In this way, what would have been a deficit of 150 jobs under the original agreement was amended to a surplus of 880 jobs. The amended deal gives the Center until 2015 to hit its full target of 1,500 indirect jobs. In 2006 Waco Democratic Rep. Jim Dunnam criticized the Center for signing a $20,000 federal lobby contract with former Tom DeLay chief of staff Drew Maloney on the same day that it signed its original TEF agreement (Governor Perry’s Office of Federal-State Relations also employed Maloney from 2002 through 2006).

Texas Institute for Genomic Medicine
TEF awarded $50 million in July 2005 to Texas A&M University and Houston-based Lexicon Genetics, Inc. (now Lexicon Pharmaceuticals) to establish the non-profit Texas Institute for Genomic Medicine. The Institute’s mission is to amass a library of 350,000 cloned mouse stem cells. Soon after the Governor’s Office unveiled this deal, the Houston Chronicle reported that three families that controlled 17 percent of Lexicon’s stock had contributed more than $325,000 to Governor Perry.³⁵ The Institute pledged to create 5,000 jobs by 2015 and maintain them through 2027 (A&M was responsible for 3,384 jobs and Lexicon for 1,616).³⁶ A&M’s jobs need not be direct hires. It can count any new job for which the Institute is “significantly responsible” through its efforts to attract or create biotechnology and drug-related positions in Texas.

In practice, A&M directed the Texas Workforce Commission to count any new Texas jobs in industries encompassed by the “Governor’s Biotech Cluster.” Data provided by the Workforce Commission indicate that the A&M’s job claims covered two dozen diverse industries from soybean processing to diagnostic imaging centers.”³⁷ Given that A&M claims credit for all new jobs in a variety of medical-research fields, it almost certainly is taking credit for many of the same jobs that the University of Texas’ TEF-subsidized Center for Advanced Biomedical Imaging also claims to have generated (see below).

After Lexicon defaulted on some of its initial job targets, the parties amended the agreement in April 2008. The amendment relieved Lexicon of the need to produce any new jobs until 2012³⁸ and shifts the initial job burden exclusively to A&M. Under the amended deal, A&M must directly or indirectly create 357 new jobs by the end of 2008. A&M reported that it produced “3,658 actual jobs” for that period.³⁹ But why stop at “actual jobs”? A&M’s TEF contract contains a multiplier that awards extra jobs credits if the average annual gross compensation for all its claimed jobs exceeds $60,000.⁴⁰ In its compliance report covering 2008, A&M’s reported that the multiplier pumped up its 3,658 actual jobs into credit for having created 5,022 jobs. In this way, A&M claims to have amassed 9,747 surplus TEF job credits during the deal’s first three years!

Washington Mutual Bank
TEF awarded $15 million in mid 2005 To Washington Mutual Bank (WaMu) to invest $50 million in a new operations center in San Antonio. The deal calls for the creation of 4,200 new jobs by 2011, including 2,250 at the new facility. The timing could not have been worse. During the following year, WaMu cut almost 10,000 jobs, or about 16 percent of its national workforce.⁴¹ In the largest bank failure in U.S. history, federal regulators seized the $300 billion WaMu in September 2008. Even as this ship was going down, WaMu’s political committee contributed $2,500 to Governor Perry’s campaign in March 2008.⁴² Federal regulators immediately sold WaMu to JPMorgan Chase, which received $25 billion from the federal Troubled Asset Relief Program a month later. Within six months of this acquisition, JPMorgan announced the elimination of 12,000 more WaMu jobs nationwide (JPMorgan inherited WaMu’s TEF obligations).⁴³

Citing renovation delays at its new facility, WaMu missed its first job target in 2005, when it reported creating 356 jobs instead of the requisite 600. The Governor’s Office wrote WaMu in March 2006, seeking to recover $207,400 for the company’s shortfall of 244 jobs. Instead of enforcing the penalty like a mortgage lender, the Governor’s Office appears to have informally granted WaMu a three-month extension to make up this job shortfall.⁴⁴ By 2008 WaMu’s contractual TEF target increased to 2,400 new Texas jobs. The bank reported that it created 2,208 of them—192 jobs short of its target.⁴⁵ To derive this number, WaMu reported that it aggregated together its part-time employees’ hours to calculate an unspecified number of full-time-equivalent jobs. The governor’s office accepted these piecemeal jobs even though WaMu’s TEF agreement specifically applies to “full-time employment positions in Texas.”⁴⁶ For the remainder of its deficit, WaMu appears to have relied on surplus job credits from previous years. The TEF agreement calls for 3,000 new jobs by the end of 2009, with the WaMu account still boasting 1,339 surplus job credits, according to TEF.

Troubled Deals

Alloy Polymers
Virginia-based Alloy Polymers had no Texas employees before it acquired a chemical facility in Crockett from Amapcet Corp. in May 2006. Five months later TEF agreed to award Alloy $200,000 in tax dollars to invest $16 million to expand that facility. Alloy pledged to create a total of 52 new jobs at that plant by the end of 2009, including 20 by 2007 and 35 by the close of 2008. What Alloy and TEF characterize as “new” jobs, however, sound a lot like “old” jobs. Alloy claims it “created” 32 apparently preexisting jobs through its 2006 acquisition of the Amapcet plant. It reported that it created a total of eight additional Crockett-area jobs in 2006 and 2007, resulting in an on-paper claim of 40 jobs by the end of 2007.⁴⁷  A year later, Alloy reported that its Crockett employment had dropped to 35 people—for a total increase of just three jobs beyond what existed at Amapcet when Alloy bought the plant. Alloy’s latest TEF compliance report blames its woes on Union Pacific Railroad, which it said “regularly embargoed our plant preventing delivery of raw materials to the site by rail.” TEF has recovered $10,032 from Alloy, or 10 percent of the TEF funds that the company has received to date.

Comerica
TEF agreed in August 2007 to pay Comerica bank $3.5 million to move its headquarters from Detroit to Dallas. The bank pledged to create 200 high-paying Texas jobs by 2010.  Comerica exponentially increased its public funding a year later, when it received $2.25 billion from the federal Troubled Asset Relief Program (TARP). By the end of 2008, Comerica told TEF that it had created 155 new jobs—or five jobs over its target for that year. Ten days after submitting this TEF report, however, the bank told investors that it would eliminate 5 percent of its national workforce.⁴⁸ The cutback does not bode well for Comerica’s 2009 TEF commitment of 172 new Texas jobs.

Countrywide Home Loans
In late 2004 TEF awarded California-based Countrywide $20 million to expand its mortgage-lending operations in Texas and to create 7,500 new jobs here by 2010. The agreement cites Countrywide as “one of the nation’s fastest growing companies” that had expanded its workforce 23 percent since the beginning of that year! In the frothy first three years of this TEF deal, Countrywide wildly exceeded its jobs targets, racking up a 4,699 surplus job credits that it could apply to future shortfalls. As the housing market imploded in late 2007, however, Countrywide announced that it would lay off up to 12,000 of its 60,000 employees nationwide.⁴⁹ Even that year, however, Countrywide reported that it cleared its 4,000-job TEF target with a surplus of 656 extra jobs. Bank of America then acquired this ailing lender (and its TEF obligations) in mid-2008, several months before Bank of America received a $15 billion federal bailout from the Troubled Asset Relief Program (TARP). Decrying this federal bailout, Governor Perry said “We’re certainly not interested in Washington bailing out a bunch of irresponsible mortgage brokers in an industry that has too often been run on greed.”⁵⁰ At a press conference awarding $20 million in taxpayer money to Countrywide four years earlier, however, Perry trumpeted the deal as TEF’s “crowning jewel.”⁵¹ Countrywide told TEF that its tally of new Texas jobs dropped in 2008 to 3,876 positions, or 1,624 jobs short of its target. Although Countrywide still boast 3,090 TEF job credits from its go-go days, they alone cannot cover the 7,500 new Texas jobs that Countrywide has promised by 2010.

Home Depot
TEF awarded Home Depot $8.5 million in 2004 to invest $383 million in two new facilities: an Austin technology center and a customer support center in New Braunfels. Together the two complexes pledged to hire 843 people by March 2008 and to maintain them through 2014. Home Depot reported that the two facilities employed a total of 791 people in March 2008, or 52 short of its pledge. The company made up the difference by drawing on the 695 surplus job credits that amassed in previous years.

 

 

Huntsman Corp.
In mid-2005 TEF awarded Utah-based Huntsman Corp. $2,750,000 to invest $226 million in Texas. Huntsman pledged to expand its chemical facilities in Odessa and Port Neches and to build new administrative and research offices in the Woodlands. The deal promised to create 326 high-paying new jobs by the end of 2009. Huntsman had a strong start, racking up a surplus of 116 extra jobs by the end of 2005, but since has cut its workforce. After cashing in 106 job credits to meet its job targets in recent years, Huntsman closed out 2008 with just eight credits left. Apart from those credits, Huntsman must add two dozen new jobs to hit its 2009 pledge.

Samsung Austin Semiconductor
TEF agreed in 2005 to award $10.8 million to a unit of Korea-based Samsung Electronics to invest $2.5 billion in building a new chip plant next to its existing one in Austin. Samsung pledged that by the end of 2009 the new plant would create 900 new jobs, while maintaining at least 300 preexisting jobs in Austin. One clause in the agreement says that these 900 jobs must be above and beyond what Samsung employed when the deal was signed (separately reported to be around 1,250 people). ⁵² The deal further commits Samsung to employing a total of at least 1,895 workers at its Austin facilities for the years 2010 through 2019. A Samsung spokesman told the Austin Business Journal that the company employed 1,001 people locally in January 2010.

Samsung’s target by the end of 2008 was 375 new jobs,⁵³ with the company reporting a cumulative total of 478 new jobs—or a surplus of 103 extra jobs.⁵⁴ Yet Samsung’s Austin employment is showing signs of severe strain. The 478 new jobs that Samsung reported in 2008 were down from the 827 new jobs that it had reported the year before. Samsung’s latest compliance report noted that it had secured a permit to build the second part of its new plant “but construction is currently on hold.”⁵⁵ Samsung reported in mid 2009 that it was laying off from 500 to 550 employees while it renovated its old plant to incorporate it into the new, highly automated plant. The company said it expected to hire back no more than 200 workers when it finishes the renovation in 2010.⁵⁶ “You don’t need as many people,” a Samsung spokesman told KXAN News, “you have a lot of robots back there.”⁵⁷

Superior Essex Communication
Atlanta-based Superior Essex Communication received a $250,000 TEF award in 2005 to invest $7.6 million in expanding a Brownwood plant that makes communications wires. Superior Essex pledged to create 50 new jobs by the end of 2005 and maintain them through 2019. Living up to its name, Superior exceeded its job target in 2005, reporting 86 new jobs. But the plant’s payroll has dwindled ever since.⁵⁸ Blaming the “overall economic downturn,” Superior reported that it fell eight jobs short of its target in 2008. Superior drew on surplus job credits from previous years to cover the deficit.

Tyson Foods
TEF awarded Arkansas-based Tyson Foods $7 million in 2005 to invest $100 million in a new meat plant in Sherman by 2009. Tyson, which also received $3 million for job training from the state Skills Development Fund,⁵⁹ pledged that the plant would provide 1,600 low-paying jobs by the end of 2009. Tyson reported that it employed 1,460 people at the new Sherman plant by the end of 2008—63 more than required at that time. Nonetheless, the Sherman plant—which must add 140 workers this year—shed 39 workers in the last three months of 2008. In an unusual provision, Tyson’s TEF deal expresses a contractual “goal (but not requirement) that Texas residents comprise at least ninety percent (90%) of the hourly workforce of Tyson.” The world’s largest meat company has successfully defended itself from charges of employing illegal immigrants at U.S. plants by arguing that it did not knowingly hire illegal workers.⁶⁰ Tyson’s compliance reports did not say what percent of its employees were Texas residents.  

Vought Aircraft Industries
TEF awarded $35 million in 2004 to Irving-based Vought Aircraft Industries to expand its aviation-parts facilities in Texas. Vought pledged to create 3,000 new jobs by the end of 2009 and maintain a total of 6,000 jobs through 2019.⁶¹ The deal did not require Vought to create any new jobs before 2009. Vought reported that at the end of 2008 it employed 3,905 people in Texas, of which 821 constituted new jobs. Significantly, this new-job count was down 32 percent from the 1,200 new jobs that the Governor’s Office said that Vaught had created by early 2006.⁶² Creating another 2,179 new jobs over the course of turbulent 2009 would require extraordinary lift.

Vought’s original plan called for consolidating its Florida and Tennessee operations at the expanded Texas plant. These geographical consolidations were to account for about half of the company’s TEF job targets. The company reported in late 2005, however, that it no longer planned to move the out-of-state operations to Texas. As Vought laid off 600 people in 2006, the Dallas Morning News reported that the struggling company might be able to pocket all its state funds even if it fails its job commitments.⁶³ Vought’s TEF agreement is premised on the company signing a long-term lease for its headquarters, which is located on U.S. Navy property. Absent such a lease, the agreement directs the state to seek additional public funds for the company or rollback the penalties that it otherwise would face for defaulting on its TEF commitments. Vought referred questions about the lease to a spokesperson who did not return repeated calls about the matter.

Weak Deals

Sematech
The federal government and computer chip manufacturers created the high-tech research consortium Sematech in 1987, establishing its headquarters and a Sematech fabrication plant in Austin. Sematech’s federal funding ended in 1997, leaving the consortium scrambling for funds. TEF awarded $40 million to Sematech in 2004 to establish the Advanced Material Research Center (AMRC) in Austin.⁶⁴ It was TEF’s “first fully funded” contract. Despite the large payout, TEF did not require Sematech to directly create new jobs. Rather the deal requires Sematech and AMRC to “maintain” a combined total of 400 employees through 2011.⁶⁵ By paying $40 million to maintain 400 jobs, Sematech boasts the most-expensive TEF jobs by far ($100,000 per job).

A “Compliance Certificate” that Sematech sent TEF in September 2009 said that the company has “complied with all Funding Conditions of the Agreement.” In listing its contractual accomplishments, Sematech did not mention its Austin payroll.  Sematech’s compliance reports from past years indicate that its Texas employment peaked at 523 jobs in 2006. This included “direct hires, assignees and guest researchers.” Sematech reported that this figure dropped to 465 in 2007. The following year, Sematech did not report its 2008 employment directly. Instead, it said that “the average of direct employment positions for the first five years (2004-2008) was 477.” This average suggests that Sematech’s 2008 employment fell to around 437 Texas jobs. This fulfills Sematech’s commitment to 400 local jobs. Yet this number appears to be at odds with media reports.

Sematech laid off 80 of its 500 workers in January 2006.⁶⁶ The following year it landed $300 million in public funding from the Empire State to almost triple Sematech’s 250 employees at the State University of New York’s Albany campus.⁶⁷ Months later Sematech laid off workers at its original fabrication plant in Austin and told workers elsewhere in Austin that they would have to move to Albany to keep their jobs.⁶⁸ In late 2008, when its Austin payroll reportedly dwindled to approximately 200 workers, Sematech appointed the head of IBM’s New York-based chip center as its new CEO. Although he declined to say if he would live in Austin or New York, new CEO Daniel Armbrust hinted at where Sematech’s future lies. Referring to Albany, Armbrust told the Austin American-Statesman, “You tend to invest where the strategy is working, and I would say it that it is working there.”⁶⁹

Sematech’s Albany play is hard to square with its 2004 TEF pledge not to “establish any new significant facility outside of Texas” nor “negotiate with any foreign national or domestic state or local governmental entities” to do so for seven years. The contract defines a prohibited “significant facility” as one in which the Sematech invests at least $25 million. When New York announced its 2007 Sematech deal, then-Governor Eliot Spitzer announced that Sematech “made a financial commitment of $400 million” to the deal and “agreed to locate its headquarters in Albany.”⁷⁰ Declining to answer specific questions about the no-compete clause and its Austin payroll, Sematech issued a statement saying that it is “continuing to meet our obligations to the State of Texas.”⁷¹  The Governor’s Office said Sematech has pledged to keep its headquarters in Austin and TEF regards the International Sematech program in Albany as a mere extension of Sematech’s preexisting presence there. “As far as we’re concerned, they haven’t gone against that [no-compete] provision in the agreement,” Governor Perry’s Assistant General Counsel, Michael Bryant, said in an interview.

Texas Instruments
TEF awarded $50 million in March 2004 to beef up the University of Texas at Dallas’ engineering program, which was launched by executives at Texas Instruments (TI). A major goal of that deal was to convince TI to invest $3 billion in a new computer chip plant in Richardson. The University and TI both signed TEF agreements the same day. While the preamble of TI’s agreement says the new plant “is expected to employ up to 1,000 people,” the contract contains no formal job targets.

With a state payout of $50,000 per expected job, the TI deal contains the second most expensive jobs in TEF history. After TI built the new chip plant, the building sat vacant for three years until TI’s recent announcement that it would start production.⁷² While the new plant was mothballed, TI laid off 424 Dallas-area workers.⁷³ In October 2009 TEF and TI terminated their agreement, noting that TI, which had not reported creating any jobs, “fully satisfied its obligations.” The federal government awarded TI $51 million in tax credits in January 2010 to promote the same late-blooming plant.⁷⁴ TI said the plant would employ 250 people by the end of 2010—a fraction of the 1,000 workers touted six years earlier.

 

 

Center for Advanced Biomedical Imaging
TEF awarded $25 million in 2005 to the University of Texas System to create the Center for Advanced Biomedical Imaging at Research Park next to Houston’s Texas Medical Center. UT’s Health Science Center and MD Anderson Cancer Center spearheaded the Center, with General Electric’s assistance.⁷⁵ The UT entities pledged to create a total of 2,252 new jobs by 2011. By the end of 2008, when their target was 839 jobs, the UT entities reported creating 4,925.9 jobs. As such, the employers already have wildly exceeded their total job target due in 2011. How can this be?

While the TEF contract allows the UT Health Science Center and MD Anderson to count all new jobs at Research Park, a more expansive provision also embraces all “jobs in support of research initiatives and clinical activity.” It’s difficult to conceive of what MD Anderson and UT Health Center jobs do not “support” research and clinical activity. New jobs that the UT entities reported to TEF include plumbers, police, pharmacy technicians, a dean’s office communications specialist, room-service wait staff and an MDA Café cook. They also reported new employees in Austin, Brownsville, Dallas and San Antonio. Dr. Kenneth Shine, UT’s executive vice chancellor for health affairs, confirmed that the UT entities do not limit themselves to reporting Research Park jobs. “In negotiating the agreement,” Shine wrote, the parties recognized that “It would be almost impossible to obtain data concerning job creation and salaries from all of the contractors, subcontractors, vendors and related entities that created jobs due to work at the Research Park.”⁷⁶