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GG 4
Abolish the Texas Department of Economic Development

Summary

The primary functions of the Texas Department of Economic Development (TDED) are economic development, business marketing and tourism. Both the Texas State Auditor’s Office and the Texas Sunset Advisory Commission have found TDED to be ineffective in executing its mission. TDED should be abolished. Its economic development functions should be moved to the Governor’s Office. Its tourism functions should be consolidated with similar ones from the Texas Department of Transportation in a new Texas Office of Tourism within the Governor’s Office.

Background

The Texas Department of Economic Development’s (TDED’s) core mission is to “market Texas and assist communities to maximize economic development opportunities in a global economy.” The agency promotes and markets the state nationally and internationally and assists communities through business location leads, business and tourism development initiatives and marketing cooperatives.[1]

TDED also provides capital to Texas businesses and communities through various business incentive programs such as the Texas Enterprise Zone and Empowerment Zone programs, the Texas Leverage Fund and the Texas Capital Access Program. These programs provide capital at below-market rates to help communities fund improvements in areas important to economic development initiatives, such as utilities, public parks and transportation.[2]

TDED has a nine-member governing board and at least 11 subcommittees and advisory committees to support its functions, such as the Tourism Advisory Committee, which includes members from seven state tourism regions and representatives of various travel associations.[3] TDED spent $33 million in fiscal 2002 and had a full-time equivalent (FTE) staff count of 128 (Exhibit 1).

Exhibit 1
Texas Department of Economic Development
Expenditures and Staffing – Fiscal 2002

Strategy Expenditures FTEs Total Salary Average Salary/FTE
Market Texas Travel: advertise and market Texas as a top tourist destination $17,282,110 30 $1,247,142 $41,571
Market Texas Business: respond to business relocation and expansion leads $1,850,588 23 $1,094,336 $47,580
Research Clearinghouse: provide state and local economic and demographic data $834,242 15 $632,486 $42,166
Business Incentives: offer financial assistance for businesses and communities $10,045,603 11 $402,155 $36,560
Smart Jobs: employer grants for training* $628,769 6 $315,549 $52,592
Central administration $1,654,267 30 $1,448,609 $48,287
Information technology $331,632 6 $307,473 $51,246
Operating/support expenditures $331,919 7 $276,621 $39,517
TOTAL $32,959,130 128 $5,724,371 NA
*Smart Jobs program eliminated December 31, 2001.
Source: Texas Comptroller of Public Accounts.

An ineffective agency

Economic development, tourism promotion and financial assistance to business are important state functions, but TDED has not been able to carry them out effectively. The Texas Sunset Advisory Commission raised a number of management and oversight concerns during a 2000 review of TDED, concluding that neither TDED’s executive managers nor its board were managing the agency adequately. Sunset indicated that the agency lacked a clear focus, while its information-gathering systems were so poor that it could not oversee its programs adequately. In addition, Sunset found that a number of problems raised in previous audits had not been corrected.[4]

The Texas State Auditor’s Office (SAO), meanwhile, found gross fiscal mismanagement in the agency’s oversight of its Smart Jobs Program, which provided grants to Texas employers to train staff members. SAO concluded that TDED was incapable of protecting the program’s funds from waste or abuse because its contractors were not selected competitively and were not paid according to rates based on objective criteria. TDED also failed to ensure that employers met program requirements for training.[5]

As a result, the 2001 Legislature eliminated the Smart Jobs program and placed the agency under Sunset review again for 2002, to weigh the ongoing need for its functions. The Legislature also transferred TDED’s Office of Rural Affairs and Texas Capital Fund to the Texas Department of Agriculture and its Texas Strategic Military Planning Commission to the Governor’s Office.[6]

Although TDED has made some improvements in the oversight and administration of its remaining programs, repeated problems and reorganizations have hampered its ability to market and promote the state. In a 2002 staff report, Sunset concluded that the agency would continue to fail unless it forms a stronger link with the Governor’s Office.[7]

Economic development initiatives

TDED and its board have been unable to coordinate economic development activities among various state agencies to meet the needs of companies considering investments in Texas. Although TDED is the state’s principal economic development agency, it does not provide prospects with the full range of information, services and incentives available through the Texas Workforce Commission, the Texas Department of Agriculture and the Texas Department of Transportation (TxDOT).[8]

According to the Texas Economic Development Council (TEDC), a professional association dedicated to the development of Texas economic and employment opportunities, the state is losing ground in key economic indicators such as capital investments, jobs created and new and expanded industrial facilities. TEDC has recommended that TDED be restructured as a smaller, more tightly focused economic development agency that would work more closely with the Governor’s Office and local communities to promote economic prosperity in all areas of the state.[9]

The Texas Governor’s Office has no formal role in developing responses and incentive packages for companies considering Texas investments. Governors’ offices in other states tend to be more directly involved. For example, the North Carolina Department of Commerce, under the direct leadership of its governor, has established 15 economic development teams for key industrial sectors, including plastics, business services, agriculture, transportation, telecommunications and medical equipment and supplies. These teams identify particular companies in a region and involve industry experts directly in trade missions to promote the benefits of doing business in North Carolina.[10]

TEDC has concluded that most of TDED’s economic development personnel lack the skills needed to market Texas effectively and to analyze businesses’ information needs in such areas as water availability (drinking and recreational), economic conditions, quality of life, industrial activity, taxes and other key factors related to location decisions. TEDC believes that TDED’s economic development services would be more effective if a smaller but more highly skilled team of professionals provided them. This team could operate in much the same way as North Carolina’s by providing research and direct marketing to companies considering Texas as a site for relocation or expansion.[11]

Fragmented tourism initiatives

In fiscal 2002, Texas state government spent more than $38 million on the tourism-related activities of 11 entities. Exhibit 2 identifies the six largest entities and their tourism-related activities and budgets for 2002.[12]

Exhibit 2
Agencies with Tourism Functions: Functions and Budgets

Agency Tourism Functions Fiscal 2002 Tourism Budget
Texas Department of Economic Development
  • Advertise and market Texas through television, print ads and trade shows
  • Operate toll-free number to order Texas Travel Guide
  • Tourism research
  • Assist communities in developing tourism
$19 million
Texas Department of Transportation
  • Operate 12 travel information centers
  • Produce Texas Highways magazine and other travel information and literature
  • Operate toll-free number for travel information and for ordering the Texas Travel Guide
$15.9 million
Texas Parks and Wildlife Department
  • Operate 36 visitors' centers in state parks
  • Market and advertise state parks
  • Produce brochures and Texas Parks and Wildlife magazine
  • Assist communities to develop tourism industry
  • $2.7 million
Texas Historical Commission
  • Preserve and promote Texas historical sites
  • Assist communities in developing tourism
$650,000
Texas Commission on the Arts
  • Provide grants to communities and businesses to advance the arts industries
  • Assist communities in developing tourism
$56,000
Texas Department of Agriculture
  • Encourage tourists to purchase Texas products
  • Encourage tourism to Texas vineyards
  • Promote nature tourism
$2,150

Source: Texas Sunset Advisory Commission.

Five other entities provide some tourism functions, including Texas A&M University, the Office of Music, Film, Television and Multimedia, the Texas General Land Office, the Texas Department of Public Safety and the Texas State Preservation Board.

The five largest tourism agencies—TDED, TxDOT, the Historical Commission, the Commission on the Arts and Parks and Wildlife—have a memorandum of understanding (MOU) to work together to coordinate tourism marketing and spending. Sunset has concluded, however, that this agreement is not sufficient to ensure good interagency coordination.[13] Under the central leadership of the Governor’s office, all tourism partners could be held to the same accountability measures to improve the impact of tourism investments across agencies.

TDED and TxDOT tourism functions

TDED’s tourism functions focus on promoting Texas as a premier travel destination through research and advertising in national and international markets. TDED’s Tourism Division works with the Texas Travel Industry Association, universities, communities and businesses to provide travel research, advertising, sales and marketing and tourism development. TDED receives one-twelfth of the revenues from the state’s hotel/motel tax for tourism functions, or about $19.3 million in fiscal 2002. For 2002, however, the Legislature limited the amount it could spend on tourism staffing and technical support to businesses and communities to $5.3 million. The remaining expenditures are restricted to advertising.[14]

Although TDED is the state’s primary agency for travel research and marketing, TxDOT’s Tourism Division has a larger staff (97 FTEs) and an annual budget of $15.7 million. The division staffs and maintains the state’s 12 Travel Information Centers, which are located at the State Capitol and on major highways entering Texas. These provide visitors with printed travel information as well as travel counseling and road condition information, which also are available from a TxDOT toll-free number. Sixty-six FTEs staff the travel centers, providing information to travelers and weighing trucks at weigh stations located at the centers. The remaining positions in the division, located at TxDOT’s central offices in Austin, provide various administrative and support services.

TxDOT’s Publications Division publishes the state’s official travel magazine, Texas Highways, as well as the Texas State Travel Guide, the Texas Official Travel Map, the Texas State Accommodations Guide and the Texas Events Calendar. The division is expected to generate revenues of $5.8 million in fiscal 2003, which will partially offset projected costs of $7.9 million.[15] The division also maintains an extensive photo library that TDED and TxDOT both use for advertising and promotion.

Tourism functions in other states

No other state assigns primary tourism functions to multiple state agencies. Only three states that responded to a 2001 Travel Industry Association of America survey involve more than one agency or entity in tourism development and promotion. Texas was the only one of the three with two state agencies holding this responsibility (TDED and TxDOT); Alaska and Hawaii, the other two states, have official state tourism offices but have contracted with private entities to handle marketing responsibilities on their behalf.[16]

Florida eliminated its Department of Commerce in 1996 and placed tourism, trade and economic development functions in the executive office of the governor. A Tourism Promotional Trust Fund supports tourism and marketing functions under the oversight of the Florida Commission on Tourism, a 28-member body appointed to represent key sectors of the state’s tourism industry. This public-private system handles all tourism functions including foreign offices and information services. The state’s four official welcome centers, which previously were managed by the state’s transportation department, also are included.

Government and industry leaders participate voluntarily in a joint tourism promotion initiative. For an annual fee, businesses can benefit from state marketing expertise without having to hire their own staff for this purpose. This initiative provides Florida with about $2.50 in private funds and services for every dollar of public funds it receives. The welcome centers found that their information and marketing services increased visitor spending by $31 million per year. The result was $1.8 million in additional sales tax revenue, which more than offset the $1.6 million needed to operate the four centers.[17]

Governor’s role

The governor of Texas is the state’s chief budget and planning officer. In addition, a number of special initiatives are administered under the executive leadership of the Governor’s office. These initiatives, called “trusteed programs,” include the Criminal Justice Division, the Committee on People with Disabilities, the Texas Film and Music Office, the Texas Council on Workforce and Economic Competitiveness and the Commission on Women.[18]

The Governor’s Office has several economic development initiatives under way, including the Governor’s Council on Science and Biotechnology Development, intended to improve Texas health care, agriculture and technology; the Trans Texas Corridor, to plan for safe, efficient transportation; and the distribution of more than $5 million annually in work force development funding. In addition, the governor has appointed a Task Force for Economic Growth to advise him on ways to ensure Texas’ long-term economic prosperity.[19]

One member of the task force is Dr. Ray Perryman, president and CEO of the Perryman Group, an economic research and analysis firm. The Perryman Group developed a state-required comprehensive economic development plan for TDED. The plan includes a recommendation to establish the Governor as the primary economic development spokesperson for the state.[20]

Sunset Commission staff members have recommended that economic development, tourism and research functions now handled by TDED be transferred as a trusteed program to the Governor’s Office. The 2001 Appropriations Act contains language that would send TDED’s travel and economic development functions to the Governor’s Office should the agency be abolished.[21]

Recommendations

A. State law should be amended to abolish the Texas Department of Economic Development (TDED).

The agency and its board should be abolished.

B. State law should be amended to transfer TDED’s economic development functions and business incentive programs to the Governor’s Office.

The recommendations of the Governor’s Task Force for Economic Growth and the comprehensive economic development plan for the state should be implemented under the executive leadership of the Governor’s Office to improve economic development outcomes throughout the state.

C. State law should be amended to consolidate tourism functions in a new Texas Office of Tourism.

The Texas Office of Tourism should be established as a trusteed program within the Governor’s Office. Tourism functions at TDED and the Texas Department of Transportation (TxDOT) should be consolidated to eliminate unnecessary duplication. The Tourism Advisory Committee should be retained to ensure statewide representation in the development, oversight, and accountability of tourism activities.

Fiscal Impact

Abolishing TDED and transferring its economic development and tourism functions to the Governor’s Office would reduce many of the administrative costs associated with operating a state agency and would eliminate the travel and administrative costs associated with maintaining the governing board. Almost all staff positions affected by this recommendation are funded from general revenue (GR) and/or dedicated GR (one-twelfth of the tax revenues from the state’s hotel/motel tax for tourism functions) as outlined below.[22]

Function* Total Amount GR Amount GR% Dedicated GR Amount Dedicated GR%
Central Administration $1,583,057 $1,075,288 68% $507,799 32%
Operating/Support $302,844 $200,121 66% $102,723 34%
IR Technologies $310,980 $204,648 66% $106,332 34%
Economic Development $1,746,369 $1,721,596 99%** $0 0%
Travel $20,547,168 $35,000 0% $20,512,168 100%
Research $882,876 $879,876 100% $0 0%
*Business incentives not included since these programs are funded primarily with federal and other non-GR sources.
**One percent of economic development funding comes from other sources.

Recommendation A would reduce administrative staff positions in central administration, operating/support and information technology. Since the Governor’s Office provides administrative and human resource support to trusteed programs, the estimate assumes that central administration and operating/support staff can be reduced by 75 percent.

Based on TDED’s average central administration salary of $48,287, reducing the number of FTEs from 30 to eight would save $1,062,000 annually. Savings to general revenue would be $722,000 ($1,062,000 x 68 percent) while savings to dedicated GR would be $340,000 ($1,062,000 x 32 percent).

Based on TDED’s average operating/support salary of $39,517, reducing the number of FTEs from seven to two would save $198,000 annually. Savings to general revenue would be $131,000 ($198,000 x 66 percent), and savings to dedicated GR would be $67,000 ($198,000 x 34 percent).

The estimate assumes that information technology staffing would be reduced by only 25 percent because of its importance in consolidating functions and improving operational processes. Based on TDED’s average information technology salary of $51,246, reducing the number of FTEs from six to four would save $102,000 annually. Savings to general revenue would be $67,000 ($102,000 x 66 percent) while savings to dedicated GR would be $35,000 ($102,000 x 34 percent).

For Recommendation B, the estimate assumes that the number of economic development staff at TDED would be reduced by 50 percent, but the average salary of $47,580 for this function would rise to $60,000. This would reduce annual salary costs from $1,094,000 (23 FTEs x $47,580) to $720,000 (12 FTEs x $60,000) or $374,000. Resulting savings to general revenue would be $370,000 ($374,000 x 99 percent).

For Recommendation C, the estimate assumes that half of TDED’s travel staffing would be eliminated. Based on TDED’s average travel salary of $41,571, reducing the number of FTEs from 30 to 15 would save $624,000 annually in dedicated GR.

TDED’s research clearinghouse and other research functions support both economic development and tourism. The estimate assumes that existing research initiatives could be maintained with 75 percent of current staffing, due to economies of scale achieved by consolidating TxDOT and TDED travel functions, and through strengthening economic development partnerships with private businesses, universities and research organizations under the Governor’s leadership. Based on TDED’s average research salary of $42,166, reducing the number of FTEs from 15 to 12 would result in general revenue savings of $126,000 annually.

The estimate assumes that TxDOT would eliminate six administrative positions dedicated to tourism functions through the consolidation of TxDOT’s and TDED’s tourism functions. Based on the average TxDOT travel salary of $39,320, reducing the number of FTEs by six would save the State Highway Fund (Fund 006) $236,000 annually.

Additional savings could be achieved from reduced facilities costs, improved publications development and coordinated research. Under the governor’s leadership, the state should be more successful in raising private funds for tourism and economic development activities, including international marketing, but the additional amounts cannot be estimated.

To realize the recommended savings, general revenue appropriations for staffing and operating TDED’s tourism, economic development and research functions should be transferred to the Governor’s office in the reduced amounts specified. Travel and tourism-related expenditures and Fund 006 expenditures permitted through appropriations should be reduced by the specified amounts and appropriated to the Governor’s office through a legislative rider in the Appropriations Act.

The recommended staff reductions by function, along with the salary savings, not including benefits, for GR, dedicated GR and Fund 006 are summarized below.

Function Recommendation FY 2002 FTEs FTEs Cuts FTEs Left Total Reduction GR Amount Dedicated GR Amount Fund 006 Amount
TDED
Central Administration A 30 22 8 $1,062,000 $722,000 $340,000  
Operating/Support A 7 5 2 $198,000 $131,000 $67,000  
Information Technologies A 6 2 4 $102,000 $67,000 $35,000  
Economic Development B 23 11 12 $374,000* $370,000 $0  
Travel C 30 15 15 $624,000 $0 $624,000  
Research B&C 15 3 12 $126,000 $126,000 $0  
TxDOT
Travel Centers B 97 6 91 $236,000     $236,000
TOTAL   208 64 144 $2,722,000 $1,416,000 $1,066,000 $236,000
*One percent of economic development funding comes from other sources.

The salary savings reflected above do not include savings associated with benefits. To achieve total benefit reductions of 28.28 percent, appropriations for the Texas Employees Retirement System would be reduced by 6 percent of salary amounts for retirement and 14.63 percent for health insurance. Appropriations to the Texas Comptroller of Public Accounts would be reduced by 7.65 percent of the salary amount for Social Security and Medicare taxes. These benefit reductions would increase general revenue, dedicated GR and Fund 006 annual savings by $400,000, $301,000, and $67,000 respectively.

Total annual general revenue, dedicated GR and Fund 006 savings would be $1,816,000, $1,367,000 and $303,000 respectively beginning in fiscal 2004.

Fiscal Year Savings to General Revenue Savings to General Revenue Dedicated Savings to Fund 006 Change In FTEs
2004 $1,816,000 $1,367,000 $303,000 -64
2005 $1,816,000 $1,367,000 $303,000 -64
2006 $1,816,000 $1,367,000 $303,000 -64
2007 $1,816,000 $1,367,000 $303,000 -64
2008 $1,816,000 $1,367,000 $303,000 -64


Endnotes

[1]Texas Department of Economic Development, Self Evaluation Report, Revised Edition (Austin, Texas, August 2002), p. 3.

[2]Texas Department of Economic Development, Self Evaluation Report, Revised Edition, pp. 77-78.

[3]Texas Sunset Advisory Commission, Texas Department of Economic Development Staff Report (Austin, Texas, November 2002), p. 33.

[4]Texas Sunset Advisory Commission, Texas Department of Economic Development Staff Report (Austin, Texas, April 2000), pp 1-2.

[5]Texas State Auditor’s Office, An Audit Report on the Department of Economic Development (Austin, Texas, January 2000), p. 1.

[6]Tex. S.B. 309, 77th Leg., R.S. (2001); Texas Sunset Advisory Commission, Texas Department of Economic Development Staff Report, November 2002, p. 23, and Texas Department of Economic Development, Self-Evaluation Report, Revised Edition, p. 24.

[7]Texas Sunset Advisory Commission, Texas Department of Economic Development Staff Report, November 2002, pp. 1 and 5.

[8]Texas Sunset Advisory Commission, Texas Department of Economic Development Staff Report, November 2002, pp. 1-8.

[9]Texas Economic Development Council Web site, http://www.texasedc.org/about/ (Last visited November 25, 2002); and Texas Economic Development Council, TEDC’s Draft Legislative Agenda (Austin, Texas, September 16, 2002), p. 1.

[10]Telephone interview with Andy Fisher, public information officer, and Dene Dawson, director of Marketing and Customer Service Division, North Carolina Department of Commerce, Charlotte, North Carolina, November 19, 2002; and Texas Sunset Advisory Commission, Texas Department of Economic Development Staff Report, November 2002, p. 5.

[11]Interview with Carlton Schwab, president/CEO, Texas Economic Development Council, Austin, Texas, November 12, March 13, and February 12, 2002.

[12]Texas Sunset Advisory Commission, Texas Department of Economic Development Staff Report, November 2002, p. 15.

[13]Texas Sunset Advisory Commission, Texas Department of Economic Development Staff Report, November 2002, pp. 16-17.

[14]Texas Department of Economic Development, Self Evaluation Report, Revised Edition, pp. 45-56; Tex. S.B. 1, 77th Leg., R. S. (2001), Article VII; and Texas Department of Economic Development, Legislative Appropriations Request for the Fiscal Years 2004-2005 (Austin, Texas, August 30, 2002), p. 7.

[15]Telephone interview with Doris Howdeshell, director of Travel Division, Texas Department of Transportation, Austin, Texas, November 20, 2002; and Texas Sunset Advisory Commission, Texas Department of Economic Development Staff Report, November 2002, p. 15.

[16]Travel Industry Association of America, 2000-2001 Survey of U.S. State and Territory Tourism Office Budgets (Washington, D.C., May 2002), p. 1.

[17]Telephone interview with Pedro Munilla, Office of Tourism, Trade, and Economic Development, Florida Office of the Governor, and Tom Flanigan, director of communications, VISIT FLORIDA, Tallahassee, Florida, November 19, 2002; 2002 Florida Statutes, Chapter 288, Commercial Development and Capital Improvements, §288.122; and VISIT FLORIDA, “VISIT FLORIDA Study to be Published in Academic Journal,” Tallahassee, Florida, October 30, 2002. (Press release.)

[18]Texas Office of the Governor, Request for Legislative Appropriations for 2004 and 2005 (Austin, Texas, August 2002), p. 1.

[19]Texas Office of the Governor, “Governor Perry Creates Task Force for Economic Growth; Panel Will Recommend Ways to Recruit and Build Businesses,” Austin, Texas, February 26, 2002. (Press release.)

[20]M. Ray Perryman, Texas, Our Texas: An Assessment of Economic Development Programs and Prospects in the Lone Star State, (Waco, Texas, November, 2002), p. vii; and Texas Gov. Code §481.101.

[21]Texas Sunset Advisory Commission, Texas Department of Economic Development Staff Report, November 2002, p. 10; and Texas S.B. 1, 77th Leg., Reg. Sess. (2001), Article VII.

[22]Texas Department of Economic Development, Legislative Appropriations Request for the Fiscal Years 2004-2005, pp. 23-38.