August 11, 2005
The Perry Slush Fund chronicles

I made a note to comment on this story about the $35 million grant from the Texas Enterprise Fund to biotech firm Lexicon on Monday, but managed to not get around to it. My bad. Let's do a little catch-up.

First, the basics of the deal and the reason why it's newsworthy:

The $50 million grant is for a joint project between Lexicon and Texas A&M University to expand the genetic research being done by the company. The money will establish the Texas Institute for Genomic Medicine, with $15 million going to A&M and $35 million to Lexicon.


The grant, announced July 16, equals the largest ever made by Perry's Texas Enterprise Fund for economic development. The $300 million fund makes grants at the governor's discretion. Democrats have called it a political "slush fund" designed to make legal but politically beneficial investments for the governor.


Some of the major Lexicon investors who have held a controlling interest in the company are Houston businessmen who have been top financiers of Perry's political career.

They are Houston Texans owner Robert C. McNair, businessman William A. McMinn and the estate of businessman Gordon Cain and his family. They own 16.5 percent of the company, according to Securities and Exchange Commission records, making them the largest group of stockholders.

McNair has donated $175,301 to Perry's political fund since he has been governor, and McMinn has given $100,000. The contributions include $25,000 each McNair and McMinn gave Perry in June. Cain contributed $50,000 before he died in 2002.

McMinn also was one of three businessmen who guaranteed a $1.1 million loan for Perry's campaign when he was elected lieutenant governor in 1998. McMinn and Cain were business partners in Sterling Chemicals.

McMinn is a past chairman of the Lexicon board of directors and served on the board from 1997-2003. McMinn, Cain's widow, Mary, and stepson, James Weaver, earlier this year held joint control of 7.2 percent of the company's stock, according to SEC records. In a filing Friday, Mary Cain reported selling almost half her Lexicon stock on July 26.

Gordon Cain was the company's founding investor, according to SEC records.


Rep. Garnet Coleman, D-Houston, a frequent critic of the Texas Enterprise Fund, said the deal shows Perry is using "the treasury as a private bank account."

"These are folks who are very supportive of him," Coleman said. "It's a pretty good trade: I give you hundreds of thousands of dollars and you give me back millions, millions of the taxpayers' dollars."

Applications for Texas Enterprise Fund grants are reviewed by the governor's office and are subject to approval by House Speaker Tom Craddick and Lt. Gov. David Dewhurst. But Perry promotes the fund and usually announces the grants.

So basically, Rick Perry is saying "Trust me, I'm awarding this grant based on merit, and the fact that a bunch of my buddies stand to gain from it is just a coincidence." But of course, Perry has a long and established record of using his office to reward his benefactors. From John Krugh to Marty McCartt to Reagan Greer, Perry has put backscratching ahead of the public good. Why should we expect this time to be any different?

This editorial in today's Chron suggests that taking away granting authority from the Governor's office and giving it to an impartial board of scientists and business analysts would be an improvement. I agree it'd be better than the current system of patronage, but there's another item to bring up, which Loren Steffy does.

The $35 million that is Lexicon's portion of the state grant requires the company to add more than 1,600 jobs over 10 years. If it doesn't, it may have to pay back as much as $14.4 million, according to the company's filings with the Securities and Exchange Commission.

So if the deal turns out to be a flop, and no jobs are created, Lexicon gets a $20.6 million gift and a $14.4 million interest-free loan.

Let's see: some time in 2015, Lexicon will either have to prove that they've created 1600 new jobs since 2005, or give some of them money back; the remainder will apparently be a gift. How will this determination be made, and by whom? What happens if there's a dispute in how Lexicon adds up "new jobs" - for example, would contractors count? What happens if they go out of business - will the state of Texas sue them in bankruptcy court? What happens if they get bought out - will "new jobs" created by the parent corporation count? What happens if the Lege succeeds in killing the Texas Enterprise Fund between now and then?

I'm sure there are other questions besides these. Does the Governor have any answers?

Posted by Charles Kuffner on August 11, 2005 to Scandalized! | TrackBack

What about the lawmakers who protect Perry's allowance? During the budget debate on the House floor, several Dems attempted to allocate money from the TEP to programs that would actually benefit citizens of this state. But Republicans were steadfast in protecting it from paying for air quality monitors or health care for the poorest Texans. It makes perfect business sense to have clean air and a healthy work force.

Posted by: Sandra on August 11, 2005 11:01 AM

Yeah, creating a new "impartial" layer of bureaucracy that requires "impartial" appointments is the answer to patronage and cronyism.

Seriously, is the editorial board on crack? Why create an unaccountable layer of bureaucracy when the Governor can be held perfectly accountable, as the Chronicle editorial board has chosen to do today?

A better answer might be to kill the fund altogether, and all sorts of other special interest funding.

Of course, getting consensus on THAT is extremely difficult, since the one thing most of our legislators (Rs and Ds alike) can agree on is new ways to spend the public's money, and they can usually find ways to look the other way when one party's "special interests" get funded so long as some amount of the other party's "special interests" get funded.

It's kind of cute watching those who advocate bigger government and more governmental spending in many areas get so worked up over spending they don't like so much. :)

Posted by: kevin whited on August 11, 2005 11:23 AM

"Seriously, is the editorial board on crack? Why create an unaccountable layer of bureaucracy when the Governor can be held perfectly accountable, as the Chronicle editorial board has chosen to do today?"

brilliant. so a nasty editorial is "being held accountable" for pissing away $35 million. what planet are you from?

Posted by: mark on August 11, 2005 3:10 PM