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The unemployment tax and the Enterprise Fund

We know that unemployment insurance taxes have gone up, and we know that the increase is more than it would have been had Governor Perry not rejected $555 million in stimulus funds for unemployment insurance. But there’s another way in which Perry’s policies have adversely affected the unemployment insurance situation. As the Bill White campaign documents in this white paper on payroll taxes (PDF), the Perry slush fund known as the Texas Enterprise Fund has been siphoning money away from the unemployment insurance trust fund since 2005.

The Enterprise Fund has been a bone of contention since its creation in 2003. From the beginning, it’s been a mix of cronyism and bad economics, typified by the Lexicon case. Now taxes that businesses have paid that could have supplemented the trust fund or provided for training of people who have lost their jobs have instead gone to the Enterprise Fund, where they may have been used to support a competitor of theirs. Nice thing to contemplate when your taxes have gone up, and gone up more than they needed to, in a recession, isn’t it? That’s what Rick Perry’s leadership has given them. A press release from the White campaign that calls on Perry to restore the $161.5 million in diverted dollars to the unemployment trust fund and calls for an independent audit of the Enterprise Fund is beneath the fold.

Rick Perry diverted payroll tax dollars into his Texas Enterprise Fund (TEF) and failed to plan ahead, so small business owners across Texas face nearly double the payroll taxes this year. Increases in payroll taxes hurt job growth.

Today, Bill White called on Rick Perry to send diverted payroll taxes back to the Unemployment Insurance Trust Fund, audit the Enterprise Fund and disclose his plan for repaying billions in stimulus loans that were used to prop up the unemployment system.

“Rick Perry will say and do anything for his political career, even if it means raising taxes on small businesses,” said Katy Bacon, campaign spokesperson. “He flies around the state announcing subsidies to chosen companies, subsidies paid for by all Texas businesses.”

Before the Perry Administration, all Texas payroll dollars were paid into the funds for unemployment insurance or workforce development.

Perry siphoned over $161.5 million of payroll taxes and put them into the TEF. Perry uses the TEF to subsidize companies he chooses, companies that compete with the Texas businesses paying taxes.

Firms subsidized by Perry’s TEF have repeatedly failed to deliver on Perry’s promises and raised questions about the use of taxpayer dollars. Perry doled out $35 million to sub-prime mortgage lenders Countrywide and Washington Mutual and millions more to insurance giants Nationwide and Allstate. Another $35 million went to a struggling biotech company, Lexicon, for a project with Texas A&M.  Perry announced at a press conference that the joint project would create 5,000 jobs. Instead, Lexicon cut its workforce in half.

In 2009, Perry concocted a political circus around refusing to bring Texas tax dollars back to Texas for the Unemployment Insurance Trust Fund. Republican State Senator Kevin Eltife recently called the decision “insane.”

The fund is now broke and the state is expected to have borrowed $2.5 billion in federal stimulus dollars by the year’s end in order to meet its obligations.

To replenish the Unemployment Insurance Trust Fund, Texas also nearly doubled payroll taxes on many businesses, and Rick Perry’s appointed chair of the Texas Workforce Commission warned on April 26 that he may need to raise taxes again soon.

“Rick Perry’s choices slapped new taxes on Texas businesses when what they need to grow is fewer burdens, not more,” said Bacon. “As governor, Bill White will not play politics with payroll tax dollars. He’ll develop a plan to ensure the Unemployment Trust Fund builds reserves in good times to avoid tax increases during tougher times.”

When the legislature attempted to limit diversions and rein in Perry’s access to payroll taxes, Perry vetoed the bill.

For more details on the diversion of payroll taxes and the condition of the Unemployment Insurance Trust Fund, go to

Specifically, Bill White is calling on Rick Perry and the Legislature to:

Restore diverted funds. The Enterprise Fund should transfer the full $161.5 million diverted from Texas’ payroll taxes to the Unemployment Insurance Trust Fund. All employers would benefit from the reduced tax burden and the employers–not a politician–could decide how best to allocate dollars to strengthen business and expand employment.

Audit the Enterprise Fund. There should be an independent audit of tax dollars used to subsidize firms. The auditors should report on the following issues for each firm receiving TEF funds:
1.    Did the governor conduct sufficient independent analysis of the application before awarding a subsidy?
2.    Did the firm fulfill every promise made in the grant application?
3.    Were TEF dollars necessary to accomplish the intended purposes?
4.    Was there political influence used or were there lobbyists paid to influence decisions about TEF dollars?
5.    Did the TEF-subsidized firm compete with other Texas businesses not receiving a subsidy?

Disclose the plan for repaying borrowed federal stimulus funds. Perry declined federal grants to strengthen the Unemployment Insurance Trust Fund, but has accepted billions in federal stimulus loans. No family or business or government should borrow money without a plan to repay. But as of last month, the chair of the Texas Workforce Commission did not have a plan to repay these amounts. Gov. Perry should not wait after the election to reveal this plan and its cost to Texas businesses and employment.

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  2. […] back even if they ultimately fail to create a single job, as the case almost surely will be with Lexicon. Something that I’ve never understood about the Texas Enterprise Fund is why exactly a guy […]