AUSTIN, Texas — Bankruptcies and a criminal investigation marred Texas' signature programs that use taxpayer funds to boost private startups in 2012, and lawmakers this year must decide how much of an appetite they have to keep the money flowing.
The state budget picture will be brighter when Legislature reconvenes Tuesday, but leaders of both Gov. Rick Perry's Emerging Technology Fund and the embattled Cancer Prevention and Research Institute of Texas, or CPRIT, will find it a much tougher sell getting lawmakers to buy in to their programs and fork over a combined $739 million over the next two years.
Terry Chase Hazell, chairwoman of the Emerging Technology Fund's advisory committee, on Friday acknowledged various challenges in making a case for funding, but said she was confident that lawmakers would be thorough.
"The broader lens that the Legislature looks at the funds through is not something we should, or try, to control," Hazell said.
On the flip side, another prominent state economic development program isn't asking for a dime. The Texas Enterprise Fund is touted as Perry's deal-closer to bring companies such as Apple to Texas, and carried an unused balanced of about $145 million at the end of last year, said Perry spokeswoman Lucy Nashed.
"I think we just looked at what we already have in the bank and felt that was an appropriate amount to move forward with," Nashed said.
CPRIT accounts for the bulk of the high-tech money being sought — $600 million requested over 2014-15 — and is the most battered. The state's $3 billion cancer-fighting agency unraveled last year amid internal accusations of politics trumping science, widespread resignations and now a criminal investigation into an $11 million grant that was given to a private company and that completely bypassed the review process.
Dallas-based Peloton Therapeutics received that grant, and the startup is similar to those infused with cash by Perry's tech fund, which has doled out more than $194 million since 2005. Two bankruptcies in the fund's portfolio last year added to previous busts and raised questions about whether the fund is now worth less than what taxpayers have put into it.
The current value of the fund won't be publicly known until an annual report due out later this month.
Both the tech fund and the part of CPRIT's budget that is set aside for private company awards — roughly 15 percent, as the bulk of CPRIT's funding underwrites cancer research in university labs — were established with economic development and breakthroughs in mind. Backers defend the taxpayer funding as another boost to Texas' rapidly growing high-tech sectors the well-paying jobs the industries bring.
But critics of the programs believe the run of bad news — particularly surrounding CPRIT — is making more lawmakers skeptical of whether the state is getting its money's worth or simply enriching private companies.
"I'm afraid the motivation has become very clear to lawmakers and even the public," said Glenn Smith, director of the liberal Progress Texas PAC, which filed a complaint against CPRIT with prosecutors in Austin.
Budget writers harshly questioned CPRIT leadership — those still left at the agency, anyway — at a public hearing just before Christmas. It came after Perry and other state leaders ordered a moratorium on CPRIT awards until confidence in the beleaguered program could be restored.
Lawmakers appear to prefer implementing stronger checks, balances and oversight of the agency, instead of punishing it by withholding funding. But the slice of money CPRIT sets aside for private startups will almost certainly be revisited this session.
"This was cancer prevention research. This was not the cancer prevention hedge fund, this was not the cancer prevention venture capital fund. This is not the Emerging Technology Fund," said Democratic state Rep. Craig Eiland, a member of the House Appropriations Committee. "That's something we need to take a look at closely in the Legislature."
One change already being implemented to the tech fund is a bigger emphasis on so-called "success-based" funding waves that will require companies to hit more milestones to collect their full award.
In January 2012, Perry's office estimated that the tech fund portfolio's investments were worth $4.5 million more than what the state had handed out. The fund had its biggest bust to date later that year with the collapse of bioenergy producer Terrabon Inc., which had been awarded $2.75 million in 2010.
That set off criticism about Perry's office not being able to put an exact finger on the value of the fund between annual reports. Hazell, however, said that unlike portfolios of publicly traded companies that are on the stock market, the value of private equity can't be estimated so quickly.
"If you look at the overall performance of the fund, we're seeing what we want to see," she said.
