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Texas Politics - Political Economy
Children's Health Insurance Program (CHIP)
2.1    Texas Enterprise Fund: Winners and Losers in Economic Policy

One of the most prominent economic development initiatives to emerge from the political process in recent years has been the Texas Enterprise Fund, whose creation illustrates the interplay of business and politics in the state. The fund also illustrates how the extensive integration of state government in the economy often takes place amidst rhetorical nods to the preeminence of markets and competition.

The Texas Enterprise Fund was created during the 2003 legislative session in response to Governor Rick Perry's request in his 2003 State of the State address for a special development fund of $390 million. Bills were introduced in each house of the legislature that would finance this fund by taking money from the emergency Economic Stabilization Fund (a.k.a. the "rainy day fund").

The rainy day fund was created in 1988 for special emergencies. During the 2003 legislative session, the legislature had earmarked nearly all of the $1.1 billion that had accumulated in the fund to pay for some unexpected needs (true "rainy day" emergencies like the clean up and reconstruction of buildings at the University of Houston damaged by Hurricane Alice) and as well as to cover budgetary shortfalls in state Medicaid and the Children's Health Insurance Program (CHIP) caused by slow growth in the economy.

Because of the general budget crisis in 2003, the Governor's proposed Texas Enterprise Fund ended up competing for the same money as health care and health insurance for low income Texans. This prompted debate over the proper use of scarce state funds both from a moral perspective (helping the poor or big business) and from an efficiency point of view (which use would have the biggest positive impact on the economy). For instance, a study jointly commissioned by the Texas Hospital Association (THA) and the Texas Medical Association (TMA) found that for every one dollar in cuts to Medicaid and CHIP, the state loses $2.81 in federal funds. This same study also found that impact from the losses in output for the state economy as a whole, the increased insurance and healthcare costs, and the lost tax revenue totaled several times more than the original cuts in funding. [1]

Critics might say that cost to the general economy of giving special business interests direct government subsidies was huge. Furthermore, some groups - namely low income households, doctors and hospitals - paid the most for this transfer of wealth to specific interests. On the other hand, supporters of the Texas Enterprise Fund argued that the state needed to stay competitive with other states who were offering grants and subsidies to attract new businesses.

In the final bill, the governor got $295 million, most of what he requested. The majority of the funds were to be dedicated to "deal closing," as the governor's website referred to it, which frequently means sweetening existing offers of tax breaks and infrastructure to attract new business investment.

Shortly after the fund was established, $40 million was used to convince the technology consortium Sematech to build a new chip wafer facility in Texas instead of Albany, New York. Another $55 million was targeted to attracting new IT and biotechnology firms to the state. Though it was mostly dedicated to funding incentive packages for corporations - what critics sometimes refer to as "corporate welfare" - the new discretionary fund also earmarked $60 million for disaster relief from things like tropical storms.

The reduction in funds for Medicaid and CHIP were especially painful given that Texas already lagged every other state in its percent of the population covered by some sort of health insurance. According to the US Census Bureau, the state had the highest percentage of people without health insurance for the three year period from 2000 to 2001, averaging 24.1 percent annually. This compares to the national average for the three year period of 14.7 percent. [2] Texas lost more ground from 2000-2001 to 2001-2002, during which time another 1.4 percent of the population was added to those already without insurance. Against this backdrop, the choice to pay for the governor's "deal closing" fund with money that could have reduced cuts in Medicaid and CHIP provides a vivid illustration of the tradeoffs that inevitably occur when budgeting decisions are made.

Funding for CHIP and some of the other cuts in spending were restored during the 2005 legislative session, when the legislature reduced funding for the Enterprise Fund to $185 million. But the legislature also created a $200 million Emerging Technology Fund, designed to encourage the development of high tech public-private partnerships. Though universities were flagged as potential partners and fund recipients, the governor and his staff signaled their preference for funding private enterprise initiatives by signing the bill creating the fund in a ceremony at a Samsung plant in Austin.

The Texas Enterprise Fund illustrates a number of themes that recur throughout our discussion of the political economy in this chapter:

  • Social services funding is frequently vulnerable to being used for short-term political ends.

  • Government "economic development" inevitably creates political winners and losers, both horizontally among competing companies and industries seeking to use government support for their own private goals, and vertically along class lines.

  • The influence of politics and economics are mutually reinforcing. Political developments shape state intervention in the economy. Subsequent economic developments subsequently feed back into politics.

  • Even seemingly narrow state economic intervention has political, economic, and social consequences.

Even if the legislature and governor had not worked to create the new gubernatorial discretionary fund and agreed to dedicate that money to Medicaid and CHIP, they would still have been affecting the economy. There would still have been winners and losers among economic interests as well as among social class interests. This point was evident in the THA/TMA study on the economic impact of state budget cuts to these programs. If Medicaid and CHIP funds were not redirected, then the healthcare industry and insurance industries would have faired much better, as would the general population, from lower healthcare costs and greater flow of federal dollars into the state.

In this chapter we look at the complex dynamics of the interplay between politics and economics, as well as the key economic activities of state government. The Texas Enterprise fund provides ample illustration of these dynamics and of the structure of state intervention in fostering business; yet it is only one of thousands of instances that constitute the Texas political economy.

1 Ray Perryman, Ph.D., link: "Medicaid and the Children's Health Insurance Program (CHIP): An Assessment of Thei
2 U.S. Bureau of the Census, link: "Health Insurance in the United States: 2002," September 2003. [Accessed on Septe

Texas Politics:
© 2009, Liberal Arts Instructional Technology Services
University of Texas at Austin
3rd Edition - Revision 117
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