By CHARLES DAMERON
The presidential candidate’s signature economic development initiative has raised questions among conservatives.
Gov. Rick Perry’s presidential pitch goes something like this: During one of the worst recessions in American history, he’s kept his state “open for business.” In the last two years, Texas created over a quarter of a million jobs, meaning that the state’s 8% unemployment rate is substantially lower than the rest of the nation’s. The governor credits this exceptional growth to things like low taxes and tort reform.
It’s a strong message. But one of the governor’s signature economic development initiatives—the Texas Emerging Technology Fund—has lately raised serious questions among some conservatives.
The Emerging Technology Fund was created at Mr. Perry’s behest in 2005 to act as a kind of public-sector venture capital firm, largely to provide funding for tech start-ups in Texas. Since then, the fund has committed nearly $200 million of taxpayer money to fund 133 companies. Mr. Perry told a group of CEOs in May that the fund’s “strategic investments are what’s helping us keep groundbreaking innovations in the state.” The governor, together with the lieutenant governor and the speaker of the Texas House, enjoys ultimate decision-making power over the fund’s investments.
Among the companies that the Emerging Technology Fund has invested in is Convergen LifeSciences, Inc. It received a $4.5 million grant last year—the second largest grant in the history of the fund. The founder and executive chairman of Convergen is David G. Nance.
In 2009, when Mr. Nance submitted his application for a $4.5 million Emerging Technology Fund grant for Convergen, he and his partners had invested only $1,000 of their own money into their new company, according to documentation prepared by the governor’s office in February 2010. But over the years, Mr. Nance managed to invest a lot more than $1,000 in Mr. Perry. Texas Ethics Commission records show that Mr. Nance donated $75,000 to Mr. Perry’s campaigns between 2001 and 2006.
The regional panel that reviewed Convergen’s application turned down the company’s $4.5 million request when it presented its proposal on Oct. 7, 2009. But Mr. Nance appealed that decision directly to a statewide advisory committee (of which Mr. Nance was once a member) appointed by Mr. Perry. Just eight days later, on Oct. 15, a subcommittee unanimously recommended approval by the full statewide committee. On Oct. 29, the full advisory committee unanimously recommended the approval of Convergen’s application. When asked why the advisory committee felt comfortable recommending Convergen’s grant, Lucy Nashed, a spokesperson for Mr. Perry, said that the committee “thoroughly vetted the company.”
Starting in 2008, Mr. Perry also appropriated approximately $2 million in federal taxpayer money through the auspices of the Wagner-Peyser Act—a federal works program founded during the New Deal and overseen in Texas by Mr. Perry’s office—to a nonprofit launched by Mr. Nance called Innovate Texas. The nonprofit was meant to help entrepreneurs by linking them to investors. It began receiving funding on Dec. 31, 2008, soon after Mr. Nance’s previous company, Introgen Therapeutics, declared bankruptcy on Dec. 3. According to state records, Mr. Nance paid himself $250,000 for the two years he ran Innovate Texas. Innovate Texas, whose listed phone number is not a working number, could not be reached for comment. (Two phone calls left for Mr. Nance at Convergen’s offices went unreturned.)
ThromboVision, Inc., a medical imaging company, was also the recipient of an award from the Emerging Technology Fund: It received $1.5 million in 2007. Charles Tate, a major Perry contributor, served as the chairman of a state committee that reviewed ThromboVision’s application for state funding, and Mr. Tate voted to give ThromboVision the public money. One month after ThromboVision received notification that it would receive a $1.5 million state grant in April 2007, Mr. Tate invested his own money in ThromboVision, according to the Dallas Morning News. The Texas paper later found that by 2010 Mr. Tate owned a total of 200,000 preferred shares in ThromboVision.
According to a Texas state auditor’s report, ThromboVision failed to submit required annual reports to the fund from 2008 through 2010, when the company went bankrupt. The report noted the tech fund’s managers were “unaware of ThromboVision, Inc.’s bankruptcy until after the bankruptcy had been reported in a newspaper.” ThromboVision’s bankruptcy filing revealed not only that Mr. Tate had been a preferred shareholder in ThromboVision, but so had prominent Perry supporter Charles Miller, who owned 250,000 preferred shares in the company and has donated $125,000 to the governor’s campaigns. Three phone calls and an email seeking Mr. Tate’s side of the story went unreturned.
All told, the Dallas Morning News has found that some $16 million from the tech fund has gone to firms in which major Perry contributors were either investors or officers, and $27 million from the fund has gone to companies founded or advised by six advisory board members. The tangle of interests surrounding the fund has raised eyebrows throughout the state, especially among conservatives who think the fund is a misplaced use of taxpayer dollars to start with.
“It is fundamentally immoral and arrogant,” says state representative David Simpson, a tea party-backed freshman from Longview, two hours east of Dallas. The fund “opened the door to the appearance of impropriety, if not actual impropriety.”
In April, the state auditor’s office called for greater transparency in the fund’s management, and some legislators began looking for ways that the fund might be reformed. With the state facing a $27 billion budget shortfall in the last legislative session, Mr. Simpson filed a motion in the Texas House in May to shutter the fund and redirect the money to other portions of the budget. That measure passed 89-37 to cheers from the chamber. But the fund was kept alive by the legislature’s conference committee. The fund currently has $140 million to spend, according to the governor’s office.
Michael Quinn Sullivan, the president of Texans for Fiscal Responsibility, sees in the Emerging Technology Fund a classic example of the perils of government pork. “The problem with these kinds of funds is that even when they’re used with the best of intentions, it looks bad,” says Mr. Sullivan. “You’re taking from the average taxpayer and giving to someone who has a connection with government officials.”
Mr. Dameron is a Robert L. Bartley Fellow at the Journal.