DRAINING THE SWAMP: FOAC COMMITTEE TO AUDIT CITY 380 AGREEMENTS AND NO-BID CONTRACTS

by Max Grossman

According to the Texas Comptroller, “Chapter 380 of the Local Government Code authorizes municipalities to offer incentives designed to promote economic development such as commercial and retail projects. Specifically, it provides for offering loans and grants of city funds or services at little or no cost to promote state and local economic development and to stimulate business and commercial activity.”

In January 2020, David Crowder published a report for the El Paso Inc—the only local media report of its kind—in which he revealed that “the City of El Paso has 96 incentive agreements, some of which are not yet active, that would rebate $231 million in property and sales taxes that developers have paid or will pay over the life of their agreements.” 

These “380 agreements” can extend for up to 10 years, much to the detriment of hotels and other businesses that are less connected and suffer from a serious competitive disadvantage as a result.

Crowder questions the profitability of these agreements, citing a groundbreaking Wall Street Journal report, a study by two of the world’s leading economists, and a prominent government professor at UT-Austin.

Local attorney Jim Scherr, who secured a multi-million-dollar tax incentive package for his downtown Doubletree Hotel, and Jessica Herrera, then head of the City’s economic development office, jump into Crowder’s story with a vigorous defense of corporate welfare, insisting that all is well in Payola-Land and that there is nothing amiss.

FOAC TO AUDIT 380 AGREEMENTS AND ON-CALL AGREEMENTS

City Rep. Joe Molinar placed item 7 on the agenda of the Finance Oversight and Audit Committee for tomorrow, calling for “Discussion and Action to schedule an audit or review” of 380 Agreements and on-call service agreements (no-bid contracts for City-approved consultants).

In the backup, Molinar asks: “How many 380 Agreements were approved by City Council and executed by our City Manager and or designees from different City of El Paso departments for the time period of June 2014 to December 2022?  In essence, did these 380 Agreements produce any positive and or negative financial impacts to the City Of El Paso and other entities.”

He also asks: “How many On?Call Agreements were approved by City Council and executed by our City Manager and or designees for the time period of June 2014 to December 2022? What was the selection process for these firms? What was the frequency of these firms for City of El Paso contracts? How much funds has been spent for these on?call service agreements?”

Make no mistake about it. This new audit is one of the most courageous initiatives ever undertaken by a City Council representative and I suspect it will show that many of these City agreements have been ineffective or insolvent, costing the taxpayers a huge amount of lost revenue and placing upward pressure on our property tax.

For many years, these agreements have been negotiated behind closed doors inside the Office of Economic Development, but the audit targets only the agreements signed since City Manager Tommy Gonzalez assumed office in June 2014.

Today the City canvassed the votes from this past election and thus Proposition J is now in effect, meaning that the Chief Internal Auditor, Edmundo Calderon, now reports to Rep. Brian Kennedy, Chair of FOAC, rather than to the City Manager.

This is extremely significant.

In the last few weeks, we have seen FOAC investigate City gas cards, P-cards, and travel expense reports, and now they are moving into the unchartered territory of incentive agreements with the big developers and no-bid contracts with City-approved consultants.

Things are going to get very interesting, very soon.