Texas Enterprise Fund: Grants, Spending, and Accountability

Estimated Time to Read: 22 minutes

The Texas Enterprise Fund (TEF) is the State of Texas's main cash-grant program for recruiting business projects. It awards money to companies considering a new facility or a major expansion. State officials call it a "deal-closing" fund because it is meant to tip a location decision toward Texas when a company is seriously weighing a site in another state.

The Legislature created the fund through Senate Bill 1771 (SB 1771), authored by former State Sen. Kim Brimer (R-Fort Worth), in the 78th Legislative Session (2003). Its legal authority is Section 481.078 of the Texas Government Code. The statute treats the fund as a trusteed program within the Office of the Governor, meaning the Governor's Office manages the money and negotiates awards on the state's behalf. According to the State Auditor, the Governor's Office of Economic Development and Tourism handles applications, due diligence, and the information packets prepared for decision-makers.

TEF is often discussed as if it were a single pot of money awarded at a single moment. In practice, it involves several different numbers and decisions: what the Legislature makes available, what state leaders promise, what the state pays, and what companies return when they fall short. This explainer walks through each one, reviews the program's record, and explains why the fund remains one of the most debated economic development tools in Texas.

How Does the Texas Enterprise Fund Work?

A TEF award begins with a company approaching the state before it has made its final location decision. This timing matters because the program's premise is that the grant can still influence where the project goes. The company submits an application describing the jobs it plans to create, the wages it expects to pay, the capital it plans to invest, its financial condition, and the out-of-state locations it is considering. Staff in the Governor's Office then review the proposal, checking the company's finances and the credibility of its competing sites before preparing a recommendation.

The governor cannot make an award alone. State law allows the governor to negotiate a grant, but the Lieutenant Governor and the Speaker of the House must approve it in advance. In practice, this means Texas's three top elected leaders must all agree before a TEF award moves forward. The Legislature as a whole does not vote on individual awards. Its role is to authorize the program, make funds available through the budget, and receive reports on how the money was used.

The grant amount is not a flat sum. The Governor's Office calculates it using factors that include the number of jobs, their average wages, the hiring schedule, and the company's planned capital investment. Larger, higher-paying projects can generally qualify for larger awards. Even so, TEF grants are usually small compared with the projects they support, often a fraction of a percent of the announced investment.

Once leaders approve an award, the state and the company sign a grant agreement. The agreement sets the company's job-creation and investment targets, the schedule for meeting them, and what happens if it falls short. These agreements were not always required. Until 2005, state law said the governor "may" enter into one. That year, the Legislature passed House Bill 1938 (HB 1938), authored by then-State Rep. Allan Ritter (a then-Nederland Democrat who later switched to the Republican Party), after a Legislative Budget Board (LBB) review of the fund. The bill made written agreements mandatory. It required them to include repayment provisions, commonly called clawbacks, that let the state recover money when a recipient misses its targets, and it allowed repayment to be prorated when targets are only partly met. The Legislature revised these provisions again in 2011 through House Bill 2457 (HB 2457), authored by former State Rep. John Davis (R-Houston). Under the current program, funds are paid only after a recipient shows it has met its targets for a given period, typically once a year. For this reason, an announced TEF award should not be read as a payment already made.

Which Companies Qualify for a Texas Enterprise Fund Grant?

TEF's eligibility rules are designed to limit awards to projects that are genuinely competitive and substantial. The central requirement is competition: a proposed project must involve a Texas site competing with at least one viable site outside the state. A company that has already committed to building in Texas may no longer qualify, because the grant would not be influencing its decision.

The program also sets minimum job thresholds. A project must create more than 75 new full-time jobs in an urban area or more than 25 in a rural area. The lower rural threshold reflects the smaller labor markets outside major metros. The new jobs' average wage must meet or exceed the average wage in the county where the project is located, and that standard applies for the full grant term, not just at the start. Applicants must also show significant planned capital investment, demonstrated local government support, and enough financial strength to carry out the project.

These rules make TEF a selective incentive rather than a general benefit. A tax cut applies to every business that meets its terms. A TEF grant goes only to a company that has negotiated one, for a specific project, under a contract written for that company.

TEF also rarely operates alone. Cities, counties, and local economic development corporations frequently offer their own incentives for the same project, such as property tax abatements, fee waivers, or infrastructure commitments. Other state programs can apply as well. One example is the Jobs, Energy, Technology and Innovation (JETI) program, created by House Bill 5 (HB 5), authored by State Rep. Todd Hunter (R-Corpus Christi) in the 88th Legislative Session (2023) to replace the expired Chapter 313 school property tax limitation agreements. As a result, the TEF award attached to a project is often only one piece of a larger public incentive package, and not always the largest.

How Much Has Texas Appropriated to the Texas Enterprise Fund?

The Texas Legislature writes a two-year budget, the General Appropriations Act (GAA), which covers fiscal years that run from September 1 through August 31. Most state programs receive a specific dollar amount for each year of the biennium. TEF works differently. Its awards stretch across several years, and much of its money is committed to projects but not yet paid, so the fund relies heavily on carrying unused money forward from one budget to the next.

The 2026–27 GAA reflects this approach. It lists the TEF strategy and its dedicated account with the notation "UB," short for unexpended balance authority, instead of a new fixed sum. That authority appropriates any unspent, unobligated balance remaining in the fund as of August 31, 2025, so the program can keep operating on money already in the account. The budget estimated that carryover at $0, which is an accounting estimate made when the budget was written, not a statement that the fund was empty.

The Governor’s Office’s project accounting through August 31, 2026 reported an available TEF balance of $259.2 million for fiscal years 2026–27. That is the amount the office reported as available for the program, not a new $259.2 million legislative appropriation or money already paid to companies. That balance reflects money accumulated from earlier appropriations and repayments. It is not a new legislative appropriation, and it is not money already paid to companies. The statute also allows the fund to support purposes beyond business recruitment, including a state homeless housing and services program. This is another reason to read the fund's balance carefully.

How Much Has the Texas Enterprise Fund Actually Spent?

The most useful figures for measuring TEF spending come from the Governor’s Office’s project accounting through August 31, 2026. It reports $841.6 million in current awards for 225 contracted and announced projects over the life of the program. Of that amount, $629.1 million had actually been paid to recipients. The report also records $92.0 million returned to the fund through clawbacks and other repayments. Subtracting those returns from total payments gives roughly $537.1 million in net payments over the program's history.

Each of those figures answers a different question. An award is the amount tied to a project, subject to its contract terms, and it can shrink if a company scales back its project, misses targets, or has its agreement terminated. A disbursement is money the state has actually paid after a recipient documented its performance. A repayment is money returned to the fund when a recipient fell short or its agreement ended early. Confusing these categories is the most common error in public discussion of TEF.

The gap between awards and payments is especially wide for recent projects. For projects in the report's fiscal year 2026–27 group, the Governor's Office listed $121.8 million in current awards but no payments yet as of August 31, 2026. Those companies have been promised grants but have not yet earned any money under their contracts. Describing all announced awards as money already spent would overstate how much cash has gone out. At the same time, counting only payments would understate how much the state has committed to pay in future years.

What Did the State Auditor Find?

TEF's current accountability structure is largely the product of problems uncovered in its first decade. In 2013, the Legislature passed Senate Bill 1390 (SB 1390), authored by former State Sen. Wendy Davis (D-Fort Worth), which required the State Auditor's Office (SAO) to conduct the program's first independent audit. The auditors reviewed the fund's administration from its creation in September 2003 through August 2013.

The results, released in September 2014, were critical. The auditors found that roughly 44% of the fund’s disbursements during the period, about $222 million, went to recipients that had not submitted formal applications, had not been required to commit to a specific number of direct jobs, or both. About $222 million had gone to entities that never submitted applications or were not required to create jobs. Two of the largest examples were Sematech, a semiconductor research consortium that received $40 million, and the University of Texas at Dallas, which received $50 million in a deal requested by Texas Instruments. Neither submitted an application or committed to creating new jobs, even though job creation was the purpose the Legislature had set for the fund.

The audit also found problems with how results were tracked. The Governor's Office relied on recipients to report their own job numbers, and its monitoring was weak enough that auditors could not determine how many jobs award recipients had actually created. Those weaknesses also limited the state's ability to impose clawback penalties on companies that missed their targets. As of early 2014, the office had recovered about $14.5 million in clawback penalties. That was a small figure next to the hundreds of millions awarded, and it partly reflected the monitoring gaps the auditors identified. The same review found that 23 projects awarded nearly $37 million had been terminated or were inactive.

The audit prompted changes. When Governor Greg Abbott (R) took office in 2015, he pledged to work with the Legislature to improve the fund's transparency, accountability, and effectiveness. Today, the program pays money only after recipients meet agreed-upon performance targets. According to the Governor's Office's 2025 legislative report, job creation is now verified through annual compliance reports and site visits conducted by its Office of Compliance and Monitoring, instead of relying on companies' own reports.

What Results Has the Texas Enterprise Fund Reported?

The same 2005 law, HB 1938, has required the Governor's Office to report to the Legislature on TEF grants before each regular session. Each report must state both the jobs recipients committed to create and the jobs they actually created. The Governor's Office's 2025 report counted 213 funded projects and about $878.4 million in awards through December 31, 2024. Those projects carried commitments to create 127,615 direct jobs and invest about $64.5 billion in Texas.

These totals describe commitments tied to awards, not verified outcomes. They do not show that every promised job was created or every investment dollar spent, and they cannot show that the grant is what caused a company to choose Texas. The difference between commitments and results is not just theoretical. The State Auditor found that the Governor's Office's January 2013 biennial report listed the 66,094 jobs recipients were required to create, but did not report the 48,317 jobs recipients said they had actually created. Current reports verify created jobs through the compliance process described above. Even so, readers comparing TEF figures should check whether a number represents a promise or a result.

Reporting periods also differ between documents. The 2025 legislative report counts projects through December 31, 2024. The newer project accounting runs through August 31, 2026, and groups projects differently. That explains why the two sources report different project counts and award totals. The $841.6 million current-award figure should not be read as a direct continuation of the $878.4 million figure. Awards change over time as projects are amended, reduced, or terminated.

Toyota and Morgan Stanley TEF Grants

TEF remains active, and two recent awards show how differently the program can work in practice. In July 2026, the Governor's Office announced a $20 million TEF grant for Toyota Motor Manufacturing Texas to expand its San Antonio campus. The project was projected to create 2,000 jobs and involve $3.6 billion in capital investment. At that scale, the grant equals a little over half a percent of the announced investment, a small share for a project this capital-intensive.

The TEF grant was only part of the public support for the project. The state also extended a $50,000 Veteran Created Job Bonus, and the project qualified under the JETI program. At the local level, the San Antonio City Council unanimously approved a separate incentive package valued at about $122 million, several times the size of the state grant. Anyone trying to understand the full public cost of the project would need to account for all of these pieces, not only the TEF award.

The project also shows what "competing site" can mean in practice. This is not a new arrival to Texas. Toyota broke ground on its San Antonio plant in 2003 and began production there in 2006, building the Tundra pickup and Sequoia SUV. The expansion adds a second assembly line, and production of the Tacoma pickup will gradually move to San Antonio from Toyota's plant in Baja California, Mexico, over four years. Toyota has also received TEF support before: in 2014, the state announced a $40 million TEF grant tied to the company's move of its North American headquarters from California to Plano.

A second award, announced in late September 2026, looks quite different. The Governor's Office announced that Morgan Stanley Services Group is establishing a new U.S. hub in Dallas, with a $684 million capital investment and more than 3,800 jobs. The state extended a TEF grant of $43,849,500 and a $40,000 Veteran Created Job Bonus. Unlike Toyota's expansion, this is an office project built around hiring rather than equipment. Its grant equals roughly 6% of the announced investment, about ten times Toyota's share, or about $11,500 per promised job. In the announcement, the company also thanked the City of Dallas and Dallas County for their support, and the state grant figures do not include any local incentives. Because the award was announced after August 31, 2026, it is not reflected in the project accounting figures cited above.

These figures describe announced projects and grants. Payments depend on each company meeting the applicable performance targets in its grant agreement, and the results of both projects will not be known for years.

Why Is the Texas Enterprise Fund Controversial?

Supporters see TEF as a practical response to competition among states. Large employers routinely ask several states for incentive offers, and most states have deal-closing funds or similar programs. In that environment, supporters argue, a grant that is small relative to a project's total cost can secure thousands of jobs and billions in investment that might otherwise go elsewhere. They also point out that TEF is performance-based. Recipients are paid only after they create jobs, and clawback provisions let the state recover money when companies fall short. From this view, the program is a disciplined tool that has improved since its early years.

Critics raise more basic objections. The first is the "but-for" problem. Even when a project creates jobs, it is very difficult to prove the company would have chosen another state without the grant. Location decisions depend on labor markets, logistics, taxes, regulation, and existing operations, and a grant that covers only a small part of a project's cost is rarely decisive. This concern is sharper when a company is expanding a facility it already operates in Texas. The second objection is fairness. A selective grant gives one business public support that its competitors, including firms that have operated in Texas for years without incentives, do not receive and must help pay for through their taxes.

Critics also point to the program's history. The State Auditor's findings showed how much a program built on negotiated deals depends on the judgment and discipline of the people administering it. Performance requirements and clawbacks address whether a company keeps its promises. They do not answer whether the grant was needed in the first place. Recovering money from a company that missed its targets is better than not recovering it, but it does not show that the award was a good use of public funds.

Opposition is not limited to policy groups outside government. After the Morgan Stanley award, State Rep. Brian Harrison (R-Midlothian) publicly condemned the grant as corporate welfare, arguing that a company of Morgan Stanley's size does not need taxpayer money. He called on lawmakers in both parties to end such grants.

Tracking Texas Enterprise Fund Awards

Announcements of new TEF grants tend to emphasize the largest numbers: total investment, total jobs, and the governor's statement about Texas's business climate. Those figures tell only part of the story. A more useful assessment follows the project over the life of its contract. It compares the jobs promised with the jobs verified through compliance reporting, and it checks whether wages met the required county benchmarks each year. It also compares the capital investment actually made with the amount first announced.

A careful reader should also look at the full incentive package, including local abatements and other state programs like JETI, since the TEF grant alone may be a small share of the total public commitment. It helps to keep award, payment, and repayment figures separate, since blending them can make the program look either much larger or much smaller than it is. Comparing the grant with both the jobs and the investment promised shows how much the state is paying for each. As the Toyota and Morgan Stanley awards show, that cost can vary widely from one deal to the next. Finally, it is fair to ask what evidence supports the claim that an out-of-state site was a serious alternative. This matters most when the project expands an existing Texas operation. That question goes to the core premise of a deal-closing fund.

Over more than two decades, the Texas Enterprise Fund has committed hundreds of millions of dollars to individual business projects. Through August 31, 2026, it had paid out $629.1 million, of which about $92 million was later returned, for net payments of roughly $537 million. Whether that spending has been justified depends on two things: the results companies actually deliver, and the harder question of whether Texas needed to offer the grants to get those results.

Where Texas Policy Research Stands

Texas Policy Research opposes corporate welfare in every form, including cash-grant programs like the Texas Enterprise Fund. Ending the practice is included in our Texas Liberty Compact. It rests on a simple principle: the government should not pick winners and losers with taxpayer dollars.

Texas built its reputation as a pro-growth state on broad tax policy and regulatory predictability, not on preferential deals. As TPR has previously documented, targeted incentives have become a growing part of the state's economic strategy over the past several decades. Those incentives shift private risk onto taxpayers and distort competition. They also encourage businesses to seek favors from government instead of competing on the merits. Programs like TEF also tend to become permanent. Once established, they add ongoing commitments that outlast the political reasons given for creating them.

TEF also illustrates the Compact's government transparency concern. It operates through a dedicated account and relies on carrying forward unspent balances instead of a fixed legislative appropriation. Individual awards are approved by three state leaders rather than voted on by the Legislature. As a result, long-term commitments are harder for taxpayers to track.

The Compact calls on the Legislature to prohibit new industry-specific subsidy programs and to subject existing incentive funds like TEF to rigorous sunset review. It would eliminate dedicated accounts that bypass appropriations discipline and require transparency and legislative oversight for every incentive program that remains. Above all, it asks lawmakers to prioritize broad tax relief over targeted incentives. The government should create a fair playing field, not select favored participants.

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