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Austin American Statesman story on the audit:

 

State audit: Errors might have inflated major events fund payments

By Dan Zehr - American-Statesman Staff


An official audit of the Texas Major Events Trust Fund found that the improper inclusion of certain taxes might have inflated the amount the state paid out to the local governments and organizing committees that host high-profile sporting events.

 

The report, issued by state auditor John Keel, called “reasonable” the methodologies used by the Texas comptroller’s office to estimate the incremental tax gains generated from these events — and thus the amounts disbursed from the fund.

 

But auditors also noted instances of missing or scant documentation, as well as the use of a software program that appeared to include certain types of taxes that are ineligible for consideration under the statute that created the fund.

 

Including those taxes would have inflated the payments from the fund, the report said. If such errors were made in many of the comptroller’s estimates — a question auditors were unable to definitively answer — the resulting overpayments could stretch into millions of dollars.

 

In a response included in the report, Deputy Comptroller Mike Reissig noted that administration of the trust fund transferred to Gov. Greg Abbott’s office on Sept. 1. Reissig did not address any of the critiques or recommendations listed in the report.

 

The trust fund, which had disbursed more than $206.6 million as of Feb. 5, was created to help local governments and local organizing committees recoup some of the expenses they incur when hosting major events, including Super Bowls, NBA All-Star Games and the Formula One U.S. Grand Prix in Austin.

 

The state contributes $6.25 for every $1 in local contributions, with the disbursements capped at an amount equal to the additional taxes the event generates.

 

However, calculating how much of any additional tax revenues stems from a specific event is an inexact science, one that relies on estimates and projections. For example, local host cities or committees report the number of out-of-state attendees and an estimate of what they spend, figures that become key variables in the estimate of an event’s tax contribution.

 

The auditors expressed concerns about how the Texas comptroller’s office documented and confirmed the out-of-state estimates provided by the events or the local organizations.

 

“That information primarily comes from the economic impact studies that local government and local organizing committees submit,” the report noted, “and those organizations have an interest in maximizing the amount of funding approved for disbursement.”

 

A more concrete problem appeared to emerge from the use of a software program called Implan, which the comptroller’s office employed on multiple occasions to help generate its estimates — and thus define the fund-disbursement cap.

 

In one Implan demonstration by the comptroller’s staff, auditors found that the software included federal excise taxes, property taxes and other types of taxes that aren’t eligible for inclusion under state law.

 

While the report said this was only a demonstration of one event and not necessarily applicable to the actual fund disbursements for the seven events they reviewed, the auditors found that the improper inclusion of those taxes represented 22 percent of the total state share of funding that would have been approved for the event.

 

The Implan software had been updated multiple times over the years, the auditors said, leaving them unable to run accurate recalculations on actual past events.

 

“However,” the report noted, “including tax types that are not statutorily permissible results in major events receiving significantly more METF funds than they should receive.”

 

Given that the trust fund has approved almost $235.6 million in state and local funds for major events as of Feb. 5, miscalculations across multiple deals could’ve resulted in overpayments of millions of dollars.

 

The report also recommended that the Legislature consider shoring up statutory language around the trust fund to help administrators more accurately calculate the incremental tax gains and disbursement caps.

 

Among the suggestions:

 

- Strengthen the effectiveness, documentation and transparency of attendance certifications and post-event studies;
- Clarify whether incremental tax receipt increases should include potential negative economic effects of an event;
- Authorize the fund to recoup any overpayments;
- And specify whether the trust fund should factor in indirect and induced effects when calculating tax receipt increase.

- A reconsideration of the indirect and induced effects — essentially, the economic ripple effects — could have a major impact on the amounts disbursed by the fund. Those effects are often used in economic impact studies, but the auditor’s report said it was unclear whether the statute allows their inclusion in the fund calculations.

 

Of the $120.2 million in fund disbursements related to the seven major events reviewed by the auditors, 40 percent, almost $47.8 million, stemmed from induced and indirect tax effects, the report said.

 

Major Events Trust Fund total disbursements (As of Feb. 5, 2015)

 

Events: 22

 

Local share: $31,755,786

State share: $203,803,584

Total approved: $235,559,370

Total paid: $206,626,685

Largest single disbursement: $31,154,062 for NFL Super Bowl XLV (2011)

Largest disbursements paid for recurring event: $84,585,193 to the Formula One U.S. Grands Prix (2012-2014)

 

Source: state auditor’s office

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