Chapter 7: Workforce
Merge Smart Jobs With the
Skills Development Fund
Summary
The “Smart Jobs” program currently administered by the Texas
Department of Economic Development (TDED) provides grants to businesses for
worker training. Recently, the State Auditor's Office cited TDED for
“gross fiscal mismanagement” of the program, and the Sunset Advisory
Commission recommended that Smart Jobs be moved to the Texas Workforce
Commission. We concur. This move would allow the program to be fully integrated
into the state’s workforce development system. In addition, Smart Jobs and
the Skills Development Fund, which is administered by the Texas Workforce
Commission should be merged into a single program funded entirely by the Smart
Jobs fund. The final structure of this program should be based on the findings
of an upcoming Comptroller performance review.
Background
The Smart Jobs program was created by the 1993 Texas Legislature as an
incentive to attract businesses to Texas. The statute creating the program
defines it as “a workforce development incentive program to enhance
employment opportunities and to meet the needs of existing and new industries in
this state.”[1] The program must prioritize
the creation and retention of jobs in Texas.
Smart Jobs is administered by TDED and funded by a 0.1 percent employer
training investment assessment that is collected along with the employers’
unemployment insurance tax. The funds collected are deposited in the Smart Jobs
holding account whenever the Unemployment Insurance Trust Fund contains an
adequate balance for its commitments.[2] Smart
Jobs received $108 million in the 1998-1999 biennium, the largest appropriation
since its creation.[3] Between September 1993 and
November 2000, the Smart Jobs program received $381.8 million but spent only
$240.8 million.[4]
According to TDED’s 1998 annual report, Smart Jobs awarded 858 grants
between fiscal 1994 and 1998; 529, or 62 percent, of these were awarded in
fiscal 1998.[5] The report claims that Smart Jobs
grants have helped businesses train more than 91,000 workers in a wide variety
of skills.[6] Analysis of records submitted by
TDED, however, shows the count to be closer to 34,000 trainees and less than 400
contracts. Companies receiving grants in fiscal 1998 spanned the full range of
industries, but by far the largest number of grants were awarded to
manufacturing enterprises (45 percent), followed by service companies (19
percent).[7]
A business interested in receiving a Smart Jobs grant must first apply to
TDED. The application asks for general business information, including the
products and services offered by the company, and an overview of the
company’s training plan. This includes a detailed description that cites
the training provider’s skills and competencies, the anticipated length of
training, and the personnel to be trained. The business also must provide
details on the positions for which the training is provided, including titles,
functions, the number of new and existing jobs involved, and wages paid before
and after training. Finally, the company must provide a detailed training
project budget.
All employers must provide some sort of matching sum for the grant, either in
cash or in kind, the proportion depending on the size of the company. The
applications are scored on a 100-point system and then prioritized. After an
application is accepted, TDED signs a contract with the company outlining the
obligations of each party.
Changes to Smart Jobs since 1993
The Texas Legislature made several changes to Smart Jobs since its September
1993 inception. In 1995, the Legislature removed a requirement that local
workforce development boards review Smart Jobs applications. In addition, a
Smart Jobs legislative review committee was abolished, and authority for program
oversight was shifted to the legislative economic development
committees.[8]
In 1997, Smart Job’s mission was modified to specify that Smart Jobs
should award grants in all areas of the state. Other 1997 changes broadened the
program’s focus beyond high-technology, high-skill, high-wage jobs to jobs
with any firm that would provide at least the prevailing wage for its industry.
A required post-training wage increase was dropped from 10 percent to 3 percent.
An attrition allowance of 15 percent was added (in other words, an employer
could lose or fail to hire as many as 15 percent of its trainees without being
penalized financially), and reporting requirements were changed so that Smart
Jobs no longer had to report on trainees’ wage levels for three years
following the training.[9]
The 1999 Legislature made further changes to the program. The Legislature
required that Smart Jobs funds should be spent in each area of the state,
according to their share of the population, civilian labor force, and
unemployment. The required post-training wage increase was increased 5 percent
for most employees, and the required “prevailing wage” was changed
to the average county wage. In addition, the employer must now pay at least 50
percent of employee premiums for health insurance. Businesses were prohibited
from seeking both a Smart Jobs grant and a grant from the state’s Skills
Development Fund (see below). Finally, the 1999 Legislature added a detailed
list of reporting requirements to the Smart Jobs statute and required the
program to undergo a performance review by the Texas Comptroller of Public
Accounts.[10]
The Texas Workforce Commission and the Skills Development Fund
The Texas Workforce Commission (TWC) was created in 1995, through the
consolidation of 28 workforce programs from 10 state agencies. In addition to
workforce programs, TWC administers the Unemployment Insurance Tax Fund and
contracts with 28 local workforce development boards to deliver services across
the state. TWC must manage and report on its use of several complex funding
streams. The agency also has extensive experience with contracts due to its
contracts with each of Texas’ 28 local workforce development boards to
implement its programs. In addition, TWC administers the Skills Development
Fund.
Like the Smart Jobs program, the Skills Development Fund provides funding for
customized job training. According to the 1995 law that created it, the Skills
Development Fund is intended “to remove administrative barriers that
impede the response of public community and technical colleges and the Texas
Engineering Extension Service to industry and workforce training needs and to
develop incentives for public community and technical colleges and the Texas
Engineering Extension Service to provide customized assessment and training in a
timely and efficient manner.”[11]
There are several significant differences between Smart Jobs and the Skills
Development Fund. Skills Development Fund grants are awarded to public community
or technical colleges or the Texas Engineering Extension Service rather than
directly to businesses.[12] To receive a Skills
Development Fund grant, these entities must have a business partner who will
agree to hire a specified number of workers who will participate in the
training. The fund has received $25 million in state general revenue during each
biennium since fiscal year 1996–it does not have a dedicated revenue
source, such as the UI tax. Between fiscal years 1996 and 1999, the Skills
Development Fund awarded 192 grants to 936 businesses to train 24,137 workers.
Expenditures for the four-year period totaled $48.1 million, or 96 percent of
the funding provided.[13]
Instead of a detailed application, the Skills Development Fund requires a
narrative proposal. This proposal must include a brief outline of the proposed
training program; quantifiable training objectives; the number of jobs to be
created or retained; and the occupations and wages of participants after
training. The proposal also must explain why the need for labor is not being met
by existing training programs; outline the agreement between the business and
the college; and detail the businesses’ equal employment opportunity
policies and employment benefits.
Because the grant is made to a community or technical college, the proposal
must explain how the grant will expand the institution’s capacity to
respond to the training needs of Texas businesses, and provide a cost comparison
between the proposed training and the costs for any similar instruction they
already provide. Finally, the college must explain why it cannot meet area
businesses’ needs without a grant, and submit a proposed budget for the
training–including any contributions from the college and its business
partners.
Unlike Smart Jobs funding, Skills Development Fund grants automatically
incorporate community colleges into the training design, leaving a local
training capacity regardless of the fate of individual companies. Moreover, the
Skills Development Fund focuses significantly more attention on outcomes than
Smart Jobs, which cannot even cite an accurate figure for the number of people
it has trained. Moreover, the Skills Development Fund has successfully expended
its appropriations, while Smart Jobs has distributed less than two-thirds of the
funds it has received.
Why move Smart Jobs?
Prior to the change in the law that prohibited such actions, several
businesses received grants from both the Smart Jobs program and the Skills
Development Fund, suggesting that it may be time to consider merging the
programs. The Comptroller evaluated both programs in a 1995 report on TWC and
recommended keeping them separate to allow them to compete. Two subsequent
reports, however, highlighted critical weaknesses in the administration of Smart
Jobs. According to a January 2000 report by the State Auditor’s Office
(SAO):
Gross fiscal mismanagement of the Smart Jobs program prevents the Department
of Economic Development (Department) from meeting its objectives and using state
funds appropriately. The Department does not provide adequate fiscal and
administrative oversight of Smart Jobs contracts or keep accurate financial
records of the $201 million Smart Jobs fund balance. These problems place state
funds at great risk of waste and abuse by employers who receive contracts to
train employees.[14]
The SAO report explains that “gross fiscal mismanagement”
includes “failure to keep adequate fiscal records, failure to maintain
proper control over assets, failure to discharge fiscal obligations in a timely
manner, and misuse of state funds.” While TDED has been working closely
with the SAO to develop a corrective action plan, at this writing, the agency is
several months behind schedule in implementing it. Part of TDED’s solution
to the problems in Smart Jobs has been to replace the program’s executive
director–the current director is the fourth to hold the position since
August 1999.
The SAO found a number of specific problems with Smart Jobs. One was its
failure to comply with a state law mandating a cap on the Smart Jobs’ fund
balance. The balance has exceeded the cap by as much as $93 million. A second
problem was TDED’s lack of accurate information on program performance. As
late as July 2000, TDED was unable to supply an accurate count of the number of
individuals trained with Smart Jobs funds.[15]
Other problems cited included the following:
- “The Department’s selection process
does not ensure that the most qualified applicants receive Smart Jobs grants and
is not timely.”
- “Contract provisions allow employers to
receive payment for training employees who have not met program
requirements.”
- “The Department’s oversight of
employers provides little assurance that state funds are used appropriately and
that contract requirements are met.”
- “Practices used to establish contract
awards do not provide adequate assurance that the state pays a fair and
reasonable price for training services.”
- “Incorrect accounting practices make it
difficult to accurately determine the amount of Smart Jobs funds available for
new contracts.”[16]
In April 2000, the Sunset Advisory Commission issued a report on TDED that
expressed similarly strong criticism of the administration of Smart Jobs, noting
that it “raises doubts as to TDED’s ability to manage this important
job training program.” To support its conclusion, the commission noted
that TDED was aware of serious problems in the Smart Jobs program as early as
1997 but did not take corrective action. The Sunset Advisory Commission
recommended moving Smart Jobs to the Texas Workforce
Commission.[17]
In a June 2000 public hearing, members of the Sunset Advisory Commission
recommended that all but a small part of the Smart Jobs program be transferred
to TWC. The remaining share would remain at TDED “as an incentive in
attracting businesses for economic development purposes.” The commission
chose to defer this division of responsibility to the legislative appropriations
process.[18] Sunset specifically recommended,
however, that TWC be made responsible for administering Smart Jobs grants
whether awarded by TDED or TWC.
While Sunset’s split-program recommendation recognizes the importance
of job training funds for economic development, it also creates the potential
for excessive bureaucracy and delays, conditions already cited as deficiencies
in the current program.
Comptroller's Study
The 1999 Legislature required the Comptroller’s office to perform a
biennial performance evaluation of the Smart Jobs and Skills Development Fund
programs, as well as the Self-Sufficiency Fund program (a training program for
welfare and food-stamp recipients). According to the legislation, the evaluation
must include:
- “An analysis of the wage levels of
trainees one and three years after they completed their training”;
- “The number of trainees employed in the
same field one and three years after the program”;
- “An analysis of grant recipients’
satisfaction with the program”;
- “The programs’ impact on economic
development, especially in distressed areas of the state”; and
- “The efficiency of each
program.”[19]
With the data developed from this study, program administrators should have a
much better understanding of the strengths and weaknesses of both programs. Such
information could guide them in better meeting the needs of their customers. The
study is scheduled to be delivered to the 2001 Legislature.
Smart Jobs and Adult Literacy
Studies show that 3.5 million adult Texans need literacy
training.[20] Texas’ total funding for
adult basic education in the 1998-99 biennium was $59.3 million, little more
than half of the two-year appropriation for Smart Jobs, and was targeted to
serve just 424,000 adults.[21]
Under current law, the Smart Jobs program cannot fund adult literacy
training. One reason for this limitation is the concern that this type of
training would not support program outcome requirements. For example,
participating employers must guarantee that training participants will have or
be offered positions upon completing the training. Furthermore, as noted above,
businesses accepting Smart Jobs funds must agree to increase the wages of
training participants after they complete their training. However, adult
literacy training that provides basic skills, when combined with job-specific
training, could expand Smart Jobs Fund eligibility to those who need it the
most.
Recommendations
A. State law should be amended to make the Texas
Workforce Commission (TWC) the administering agency for all customized job
training programs in the state.
The entire Smart Jobs program should be transferred to TWC and merged with
the Skills Development Fund. The state created TWC specifically to consolidate
its workforce programs under a single administrative unit, and Smart Jobs
clearly fits with this mission. The findings in the legislatively-mandated
performance review of the Smart Jobs, Skills Development Fund, and
Self-Sufficiency Fund programs should be used to determine the best structure
for the program that results from the merger. The Smart Jobs and Skills
Development Fund programs should be funded entirely with revenue currently used
to fund Smart Jobs.
The Texas Department of Economic Development should work with TWC staff in
critical recruiting efforts to attract businesses to Texas.
- State law concerning Smart Jobs should be amended
to allow grant funds to be spent on adult basic education and literacy courses
for qualified trainees.
Adult literacy training should be allowed when it supports employment
outcomes in skilled occupations.
Fiscal Impact
Once the programs are merged, staff reductions should be possible. However,
since the final structure of the program would depend on the results of the
Comptroller’s study, savings from staff reductions cannot be determined.
Current funding for the Smart Jobs Program would be sufficient to fund the
merged programs. Eliminating general revenue funding for the merged program
should save the state $12.5 million in general revenue each year. Any costs
incurred in moving the program to TWC should be recovered by recapturing
administrative funds freed by ordinary program staff turnover as well as staff
reductions.
|
Fiscal
Year
|
Savings/(Cost) to the General Revenue Fund
|
|
2002
|
$12,500,000
|
|
2003
|
12,500,000
|
|
2004
|
12,500,000
|
|
2005
|
12,500,000
|
|
2006
|
12,500,000
|
[1] V.T.C.A., Government Code,
§481.152(a).
[2] V.T.C.A., Labor Code,
§204.121.
[3] Texas H.B. 1, 75th Reg.
Sess., 1997, p.VII-4 and VII-7; Texas H.B. 1, 74th Reg. Sess., 1995, p.VII-5 and
VII-7; and Texas S.B. 5, 73rd Reg. Sess., 1993, p. I-56.
[4] Interview with Pat
Sheehan, Appropriation Control Officer, Fund Accounting Division, Texas
Comptroller of Public Accounts, Austin, Texas, November 15, 2000.
[5] These figures can be found
in Texas Department of Economic Development, Smart Jobs Fiscal Year 1998 Annual
Report, Austin, Texas, 1998, p. 3. However, research by the Comptroller’s
office, Sunset Commission, and State Auditor’s Office indicates that these
figures are unreliable. The Comptroller’s office has been working since
August 1999 to develop an accurate count of the number of fully executed
contracts as well as the number of qualified individuals trained with Smart Jobs
grants.
[6] Texas Department of
Economic Development, Smart Jobs Fiscal Year 1998 Annual Report, p.
3.
[7] Texas Department of
Economic Development, Smart Jobs Fiscal Year 1998 Annual Report, p.
16.
[8] Texas H.B. 1863, 74th Reg.
Sess., 1995.
[9] Texas S.B. 932; Texas H.R.
1348; and Texas S.R. 992, 75th Reg. Sess., 1997.
[10] Texas H.B. 3656 and
Texas H.B. 3657, 76th Reg. Sess., 1999.
[11] V.T.C.A., Labor Code,
§303.001(a).
[12] V.T.C.A., Labor Code,
§303.003(b).
[13] Texas Workforce
Commission, “Skills Development Fund Contract Summary,” Austin,
Texas, June 7, 1999.
[14] Texas State
Auditor’s Office, An Audit Report on the Department of Economic
Development, p. 1.
[15] The Comptroller’s
performance review team for Smart Jobs has worked since August 1999 to obtain
basic records for the program that list all contracts and all individuals
trained under each contract. As of July 26, 2000, 17 of the contracts were still
missing, with no information as to the amount of money spent on the contracts or
the number of individuals trained. By October 2000, TDED had submitted complete
contract, trainee and expenditure information to the Comptroller's
Office.
[16] Texas State
Auditor’s Office, An Audit Report on the Department of Economic
Development, pp. 5, 7, 8, 12, 17.
[17] Texas Sunset
Commission, Texas Department of Economic Development Sunset Staff Report,
Austin, Texas, April 2000, p. 2.
[18] Texas Sunset
Commission, Sunset Commission Decision Material: Texas Department of Economic
Development, Austin, Texas, June 20, 2000, p. 12.
[19] Texas H.B. 3657, 76th
Reg. Sess., 1999, §3.01.
[20] Texas Education Agency,
Texas State Plan for Adult Education And Family Literacy, July 1, 1999
through June 30, 2004, Austin, Texas, April 12, 1999, p. 6.
[21] Texas H.B. 1, 76th
Leg., Reg. Sess., 1997, p. III-5.
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