- Associated Press - Tuesday, August 12, 2014

(For use by New York Times News Service Clients)

c.2013 Houston Chronicle< PLANO - In 2009, Gov. Rick Perry announced the state of Texas planned to invest up to $2.5 million of taxpayer money in an exciting new biotechnology firm called American Stem Cell.

Five years later, its CEO and employees live in California, and its San Antonio headquarters amount to little more than a horse pasture, according to a recent report by the Associated Press. Now, as the state and American Stem Cell - renamed Targazyme, Inc. in December 2013 - enter into a separation agreement, it is unclear how much of the $1.25 million Texas actually invested will be recouped.

When it comes to startups supported by the Texas Emerging Technology Fund, Targazyme’s story is nothing new. More than 20 percent of the firms that received money from the state fund aimed at supporting startups and encouraging research have gone bankrupt or shut down.

Now, as the fund nears its 10th anniversary and the governor who oversaw its creation reaches the end of his tenure, it and other incentive programs are facing heightened scrutiny from candidates and lawmakers eager to see higher returns on the state’s-investment.

On Tuesday, a Texas House panel formed to help determine the future of the state’s many economic development incentive programs met in Plano and raised new concerns about the Emerging Technology Fund.

”I don’t think our job should be gambling with the people’s money, like you do with your business when you’re investing,” state Rep. Poncho Nevarez, D-Eagle Pass, told the Chronicle. “When you see an example like (Targazyme), it gives you great pause.”

The concerns were bipartisan. State Rep. Jason Villalba, R-Dallas, echoed a line often used by Greg Abbott, the Republican nominee for governor: “The government should not be in the business of picking winners and losers.”

He added, “I think the answer is to retool.”

State Rep. Trent Ashby, R-Lufkin, speaking after the meeting, acknowledged the uniqueness of the Emerging Technology Fund, but said increased transparency was needed.

To date, more than $205 million has been allocated from the Texas Emerging Technology Fund to startup companies across the state. An additional $220 million has been given to universities in grants and research support. The total return on investment is unclear, however, as yearly reporting mandates do not require that to be publicly disclosed.

Responding to the panel’s concerns, Fund Director Terry Chase Hazell was emphatic: “I want the money back, plus interest,” she said, referring to companies that do not live up to their investment goals.

Still, she reminded lawmakers the fund’s original purpose was not to make money, but to transform Texas into “the best place in the nation to pursue the next great idea.”

On Targazyme, Hazell said, “As soon as we discovered the extent of their activities outside of state … we entered into discussions and settlements with the company.

Story Continues →