The Issue

The Event Trust Funds program aims to help local governments attract certain events to the state of Texas, with the premise that they can have a positive economic impact and increase tax revenues. Revenues from some taxes—general sales and use, hotel occupancy, motor vehicle rental, and alcoholic beverages—estimated to be generated in excess of what would be levied absent these events are used to subsidize the organization of these events.

In 1999, the 76th Texas Legislature created two funds to help the state attract the Olympic and Pan-American Games, the first of several trust funds dedicated to subsidizing event organization in the Lone Star State. The Major Events Trust Fund (METF), the Motor Sports Racing Trust Fund, and the Events Trust Fund (ETF) were all created by subsequent legislatures in the 2000s. In 2015, the 84th Legislature renamed the METF the Major Events Reimbursement Program (MERP) and moved the administration of the funds from the Comptroller’s Office to the Office of the Governor’s Economic Development and Tourism Division.

Among several requirements for eligibility, events and their site selection organizations have to be listed in statutes to receive funds from the MERP—additional eligible events are often added each legislative session—while participation in the ETF requires an event to be held not more than once a year in Texas or an adjoining state. In both cases, the selection of the site must go through a competitive process in which Texas competes with other states.

Once a site has been selected, the endorsing municipality or county submits an application with an economic impact study estimating the number of out-of-state visitors (and their spending) to be generated by the event. The study and additional research are used by the economic development and tourism division to estimate the amount of incremental tax revenues that the event will generate during “economic impact windows” (30 days for the ETF and 1 year for the MERP), and hence the amount of disbursement available.

An event must generate an estimated amount of incremental tax revenues of at least $1 million. Local governments must contribute to the funds to participate; the state matches each dollar that counties or municipalities contribute with $6.25. Recipients are also required to certify the number of out-of-state visitors after the event has ended. The certification is used to adjust the calculation of incremental tax revenues and the eventual disbursement.

Allowable expenses (reimbursed up to 100% if sufficient tax receipts are deposited in the trust funds) include costs to prepare and conduct the event and principal or interest on notes used to build or improve facilities to host the event.

Supporters of the programs argue that hosting certain events will attract out-of-state visitors who not only will attend the local events but will also spend time and money locally and stimulate the economy. According to economic impact studies that support this vision, out-of-state visitors create direct, indirect, and induced positive effects on the economy. In turn, growth in the economy means growth in tax revenues.

There are several problems with this vision, some of them detailed in two official reports: a 2014 report to the 83rd Legislature on the event trust funds by the Texas Comptroller of Public Accounts, and a 2015 audit report on the METF by the State Auditor’s Office.

Both reports question the accuracy of the economic impact calculation, because the data required—the actual number of out-of-state visitors, the length of their stay, and their expenditures—is not easily available. According to the state auditor’s report, “the Comptroller’s Office lacks assurance that the attendance information is valid,” notably because the office did not review or approve the methodology used to reach the attendance number certified.

The calculation of incremental tax revenues is also problematic. It does not take into account possible negative effects, such as the crowding-out effect—some local economic activity is reduced due to the event—nor does it takes into account the expenses associated with administering the program, estimated to be more than 8,000 hours of staff time annually. The State Auditor’s Office found out that the economic modeling system used for the calculation in some cases took into account more taxes than the categories allowed in statutes, probably leading to inflated payments to support some events.

The Comptroller’s report questioned whether ETF funds were a sine qua non condition in some cases, since some events took place in Texas before the fund was created—and hence happened without subsidies. The report adds that “many cities and counties choose to not participate in the ETF, and those cities should not be placed at an intrastate disadvantage in recruiting and retaining events.”

Finally, the goal behind the event trust funds, even if well intentioned, points to a misunderstanding of how economies work. A bill analysis for HB 26—which changed the name of the Major Events Trust Fund to the Major Event Reimbursement Fund—explained that “the purpose of the funds is to attract visitors from out of state who will increase state and local tax revenue by spending money at local businesses and restaurants. By hosting major events and using the programs to encourage organizations to look to Texas for possible locations to hold their events, we stand to continue our growth in revenue.” Economies do not prosper through central planning. In fact, central planning is far less efficient than the market in allocating resources based on consumer preference and thereby enhancing economic growth. By subsidizing some events over others with little knowledge of how successful these events will be, the funds actually contribute to reduced economic growth.

The Facts

  • Economic impact calculations often ignore possible negative effects, such as the crowding-out effect where private spending is not increased but simply displaced by government intervention.
  • Private event organizers are not different from other private businesses: Any venture undertaken needs to ultimately bring more revenues than it costs. Events will go where they are most profitable; the state of Texas can only help in this area by limiting its taxes and regulations to a minimum.

Recommendations

  • Repeal the funds. Taxpayers, including visitors, should not be forced to support events that could be more profitable if conducted elsewhere, if at all.
  • Cut taxes. Decreasing or repealing some of the taxes used to finance these funds can help grow the economy and create jobs.
  • Increase accountability. As long as the funds are in place, issues mentioned in both the Comptroller’s report and the State Auditor’s report, including on accuracy of the data used, calculation problems and mistakes, negative effects of events not being taken into account, should be addressed to bring more transparency on how taxpayer money is spent.

Resources

“Event Trust Funds Program,” Office of the Governor – Economic Development and Tourism Office (Accessed July 19, 2020).

“The Rules of Attraction: An Overview of State Events Trust Funds,” Statewise (Winter 2010).

An Audit Report on the Major Events Trust Fund by John Keel, State Auditor’s Office (Sept. 2015).

HB 26 Bill Analysis. 2015. Senate Research Center. 84th Texas Legislature (R).

Report on Events Trust Funds, Texas Comptroller of Public Accounts (Dec. 2014).

Events Trust Fund Guidelines for ETF/MERP/MSRTF, Office of the Governor – Economic Development and Tourism Office (March 2018).