e-Texas e-Texassmaller smarter faster governmentDecember, 2000
Carole Keeton Rylander
Texas Comptroller of Public Accounts

Recommendations of the Texas Comptroller

Chapter 7: Workforce

Merge Smart Jobs With the

Skills Development Fund


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.


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.


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.

  1. 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.

Savings/(Cost) to the General Revenue Fund

[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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Austin, Texas

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