Charles Schwab becomes the latest Fortune 500 company to announce a major investment in Texas, and they’ll get help from state and local government to do it.

The question being debated: is the loss of significant tax revenue worth the job creation? Put another way, do these deals really offer a return on this kind of investment (ROI) by the government. And can the state and local municipalities compete for re-locations and expansions without them.

The deal is this: Schwab plans to create 823 technology-centered jobs over a period of 10 years and make a capital investment of $ 196 million dollars in equipment and a new building in North Austin; in return, the city of Austin and Travis County will provide 3.3-3.6 million dollars in the form of property tax abatements for the new building. The state’s Texas Enterprise Fund will provide $ 4.5 million in direct cash investment for the project.

A county economic analysis says Travis County would see a net benefit of $ 2.5 million tax dollars after allowing for costs associated with various services to support the growth.

The company will also create 445 jobs in El Paso and make a $ 21.5 million dollar investment in that city, for which the Enterprise Fund will provide $ 1.45 million.

The Texas Legislature is also looking hard at the value of incentives, including the Enterprise Fund and myriad other state programs (http://governor.state.tx.us/ecodev/edt_incentives/). The interim Texas House Select Committee on Economic Development Incentives recently heard testimony on the topic and will continue its work leading to the regular state legislative session beginning in January of 2015. By the way, State Tax Notes says Texas is 7th in the U.S. in the amount of incentives and subsidies it provides for economic development.

http://www.houstonchronicle.com/news/politics/texas/article/Future-of-state-economic-incentive-programs-up-5642487.php

Proponents of incentives argue that the positives outweigh the negatives by 1) creating jobs to support long-term economic growth; 2) creating a positive net return for taxpayers from the economic activity generated by the job creation; and 3) incentives tie the company to a particular market with specific long-term obligations — from the number of jobs, the amount of investment, employee benefits packages and more that the company must meet in order to qualify for the deal.

Local business leaders say the City of Austin has made money on every one of the 20 incentive agreements it’s done over the past ten years with some of the leading companies in the world like Apple, Samsung, Visa, Facebook, HID Global, Legal Zoom, Hanger Orthopedic and now Schwab, pointing to the City’s $14 million budget surplus in fiscal 2013-2014.

Supporters also note the creation of “pathways to prosperity” these jobs offer those in a community without a high school or college education.

Some conservative economists beg to differ on the need for incentives. At the Select Committee hearing, Bill Peacock of the Texas Public Policy Foundation said this: “Texas should reduce or eliminate current economic development programs while restraining growth in overall government spending and regulation. This is the path toward expanding the prosperity of all Texans.”

With no incentives, what else could keep Texas attractive to expanding or re-locating businesses? There are rumblings of eliminating the state’s business tax – aka the Texas Franchise Tax — altogether.

http://tpr.org/post/coalition-rallies-dump-state-franchise-tax-2015-legislative-session

Those in the middle say that incentives aren’t an “if” proposition but a “when;” that incentives should only be used for companies that provide significant or unique opportunities to grow and/or diversify the economy.

Craig Casselberry
(512) 762-7366
cc@quorumpublicaffairs.com

Despite all the talk of California’s decline, there’s one area that could eventually turn the tide back to the Golden State’s favor – higher education.
While Texas has become the model state for job creation – leading the country for what seems like the last decade – the Lone Star State would do well to emulate California’s education ecosystem to maintain its long-term economic competitiveness.
The state of California has two things Texas (and the rest of the country for that matter) needs more of – technical talent and venture capital. And, one could argue, both of those stem from a priority commitment to higher education.
In fact one of the country’s most successful investors (who ironically re-located from California to Texas in the not-too-distant past) told me recently that higher education is the most critical component to a competitive economy and sustained job growth because it’s the development of technical expertise and commercialization of products and services with genesis on campuses that attract the venture investment that creates jobs and communities.
Venture investors and companies like to stay close to each other, a key reason Silicon Valley has become the epicenter of disruptive technologies.
California learned early that a healthy higher education ecosystem could be a catalyst of sustained growth. The University of California system itself is among the best in the world, with 10 designated Tier I research Universities, more than any other state.
And for a time the Golden State reaped its rewards, growing into one of the world’s largest economies during the mid-20th Century. Hewlett Packard and Apple, the space program and even automakers, benefited from government research that turned into heavy research and development investment in the 1950’s and 1960’s, starting with Project RAND (now the RAND Corporation) in 1945.
California wisely recognized the potential of research, and more importantly how to use that research to create wealth.
Stanford has set the benchmark for technology commercialization – turning research into business plans that find a market. With a market comes venture investment to spur growth, which leads to jobs the creation of wealth and ultimately communities, like the Silicon Valley we see today.
It’s not surprising that company founders of Google, Yahoo and many others were educated in Palo Alto.
And while the seeds of Facebook were sown at Harvard, the social network pioneer benefited from its re-location to Silicon Valley, gaining the technical talent and venture capital it needed for growth.
Despite its success in education, the California economy will continue to lag if its political leadership won’t get out of the way. More taxes and regulation on entrepreneurs that risk capital and create jobs just plays into the hands of those who are competing for jobs in other states; those policies have certainly been a boon for Texas. And by the way, it’s not “stealing” jobs if you ask nicely and simply offer a better, more competitive deal. That approach often leads to “yes.”
As Margaret Thatcher once said, “the problem with socialism is that you eventually run out of other people’s money.”
Texas’ public policy, on the other hand, is built for growth, with a low tax burden, reasonable regulations and support for small businesses. The culture is entrepreneurial, and we’re investing in infrastructure to support population growth, with a multi-billion dollar commitment to water in 2013, along with transportation and energy.
In Texas, at least, sustained economic growth means supporting encouraging entrepreneurs who create jobs, not punishing them.
While Texas has led the nation in job creation for about the past decade, to fill those jobs we’ll need a skilled workforce, and to grow the companies, more venture capital.
In higher education, Texas isn’t there yet but we’re gaining. In fact Texas just passed California as the national leader in technology-related exports.
Our two flagship state universities are Tier I status – along with the University of Houston and private Rice University in Houston – but there’s more ground to cover. In the last decade the state has focused more on commercialization, and we’re seeing progress locally. In response to the energy boom in west Texas, Midland College, Texas Tech, and the University of Texas-Permian Basin have started energy-oriented academic programs to develop homegrown talent (incidentally, Midland, Texas now has a higher per-capita income than does Silicon Valley according to the Bureau of Economic Analysis). In 2013 Texas also approved legislation to create a new ‘super University’ in south Texas to train our growing Hispanic population.
While anxiety about California’s future is certainly legitimate, the Golden State still has a solid foundation on which to build, and a lot to teach Texas and the rest of the country about the right formula for sustained success. To paraphrase a Texas coaching legend, if California higher education isn’t in a class by itself, it certainly doesn’t take long to call the roll.

Craig Casselberry
512-762-7366
100 Congress Avenue, Suite 2100
Austin, TX 78701
http://www.quorumpublicaffairs.com

http://quorumadvisor.wordpress.com/

Twenty years is a long time.

Think about it. When I opened the doors as Quorum Direct, Inc. in February of 1994 the Dallas Cowboys were still relevant in the NFL; Hillary Care was preceding Obama Care as the national health plan that left the rails; my ‘company car’ was a re-tread Mercury Marquis (the average age driver of which was 70 years old; I was 30), our Texas Longhorns still had 3 more years with the coach who would PRECEDE Mack Brown, who himself maxed out four years ago; and the # 1 song on the Billboard charts was The Sign by Ace of Base.

Incidentally if you’ve been thinking about them, here you go:

Quorum was founded on the premise that grassroots lobbying would eventually overtake traditional lobbying as the best way to impact public policy first, and second that practice would soon devolve to the state level – and the big states first — since the concept wasn’t common beyond the Beltway.

Some would say we were ‘first in’ this new world of influence in Texas. Fortunately, my path crossed some visionary Houston tort reformers and we were off and running.

Twenty years later, Thomas B. Edsall with the New York Times opines on ‘The Unlobbyists’ (December 31, 2013):

http://www.nytimes.com/2014/01/01/opinion/edsall-the-unlobbyists.html?ref=opinion&_r=0

According to Edsall, “the action has shifted (away from the traditional lobbyist) to what is known in the business as strategic advice: how to convince and mobilize voters and opinion elites in support of the client’s agenda..”

It’s what we do, working outside the Capitol Dome, helping clients identify a target Audience, the right Message to communicate, and the Influencers who can best carry that message forward.

Speaking of signs, 2014 adds to 7 so I’m expecting at least a lucky year; though if luck is indeed what happens when planning meets opportunity we’ll do some of that too.

The most recent was a year that saw Quorum Public Affairs grow significantly.

The venture capital firms we represent are investing in strong Texas small businesses, and we added clients in manufacturing, financial services, health care, technology, and homeland security.

We’re helping companies re-locate to the Texas market by facilitating business alliances and relationships to help them grow. Companies like LIN Media – with 43 TV stations in 23 cities – and Top Golf, which has deftly combined a game of leisure with a night club and is growing quickly, re-located their corporate headquarters to Austin and Dallas respectively. Two California-based companies for which we’ve helped develop relationships are on the way in 2014. Google, Apple, Chevron, GEICO, Oracle, and Shell made significant investments in major Texas markets. Texas is investing in them, too, through the state’s Texas Enterprise Fund, Emerging Technology Fund and other incentives.

On the policy front, Texas is streamlining the way it delivers health care; cutting taxes for small businesses, investing in infrastructure like water and roads, and making it attractive for companies to move or expand here.

Interim legislative committees will be looking at issues across the board, with emphasis on a tax and regulatory environment that supports Texas’ competitive economic advantage in culture and cost; it’s a growth agenda and Texas continues to be a destination state.

We’ll continue to do what we do best: helping companies navigate political, legislative, and regulatory challenges. We do it well, we know the state of Texas from one end to the other, and our network of relationships is second to none.

Some call it strategic communications. We call it public affairs.

All in all, we’ll call it a sign of things to come.

With Governor Perry’s announcement today that he’ll serve out his term through 2014 but won’t seek re-election, it’s timely to look back on highlights from the 83rd Texas Legislature, how the state is positioned in key areas, and the public policy climate that will almost certainly be the foundation for his future plans.

Taxes

The Legislature cut taxes and fees by $ 1.3 billion, a figure that includes a $ 300 million rebate to electric consumers.

House Bill 500 permanently exempts businesses that have less than $1 million in gross receipts from the state’s franchise tax (also referred to as the “margins” tax) and provides a $ 1 million expense deduction for small businesses.

The Legislature also cut business taxes by an additional $ 714 million on a temporary basis– by 2.5% and 5% over the next 2 years – some targeted to specific industries.

An additional $ 350 million in tax incentives was passed. Effective September 1, companies can take a sales or franchise tax credit for research and development. There are also incentives for bringing large data centers to Texas and encouraging investments in cable TV, internet access, and telecommunications.

Incentives for re-locating and expanding companies

In total, Texas has 23 different incentive programs for companies of all sizes – those now in Texas and those re-locating here.
The Legislature extended the Texas Economic Development Act – Chapter 313 agreements – that allows school districts to reduce a company’s property valuations up to 90 percent for 10 years.
Companies like Samsung, Toyota and Apple and others have used these breaks to re-locate to Texas or expand. Texas-based companies are also eligible for incentives.

As of September 1, companies can also deduct their moving expenses from the franchise tax.

The Legislature added $ 50 million to the existing $ 7 million in the Texas Emerging Technology Fund, targeted to early-stage companies, re-appropriated $ 120 million in unspent balances for the Texas Enterprise Fund (the “deal closing” fund generally for larger expansions or re-locations), and added $ 95 million in film and video incentives (contingent on adequate tax receipts).

The Major Events Fund was extended to help communities host high-profile events like the Super Bowl, All-Star games, NCAA events, Formula One, as well as smaller conventions if they meet a $1 million threshold in additional revenue.

Education

There is a clear sense that with the current surplus in the Texas budget – estimated at about $ 8 billion at present — now is the time to invest in education.

CEO’s, entrepreneurs and investors — particularly those from the coasts — tell me that education is the most critical investment in a healthy economic future (which sounds logical as long as that state doesn’t tax and regulate its companies to death).

This session, lawmakers approved an additional $ 3.4 billion for schools for the current biennium.

They also reduced requirements for standardized tests from 15 to five needed to graduate from high school and added options to the uniform 4×4 graduation plan that allows students discretion in choosing a course of study to help with career training. For example they may select an ‘endorsement’, such as Business and Industry or STEM as a specialty on top of the foundational courses.

For the first time since 1995, charter schools may expand but school choice for parents of public school students – now commonly referred to as scholarships rather than vouchers – was not approved.

In higher education, a measure requiring universities to offer students the option of a fixed rate tuition for four years was passed, as was a new UT system university and medical school in south Texas.

The University of Texas system, Texas Tech, Texas State, University of Houston and University of North Texas systems have announced fixed rate tuition programs. Related, thirteen Texas institutions are offering $ 10,000 degree programs.

Infrastructure

The Legislature approved $ 2 billion to help local governments build pipelines, desalination plants, and other water projects, subject to voter approval in November.

Funding for roads and other transportation projects totaled just over $ 800 million, including about $ 425 million to fix roads stressed by heavy gas production in energy regions of Texas.

Another $ 4 billion for road construction now being considered in a special legislative session

Workforce training

The Texas Fast Start program will accelerate training for workers by allowing them to advance through classes as they master the related skills.

The Texas Workforce Commission and Texas Higher Education Coordinating Board will collaborate with community colleges and technical institutions to create programs for high demand fields as identified by local employers.

The state will also continue to offer grants to buy equipment required to teach technical classes.

And five (5%) percent of the state’s skills development fund will be available for joint-credit courses at high schools and post-secondary institutions leading to licenses and certificates required for technical jobs.

In sum, while the Governor didn’t announce today what those plans may be, my best guess is that it will have something to do with this — http://www.texaswideopenforbusiness.com — and recognition like this:

http://chiefexecutive.net/texas-is-the-best-state-for-business-2013

Craig Casselberry
512-762-7366
cc@quorumpublicaffairs.com

In the last 2 weeks Chief Executive Magazine named Texas the best place for business in the U.S. for the 9th year in a row, and Site Selection named Texas the #1 most economically competitive state.

As part of Chief Executive’s report, CEO’s are surveyed on economic indicators like regulations, tax policies, workforce quality, educational resources, quality of living and infrastructure.

The recognition doesn’t happen by chance. I like to say that Texas’ success boils down to 2 broad areas: culture and cost.

Texans are free-thinking, risk-taking entrepreneurs by nature. And we welcome those who want to come to the state to do business, work hard, raise a family, and pursue the American Dream; we’ll wave and say hello (don’t laugh, you’d be amazed at how many transplants I talk to who found it disconcerting at first but now appreciate it as part of our culture)

Texas also has a public policy climate built for growth that has played a major role in Texas’ economic success over the past 10 years. And with a budget surplus driven largely by prudent fiscal policy decisions in the lean years and abundant natural resources, now is the time for investment in infrastructure.

The 83rd Texas Legislature has 1 more week before its scheduled May 27 adjournment to make sure the state is positioned for continued success over the next decade and beyond.

Most pressing are water, roads, and education. A surging population – as many as 1,000 new citizens per day – means that infrastructure is strained. The Texas population has more than doubled since 1970 and is projected to double again in the next 40 years. From 2011-2012, Midland was the nation’s fastest growing metropolitan area under 1 million people, according to the U.S. Census Bureau, and Austin was the fastest-growing city of 1 million plus; Houston, Dallas, and San Antonio also made the Top 10.

Today, Texas is the destination state. The ability to get water, freight and people where it and they need to go will be critical to attracting the kind of companies, jobs, and families to keep it that way.

Water is particularly critical since it and energy – a primary driver of Texas’ economic success — are so directly tied. But so too is energy tied to roads. In fact by some estimates Texas needs almost $2 billion dollars just to fix the heavy use roads between the major natural gas fields largely centered in southwest, west, and north Texas. It’s costly not to do so — Ohio’s energy sector is being hamstrung by its lack of infrastructure investment:

http://www.bizjournals.com/columbus/blog/2013/05/lack-of-infrastructure-limiting-utica.html?ana=e_hstn_nrg&u=NeDavdyVSkMT8Kc37u53IQ078114c5&t=1369063181

As legislators consider these issues in Texas, it will be interesting to see to what degree they allow the private sector to participate in the development of, for example, water reservoirs, pipelines and rail for transport. Like toll roads – where a private developer capitalizes the project and the recovers their investment through tolls, with the state receiving a percentage – it may make sense to allow private companies to use private risk capital to get these projects on line more quickly, and recover their investment later.

The backdrop, of course, are the politics of priorities and price tags. Democrats want education considered and funded on an equal level to water and roads, and Republicans don’t want to increase things like motor vehicle registration fees or use the Rainy Day Fund to speed up development.

And about education.. When you ask entrepreneurs what they need most they’ll tell you: 1) capital, and 2) a skilled workforce. Today, our technology sector still looks to California to fill some technical jobs. The Legislature is pushing toward excellence in public and higher education – and committing additional money — but this issue is so critical that it deserves its own post-session analysis. One interesting development is the creation of a ‘super University’ in south Texas aimed at the rapidly growing Hispanic demographic and programs led by the Governor’s Office and Texas Workforce Commission that will tie graduates to jobs in positions of need, particularly high growth sectors.

One of the foremost venture investors in the country told me recently that an outstanding system of higher education attracts the brightest minds, who spin our groundbreaking technologies, which attracts private capital, which allows companies to create jobs and grow in Texas.

These are all components of a vibrant business ‘ecosystem’ that will drive economic growth in the years to come, keep cost of living low for families, and help Texas remain a destination for entrepreneurs.

The Legislature has a difficult job – priorities differ across constituencies – so let’s hope they can sort through it all and make sound decisions in the waning days.

Craig Casselberry
512-762-7366
http://www.quorumpublicaffairs.com

Casselberry TESTIMONY for the Texas Coalition for Capital
Texas House Committee on Economic and Small Business Development
April 3, 2013

Mr. Chairman and members, I’m here today representing the Texas Coalition for Capital, a statewide non-profit organization that supports long-term access to capital for our entrepreneurs and small businesses.

We all know Texas leads the country in many economic indicators – job creation, our low tax burden, affordable cost of living, and entrepreneurial culture, among others.

One area we lag, however, is in small business venture investment.

In fact Texas was 4th in the amount of venture investment in 2012. And it was quite a distant fourth.

We think it’s important Texas maintain a dynamic investment ecosystem that includes public and private sources of capital, and other incentives.

There are a few reasons it’s important we do so. Our neighboring states are getting more aggressive; let’s maintain the competitive advantage we enjoy today.

We need Texas capital in enough abundance that will keep these our promising small businesses and their jobs here at home. Capital and companies like to stay close to each other, which means those jobs stay in Texas.

We also think that capital is a key piece of our infrastructure to keep Texas economically competitive over the long-term. Like water and roads, access to capital is important to our long-term economic competitiveness.

I would also note the value of corporate capital as part of the investment ecosystem; the larger companies like our 52 Fortune 500 companies HQ’s here recognize investment in infrastructure – including capital for our small businesses — when they see it.
They have money to invest and to spend, and they are diversified; likewise, we need capital that puts money into companies across industry sectors.

Texas likes to lead when we can, but we still trail the coasts in investment capital by a significant margin. Entrepreneurs will tell you the two most important factors to start and grow a business are 1) access to capital, and 2) a skilled workforce.

This legislation will help us make up ground in one of those areas.

Craig Casselberry
(512) 762-7366

As the Texas Legislature hits the halfway point of its 83rd biennial session, it’s timely to reflect on how our policy environment has supported the economic growth we have seen of late, and the role the next 70 days will play in positioning the state for the long-term.

Today we are a business-friendly state, with low taxes, a balanced regulatory environment, an entrepreneurial culture, and an affordable cost of living. In fact I got to talk about it on Fox Business News last week:

http://video.foxbusiness.com/v/2240318169001/californias-tax-pain-is-texas-tax-gain/

According to the Tax Foundation, Texas ranks ninth in overall tax burden, lowest among large states other than Florida (we missed their housing bubble) and compared to 48th for California and a dead last 50th for New York. Those states are experiencing an outflow of people and companies, many of whom are coming to Texas. Our low tax burden means that employees and families love it because we have no state personal income tax, real estate is affordable, and our percentage of college-ready students is growing. Since we rely heavily on the sales tax to fund state government we realize the benefit of the 1,000 new citizens a day moving to Texas and consuming here. Our natural resources – and the taxes they generate – also help keep taxes low for other business sectors. Shale-based gas exploration in both north and south Texas is contributing heavily to our healthy budget and most economists expect production to be sustainable for another decade or more.

All of this had led to a multi-billion dollar budget surplus that has the Governor calling for a tax rebate to our citizens (yes, that’s rebate).

That’s all good but given the relative health of the economy and the surplus, how the Legislature addresses issues like infrastructure and education will determine if we maintain the momentum we’re seeing and position the state for long-term economic success.

The Governor has called for spending a total of about $ 5 billion dollars on roads and water infrastructure to keep up with the demand of our accelerated population growth.

Given our reliance on bond financing over the years, Texas leads the nation in transportation debt (about $30 billion dollars worth) and lawmakers are struggling with the funding package; some support raising the gasoline tax to work down the debt and pay for additional construction and it seems likely they will dip into the Rainy Day fund to solve part of the problem.

The cost just to support Texas’ ever-growing energy sector – including the aforementioned shale development – is estimated at $1.6 billion annually.

The primary water legislation would create the State Water Implementation Fund for Texas (SWIFT). House Bill 4 passed a key House committee and will be voted on by the full House of Representatives this week. SWIFT would create a water infrastructure bank that operates a revolving fund for financing projects in the State Water Plan. The Fund is expected to be seeded at around $ 2 billion.

One interesting issue relevant to both roads and water is how – if at all – the state engages private sector resources to get these projects to completion quickly and efficiently. Senate Bill 7 is taking up that issue.

How Texas approaches public and higher education may trump all others when it comes to our long-term economic competitiveness. While Texas has seen improvement in students’ college readiness, most lawmakers agree that developing a skilled workforce to fill the jobs that are being created, and particularly technical and engineering talent, is paramount.

The Legislature is debating both more funding for all levels of education and how to deliver a quality education more efficiently with existing resources – from scholarships that allow parents to choose a public school best suited for their child, to a super University in south Texas that would be the 2nd largest Hispanic-majority campus in the country.

Texas is blessed with a creative and entrepreneurial culture attractive to business and families and natural resources that, at times, drive prosperity. Now, how the Legislature addresses the policy fundamentals may tell the tale on whether Texas keeps its designation as the best place in America to live and work.

Craig Casselberry
Quorum Public Affairs, Inc.
512-762-7366

Follow

Get every new post delivered to your Inbox.