Here in the Friendship State we are always welcoming new business. Our prolific business climate makes for the perfect atmosphere for growth and profitability of a company. I can name a hundred reasons for a business to relocate to Texas—Austin Business Journal asked for my top seven. Here’s a sneak peek at what I had to say:

It’s a bit cliché but true—Texas is business-friendly. But there’s more: Jobs, parks, arts, education and affordable real estate make us family-friendly too. And for businesses, the rewards run deep.
Continue reading the 7 reasons businesses should move to Texas at the Austin Business Journal→

The 84th Texas Legislature has come and gone and they didn’t stray far from the playbook that has led to the nation’s strongest state economy.

The good news is that lawmakers took steps to cut business and property taxes, hold down spending, and improve infrastructure, if you’re into that sort of thing.

In contrast to some states, Texas’ is a public policy climate built for growth and apparently entrepreneurs are noticing. The Kauffman Institute just named Austin the best city for start-ups, and 4 Texas cities made the Top 15.


The House and Senate came to agreement on tax cuts totaling $3.8B that includes cutting the state business tax (aka Franchise or Margins tax) by 25% and increases the state homestead exemption on school property taxes from $ 15,000 to $25,000, an average savings of $ 120/year.

Fiscal hawks will like the budget. It’s balanced, the $ 209.4B total increases by just 2% per year, stays $3B under the state’s spending cap and leaves $11B in the state “rainy day” fund.

If Texas voters approve in November, $2.5(B) in state sales tax revenue will be directed to highways beginning in 2017 as long as total sales tax revenue exceeds $ 28B, and 35% of any vehicle sales tax revenue above $ 5B beginning in 2019. They also ended diversion of money from the State Highway Fund, which will add another $ 1.3B for construction.

The state’s Department of Transportation says they need $5B a year to keep up with population growth; the 84th Legislature at least got the ball rolling.

Higher education received $ 3.1B in bonds for renovation and construction projects at 64 campuses, the first round of such funding since 2006, and Governor Abbott won approval of $40(M) for the Governor’s University Research Initiative to award matching grants to Nobel laureates and National Academy members as we work toward more Tier 1 Universities and get our institutions of higher education more involved in economic development.

The Texas Enterprise Fund that provides cash to companies re-locating to the state received $ 90M, less than the $200M the business community requested.

Additionally, the Emerging Technology Fund which has funded numerous early-stage companies fell victim to politics and accusations of ‘crony capitalism’ and is being phased out.

A state contracting reform bill by Sen. Jane Nelson will shine more light on public sector contracts and, it appears, promote more competition among the private sector to provide products and services to state government agencies.

On the short side, school choice failed to pass the House and public education wasn’t funded to a level it needs to be, in the opinion of some.

All told, while many business leaders were disappointed with the cautious approach to economic development, Texas can point to a broader policy climate that remains very attractive to companies of all sizes.

As the Texas House and Senate recently rolled out dueling tax cut plans, reports indicate a slowing of the Texas economy in the 1st quarter of 2015.

The Senate, led by Lt. Gov. Dan Patrick, wants significant property tax reductions. Patrick campaigned on a promise of property tax cuts.

The House favors a cut to the sales tax. Sales taxes – which range from 6.25% – 8.25% – are the 2nd largest revenue source in the state, a total of $ 27B, or 26% of all state revenue in fiscal year 2014. The thinking goes that sales tax cuts would put more discretionary income in the hands of consumers and stimulate additional spending to boost the economy.

Property taxes accrue to local governments and municipalities. These cuts are targeted at the homeowner.

Can either plan jumpstart a sagging economy? The Dallas Federal Reserve said the Texas economy slowed by 3.8% in Q1, mainly due to falling oil prices, a strong dollar, and a slowing U.S. economy. http://www.dallasfed.org/research/update/reg/2015/1503.cfm

While the Texas economy has diversified in the last 20 years, energy is still king. Oil and natural gas production taxes totaled $ 5.77B in FY 2014, or 5.5% of the total budget. It’s safe to assume that revenue will decline in 2015. How will the difference be made up? There’s been no serious debate about cutting oil and gas taxes.

It’s interesting to note the juxtaposition of Texas’ philosophy vs. other states; Texas policymakers take a supply side approach – as the economy slows, tax revenues may logically fall, but rather than raise tax rates to increase revenue, we cut taxes to stimulate spending and therefore increase revenue.

The Texas economy and state budget will be an interesting case study to watch over the next 24 months.

Speaking of taxes, there are ways the State of Texas can stimulate economic growth that will not only parallel the supply side approach but also be good politics for the state’s Republican leadership.

The New Markets Tax Credit program started as a federal program in 2000 and has been renewed by Congress every year since. Since then, 12 states have passed a state program to leverage the federal money and attract investment in small businesses and other entities, particularly in rural and distressed areas of the state. Texas ranks 43rd in Federal New Market Tax Credit investments, in part because we lack a state New Markets Tax Credit initiative to attract outside capital. Investors are deploying capital in states with initiatives to match those at the federal level. As a result, Texas is missing out on growth investments, especially in rural and other distressed areas.

As the theory goes, small business owners are more likely to be conservative thinkers, favor limited government, etc. If Republicans don’t turn growing constituencies like Hispanics into entrepreneurs they are likely to find themselves in the minority in the next decade or so.

A recent report by Dr. Simon Mak of the SMU Cox School of Business examined Texas deals funded by the Federal New Markets Tax Credit program. The report concluded that the total potential economic activity driven by a Texas New Markets Tax Credit program what would almost twice (1.76) any foregone tax revenue, create approximately 5,000 jobs and attract additional private capital to Texas at a rate of $4-to-1, driving further job growth. Dr. Mak’s study notes that the return on investment (ROI) multiplier is even greater in rural Texas.

The New Markets program is, in essence, a public-private partnership that gets capital to areas of the state that otherwise may not have access to it; the program offers the best of both worlds- preserving the independence of private investment decisions in Texas, while smartly deploying available government incentives.

The program can also serve to create and keep jobs in Texas, rather than having companies funded by outside interests and moved elsewhere.

From a policy perspective, cutting taxes is a strong symbolic move to continue attracting corporate re-locations and the job growth that comes with it. To stay competitive with other states over the long-term, Texas should also consider innovative programs like New Markets to spur economic development.

The Texas House Committee on Investments and Financial Services held a hearing last week on how the state can attract more venture capital.

It’s a good question that may have a multi-pronged answer and require some seeding.

Site Selection magazine just awarded Texas a “Governor’s Cup” for most capital investment in the country last year. According to the magazine, Texas had 689 capital investment projects completed in 2014, the most of any state. http://www.siteselection.com/issues/2015/mar/cover.cfm

Great news, of course, but these are largely real estate development projects.

What about capitalizing early and growth-stage companies to sustain our consistent (and nation- leading) job growth in the coming years and decades?

One way is a dynamic ecosystem of capital sources to fund our best small businesses here in the state, rather than have them funded and moved elsewhere. Access to capital is among the top two things entrepreneurs tell us are key to long-term business success, along with a skilled workforce.

Today, Texas lags in attracting venture investment, ranking a distant fifth in total investment for 2014; we represent just over three percent (3%) of all venture capital investment. By contrast, Silicon Valley alone takes in almost 50% of all dollars, while New York (metro only) and New England are about ten percent (10%) each.

Why is Texas not getting its share of venture investment and what can we do better?

• There is some sentiment that we need more and better “deals” (strong young companies) to fund since the investors would rather drive than fly to their board meetings. Incubators and accelerators help provide important infrastructure and experience to help young companies grow; what can Texas do to support their growth? For example the Director at University of Texas Venture Labs says that if there are more deals worthy of investment, the money will find them. TVL says that fifty percent (50%) of their companies get venture funding, compared to about 1% overall.

• We need more critical mass of venture capital in Texas. We just don’t have enough anymore. In the heyday of the late 1990’s, many national players set up shop here but moved out. In particular, Austin has been dominated by one major, local player. And that local firm announced recently they will not be raising another early stage fund.

How can we make Texas more attractive for all varieties of venture funding and private equity to come into this market? Given the clear political heartburn over the state taking equity positions in deals (the Emerging Technology Fund model), an approach that provides incentives to professional investors to get capital into the hands of innovative and scalable small businesses could be an attractive alternative.

• We can do a better job of leveraging federal programs to attract more investment to Texas, and make investments in rural and other underserved areas. The federal New Markets Tax Credit Program (NMTC) is one example. The program encourages investment in economically distressed communities. Twelve states have enacted state programs that attract federal NMTC investments, providing a leverage effect. Today, Texas is not getting its fair share of those investments. According to at least one report, the dollar return on the NMTC program is 8:1, tax receipts to credits extended.

• And, as Gov. Greg Abbott has observed, we must maintain al policy climate built for growth – low taxes, reasonable regulations – and fund infrastructure like water and roads. http://gov.texas.gov/news/press-release/20628

Texas has been generous with tax-related and other incentives for expanding or re-locating companies; in fact some sources say Texas leads the nation in that category. What seems clear is that states provide incentives to stay competitive, and the competition among states is fierce. That’s the landscape today.

More venture investment will be important to keep the state’s economic ground fertile for many years to come.

Last week the Republicans officially took over both houses of Congress.

Now what?

I have some advice for the Grand Old Party: Go long on the Grand, and shelve the Old.

Stand for something new and inspiring. Be the party of Growth and Opportunity.

And tell the people about it.

It’s a message that can win the White House and keep Congress for the next decade.

Call it a freshening of the brand, call it strategic messaging, call it marketing and advertising, but mostly call it overdue.

The private sector does it every day out of necessity. Otherwise, you’re lost in the marketplace. Identifying what you’re selling, your market, the best way to say it, and whom to say it are part of any successful business plan.

Think about some of the great branding campaigns and what they meant for the long-term success of the company: Intel Inside, Have A Coke and A Smile, Don’t Leave Home Without it (American Express), A Diamond is Forever (DeBeers), Think Different (Apple), Tastes Great, Less Filling (Miller; a personal favorite). And oh yes, Nike has a few.

They resonate with people years later.

If necessity really is the mother of invention, Republicans are going to have to do more than roll out legislation for the Keystone Pipeline, as great as it may be, and wait for President Obama to veto it.

Better, the GOP should refresh its brand for the long-term benefit of the country.

Before I lay out the blueprint to save America (you’re welcome, by the way), let’s get a couple key premises on the table:

1) Why do I care? Well I have to confess to being pro-growth, pro-opportunity, pro-business and pro-problem solving with creative communications. And even though the Republicans just took over Congress, they still don’t have an identifiable message as far as I can tell.

My personal beliefs align most closely with those of the Republican Party if you believe in the principles on which our country was founded, for example individual liberty, sovereignty of the people, federalism, state’s rights, limited government represented by our democracy (as messy as it is in practice), and private property.

And it’s really not a hard call if you contrast those basic beliefs with a Democratic Party veering toward socialism and an imperial government, the antithesis of why the U.S. was founded in the first place.

2) Who cares about growth and opportunity? How about immigrants, particularly the most important demographic in politics today, Hispanics. (disclaimer: Hispanics today aren’t voting commensurate with their population but that will change. And, if you look at the 2012 election results, Hispanics voted overwhelmingly for President Obama. Why?).

Opportunity is tried and true, it draws people, it conjures the imagination and inspires big dreams. It’s why people come here and don’t leave (and by the way, why 1,000 people per day move to Texas, but I digress).

3) Why is the Republican Party considered the party of business? Maybe it’s best described by this constitutional principle (if you’re into that sort of thing):

The highest level of prosperity occurs when there is a free-market economy and a minimum of government regulations. Prosperity depends upon a climate of wholesome stimulation with four basic freedoms in operation: 1. The Freedom to try. 2. The Freedom to buy. 3. The Freedom to sell. 4. The Freedom to fail. (www.freerepublic.com).

I’m personally a believer that business, commerce, trading stuff for stuff, and the profit motive underlying are all largely good. It’s what creates the wealth that allows us the creature comforts we enjoy, to take care of those who can’t do it for themselves, and allow the U.S. to support most of the free world in some fashion. We the people get to choose within the marketplace and reign in the rogues as needed (see Wall Street, circa 2008).

Republican objectives need to be wrapped in a broader message if not a full-scale branding campaign so stay with me for a minute on the big message – Growth and Opportunity – and underlying principles that accompany them.

Heck, include Mom, Apple Pie and the Flag for all I care. Isn’t the American Dream why we’re all here or want to be? Isn’t that what the revolt was all about? We get to pursue happiness, for goodness sakes, and even have the right to choose it.

Call it American Revolution 2; after all, while it’s not King George, other countries are nipping at our heels economically (BRIC and now the Middle East oil squeeze) and educationally (we’re being substantially out-performed in the STEM subjects).

We are the world’s greatest innovators. Of the most valuable private companies in the worlds, 9 of the top 10 are American (through Q3 2014; Financial Times Global 500). Of the world’s most valuable brands, the Top 7 are American. Our gross national product is #1, according to the United Nations, and it’s not even close, almost double that of #2-ranking China, which is nice.

So capitalism has worked from that perspective.

For another perspective, we’re # 10 in the so-called Prosperity Index that measures the success of countries based on 89 different economic analysis variables in industry, education, health, freedom, opportunity, and social capital. (Business Insider).

Prosperity may be overrated. Anyway, get the people on your side and make it happen.

We’re entrepreneurs, innovators, risk-takers, mavericks. It’s part of the American DNA.

Isn’t opportunity another word for liberty and what the revolutionaries fought for, and what (presumably most) Republican elected officials campaigned on?

Do we all need a history class?

So let’s say we can agree that growth is good since jobs and output drive the economy in a positive direction and it’s worked out well for America so far.

So how should the GOP define opportunity? I say keep it simple:

1) Individual Freedom and Jobs. Everyone should have the chance to get a job or start a business. If you’re willing to work, this is inherent in our capitalist society. But what tools do we need.
2) Education. Everyone should have the chance to get a post-secondary education. That’s a traditional University, community college, vocational school, or the like. And everyone should be encouraged to go. In fact, we should require the government to pay for it if, for example, that person will do a minimum of 1 year of service, whether it be military or charitable (the Israel model). We do it for secondary education, but that’s not good enough today. Remember this constitutional principle: A free society cannot survive as a republic without a broad program of general education. This was a worthy goal in 1776 and needs to go farther today as we operate in a global economy.
3) People first. The constitutional principle of popular sovereignty says that the authority of the government is created and sustained by the consent of its people, the source of all political power. We are a republic; our elected officials represent us. If they forget that, remind them (you can do it nicely, but it should be done).

This could solve a lot of things.

Public policies should support these core principles. For example, the phrase “rule of law” in our constitution refers to the idea that laws are to be followed and that they apply equally to everyone. People obey the law and not the whims or a ruler. Further, no one is above the rule of law. This can certainly be applied when it comes to protecting private property rights which I suspect is favored by a large majority of the country.

Another application of this concept is economics and how to fund our federal government. Everyone needs to be invested, have a stake in what we’re doing. Today, almost one-half of the country is paying no federal income tax (note: not including payroll taxes and state taxes; federal taxes only). The income tax is a mess; we need to get away from our so-called “progressive” income tax and find some other way, like a national sales tax (w/exceptions), for all to pay a share. During WWII everyone pitched in and patriotism was at an all-time high. Our current revenue model is unsustainable and trending the wrong way; we can’t have half of the country pulling the wagon and the other half riding… The wagon won’t move.

That said, the income chasm is growing between the rich and poor – we need to figure out why and how to fix it. Not to make it equal – it will never be equal, we’re not a socialist country. But, we need to pay attention to the underlying causes.

Yes, we should account for enlightened evolution; beliefs held by a society in 1776 can and should change over the course of 238 years. But the basic principles on which the country was founded should remain constant. This is not Europe and I refuse to believe that most Americans want it to be.

So, I’m proposing a GOP refresh. Repeat after me — Growth and Opportunity.

Just Do It.

If angels were to govern men, neither external nor internal controls on government would be necessary…. [But lacking these] you must first enable the government to control the governed; and in the next place oblige it to control itself.” – James Madison

For the first time in a decade Texas will have a completely new leadership lineup in statewide offices. While the new Governor, Lt. Governor, Attorney General, and others have their own bona fides and policy priorities, the ideology won’t change much.

Republican’s continue to dominate statewide offices and the Legislature. This should be good news for Texas business, and may even be good for long-term GOP strength given how (relatively) well they did with Hispanic voters and women.

The policy climate will still center on less of most things (taxes, regulations, spending) and more of some things like jobs and growth.

Governor-elect Greg Abbott is ideologically quite conservative and while he may not be as singularly focused on economic development as Rick Perry, attracting companies to the state and their jobs will remain on the short list of his priorities.

Lt. Governor-elect Dan Patrick won impressively against a sitting Hispanic Texas Senator. What may surprise some is that Patrick is a pro-life candidate who campaigned on immigration reform, lower property taxes, and school choice (he’s been a strong advocate on this issue in the Texas Senate). Some exit polls suggest that Patrick may have won as much as 46% of the Hispanic vote, much more than even George W. Bush’s 40% in his 1998 re-election, considered a major milestone at the time.

The Texas economy benefits from huge tax revenues from pulling oil and gas out of shale formations throughout the state and the state budget remains firmly in the black, allowing Texas to offer incentives for corporate re-locations and expansions on at least an even playing field with competing states.

That’s together with a policy climate that includes no state personal income tax, a nominal corporate tax, a reasonable regulatory environment, and low cost of living.

A brief summary of the election:

Greg Abbott won the governorship with 59.28% of the vote.
Dan Patrick won the lieutenant governorship with 58.16% of the vote.
Ken Paxton won the attorney generalship with 58.84% of the vote.
George P. Bush (son of Jeb) is the new Land Commissioner, winning handily.
All other Republican statewide candidates won their race by at least a 15-point margin.

As Texas’ senior Senator, John Cornyn, appears poised to move into the # 2-ranking role in the U.S. Senate Republicans pulled off one upset in a far west Texas congressional district and now hold a 24-12 edge in the U.S. House.

Texas Senate
In a critical state senate race, Konni Burton (R) took back the seat in Tarrant County (SD 10), previously held by Democrat and gubernatorial candidate Wendy Davis, winning with 52.83% of the vote in a swing district. Republican incumbent Joan Huffman (SD 17 – Houston) was challenged by a well-financed opponent but won easily with 63.34% of the vote.
In two earlier special elections for the state senate this year, Republicans Brandon Creighton in SD 4 and Charles Perry in SD 28 won their races handily.
These wins increase the Republican majority in the Senate from 19 to 20 (in a body of 31).

Texas House
There were several contested races for the Texas House; Republicans increased their majority in the House from 95 to 98 members (in a body of 150). In a critical race in Galveston and Chambers County (HD 23), Republican Wayne Faircloth won an open seat formerly held by a personal injury trial lawyer who did not run for re-election.
Republican Rick Galindo in Bexar County (HD 117 – San Antonio) challenged incumbent Democrat Phil Cortez, whose campaign was financed by the Texas Trial Lawyers Association. This is a swing district with a large Hispanic population and Galindo won with 52.69% of the vote.
Another key House race was in South Texas (HD 43), in which Republican J.M. Lozano won with 61.42% of the vote. Lozano first won election to the House in 2010 as a Democrat, but then became a Republican and won election as a Republican in 2012 and again this year.
The Galindo and Lozano victories suggest Republicans are making inroads with Hispanic voters. Interestingly, five of the contested House races won by Republicans were in Dallas County, which Obama’s Battleground Texas made “ground zero” in its attempt to turn Texas blue:
HD 102, Republican Linda Koop won with 62.49% in an open seat.
HD 105, Republican Rodney Anderson won with 55.44% in an open seat.
HD 107, incumbent Republican Kenneth Sheets won with 55.01%.
HD 108, Republican Morgan Meyer won with 60.67% in an open seat.
HD 113, incumbent Republican Cindy Burkett won with 59.42%.

When the 84th Texas Legislature convenes in January 2015 there will be new faces in every statewide office (all GOP); Republicans will have increased their majority in both chambers; only one major “crisis” looms (school finance); and expect the legislative agenda to focus on education (a Governor-elect Abbot priority) and additional funding for infrastructure like roads, water and energy. Overall, Texas should be alright.

Texas’ economic growth doesn’t come without a price.

As Asleep at the Wheel’s Ray Benson says (link below), more than 1,000 people are moving to Texas every day and they aren’t bringing their roads with them.

While major Texas cities lead the nation in creating millionaires — http://www.cnbc.com/id/102012485 — the state hasn’t kept pace in road construction. Urban legend has it that the airline lobby stunted highway construction for years. Whether that’s true or not, it is a fact that since 1987 Texas has been diverting gas tax revenue that in theory should be used on road infrastructure to other agencies, totaling about $ 800 million per year on average.

For the past ten years, construction to address congestion on Texas highways has been funded with bond proceeds and debt. Today, bonding programs have been exhausted and funding levels, compared to the last decade, will decline 50%, leaving nothing for new construction.

Proposition 1, a constitutional amendment on the Texas ballot in November, can change part of that. It will allow the Comptroller to allocate to the State Highway Fund one-half of the amount of general revenue from oil and gas production taxes currently transferred to the state’s Rainy Day Fund.

How much are we talking about? The State Comptroller recently estimated that an additional $ 1.7 billion from the oil and gas severance tax will be available for road construction if Prop 1 passes.

Both funds will now benefit from the incredible growth in the state’s energy sector, fueled largely by hydraulic fracturing in shale reserves throughout Texas. Today, Texas energy is so prolific that in 2013 Texas produced 29% of the nation’s marketed natural gas and 34 percent of its oil. http://www.window.state.tx.us/comptrol/fnotes/fn15Q1/fuel.php

The Rainy Day Fund hovers around $ 10 billion and is growing quickly; Prop 1 allows Texas to do something smart with a portion of the extra cash — build roads — without raising taxes, taking on new debt, or adding tolls.

And even that is only a portion of what we need; the Texas Department of Transportation conservatively estimates we really could use $5 billion annually in additional funding.

But Prop 1 will be a good start.

What more can be done? Next year the State Legislature may consider whether to dedicate the sales tax on motor vehicles to transportation, which could mean up to $3 billion in new revenue to the Highway Fund, and ending budget diversions altogether, another $650 million per year.

With the energy sector booming and the Texas economy otherwise healthy now is the time to meet the demands of a growing population. As Texas continues to attract more companies and the associated jobs and families, most agree that infrastructure — particularly roads and water — will be critical to maintaining our competitive edge.

Check out Ray’s message here: http://youtu.be/XpB6b6uUjVo; let’s roll.


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