The 85th Legislature adjourned last week after passing a $ 217 B budget to fund state government for the next 2 years.

While a lot of attention was given to the A-F rating system for public schools, the session ended with about a C grade for Texas business.

Important incentive programs to allow Texas to remain competitive came under fire.

The Texas Enterprise Fund – the Governor’s deal-closing fund for major job projects — will have about $90M to spend over the next 2 years, far short of the $ 200 Million the business community wanted.

The Film Incentive program received $ 22M, nowhere near the $ 72M Governor Abbott requested.

In both cases, the House and Senate included virtually no new money for these programs but the Governor stepped in to salvage some funding.

On the issue of infrastructure, we did not take pass a bill to extend local government authority to create public-private partnerships, which some see as a means to get roads, bridges, pipelines and other infrastructure built more quickly.

Some positive news..

The Texas Economic Development Act, or Chapter 313,  that allows local governments to abate property taxes to attract jobs to their communities DID survive opposition from some lawmakers.

The fast-growing biotechnology industry passed some important innovation and patient protection measures and helped continue the Texas Cancer Institute for at least 2 more years.

The Texas Workforce Commission (TWC) was authorized to use the Skills Development Fund to help employers expanding or relocating their operations to Texas if they’re offering high-skilled jobs.

In K-12 education.. several bills will promote more intensive computer science training for our students in specialized fields like cybersecurity.

P-Tech, an innovative program that partners K-12, higher education and the business community (companies like Dell are partnering with Austin schools, e.g.) has been approved and signed by Governor Abbott.

A Telemedicine billed passed that will give Texas patients more options for care and should attract medical technology companies to the state.

Oh, and the Legislature created a statewide regulatory framework for ride-sharing companies.  Yes Austin – Uber and Lyft are back.

And finally, for more summer fun, Governor Abbott just called the Legislature into special session starting July 18.   They will work on property tax relief for homeowners, among a possible 20 total issues.

In the dramatic conclusion to the 85th session, lawmakers almost came to blows on the floor of the House over the issue of immigration.  When they return, the Texas business community hopes the fight will be to keep Texas the best place in America for business.

With the 85th Texas Legislative Session winding down, there are lots of bills dead or dying.

Most of the action during the last 2 weeks will revolve around the state budget.

The Senate and the House have named 5 of their members as ‘conferees’ to work out differences.

They started about $ 2 billion apart.

A big part of the difference is whether to use the state’s so-called “Rainy Day” fund (the current balance is about $ 11 B) to fund state government in 2018 – 2019.  The House says yes, the Senate says no.

Keep in mind – about 1/3  of the budget goes to Medicaid, the health insurer of last resort.  And another 1/4 of the budget funds public education.

On the subject of health care costs, there is some good news.  The Legislature has passed a bill to allow telemedicine, which is direct-to- consumer healthcare starting on June 1.  Texas was one of only 2 states that didn’t allow it.   That bill is on its way to Gov. Abbott.

And, there are several digital education bills supported by the Texas technology industry to modernize how we train our kids.  They would allow our students access to the technology they use outside the classroom.   These bills are still pending but championed by Sen. Larry Taylor and supported by Lt. Gov. Dan Patrick so the outlook is good.

If the budget isn’t settled by May 29, Governor Greg Abbott will have to keep them in special session.  Those sessions run for 30 days at a time and the Governor solely controls that agenda.

There’s also speculation that the Governor could call them back if they don’t settle on a long-term solution to fund public schools; the current system is commonly referred to as “Robin Hood” and seems to work for just about nobody.

It’s been an interesting and some would say dramatic session, particularly in the Texas House.  As an example, University of Texas Exes are rallying to stop a bill that would take several hundred acres of land donated by a prominent alumnus, Col. George Brackenridge, in the 1900’s and give it to the Texas Parks and Wildlife Department.  UT calls it a land grab that could put a chill on future donations.   It would be interesting to see how Gov. Abbott, a Longhorn, would view that bill if it reaches his desk.

So, if you’re looking for free entertainment these next 2 weeks, stop by the Texas State Capitol.   It will not be dull.

Catch us also on Texas Business Radio: https://texasbusinessradio.com/

The Kentucky Derby won’t run until May but the 85th Texas Legislature is in their own version of the home stretch.

The only thing they must do in the final 50 days, per the Texas Constitution, is pass a state budget to fund state government for the next 2 years, and it must be balanced. I.e. no spending outside what projected revenue (State Comptroller, Glen Hegar, does the projecting) will allow.

The Texas Senate passed their version of the budget 10 days ago; the House of Representatives, late last week.  The House budget spends just under $ 1B more than the Senate.  The difference will be negotiated.

Here’s what’s important.  Because we have less money to spend than 2 years ago, lawmakers have a difficult task in deciding where to allocate the money from among those things a government needs to function — education, social and other public services, infrastructure, and maintaining a healthy economy, to name a few.

The business community is generally agreed on a few key areas:

  • There can be no better investment in our future than making sure our students are prepared to enter the job market.  Cuts to public and higher education are short-sighted and damaging to our long-term economic health. Right now, funding for higher education has been cut by 6-10%.  Hopefully cooler heads will prevail and education becomes a priority funding item.
  • The same is true in workforce skills training; our increasingly diverse economy requires training our citizens in high-growth STEM areas, graduate careers and college-readiness programs.  A tax credit for employers who hire apprentices so they can learn a trade or a specialized skill is also being considered.

What else needs to happen?

  • The Texas Enterprise Fund attracts big job-creating projects like Toyota, Apple, Chevron, and Samsung and needs $ 100M, as Governor Abbott has requested.
  • The Governor’s University Research Initiative attracts top-flight academic talent to our state; it needs $ 40M.  Stanford University was a catalyst for what we now know as Silicon Valley. Texas needs the brightest minds and innovators to replicate that dynamic job-creating machine right here at home.
  • Our Film Incentive Program needs $ 60M.  Texas directors are filming big budget movies in neighboring states that are out-competing us.  That needs to change. The return on that investment is estimated at 5:1.

And remember. We have about $ 10B in our so-called ‘Rainy Day’ fund, more than 3x the amount held by any other state.  With the price of oil being where it’s been the last few years, state revenue has suffered.  It’s time to spend some — not all – of that money on important programs, starting with education.

The House budget does spend $ 2.5B of Rainy Day money.  The Senate budget doesn’t touch that fund.

The corresponding radio broadcast on this topic is here, sponsored by Dell: https://texasbusinessradio.com/blog/texas-legislative-update-3/

The Legislature adjourns ‘sine die’ — a Latin term that literally translates to ‘without a day’ or, if you’re more layman than Latin “we’re done” — on Memorial Day.

Call your State Representative and Senator today and let them know where you stand.  If you don’t know who they are, go here to find out http://www.capitol.state.tx.us/.

It may be a photo finish:

Business leaders agree that to keep our economy strong over the long-term,  we must educate and teach our young students the skills they’ll need to fill the jobs spectrum – from the technical fields to manufacturing and all points in between.

In fact the Texas 2050 Coalition thinks it’s so important that “education and workforce development” are # 1 on our list of legislative priorities.  It’s a near-term priority with long-term benefit.

Today, the “high tech” sector does as much recruiting from other states and countries as it does training Texas students to fill these high-paying jobs.

The Central Texas/Austin area, for example, produces only about ½ of the computer science graduates needed to fill the open jobs in 19 of Austin’s key high-tech occupations, according to the Austin Technology Council.

The Texas Legislature is considering ways to change that so that the technology industries – present and future – that will drive the new economy are created right here in Texas.

One proposal would establish a Pathways in Technology Early College High School Program – or P-Tech.   This program got its start through a partnership between IBM and New York City schools and Texas could be next.  A bill by Sen. Larry Taylor would provide $ 5 M to help school districts set up their own program.

P-Tech is a six -year program that starts in high school and combines academic learning with practical application in a business environment.  In this case, IBM provides students a first-in-line interview for a full-time job with the company.  The students can also choose to pursue a four-year degree instead.

There’s a similar program already in place.  Dell and Austin ISD have started Career Launch, a workforce training program at two Austin high schools.  Dell employees will help train students in fields like cyber security, date mining, and applied science.   The students are working toward not only a high school diploma but an associate college degree.

The Austin American Statesman reported on this recently: http://www.statesman.com/news/austin-manor-districts-launch-workforce-training-academies/u6DfHXvqLdMdOFpw2gvQ8M/

This type of innovation in education is proving popular with students.

A P-Tech program at Seagoville High School in the Dallas area attracted. 5,000 students for 2,700 seats.

Our Texas 2050 business coalition is also supporting Career Technical Education (or CTE) courses; the post-secondary 60x30TX plan; AND, funding for digital learning and classroom connectivity in every district in Texas.

There’s no better investment of taxpayer dollars than educating our children and doing it in a practical, applied way with an eye on skilled training. Innovation in education – it’s something we must do to ensure a prosperous future for our great state.

Catch my commentary on this subject also on Texas Business Radio https://texasbusinessradio.com and these stations:

  • KPRC AM950 Houston – 6PM Saturdays
  • NewsRadio KLBJ, 590AM and 99.7FM – 6AM Central Sundays
  • News Radio 1200 WOAI San Antonio – 10AM Central Sundays
  • NewsRadio 740 KTRH Houston – 11AM Central Sundays
  • NewsRadio 1080 KRLD Dallas / Fort Worth – 8PM Central Sundays
  • iHeartRadio – 6PM Saturdays KPRC, 10AM Sundays WOAI, 11AM Sundays KTRH
  • iTunes – On Demand

Economic growth comes from several sources, including entrepreneurship, expansion of existing businesses, and attraction of new industry.

The state traditionally has led the latter effort, focusing on high-value companies that provide a disproportionate boost to state productivity and wages.

The leading nationwide publication that monitors these activities is Georgia-based Site Selection Magazine, with a readership of 44,000 site selection professionals, along with government and economic development leadership.

In past years, Site Selection Magazine has awarded the “Governor’s Cup” to Texas numerous times for having the most qualified projects of any state.  “Qualified capital projects” are private-sector only and meet one or more of these criteria: $1 million or more in investment, 20 or more new jobs or 20,000 or more square feet of new construction.

However, Texas has begun to slip rapidly in the rankings.  In the last year, Texas has slipped from number 1 in to number 15 in attracting the most new projects.  However, that ranking is based on absolute numbers, and not adjusted for state population, a much more meaningful number relative to economic impact.  For last year’s rankings, Kentucky, Nebraska, Ohio, North Carolina, and Kansas were ranked the top states, and Texas was ranked 11th.  For 2016, Texas slipped to 34th among all states.

The fierce competition between states makes it imperative that the 85th Texas Legislature adequately fund the state’s ‘deal-closing’ fund – the Texas Enterprise Fund – and maintain our local job creating tool, Chapter 313, that provides for property tax abatement.

On a balanced scorecard of objective and subjective measures, Site Selection Magazine ranked Texas 4th (tie with Tennessee) for overall business climate, behind Georgia, North Carolina, and Ohio.  However, in the Executive Survey Rank, the subjective rankings by professional site selectors, Texas continued to receive top marks, and was ranked #1.

  • Source: Site Selection Magazine, November 2016, “The Gold Standard”

However, Texas faces challenges in attracting capital intensive projects.  Based on a combination of all taxes, Texas ranks only 23rd in lowest overall tax burdens.

The recent study “Location Matters — The State Tax Costs of Doing Business” by the Tax Foundation in collaboration with KPMG LLP highlights state differences in tax costs (measured as “Total Effective Tax Rate”) for a variety of hypothetical operations. It compares tax burdens in the 50 US states (plus the District of Columbia), considering seven different types of businesses: corporate headquarters, R&D facilities, retail, capital-intensive manufacturing, labor-intensive manufacturing, call centers and distribution/warehouse operations.

According to the 2014 U.S. Census Bureau statistics, of the $866 billion in annual state tax collections, corporate income taxes represent a relatively small portion (approximately 5 percent). Personal income taxes (36 percent), general sales, use and gross receipts taxes (31 percent), selective sales taxes (16 percent) and state property taxes and license taxes (combined 8 percent) are the main sources of state tax revenue.

  • Source: Site Selection Magazine, November 2015, “Of This You Can Be Certain”, Ulrich Schmidt, managing director in the State and Local Tax practice of KPMG LLP

 

In recent years Texas has received numerous well-deserved accolades for our business climate, job growth and economic development. So what can the 85th Texas Legislature do to build on that foundation when they convene in January of 2017?

The state budget is a primary driver for many big decisions. During a Legislative Budget Board (LBB) meeting in early December chaired by Lt. Gov. Dan Patrick and House Speaker Joe Straus, lawmakers set the state’s growth rate at 8 percent. The growth rate limits how much next year’s Legislature can spend compared to the previous one and is nearly 4 percent lower than the 11.68 percent rate approved prior to the 2015 session.

How does this translate? The state will have about $8.9 billion dollars less to spend in the 85th legislative session than during the 84th session — likely the tightest budget since 2011.

Although Texas Comptroller Glenn Hegar says Texas has weathered plunging oil prices better than other big energy-producing states, the plunge has significantly reduced tax collections from that sector.

The governor, lieutenant governor, speaker and 84th Texas Legislature deserve some credit for the ‘weathering’ of that storm. In 2015, they left $4 billion of the budget unspent and another $10 billion in the Economic Stabilization Fund — a “rainy day fund” for the state.

This may prove important as the state is on the hook for about $5 billion in transportation spending, an estimated $1.3 billion in Medicaid caseload growth, and yet another run at financing our public schools to satisfy the courts, all impacted by shifting state demographics. Medicaid is particularly impactful to the budget as it now accounts for 25 to 30 percent of the state’s overall spending, upwards of $30 billion per year.

As a first order of business, the LBB approved $150 million in much-needed emergency funds to raise salaries and hire caseworkers at the state’s Child Protective Services agency.

So, where to from here? The Governor, Lt. Governor, and Speaker have all released their priority issues for the coming session. Let’s focus on where there’s agreement.

Education and Workforce Skills Training

It’s not all rosy in Texas education, but there is positive news. Texas’ high school class of 2014 achieved an 88.3 percent on-time graduation rate, reaching an all-time high for Texas and surpassing the national average of 82.3 percent, according to the National Center for Education Statistics.

What’s more, college degrees and certificates awarded in Texas have increased by 61 percent since 2000, and African-American and Hispanic enrollment has doubled during that time, according to the Texas Higher Education Coordinating Board.

However, state leadership agrees we can do more by raising education standards to help students develop the skills they will need after graduation. This is especially important in preparing students for an increasingly diverse economy and providing pathways to high-paying skilled careers in high-growth STEM areas, graduate careers and college-readiness programs.

Governor Abbott’s Tri-Agency Workforce Initiative is assessing local economic activity, workforce challenges and opportunities, and innovative approaches to meeting the state’s workforce needs. They are likely to

Higher education plays an important role in the creation and cultivation of an innovation-centered economic development ecosystem, which is a key factor in long-term economic prosperity. To that end, funding for programs like the Governor’s University Research Initiative (GURI) and the Cancer Therapy and Research Institute of Texas (CPRIT) will be debates to watch.

Tools To Compete For Jobs

The Texas model of no personal income tax, balanced regulation and a predictable civil justice system has provided a strong foundation for economic success. These are important and necessary policy achievements, but what other state and local tools can help Texas compete for corporate expansions and relocations that add jobs to our economy?

Other states — and even countries — are aggressive in offering incentives for corporate expansion and relocation; many leaders know that Texas cannot unilaterally disarm in this area but the state will consider both the return on investment and the most accurate evaluation methods for programs like Chapter 313 agreements and the Texas Enterprise Fund. This could include, for example, a balance of emphasis on both capital investment and job creation and industry-specific measurement.

This topic will be hotly debated.

Business taxes and ad-valorem property taxes remain high compared to other states. In Texas, companies pay about 60 percent of all taxes versus an average of nearer 40 percent in other states. This “cost of doing business” issue will be addressed as it relates to Texas’ long-term economic competitiveness.

Related, Texas homeowners pay the sixth-highest property tax in the nation, but relief may be on the way. Lt. Gov. Patrick is strongly supporting Senate Bill 2 — the Property Tax Reform and Relief Act of 2017 — which bodes well for its success.

Infrastructure

Governor Abbott has made the case that physical and virtual connectivity of infrastructure assets, including transportation, energy, water and high technology/broadband will be critical to accommodate our growing population and support innovation-intensive industry.

While roads and bridges come naturally to mind when we think of infrastructure, regional innovation ecosystems are another key piece of the puzzle.

With thoughtful investment, Texas can and should develop regional innovation ecosystems to ensure we are competitive in the markets of the future by combining talent, technology, capital and specialized know-how.

There is work to be done to improve individual assets and the interconnections that leverage their value. Some of those assets require money, and all of it will require a long-term view and coordination among stakeholders.

Texas’ economic success was no fluke. Over the last decade, lawmakers have created a policy climate built for growth and, in turn, the entrepreneurial spirit in the state has flourished. Corporate executives and companies in other states and countries have recognized our business-friendly economic environment and brought their jobs to the state.

However, competition among states for jobs and corporate re-locations remains fierce so we cannot re-trench. After all, the true Texas model is to lead. The 85th Texas Legislature has an opportunity to provide a solid framework to keep Texas a beacon state for job creation and maintain a terrific quality of life for our citizens.

http://texasceomagazine.com/departments/85th-texas-legislature-preview/

Craig Casselberry is founder and CEO of Quorum Public Affairs, Inc. A corporate communications specialist and former aide to two Texas Governors, Craig has managed legislative issues for public officials and companies of all sizes during the last 12 state legislative sessions. www.quorumpublicaffairs.com. 

The role of government in economic development is often debated but polls consistently show jobs and the economy atop the list of voters’ priorities.

Particularly if the price of oil stays where it is, Texas would be wise to make sure our state’s economy is sufficiently diverse and that starts with a dynamic entrepreneurial ecosystem so start-ups can thrive.

How does that happen? Corporate CEO’s for small, high-growth businesses cite a skilled workforce and access to capital as two primary factors for sustained growth and success.

Yes, today Texas has more high-tech, knowledge economy jobs than we did thirty-five years ago.  But so does most of the rest of the country.  Such companies require deep resources of talent, technology, and capital.

Innovative, high-growth companies require many different forms of capital, at different stages of development.  In particular, many forms of equity capital are critical in the early stages.  Together, these sources of capital are called the “capital continuum” from research funding, through prototyping, seed funding (“Angel” networks are key here), venture capital, private equity and mezzanine resources, and access to public markets.

Texas still lags the east and west coasts in the availability of venture funding and as you might imagine the major metro areas – led by Austin – get most of those dollars.   http://kut.org/post/austin-s-vc-scene-leads-texas-startups-may-start-looking-elsewhere-funding

But what can be done to attract more venture funding so our best Texas companies don’t move to follow the money?

And what can be done for rural Texas?  Manufacturing jobs are needed in the mini-metropolitans as are technologies to support, for example, the oil and gas sector when it does begin to flourish again (and it will).

The government can play a role alongside traditional venture capital, and the two can work together as some states have proven.

What can Texas do?  It’s a debate that has begun at the Texas State Capitol leading to the 85th Texas legislative session beginning in January of 2017.

It’s a difficult needle to thread but it can be done.  More to come on this subject.