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

 

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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.

See my recent interview about our coalition effort to keep Texas the best place in America for business on Texas Business Radio (www.texasbusinessradio.com) that aired on Clear Channel / iHeart Radio station KPRC AM 750 in Houston and WOAI NewsTalk 1200AM in San Antonio.  Your feedback and involvement is welcomed.

A Framework for Long-Term Economic Growth

In recent years Texas has received numerous accolades for our business climate, job growth, and economic development success, including:

  • “Best State for Business 2015” by Chief Executive Magazine for the 11th straight year
  • Site Selection Magazine “Governors Cup” award in 2015 that recognizes the state with the most qualifying new and expanded facilities per capita for the 4th year in a row
  • Top exporting state in the nation for the 14th consecutive year, with over $251 billion in goods exported in 2015 (U.S. Bureau of Economic Analysis)
  • At 4.7 percent, a state unemployment rate at or below the national average for 108 consecutive months (Bureau of Labor Statistics, December 2015)
  • Texas is # 1 in private sector jobs added over the last 10 years (BLS, December 2015)
  • CNBC “Top State for Economy and Infrastructure”
  • A “Top State for Fortune 500 HQ” (Fortune Magazine)
  • Best State for Economic Climate and Future Job Growth 2014 (Forbes Magazine)

To continue this level of success and remain the leader in many economic metrics let’s take a long-term view:

— Invest in Texans through skills development and training, including the Tri-Agency Workforce Initiative and programs that support seamlessly working toward an associate or bachelorette degree in high school, like P-TECH;

— Support our entrepreneurs and small businesses, to include a healthy ecosystem of capital to grow and keep our best companies here–high-growth companies require many different forms of capital, at different stages of development;

— Invest in world-class research to spur groundbreaking innovation, including the Governor’s Research Initiative. Maintaining a vibrant and modern economy will be dependent on our ability to create and cultivate innovation-intensive companies;

— Promote quality and completion in public and higher education so that our children are properly equipped with the skills to adapt and compete at the highest levels via, for example, the 60x30TX plan and a balance of debt to earning potential; and

— Provide state and local tools to compete for corporate expansions and re-locations that add jobs to our economy, including the Chapter 313 program and the Texas Enterprise Fund.

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

The true Texas model is to lead; if we take a long-term view we can keep Texas a beacon state for job creation and a terrific quality of life for our citizens.

I was honored to be recognized recently at the Austin Chamber of Commerce’s Annual Meeting as 2015 Volunteer of the Year for State Advocacy.  The Chamber recognized our “dedication, support and efforts to further economic development and improve access to capital for entrepreneurs and high-growth small businesses.”  http://www.austinchamber.com/monkeewrench/files/news_items/2015_Volunteers_of_the_Year_Chamber_Rele.pdf

We can do better still.   And, I hasten to add, growing Texas and remaining competitive is  a collaborative effort.  We work closely with major Texas business organizations and sectors like the Metro 8 Chambers, Manufacturers, Technology, Bioscience, Education, Economic Development Corporations, and Taxpayer groups to advocate for a strong business climate.

CEO’s tell us that a healthy ecosystem of working capital and a skilled workforce are the two most important factors for sustained success.  Texas remains a very attractive place to do business and raise a family.   Case in point (5 of the Top 10 in Texas):

http://www.creditsesame.com/cities/10-best-big-cities-relocate-in-new-year/?utm_campaign=El_Paso_a_Top_10_City_Worth_Moving_To&utm_medium=Facebook&utm_source=SocialToaster

But let’s not rest on our laurels.  Public policies that stimulate, not restrict, job creation will never go out of style.

I look forward to working with you toward these goals in the months ahead.

Craig

First let me wish everyone a safe, joyful, and prosperous new year.

In case you missed it, 2016 will include several milestones.

To name a few… 2016 is a leap year (yes, there will be a February 29); it’s the Chinese Year of the Monkey – a ‘clever’ animal if you believe the hype  – starting Feb. 8; it’s the 16th year of the 3rd millennium, the 2016th Year of the Common Era, a transit of Mercury will occur (in May); and in March the ESA (Europe) and Roscosmos (Russia) plan to launch the joint ExoMars Trace Gas Orbiter on a mission to Mars, presumably looking for Matt Damon.

Perhaps most significantly, the year 2016 marks the 20th full year in business for Quorum Public Affairs, Inc.

We Know Texas from top to bottom, having spent 30 years in and around the Texas public sector including work for 2 Texas Governors.  When we started, we were ‘first in’ the new world of engaging grassroots citizens and opinion leaders to influence state and federal policy in the state.

Today, Quorum continues to operate at the intersection of business, communications, and government in Texas; we build strategic relationships with public officials, influencers, business leaders and voter groups for companies doing business in Texas.  And 30 years gets you great relationships; our network is second to none.  It’s also true that for the last 20 years we’ve advocated, built coalitions and solved policy and regulatory challenges for companies and issue coalitions large and small, including venerable brands like:

Allstate

AT&T

Advantage Capital Partners

Boeing

Conoco Phillips

Dell

Exxon-Mobil

Fed-Ex

Ford

Grant Thornton

LIN Media

McLane Co.

Nationwide

Pfizer

Shell

State Farm

Smith’s Group

Top Golf

USAA

Wal-Mart

We stay closely connected to the business, economic development, and venture capital sectors via the Texas First Alliance that we manage and Governor Abbott’s Texas One Foundation.

We’re helping companies re-locate or expand in Texas market with financial incentives and facilitating business alliances to aid their growth. In fact, two California-based companies for which we’ve helped develop relationships are on the way in 2016. Oracle, Apple, Chevron, Google, GM Financial, and others made significant investments in major Texas markets. Texas is investing in the companies, too, through the state’s Texas Enterprise Fund and other incentives.  Companies like LIN Media and Top Golf re-located their corporate headquarters to Austin and Dallas respectively.

In 2016, our 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.

Speaking of numbers, if you’re a numerologist you know that nine is a finishing number, and may represent the beginning or the end of a cycle.   It also is the number of the humanitarian which we’re adding to the ‘to do’ list.

Our plan is begin another 20 years of doing what we do best: helping companies navigate political, legislative, and regulatory challenges, build alliances and carry the right message to the right audience.

Here’s a great old tune to remember us by: https://www.youtube.com/watch?v=4aR2QFwpsnI

Don’t hesitate to reach out anytime if we can be a resource.

All best wishes in the new year and I look forward to staying in touch.

Craig

Craig Casselberry

(512) 762-7366