In economic development, momentum continues to swing Texas’ way.
On Jan. 1, the Dallas-Fort Worth suburb of Westlake officially became the headquarters of financial services company Charles Schwab, formerly based in San Francisco. A month earlier, software company Oracle announced it had shifted its headquarters from the San Francisco Bay Area to Austin. Also in January, Hewlett Packard Enterprise revealed it would relocate its headquarters from Silicon Valley to the Houston suburb of Spring. Meanwhile, Amazon continues to add thousands of job across the state as the e-commerce company expands its Texas distribution network, including new facilities in El Paso, Lubbock and Waco.
“Without a doubt, I think there is a lot to be said for momentum, a lot to be said for positive stories about Texas in the national and international media, whether that’s about the state or some aspect of the state or a major economic development,” said Larry Gigerich, executive managing director of site selection consulting firm Ginovus.
Charles Schwab, Oracle, Hewlett Packard Enterprise and Amazon are just four high-profile examples of the robust corporate relocation and expansion activity that continues to occur in Texas among big and small businesses. And it’s not just the state’s major metro areas that are reaping rewards. Economic development efforts also are in high gear in places like Amarillo, Abilene, Odessa and Sherman. Amarillo, for instance, is experiencing a 30-year high in economic development activity.
“We’ve been active in Texas for a long time, but we’ve never been asked to look as often at Texas as we are, and we attribute it to companies in a cost-cutting mode looking for efficiencies,” said John Boyd, principal of site selection consulting firm The Boyd Co. “I think there are more economic development trophies that are out there, and I think Texas will get more than its fair share of corporate investment as we emerge from the COVID pandemic.”
Two recent milestones exemplify the star status of the Lone Star State. Texas just notched its 19th consecutive year as the country’s top state for exports ($279 billion in 2020), accounting for more than 19 percent of the country’s exports, and it moved up to No. 9 for global GDP if Texas were a country ($1.9 trillion).
Texas’ center-stage status in economic development comes courtesy of factors such as the lack of state corporate and personal income taxes, a deep talent pool buoyed by numerous top-tier colleges and universities (including four of the country’s largest community college systems), and a low cost of doing business compared with states like California, Connecticut, New Jersey and New York.
“Other states like California and New York use heavy-handed government tactics that drive away businesses,” Texas Gov. Greg Abbott said in his 2021 State of the State Address, noting that Texas is “brimming with promise.”
On the talent front, Robert Allen, President and CEO of the nonprofit Texas Economic Development Corp., said, “Texas benefits from the second-largest civilian workforce in the United States, numbering more than 14 million. And as one of the fastest-growing states – with the recent Census expected to show the Texas population rose 16.4 percent from 2010 to 2020 – Texas will boast a healthy talent pipeline for years to come. Therefore, employers in Texas can be assured that talent will be available to fill jobs now and well in the future.”
Gigerich said talent ranks as the No. 1 issue for about 90 percent of his company’s site selection projects.
“There’s a very good talent base in Texas,” Gigerich said. “It’s continuing to grow, and it’s becoming more and more diverse.”
As for the low cost of doing business, Texas compares very favorably with other states that vie for economic development projects. For instance, asking rents for Class A office space in Dallas-Fort Worth averaged $31.63 per square foot at the end of 2020. In San Francisco, the average asking rent for Class A office space hovered around $75 per square foot at the close of last year. In terms of energy, businesses in Texas paid an average of 7.93 cents per kilowatt-hour in 2020 versus 17.64 in California, 16.45 in Connecticut, 11.79 in New Jersey and 14.76 in New York. And when looking at taxes, Texas ranks 11th on the Tax Foundation’s 2021 State Business Tax Climate Index, compared with 47th for Connecticut, 48th for New York, 49th for California and 50th for New Jersey. Furthermore, Texas ranks above most other states regarding economic development incentives, many of which can ease tax burdens. Abbott has promised to keep tapping into the Texas Enterprise Fund to incentivize businesses to move to the state.
When it comes to living in Texas, Allen mentions the state’s good schools, wealth of recreational and entertainment opportunities, and relatively affordable housing. In 2021, Texas ranks 20th among the 25 states with the least expensive homes; states like California, Connecticut, New Jersey and New York failed to make the list. On top of that, Texas isn’t considering a wealth tax to raise revenue, unlike states such as California, New York and Washington.
One of the benefits of doing business in Texas is the relatively balanced regulatory environment, “meaning it’s not too far one way or the other…” Gigerich said.
Additionally, Gigerich hails the state’s “can-do attitude,” referring to the ability to get things done quickly versus most other places, along with Texans’ pride in their state. In this category, Allen gives a nod to the army of high-caliber economic development professionals throughout Texas.
“You sometimes have to first convince the people who live there to believe in their area before you can get outsiders to believe in that area. Well, Texas doesn’t have that problem,” Gigerich said.
Boyd said economic development boils down to “the steak and the sizzle,” both of which he says Texas enjoys. “The steak,” he said, “includes the low cost of doing business, the attractive tax structure and the right-to-work law. He also cites the diversified Texas economy, such as a major presence in the tech, energy, finance, health care, defense, manufacturing and logistics sectors.”
“Meanwhile, the sizzle centers on pro-business elected officials, including the governor and an array of mayors, as well as the slew of high-profile people who live in the Lone Star State, with billionaire Elon Musk counted among the most recent arrivals,” Boyd said.
“You have elected officials leaders in the state that are proactive, that really emphasize economic development. You think that would be what every governor would do around the country, but that’s certainly not the case,” Boyd said.
Musk’s cheerleading on behalf of Texas’ business environment “reverberates,” Allen said, “and it makes its way around the globe very quickly. What it does, in my opinion, is solidify for other CEOs or other entrepreneurs that Texas really is the future for economic development.”
“No matter who’s touting it,” Allen said, “the state’s pro-business mindset can’t be downplayed, with Abbott frequently touting that when business succeeds, Texas succeeds. Abbott offered a ‘very pro-business focus’ in dealing with the fallout from the coronavirus pandemic.”
“We’ve already seen what Texas can achieve when we create an environment that promotes freedom and empowers the people to succeed. . . . The Texas model inspires entrepreneurs and innovators and attracts job creators from across the country,” Abbott said in his 2021 State of the State Address.
Among the sometimes overlooked job creators in Texas is auto manufacturing. At peak production, the GM plant in Arlington employs about 5,000 people. In nearby Plano, the headquarters of Toyota North America employs close to 5,000 people. Farther south, in San Antonio, Toyota’s pickup truck plant employs more than 2,200 people. And the under-construction Tesla factory just outside Austin is on track to generate an estimated 15,000 direct and indirect jobs.
Allen said Texas’ growing automotive sector will be able to capitalize on what he calls the “snowball effect.”
“As that snowball goes, it gets bigger and bigger, and the forces that come with that are extremely powerful. It really forces other people to take a look at you,” Allen said.
Allen believes the snowball of economic development will keep rolling from the West Coast and the Northeast into Texas, with the pandemic in some cases accelerating timetables for business relocation and expansion decisions.
“I can’t tell you how many clients over the last five years . . . from companies based in California in New York are hyper-focused on Texas and the opportunity to really tap into the great talent and the great business climate. I think there’s a lot more positive developments on the way in Texas, for sure,” Gigerich said.
Allen figures the number of announcements about economic development projects in Texas will ramp up as more people get vaccinated against COVID-19 and the pandemic wanes. “Although the state may lag its pre-pandemic levels of economic activity, Texas still handily outpaces competing states,” he said.
One example of Texas’ pandemic resilience: Commercial real estate development and operations contributed $65.6 billion to the state’s economy in 2020, up from $54 billion in 2019, and supported more than 428,000 jobs. Those numbers put Texas at No. 1 among the states. Another testament to Texas’ strength: It added more residents (373,965) from mid-2019 to mid-2020 than any other state.
“Texas is the shining example that the pandemic has not hit every place the same,” Jay Denton, chief innovation officer at ThinkWhy, a Dallas-based software services company whose products compare top talent and salaries in the United States, told the Dallas Morning News.
ThinkWhy’s latest index places Dallas-Fort Worth, Houston and Austin among the top 15 metro labor markets in the United States. No other state had that many metros in the top 15. “The underlying health of the economy [in Texas] is much, much stronger than we’re seeing in most other locations across the country,” Denton said.
Christopher Slijk, an associate economist at the Federal Reserve Bank of Dallas, told the Dallas Morning News that in the midterm to long term, the “relative attractiveness” of Texas has increased since the pandemic. “Momentum is a pretty powerful thing,” he said.
Last year, FitSmallBusiness.com ranked Texas third among the best states for businesses to survive the pandemic, as the state rests on a “solid economic foundation.” Although Texas has sustained economic hits during the pandemic, “it seems that it has enough resources to weather the storm,” according to FitSmallBusiness.com.
Among those resources continues to be the state’s energy production sector. Last July, the U.S. Department of Energy declared that Texas would help power the post-pandemic economic comeback. Texas ranks as the country’s No. 1 state for energy production (including oil and wind), with the energy sector valued at $172 billion and employing more than 292,000 people.
Before the pandemic, Texas was siphoning capital and jobs from the Northeast, Midwest and California, Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas from 2005 to 2015, wrote in an article for CNBC.com. He now serves on the governor’s strike force for reopening the Texas economy. Fisher believes that if Texas “smartly and safely” emerges from the pandemic, the shift of capital and jobs to the Lone Star State will continue, further burnishing the state’s reputation as “a crucible of economic prosperity.”
“People famously say that everything’s bigger in Texas, because it is, and the opportunities are bigger in Texas. I think you’ll see Texas continue on its pathway of success for years to come,” Allen said. “We’re not one and done. This is not a flash in the pan.”