Texas is the case study on the enduring power – and folly – of stereotype.
Ask someone to describe Texas, and their words invariably will paint a rustic portrait of cowboys on horseback, tumbleweeds and oil derricks. But visit Texas today, and just about the only place you’ll find that picture is on the wall of a history museum.
From its roots in agriculture and oil, over the past thirty years the Texas economy has transformed into one of the most diverse and powerful in America.
Agriculture and oil, staples of centuries past, no longer monopolize the economic landscape. In fact, today the oil and gas industry employs a mere 2.7 percent of Texas workers. Severance taxes fund less than 6 percent of the state’s budget, down from 18 percent in the early 1980s.
Since the turn of the millennium Texas has absolutely dominated competing states, scoring huge job expansions and racking up awards and accolades too numerous to count. Search any list of the best business destinations compiled over the last decade and you’re bound to find Texas at or near the top.
But nothing illustrates the breadth of Texas’ success in the new millennium more clearly than its share of new jobs.
Since 2000, Texas has created nearly one-third of all new private sector jobs in America – a breathtaking feat for a state with roughly eight percent of the country’s population. In 2014 alone, the state added more than 450,000 new jobs thanks to strong gains in trade and professional services.
It’s no surprise, then, to see more Americans moving to Texas than any other state, along with companies like Charles Schwab, Active Network, and SpaceX, all of which have announced major expansions in the Lone Star State in recent months.
The factors driving Texas’ stunning growth over the past decade are rooted in the state’s historical identity as a frontier state. Texans came to value independence and self-reliance because in the past, that was the only way to survive harsh frontier life.
Today, those same values manifest themselves in the state’s approach to the economy. Taxes are low, regulations are predictable and courts are fair so that employers have the freedom to grow and thrive on their own merit.
Sowing the Seeds of Diversity
A variety of factors set the stage for Texas’ ascendancy near the end of the last century.
In the late 1980’s, political and business leaders made a concerted effort to modernize and diversify the economy to better weather the oil industry’s boom and bust cycles. They reformed the state’s tax structure, launched new economic development programs and created a Rainy Day Fund funded by the severance tax in case of future emergencies.
Today, the state’s Rainy Day Fund is flush with $8.5 billion. And with no corporate income tax and no individual income tax, Texas has one of the lowest tax burdens in the country, ranking in the top 10 on the Tax Foundation's 2015 State Business Tax Index.
Texas also began to position itself as a top exporter, leveraging its central location in the country, large ports and access to Mexico. As a result, for each of the past 13 years, Texas has led the nation in exports. Last year the state surpassed California, home of Silicon Valley, to become the country’s top exporter of technology.
When lawsuit abuse began to threaten the state’s early progress, political leaders cracked down with caps on awards, new limits on venue shopping and a loser-pay law that discourages junk lawsuits. Texas now boasts some of the fairest courts in the country.
Game-Changing Incentives
When it comes to incentives, few states have been as innovative or as aggressive as Texas.
In 2004, the state created the Texas Enterprise Fund, a deal closing fund that was the first of its kind and still the largest in the nation. When a single Texas site is competing against viable out-of-state options, the Enterprise Fund provides a financial incentive to close deals that offer significant job creation and capital investment.
In recent years, the state has used the fund to attract major investments and further diversify its economy.
The fund assisted California-based investment services giant Charles Schwab Corporation’s announcement of a new operations center in El Paso and the strengthening of its presence in Austin. Both projects have committed to creating over 1,200 jobs and over $230 million in capital investment in Texas. Dallas is home to the new headquarters of software leader Active Network, LLC and the 1,000 employees it will create. And SpaceX is building a new launch site in Brownsville, committed to creating 300 new jobs, with help from the Enterprise Fund.
To date, the program has awarded $575 million in grants to win projects that announced 77,000 direct new jobs, 120,000 retained jobs and $24 billion in capital investment. For Texas taxpayers, the capital expenditures alone yield an amazing return on investment of more than 40:1.
Additionally, manufacturers can qualify for significant tax exemptions, and state leaders have also reinstated the R&D Tax Credit for qualified research activities.
Local governments offer a significant package of incentives as well, including long-term property tax breaks in exchange for jobs and capital investment.
When it comes to incentives, like everything else it does, Texas plays to win.
Prospects for Growth
After thoroughly dominating the competition for jobs throughout the new millennium, the natural question is, how long can Texas keep it up?
The state doesn’t seem likely to loosen its grip anytime soon, according to Forbes, which ranks Texas first for both its current economic climate and future growth prospects.
It’s hard to argue with that logic, considering that so many of the advantages Texas has cultivated will persist long into the future.
The state’s culture will always insist on a low tax burden and limited government. The possibility of imposing a personal income tax is actually banned in the state constitution. Texas’ workforce is large, growing and skilled. Its central location, excellent ports and strong infrastructure will keep it a top exporting state for the foreseeable future.
The environment Texas has created means that new businesses are more likely to succeed, and established companies are more likely to thrive. Texas is a place where entrepreneurs can still put a dream to work.
If Texas’ cultural image is that of an Old West, frontier state, it’s economy is anything but.
