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Texas Today 2015: Diversified Texas Economy Still in Growth Mode

Texas’s industrial growth hasn’t been confined to one industry - or one region - and the state is continuing to build on its successes.

Q2 2015
For many Texans, the recent slump in oil prices probably evoked a feeling of déjà vu, and memories of a similar “oil bust” that happened in the 1980s. But that downturn also had a positive, long-term impact, since it served as a catalyst for state leaders to make a conscious effort to diversify the Texas economy. As a result, the state is now better positioned to deal with slumps in a particular sector, even one as large as the oil and gas business.

That’s according to the Federal Reserve Bank of Dallas, which recently reported that while job growth has slowed in recent months, the state’s employment would still grow this year. Sectors contributing to that economic diversity include advanced technology and manufacturing; aerospace, aviation, and defense; biotechnology/life sciences; and information and computer technology. Today, oil and mineral-related revenue makes up only 10 percent of the state’s total tax collections, compared to 20 percent in the 1980s, according to Fed data.

While Texas only has 8 percent of the country’s population, the state has created nearly one third of all new private-sector jobs in America since 2000. “That would have been impossible without a diverse economy,” says Tracye McDaniel, the new president of the Texas Economic Development Corporation. Another data-point reflecting Texas’ broad-based economy is the fact that 118 of the largest U.S. corporations are headquartered there.

McDaniel points out that Texas’ recent growth hasn’t been confined to one region or industry. According to Forbes magazine, this year the state has five of the 10 fastest-growing cities in America, “and each city is on the list for a completely different reason,” McDaniel says. “Houston’s growth has been driven by energy and exports, whereas in Austin, it’s technology and culture. San Antonio has a thriving financial sector, and in Dallas-Fort Worth, it’s all of the above.”

Case in point, investment company Charles Schwab is developing a $200 million campus in North Austin, and plans to double its workforce in the city from 1,000 to 2,000 employees. CEO Walt Bettinger explained that Austin’s “highly educated talent pool” was the primary factor in the location decision, along with incentives including $4.5 million from the Texas Enterprise Fund.

Industry Clusters
In recent years, state leaders have focused intensely on cultivating industry clusters. For example, the high-tech cluster in Austin has blossomed in the past few years. The Texas Enterprise Fund provided economic incentives to land Facebook’s first major expansion outside California, as well as 3,600 new jobs from Apple. And, Google announced it’s leasing 200,000 square feet to establish a major presence in Austin, in the Green Water Treatment Plant redevelopment, which is due for completion in early 2017.

One of the state’s latest success stories is the city of San Antonio, which recorded job growth of more than 3 percent in 2014, according to Mario Hernandez, president of the San Antonio Economic Development Foundation. In recent years, the Alamo city has quietly developed into a cybersecurity hub, with more than 80 companies in that category. The National Security Agency and U.S. Air Force have major cybersecurity operations in the area.

One reason San Antonio has become a popular location for the broader IT sector is that the city has the largest municipal-owned electric and gas utility in the country, CPS Energy. “Exceptional rates and reliability” are two benefits that confers, according to Hernandez. In fact, both Microsoft and Oracle have recently opened major facilities in the city as well.
Promoting Business

The state of Texas offers a number of incentives to promote business expansion and location:

  • Texas Enterprise Fund: Sometimes referred to by state officials as “the deal closer,” the fund is a cash grant for projects that offer significant projected job creation and capital investment, and wherein a single Texas site is competing with another, viable out-of-state option.
  • Texas Capital Access Program: The program provides financing for businesses and nonprofits that face barriers in accessing capital, or fall outside of conventional lending guidelines. Loans may be used for working capital or the purchase, construction, or lease of capital assets. To be eligible, companies must have fewer than 500 employees and be based in Texas, or have at least 51 percent of their employees in the state.
  • Texas Emerging Technology Fund: The fund provides research and commercialization grants to eligible, early-stage companies.
  • Grants: Texas also provides several types of grants to communities and businesses to fund projects, from public infrastructure projects in non-entitlement communities to cancer research and laboratory facility construction.
  • The Skills Development Fund: The fund provides training grants to businesses to partner with a community or technical college to fill specific needs.
  • Tax Refunds and Exemptions: The Texas Enterprise Zone Program provides state tax refunds in exchange for meeting certain capital investment and job-creation targets. State Sales and Use Tax exemptions are provided to taxpayers who manufacture, fabricate, or process tangible property for sale. The Texas Economic Development Act provides a 10-year limitation on the taxable value of property, extended to a taxpayer who agrees to build or install property and create jobs.

Bexar County’s large and growing workforce of young adults has also made San Antonio a prime location for call centers and distribution centers, both of which are labor-intensive types of facilities. San Antonio’s developed infrastructure of major highways, railways, and airports has made it a key distribution center for central and south Texas.

For example, Dollar General is building a massive, one-million-square-foot distribution facility. When Dollar General announced its choice of San Antonio, Chairman and CEO Rick Dreiling said the company has “found Texas a great place to do business,” citing its nearly 1,200 stores and 9,400 employees in the state. And a Dallas-based developer has built a 512,000-square-foot distribution warehouse on the city’s south side for heating- and cooling-systems manufacturer Carrier Corp.

South San Antonio has become a growth epicenter, with the addition of a 2,000-acre Toyota manufacturing complex that employs 4,000 people. The nearby Southport Business Center has 172 acres of industrial land for sale, along with retail and office space. It’s in a targeted reinvestment area, offering incoming businesses significant government incentives, Hernandez notes.

The steady growth in San Antonio has also benefited a number of surrounding communities. One example is Converse, a San Antonio suburb of about 21,000 residents, which has nearly doubled its population since 2000. Converse has been adding about 200 homes per year at a steady rate, according to Kate Silva, executive director of the Converse Economic Development Corp.

Fittingly, Converse’s major employers include several construction-related companies including the Featherlite Division of Fort Worth-based Acme Brick, Ingram Readymix, and MeadowBurke, which make concrete products. To handle the growth and attract more businesses to Converse, one current priority is improving the transportation infrastructure on the north side of town.

The San Antonio suburb of Seguin is looking forward to the 2018 opening of a $58.5 million manufacturing plant and research center by Grupo Siro, a major food company based in Spain. The state is investing $800,000 from the Texas Enterprise Fund for the plant, which will create more than 200 jobs and represents the company’s first investment in North America.

Energy Sector Expansions
Even with the recent downturn in oil prices, there is still expansion taking place in that sector across Texas. Chevron Corp. which employs about 9,000 people in the Houston area, bought more than 100 acres near the Grand Parkway, and will decide later this year whether to go ahead with a 50-story downtown office tower. The Texas Enterprise Fund has awarded Chevron a $12 million grant for the project.

Irving-based petroleum giant Exxon is developing a 385-acre campus on I-45 in north Houston, scheduled for completion this summer. It will accommodate about 10,000 employees, and has been driving other, new development in the area.

The Houston suburb of Tomball made news last year with the opening of oil services giant Baker Hughes’ new, Western Hemisphere Education Center. Baker Hughes only has two such facilities, and the other one is in Dubai. “So that puts us on a global platform,” says Kelly Violette, executive director of the Tomball Economic Development Corp. The facility hosts 600 trainees per month, so it has had a major, beneficial impact on the Tomball area’s economy. The Tomball EDC arranged a $913,000 grant to develop infrastructure for the new Baker Hughes facility, which is indicative of the city’s “aggressive” approach to developing incentives packages for companies that will add to the area’s employment base, Violette says.

Violette notes that the Tomball area has enjoyed “a tremendous amount” of residential growth just outside the city limits, due to the recent expansions by Exxon Mobil, Southwest Energy, and Noble Energy. Plus, Breau Machine Works completed a major expansion of its manufacturing facility, and Houston-based Grimes industrial has relocated a portion of its manufacturing operation to Tomball.

Meanwhile, two Japanese companies have announced plans to invest about $1.2 billion in Houston-based Freeport LNG’s expansion of its natural gas liquefaction and LNG loading facility on Quintana Island near Freeport, Texas. The $14 billion project will include development of three liquefaction plants. The Freeport facilities will join a long list of logistical and shipping hubs in Texas, which have helped make the state the country’s top exporter for the past 13 years. Texas exports for 2014 totaled almost $289.02 billion, up from over $279.5 billion in 2013.

Tech-Driven Growth
Not all of the recent economic development news has been coming from Texas’ largest population centers. For example, the western plains city of Lubbock has been sowing the seeds for future, tech-driven growth. With four universities, including Texas Tech and the Texas Tech Health Sciences Center, Lubbock has long focused on research and development and commercialization of new technology. “What we’re seeing is the development of an entrepreneurship cluster, “ according to John Osborne, president and CEO of the Lubbock Economic Development Alliance.

The Alliance has two business parks; one is the Reese Technology Center, a 2,500-acre facility on the site of a former U.S. Air Force base. With tenants including Denmark-based Vestas Wind Systems, Zachry Engineering Corp., Wyle Aerospace Group, the National Institute for Renewable Energy, and the National Wind Institute of Texas Tech University, it’s a major research hub. Corporate ag leaders Bayer CropScience and Monsanto have also established significant research facilities in Lubbock.

Slated for a June 1 opening, Lubbock’s second business park, the $29 million Texas Tech University Research and Technology Park recently announced its first tenant: Chicago-based Chromatin, Inc., which has invented and commercialized more than 100 agricultural products, and sells sorghum seed to more than 20 countries worldwide. The park will provide a hub for advanced research in plant sciences, which the company expects will lead to new applications in medicine and other areas of bioscience.

Lubbock offers traditional job creation incentives at the local level, but also “non-traditional” incentives, including opportunities to partner with the area’s universities and the technologies they develop, Osborne points out.

In southern Texas, the state’s aerospace industry is getting a boost in the form of more than $15 million in state incentives to help the private company SpaceX build a commercial satellite launch facility near the Gulf Coast city of Brownsville. The planned STARGATE facility will also include research labs, with the help of a $4.4 million Emerging Technology Fund grant to the University of Texas at Brownsville; UT is providing a matching grant. The facility will test and commercialize a new, phased-array antenna system that will replace fixed satellite-dish tracking communication systems.

More Work to Do
Of course, rapid growth brings certain challenges. While Texas’ economy remains strong, state leaders know there is more work to do to ensure an environment in which any business can thrive and grow, Tracye McDaniel says. “Under Governor Abbott’s leadership, we are working to simplify our regulatory environment, speed up our permitting process, and build the transportation infrastructure to support a growing population and diversified economy.”

Like many states, Texas faces the challenge of providing enough skilled workers to meet the requirements of increasingly high-tech industries. Today’s technology-driven economies demand well-trained workforces, and providing those educational resources represents one of the crucial challenges for the continued growth of the Lone Star state. One of the state’s primary initiatives in this area is the Skills Development Fund program, which assists businesses and trade unions by financing the design and implementation of customized job-training projects.
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