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Location Notebook: Texas Builds on Its Strengths and Confronts Its Challenges

Population growth, a favorable tax climate, and a business-friendly environment are among the factors fueling economic gains and drawing corporate investment to Texas.

Q2 2019
The Port of Houston is the nation’s largest port for foreign waterborne tonnage and an essential economic engine for the state and nation.
The Port of Houston is the nation’s largest port for foreign waterborne tonnage and an essential economic engine for the state and nation.
The size and steady growth of the Texas economy makes it enviable to many of its state peers. If it were a country, Texas would have the 10th-largest economy in the world, ahead of Spain, Russia, and Mexico, among others. The state has been the largest exporter in the U.S. for 17 consecutive years, and it shipped $315 billion worth of goods in 2018. Unsurprisingly, each year Texas finishes near or at the top of various rankings of the best states for business in the country.

Robert Allen, president and CEO of the Texas Economic Development Corporation, says Texas routinely posts GDP growth of between 3 percent and 5 percent each quarter and “for an economy of our size, those are stunningly large numbers.” Keys to the state’s success, he notes, include rapid population growth, a favorable tax climate, and a business-friendly environment throughout the state.

“I think one thing that’s been consistent about Texas for the past several years has been this idea that we are going to foster an environment where businesses of all sizes — small, medium, and large — are able to grow and be successful,” Allen says.

Christian Fletcher, executive director of the Marble Falls Economic Development Corporation, says the size and diversity of Texas helps create a climate where “there is something for everyone.” He explains that Texas’ growth has come sustainably: “I think that state and local leaders understand and appreciate the value of healthy, sustainable growth over a grow-at-all-costs attitude.”

Talent Boom
Allen says high-quality talent is the chief driving force for where companies decide to invest in today’s economy, and he hears from executives who choose to invest in Texas that the state’s supply of skilled workers is a key reason for the decision. In fact, 48 Fortune 500 businesses have headquarters in Texas.

Texas has benefited from a snowball effect over the years as businesses follow other businesses that have chosen to open key facilities in the state. In all, Texas has 13 million workers, the second-largest civilian workforce in the U.S.

“The No. 1, 2, and 3 issues that executives are looking for these days are talent, talent, and talent,” Allen notes. “With the economy growing at the pace that it’s been growing, jobs are being added fast. I think Texas has been demonstrating to companies that we have the talent to fill those highly technical jobs.”

In a 2018 interview with the Houston Chronicle, Robert Kaplan, president of the Federal Reserve Bank of Dallas, said Texas’ population growth stands out alongside sluggish growth elsewhere in the country. He noted that the state’s population has grown from 22.5 million a decade ago to more than 28 million in 2018 and is projected to exceed 40 million over the next quarter century, outpacing the rest of the country. Kaplan says population is a major driver of economic growth, providing not only workers but customers for goods and services. “At a time when the rest of the country is challenged by aging populations, slowing workforce growth, and a loss of working-age population.…Texas is bucking a lot of those trends,” Kaplan told the paper.

Much of Texas’ high-performing employee base is drawn from Texas’ top-tier universities, including Texas A&M University, recognized among the best for business, engineering, and more.
Much of Texas’ high-performing employee base is drawn from Texas’ top-tier universities, including Texas A&M University, recognized among the best for business, engineering, and more.
Thriving industries
The diversification of the Texas economy continues to be a strength for the state, helping it to weather cyclical downturns in the global economy. Energy justifiably remains the industry most identified with Texas — the state is the country’s largest energy producer — but Allen noted that the state managed to absorb the blow of the 2008 recession because of its variety of robust industries, particularly technology, aerospace, and health care.

The technology boom in the state has been especially beneficial to Texas’ economic climate. Companies such as Apple, Oracle, Google, and Hulu have made large investments in headquarters or other large facilities. Key aerospace companies include Lockheed Martin and Boeing, which recently located the headquarters for its new business unit, Boeing Global Services, to Plano, Texas. McKesson, which moved its headquarters from California to Irving, Texas, is among the large healthcare companies with major presences in the state; and the Texas Medical Center in Houston is the largest medical complex in the world and the eighth-largest business complex in the country with more than 100,000 employees and more than $3 billion in construction projects under way.

A Local Example
Throughout Texas, regions enjoy their own distinctive strengths, and growth spreads beyond the state’s largest cities, such as Dallas, Houston, and San Antonio. In Marble Falls, for instance, Fletcher says, “Our bread and butter for decades has been tourism and hospitality,” but the community does not place its sole emphasis there.

Diversification of the Texas economy continues to be a strength for the state, helping it to weather cyclical downturns in the global economy. “We’re the hub of the Highland Lakes region of the Texas Hill Country, so we’re surrounded by beautiful scenery, golf courses, wineries and breweries, summer camps and more,” Fletcher says. “Lately, however, our community has become more livable because of expansions in the healthcare sector, new housing developments, and a couple of manufacturing projects in our business and technology park.”

Fletcher says Marble Falls is able to be its own, distinctive place while benefiting from the growth some of the state’s major metro areas are seeing: “We are an hour from Austin and 75 minutes from San Antonio, so we’re close to the action without being in the middle of it. We have a surprisingly large trade and labor shed area for a small town, so it’s like having the best of both worlds.”

The state’s economic growth brings inevitable growing pains. In Marble Falls, for example, Fletcher notes the area’s stiffest ongoing challenges are tied to growth, particularly traffic and affordability.

Statewide Challenges
Although Allen sees talent as a strength in Texas, he also views it as the state’s largest challenge. “There’s record-low unemployment right now across the country, and the same is true in Texas, which is great — that’s obviously something that everybody strives for,” Allen says. “But what it means is that there’s this increased competition for talent, so that’s a huge challenge.”

The state’s large research universities are helping with a steady supply of graduates, and Texas’ community college system has a history of producing graduates with technical skills suitable for such fields as energy and manufacturing. The pressure is to continue to adapt to workforce needs and prepare students for evolving career paths.

I think one thing that’s been consistent about Texas for the past several years has been this idea that we are going to foster an environment where businesses of all sizes — small, medium, and large — are able to grow and be successful. Robert Allen, President and CEO, Texas Economic Development Corporation “If we can’t address the talent needs and make sure that we’re educating the workforce of tomorrow today, then we will not be able to meet that demand that executives expect of us,” Allen explains.

Allen also says transportation is another ongoing challenge for the state. Texas’ size provides advantages, but also makes developing and maintaining an efficient, effective transportation network a difficult task. Nevertheless, the state is aggressively and ambitiously tackling the issue, including at its international airports, vast systems of public roads, and rail network, including a proposed high-speed rail project between Houston and Dallas.

A host of ongoing federal and international policy issues, such as trade policy and immigration, could potentially affect Texas. The immigration topic looms especially large in the state. In his 2018 interview with the Houston Chronicle, Kaplan said immigration plays a large part in GDP growth in the state. “If you think you’re going to cut immigration growth by half, you have to recognize that’s inconsistent with growing GDP,” Kaplan told the paper. “That may be a trade-off decision policymakers want to make. But that’s going to make it harder because you have to grow the workforce to grow GDP.”

Allen says executives and economic development officials are watching the immigration debate closely, knowing its potential impact on the state’s economy, but he says the most important thing they want is consistency in how immigration and other federal matters are handled.

“I think part of what has led to our success is executives knowing that if they make a billion-dollar decision on Texas, then the goalposts won’t be moved on them in the middle of the game if they’re willing to commit their funds,” Allen says. “So I wish I had a crystal ball and could tell where this immigration issue would come out, but I can’t for the time being, and what we can do is focus on what we can impact and influence and to work with businesses to address any particular concerns they have.”

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