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Texas Enjoys a Competitive Edge in Today's Global Economy

Apr/May 08
This past March, the state of Texas announced an estimated 370,000 businesses will receive a tax cut of $90 million in the form of a one-year suspension of the unemployment insurance replenishment tax. Credit the state's low unemployment and strong economy for the generous gesture, says Governor Rick Perry, as both were responsible for the government collecting more money for the unemployment trust fund than what Texas needed.

What's going on in the Lone Star State? A new "Wild West" story is now being written throughout the state, with the ink drying on thousands of new business plans generated for myriad industries. And people are paying attention. Recently, the nation's leading executives touted Texas as the best state in which to do business for the third year in a row (Chief Executive magazine, January 2008). They cited its quality of life, infrastructure, low regulatory burden, and ability to control taxes and spending.

According to the Texas Workforce Commission, last year Texas created more jobs than any other state in the nation. That feat goes hand in hand with government bragging rights for some of the most economically significant relocation and expansion projects for 2007, including Rackspace Managed Hosting (5,000 jobs), Fidelity (1,535 jobs), Maxim Integrated Products (1,000 jobs), Fluor Corporation (1,000 jobs), and Dimensional Fund Advisors (800 jobs). Moreover, the state maintains it has snagged five projects with significant promised investment totals: Motiva Enterprises ($7 billion), NRG Energy, Inc. ($5.4 billion), Eastman Chemical ($1.6 billion), Microsoft ($985 million), and Citigroup ($450 million).

Competitive Economic Development Tools
Four of the largest expansion and investment projects in 2007 were awarded Texas Enterprise Fund (TEF) monies. Said to be one of the most competitive tools Texas has, TEF is used to recruit new businesses and also assist them with expansions within the state. Since TEF's creation in 2003, it has helped close the deal on projects generating more than 51,500 new jobs and $15.5 billion in capital investment.

Another successful economic development program is the Texas Emerging Technology Fund (ETF). This $200 million initiative, created by the Texas legislature in 2005, helps commercialize university research by taking it from the labs to the marketplace. To date, ETF has allocated in excess of $100 million to Texas companies and universities.

"While other states' economies have contracted, Texas' economy continues to strengthen and expand," said Governor Perry at the 2008 Texas Association of Business annual conference. "Our educated work force, reasonable regulatory environment, and economic development tools - such as the Texas Enterprise Fund - give Texas the competitive edge to compete in a global economy."

Exporting is Job One
If Texas were a nation - and some people truly think it still is - economists say it would be on the list of the world's top-20 exporting countries. That's the prize for exporting more goods than any other state. This enviable position has been held by Texas six straight years (source: 2008 WISERTrade data). Specifically, in 2007, state exports rose to about $168 billion, an increase of 11.45 percent from the previous year.

Even when U.S. markets dim for certain items, Texas seems to be able to still find global customers through its excellent distribution network, seaports, inland ports, and long-established, worldwide connections. Currently the most popular international exports are chemicals, machinery, and agricultural products, as well as computers, electronics, and transportation equipment. It's estimated that about 20 percent of Texas' manufacturing jobs are tied to exports, as compared to 17 percent for all U.S. manufacturing jobs.

Texas' top export recipient is Mexico - over one-third of the state's annual exports worth $56 billion go there - followed by Canada. These NAFTA partners accounted for about 43 percent of the state's 2007 exports. However, Texas' export growth to its south-of-the-border neighbor slowed in 2007, as the peso's value didn't appreciate much against the dollar last year, according to an early 2008 report prepared by economists at the Federal Reserve Bank of Dallas. The state also saw fewer benefits from Mexico's maquiladora plants because demand for their products softened along with the slowing U.S. economy.

Another report by the Fed reveals that, in 2006, Mexico made up only 4 percent of the state's export growth; Canada, just 1 percent. What's happening here? In one word: globalization. Besides spurring diversification of the state's exports, it's much easier for nations to conduct international trade these days thanks to vast improvements in communication, transport systems, and various technologies.

"Over the past year, U.S. and Texas exports have been stimulated by declines in the dollar's value that have made these products less expensive in many countries," continues the Fed report. "Not surprisingly, the rise in Texas exports has been greatest where currencies have appreciated the most against the dollar. Shipments experienced double-digit growth to France, Germany, Brazil, India, Japan, Singapore, and Taiwan." In fact, Asia (excluding China) received 20 percent of the Lone Star State's exports in 2006.

Texas' ports significantly impact state and national economies and are vital trade centers. The ports of Houston, Freeport, Beaumont, Corpus Christi, and Texas City are among the top 25 U.S. ports with regard to tonnage handled, according to the Texas Ports Association (TPA). All Texas ports combined annually move an average of 317 million metric tons of cargo - or nearly 17 percent of total U.S. port tonnage. In particular, the Port of Houston is the Gulf Coast's biggest container port.

Furthermore, TPA asserts that intermodal and marine transportation make up about 10 percent - almost $65 billion - of the state's gross state product and are responsible for Texas taking in about $5 billion in local/state revenue and more than $9 billion in federal tax revenue. "Foreign imports and exports," notes TPA, mean "nearly one million jobs to Texans, over $30 billion in personal income for Texans, and business sales of over $178 billion."
Sizzling Clusters
In 2004 the state identified six rapidly growing industry clusters thought to be key to pushing Texas into the position of a world economic leader - if changes were made to improve its competitive position. Then, last December, Texas launched the Governor's Competitiveness Council. Made up of 29 government, industry, and education leaders, the council is charged with the task of identifying barriers to global competitiveness and figuring out how state resources can help Texas' industries attract/retain more key employers.

Some of the state's competitiveness challenges include establishing a sizable and capable work force in each industry cluster, and improving the state's education, transportation, energy, and regulatory climates. The council hopes to have ideas to share with state representatives before the start of its 2009 legislative session. Furthermore, Texas Governor Rick Perry recently said he'd apply competitiveness standards to future legislation. That means each bill will be assessed a "Competitive Impact Score" to help determine if signing it will make Texas more - or less - competitive in the global economy.

Here is a brief look at the six targeted clusters, with statistics provided by the state government (unless otherwise noted):

Aerospace and defense: Some of the world's most advanced military aircraft are designed and built in Texas. This industry is responsible for 200,000 jobs at 1,700 firms, and has workers earning an average annual salary of $50,000. Major aerospace and aviation employers include American, Southwest, and Continental airlines; American Eurocopter; BAE Systems; Boeing; the Johnson Space center; L-3 Communications; Lockheed Martin; and Raytheon. The state is home to 23 airports with ports of entry. In 2006, the Dallas-Forth Worth International Airport set an all-time international cargo record with 281,486 metric tons.

Energy: Oil and gas exploration and production, one of the state's oldest industries, is strong with 7,000 operators running 250,000 active wells. The state leads the country in production and reserves as well as enhanced oil recovery potential. In the electric, coal, and nuclear power generation arena, Texas has one of the world's strongest electric markets. In the alternative energy area, Texas has ranked number one in the nation for wind power generation for three consecutive years, according to the Wind Energy Association, and the Governor's office reports it ranked first in biofuels and second in solar power.

Biotechnology and life sciences: The state is home to over 900 traditional biotech and biomedical research facilities, medical manufacturing firms, and world-class universities and research facilities employing almost 29,000 life science workers. Major players include US Oncology, the Southwest Research Institute, Laboratory Corporation of America, Kimberly-Clark, and Abbott Laboratories.

These days, San Antonio is in the industry limelight. For example, it's one of five cities being considered for the National Bio- and Agro-Defense Facility, a huge federal research lab. And the Department of Defense is in the early stages of investing over $1 billion to make Fort Sam Houston the nation's center of military medicine. Existing major facilities here include the University of Texas Health Science Center at San Antonio (a nationally recognized institute of health science education and research) and the Southwest Foundation for Biomedical Research (one of the world's leading independent biomedical research institutions).

Information and computer technology: Communications equipment, computing equipment and semiconductors, and information technology form this growing cluster. Austin, the state capital, is a world-class IT hub, and San Antonio has its own industry star performers. Recently, the University of Texas at San Antonio established the Institute for Cyber Security. Its mission is to combine world-class research with commercialization, focusing on the protection of the nation's critical cyber infrastructure. The Alamo City also was chosen for a new National Security Agency data center (expected to employ thousands when built out) and Microsoft's $550 million, 447,000-square-foot facility, set to open in late 2008/early 2009. Major IT employers present here speak of the industry's importance to the Lone Star State. They include Dell, Nokia, Texas Instruments, Alcatel USA, Ericsson, Freescale Semiconductor, and Fujitsu Network Communications.

Petroleum refining and chemical products: The latest federal government statistics from the Energy Information Administration (July 2007) reveal that nine of the 20 top-producing U.S. petroleum refineries are in Texas; of those, the three highest-capacity are in Baytown (ExxonMobil, #1), Texas City (BP, #4) and Beaumont (ExxonMobil, #6). Texas is the nation's top producer of oil and gas refined products and chemicals, and one-third of the U.S.-marketed production of natural gas is from here.

One homegrown industry star player is San Antonio-based Valero Energy Corporation, a Fortune 500 company with 22,000 employees and annual revenues of $95 billion (2007). It owns and operates 17 refineries throughout the United States, Canada, and the Caribbean with a combined throughput capacity of approximately 3.1 million barrels per day, making it the largest refiner in North America.

Texas also is the country's largest chemicals producer; its Gulf Coast area alone has over 200 chemical plants. In total, this cluster brings in over $82 billion in gross state product, and is responsible for 870,000 jobs and $3.6 billion in annual state revenues.


Advanced technology and manufacturing: Texas claims the title as the birthplace of nanotechnology and is nationally ranked for related research, venture capital, and commercialization activities. It's also the birthplace of the integrated circuit, and has major semiconductor employers and research developments affecting the world.

And automotive manufacturing (operating here since 1954 with General Motors) got a big shot in the arm when a major Toyota manufacturing plant opened in San Antonio a few years ago. Today, Texas is the single-largest market for full-size pickup trucks and has robust representation from other automotive manufacturing employers and suppliers.

Not surprisingly, R&D work in all sectors is robust. According to the state, several Texas universities and research institutions are leaders in electronics, medical, biotechnology, aerospace, advanced materials, and energy-related research. In fiscal year 2005, data from the U.S. Patent & Trademark Office indicated that Texas residents were issued 5,660 patents, and Texas residents filed 12,951 patent applications - activity ranking the state second in the nation in both categories, behind only California. In 2004, Texas was ranked third in the nation by the National Science Foundation for academic R&D expenditures by state (about $2.8 billion was spent).

The Border Explosion
Located along the South Texas border, the "Rio Grande Valley" is made up of the neighboring communities of Mission, McAllen, Weslaco, Harlingen, and Brownsville. It's an area bustling with dynamic business, trade opportunities, and people. The valley's population has doubled to more than one million residents in the last decade. Retail and housing markets are robust, and the population is again expected to more than double by 2025.

Eight international bridges connect South Texas with the industrial border communities of Reynosa, Matamoros, and Monterrey, Mexico. Together their population totals more than five million residents. When the Anzalduas International Bridge opens in 2009, it will be another logistical artery linking Mexico to the United States through Mission, Texas. And a newly expanded, six-lane expressway now connects all of the Rio Grande Valley communities together.

According to Pat Townsend,
CEO of the Mission Economic Development Authority, "Every valley community is benefiting from this activity, and it won't be long until the world realizes we're a pretty big metro - not just a string of sleepy towns along the border."

While many Texas textile jobs are going to China and South America, the "manufacturing in non-textiles is doing well," adds Townsend. Manufacturing and distribution facilities on the Mexican side continue to help fuel bi-border successes as well, he notes. In addition, educational partnerships - like those shared by the University of Texas-Brownsville (UTB) and University of Texas-Pan American with Mexican technology schools and U.S. engineering schools - are helping communities meet the specific work force needs of area businesses competing globally.

Homeland Security's proposed 600-mile "border wall" concerns some local leaders, as some of the 150 miles of fencing slated for Texas would be in their area. As UTB's president says, "We believe in protecting our borders.We believe in strong immigration policy. But we also understand that a fence, no matter how high or how wide, is no substitute for either." Instead, many people here think a "virtual fence" comprised of cameras, surveillance, and boots on the ground is a better solution to ensuring the safety of citizens and fighting illegal immigration.

How will the fence impact trade? Townsend says that with so much commerce between the two nations, all the community bridges crossing the river into Mexico should keep commercial traffic moving - "with or without a wall."

Transportation & the Trans-Texas Corridor
With new investments and jobs come more transportation challenges to move commodities - and people - in and out of Texas. The state estimates that during the next 25 years its population will increase 64 percent and road use will grow 214 percent, but state road capacity will only grow 6 percent without new roads or funding for them.

The solution? The Trans-Texas Corridor (TTC), says the state. This proposed multi-use, statewide network of transportation routes would be built in phases over the next 50 years, with routes prioritized according to Texas' transportation needs. As currently envisioned, routes could include separate lanes for passenger vehicles and large trucks; freight railways; high-speed commuter railways; infrastructure for utilities including water lines, oil and gas pipelines, and transmission lines for electricity, broadband, and other telecommunications services.It's very likely a "toll road model" will be used to help fund the TTC, explains Gabby Garcia, Texas Department of Transportation spokesperson, since state monies are now primarily used to pay for maintenance of Texas' existing roads. But toll roads are just one of many concerns fueling mini-firestorms in some Texas communities. Proponents want to discuss how the TTC will relieve congested highways, create new markets and jobs, bring economic development to more parts of the state, develop new cities and industrial parks, etc. Opponents want to discuss state and national sovereignty, the potential purchase (or confiscation) of tens of thousands of acres, ties to NAFTA and immigration, and who benefits financially from construction.

TTC plans are still in flux, Garcia patiently emphasizes, and specific TTC routes have yet to be determined. However, two routes are now undergoing environmental studies and, if approved and funded, construction of them could start "in four to five years."

The proposed 600-mile TTC-35 corridor parallels I-35, and would extend from north of Dallas-Forth Worth to Mexico and possibly the Gulf Coast. The proposed 650-mile I-69/TTC corridor extends from Texarkana/Shreveport, around Houston and down to Mexico, possibly by way of the Rio Grande Valley or Laredo.

"Presently there is no interstate corridor leading down to Laredo, the biggest land port in Texas, or to the Port of Brownsville," notes Garcia. She adds that existing routes from those areas (state and U.S. highways) could be expanded and might include "some sort of rail component." In sum, while the economies of many other states have contracted, Texas' economy continues to expand, strengthen, and make attempts to diversify. Its pro-business regulatory environment, economic development programs, and educated work force - especially in the high-tech sector - all combine to provide the Lone Star State an enviable competitive edge in today's global economy.

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