House Select Committee on Economic Competitiveness

House Select Committee on Economic Competitiveness

The House Select Committee on Economic Competitiveness met on November 15th to take invited testimony on its charge to develop and present concrete principles on long-term competitiveness and economic development issues. To begin the hearing, Chairman Byron Cook (R-Corsicana) told the committee, “Although Texas has succeeded and flourished with a thriving economy for many years, this state is slipping in a direction that should be cause for concern. In July of this year, the America’s Top States for Business study found that Texas had dropped to number four in the nation, the first time in 11 years that the Lone Star State finished outside of the top two spots in the country for business ranking. That should be alarming to all Texans.” The committee heard invited testimony from several business leaders. Here is a summary of their remarks.

Tom Luce, Consultant and Founding President at Meadows Mental Health Policy Institute at Southern Methodist University.

The “Texas Miracle” was not a miracle. It was intentional. State leadership created that environment.
Domestic migration has fueled the state’s growth.
In the future, technology companies will look at global competitiveness and mobility of the workforce.
To stay competitive, Texas must focus on education/workforce; infrastructure; and business friendly climate.
Currently, only 20 percent of high school graduates achieve a degree, certification or credential. The jobs of the future will require 14 years of education. Texas needs to be at 80 percent, not 20 percent. In order to accomplish this the state needs to focus on completion at all levels in the education system, Tier 1 universities, 4-year regional institutions, and community colleges, which is where the realistic workforce training and preparation takes place.
Texas must reduce commute time through maintenance and expansion of its transportation system and expand broadband in rural areas.
Texas must improve efficiency of government, for example state healthcare costs. When state functions are outsourced, there must be metrics and accountability.
The state needs to modernize its IT systems.

Mark Cuban, businessman, investor, and owner of the Dallas Mavericks basketball team.

Education is a key to competitiveness. With the changes in technology, the workforce must adapt rapidly. The Education system must keep up.
The state needs to eliminate program silos. The state should answer the question, “If the state were a business, what is our business plan?” You start with what you want to accomplish and then work from there. There is waste and inefficiency when there are silos. They have to be broken down.
The bathroom bill would prohibit businesses from coming to Texas. They will not move to a state with policies that are contrary to the positions of their employees. Recruiting the best talent is a necessity and non-discrimination is essential – including gender identity. If a company is large enough, there will be a transgender person that is an essential to the success of that company, and the company will not go anywhere that person cannot thrive.
Conclusion – “Texas is an amazing state. Don’t do anything to screw that up.”

H. Ross Perot, Jr., Chairman of Perot Companies, a real estate development firm and Chairman of Hillwood Development, developer of AllianceTexas.

Economic development is essential to the state as is the state’s positive “can do” attitude. He gave a historical prospective on examples of governors and state agencies who promoted economic development in the 1970’s, 1980’s, and 1990’s and the recent Facebook Data Center in Fort Worth.
Economic development incentives are essential. And, for data centers an abundant source of power is also important.
Texas is in a position to handle the growth and to attract major corporate expansion and investment. Chapter 313 is a good tool as are the Texas Enterprise Fund and tax abatements. He gave examples of major projects that would not have happened without incentives. Texas’ incentives are small compared to other states. Texas has to have incentives as long as other states have them, but since Texas’ incentives are smaller, the state gets more “bang for the buck” than other states.
The economic development metric needs to include investment and not just jobs.
Immigration reform is important. Texas needs more legal labor and guest workers. On the higher end of the workforce chain, if a foreign student receives a degree from an American University, the student should be granted a green card. On the lower end, the guest worker program needs to be expanded.
Local control of incentives is important. It provides flexibility and the closer to the voters decisions are made the better it is for the state.

Jim Lites, sports executive and President of the Dallas Stars of the National Hockey League.

The Texas business environment is important including appropriate regulation and no state personal income tax.
Bad local and state regulation could potentially hurt the state. Texas has been made fun of throughout the country among the sports community for even discussing the bathroom bill.
Over 500 million people have been in sports and venue facilities he has managed and there has never been an assault of any kind in a bathroom.
He cautioned the state to be positive and open-minded and try to stay away from political issues like the bathroom bill, which he said is a bad idea.
Sports plays an oversized role in the attitude of communities. The bathroom bill would be devastating. Leaving the state is not a threat, it is a reality for the venue business. There are too many other options. North Carolina had cancellation of real events.

Fred Humphries, Corporate Vice President for Government Affairs for Microsoft.

Texas is a great place to live and work. Microsoft has a data center in San Antonio, where it has made a $2 billion investment.
In choosing a location, Microsoft looks at education and talent, particularly STEM and computer science; business climate; tax incentives; and innovation opportunities.
A key to innovation is empowering people to achieve more. Diversity and inclusion is a core value to Microsoft because its customer base is diverse. When we see anything having to do with discrimination, we know it is bad for people and bad for business. It will be a factor on where Microsoft will grow and invest because the company embraces inclusiveness.
Texas needs improvement in the education arena by increasing computer science classes and increasing the number of teachers qualified to teach computer science.

Sandra Mata, CEO of Visit San Antonio and on behalf of the hospitality industry.

San Antonio is one of the top tourist destinations in the state.
Meetings and conventions are booked five- to 10-years in advance.
In San Antonio, more than 15 organizations expressed an intent to cancel their conventions because of the bathroom bills; three actually cancelled resulting in $3 million in losses even though the legislation did not pass; and the hospitality industry suffered $66 million in losses statewide through cancellations because a bathroom bill was filed. Some groups are taking a “wait and see” attitude on future bookings.
If a bathroom bill passed, the industry estimated it would result in $3 billion in losses not including concerts and sporting events. One event, the Men’s Final 4 NCAA basketball tournament in March, 2018 will have a $35 million direct impact in San Antonio.

Ray Perryman, President of the Perryman Group, an economic and financial analysis firm.

Immigration reform is essential. One of every ten workers in Texas is undocumented; 40 percent of construction workers are undocumented; and there is not another source for those workers. We need rational immigration policy.
Important factors to a strong Texas include economic development, a fair tax structure, fair regulatory policy, infrastructure, and most important is education.
Texas has a workforce shortage. There are a record number of job openings. Technology is not displacing workers, it is changing the type of jobs.
50 percent of the students in Texas public schools are Hispanic. By 2050, that number will increase to 65 percent. Those children must be prepared for jobs of the future. The aging Anglo population is dependent on the growing population of young minorities.
Texas must be a welcoming place. He conducted a study and survey on the bathroom bill and found that it would have a $3.3 billion negative impact on the state; would result in the loss of 35,000 jobs; and cause a $300 million loss in state revenue.
Economic development incentives are imperative. If a state or location is not a good place to be, incentives do not matter. But, as long as other states have incentives Texas must have them.

Charles O’Neil, President of Texas Association of African American Chambers of Commerce.

Texas has the fastest-growing African American population in the country.
The Texas model is attraction, and Texas should campaign to attract new business.
But, Texas should also focus on retention and expansion of existing businesses.
Texas needs to increase state contracting with Historically Underutilized Businesses (HUB’s). In Texas, 10 percent of businesses are African American-owned businesses, but only 2 percent of state procurement dollars go to those businesses.

Jeff Chaney, Mayor of Frisco, Texas.

Frisco, Texas is the fastest-growing city in the country. He discussed the importance of 4A and 4B local incentives on the successful growth of his community.
Frisco has been built on public/private partnerships with the Frisco ISD being the most important partner.
The state and cities need to be partners. Last session, there was animosity between the cities and the state legislature. In partnership on economic development incentives, the state can benefit from $22 in the economy for every $1 spent on economic development and generate $5 in tax revenue.
Each city is unique with its own mission and vision. The state can help each city have the tools to address their own unique needs and goals.

Greg Sims, Greenville Economic Development Corporation on behalf of Texas Economic Development Councils.

4A and 4B local incentives are essential for recruiting companies to industrial rural areas.
All incentives, even the state incentives, require local support.
It is cumbersome to fill out economic development incentive forms. He suggested a single incentive application.
Conclusion – “Don’t mess up a good thing. 50 percent of something is better than 100 percent of nothing.”

Pia Orrenius, head of the Regional Economic Group of the Federal Reserve Bank of Dallas.

Texas has had employment growth that is 1 percent faster than the national average and GDP growth is also higher than the national average.
Texas grows faster because it is centrally located with ports; it has many large cities, which are important to innovation growth; it has strong petrochemical and technology industries; and it has a young population.
The state has pro-growth policies, healthy banks, low taxes, less regulation, and a favorable industry mix.
The corporate franchise tax is inefficient and distortionary, but it does not have a serious negative overall impact on the state’s economy because it has a low rate. The goal of a good tax system is broad-based with a low rate.
In 2002, Texas became the top exporting state and has been ever since. Mexico is the major export partner. NAFTA is critical.
Education is critical to move people up the wage distribution ladder. Texas is behind the rest of the nation in generating high skill educational attainment. Texas should structure its education funding to incentivize completion.
A desire to adapt to change will be the key to future Texas growth.

Katy Caldwell, Legacy Community Health Services.

Health care is an economic driver in Houston.
Telemedicine is becoming more critical.
When interviewing new employees from out-of-state, some of the potential employees have asked about the bathroom bill and have indicated that they want to come to a state that is inclusive.
Retention and recruitment of physicians and other health care professionals is hampered because of delays in state licensing. She suggested that reciprocity could be expanded to address the problem.

Dale Craymer, President of Texas Taxpayers and Research Association.

Texas is a low tax state for individuals because there is no personal income tax.
Texas is a relatively high tax state for business, particularly capital-intensive goods-related industries; but it is not such a high tax state for services-oriented businesses. Businesses pay two-thirds of property taxes and 40 percent of sales taxes.
Texas’ high property taxes are the single biggest “sore thumb” of the tax system and are a substantial barrier to new capital investment.
Tax incentives are a necessary and effective tool for Texas to alleviate the economic distortions our tax system creates and to compete for new investment projects.
Used correctly, tax incentives can be a “win-win” for both governments and for businesses, luring companies that would not have come here otherwise.
New investment projects are critical not just for the direct capital and employment they provide, but also for the ancillary economic activity and jobs they create as the project hires workers and contractors within the community who then purchase local goods and services; the project buys goods and services from existing local companies who then hire additional workers to meet the increased demand; and those additional purchases and jobs create economic demands and activity of their own.
Suggestions – Control property tax growth and use the Rainy Day Fund more judiciously. Texas needs to evaluate the return on incentives better. Most incentives are discounts. “When a retailer puts an item on discount, nobody calls it ‘consumer welfare.’”

Governor’s Letter on Economic Competitiveness – On November 21st, Governor Greg Abbott sent a letter to Chairman Byron Cook and the members of the House Select Committee on Economic Competitiveness. It said, “One of the paramount goals for all elected officials in Texas should be to ensure that our state improves its status as the best place in America to grow a business and raise a family. As the House Select Committee on Economic Competitiveness deliberates, you and your colleagues should seek to build upon many of the economic accomplishments of the past two sessions – significant franchise tax and property tax cuts, statewide transportation infrastructure investment and transportation network company reform, and eliminating occupational licensing fees for over half a million Texans – just to name a few. I write to extend the support of my office to policy principles that will ensure the next generation of Texans enjoy the same economic vibrancy that we are currently experiencing in this great state. . . Texas has conscientiously adopted pro-growth policies. For these results to continue, however our state must remain true to the basic economic principles that guide long-term economic growth: creating an educated, agile workforce and maintaining a free and competitive marketplace for businesses. The Legislature can play a role in fostering long-term competitiveness with a forward-looking educational policy that nurtures and creates workers equipped to handle and adapt to our rapidly changing economy. Just as important, the Legislature must continue to remove regulatory barriers and taxes that depress wages, restrict economic opportunity, undermine workforce development, keep labor participation rates low, and inhibit start-ups, expansions and relocations.”