Fiscal Notes

April 2001

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On this page:

Gone to Texas

From our Readers

From the Comptroller: Rainy Day

Comptroller News

On Page 2:

Truck Stop

Infinite Power

On the Border

Uncovered

Texas stats -- Fiscal and economic data

En español: Notas Fiscales de Abril 2001

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From 19th century pioneers
to 21st century corporations

Gone to Texas

Texas has been a hotbed of high-tech activity for decades, and Austin, Houston and Dallas are some of the first names you hear in any conversation about the Texas economy. You might even think Texas traded cow chips for microchips.

But the state's strong economy wasn't built by tech giants and dot.coms alone, and growth hasn't been limited to major urban centers. Companies from around the nation and the world are choosing Texas for their U.S. and regional operations in a variety of sectors, and they're going both to Texas' urban centers and its smaller cities. What draws them here, and what are they finding when they get here?

Mushrooming
According to the U.S. Bureau of Labor Statistics, Texas leads the nation in nonfarm job creation. From 1990 to 2001, Texas added 2.5 million jobs, representing nearly all major economic sectors.

Manufacturing, construction, finance, insurance and real estate, wholesale and retail trade, transportation, communications and utilities, and services all grew in Texas, even as some of those sectors declined nationally. Also, the mining sector, which includes oil and gas production, was relatively stable, and Texas continues to employ far more workers in this sector than does any other state.

"That kind of tells the rest of the story," says Jeff Moseley, executive director of the Texas Department of Economic Development (TDED). "High-tech gets the glamour, but the meat and potatoes is that we've led the nation in job creation." And many of those jobs are created by out-of-state companies who see Texas as a good place to set up shop.

Come on down!
A number of national and international companies have chosen to expand or establish operations in Texas. In 1998, Seattle-based Boeing Corp. expanded its operations in El Paso by selecting it as the location for production of its Minuteman III Intercontinental Ballistic Missile Guidance Replacement Program. In 2000, Nebraska-based West TeleServices Corp. built a new regional customer contact center in Beaumont, creating 1,000 new jobs. In 1997, Ohio-based Nationwide Insurance opened a similar facility in Amarillo that boasts 500 employees and is still growing.

The news is the same across the state. From Lubbock to Lufkin, area chambers of commerce have successfully recruited companies, particularly in service and manufacturing industries. The chambers of many smaller cities have established departments for economic development specifically to lure new businesses.

The Beaumont chamber's Economic Development Department is less than two years old, and the chamber still does most of the recruiting. But Director Kyle Hayes says the city's efforts to bend over backwards to bring in new companies is working. Other cities also are finding success recruiting companies to their areas, indicating Texas has a number of selling points.

Good and plenty
Why are companies coming to Texas?

"The labor force," says Paul Bertrand, general manager of Phoenix Millwork in Beaumont. Phoenix Millwork has been in Beaumont for more than 15 years, but will soon get bigger. Bertrand says the Ohio-based company plans to relocate some of its distribution activities from other states to Texas because of the available work force and lower land costs.

Hayes says the region's availability of workers is a draw for several companies.

"We have a good work force, but our unemployment rate is 7.9 percent," he says.

Hayes says having a supply of workers from surrounding towns makes Beaumont a hub for Southeast Texas, and the result is an increase in new industries for this traditionally petrochemical-centered city. He says service-oriented businesses, such as call centers and facilities for back office operations like billing are a growing sector for the area. An example of this type of growth is a postal encoding facility located in the city since 1997. In January of 2001, the facility employed approximately 400 people and expected to hire another 700-1,000 by the end of the year.

Tom Thomas, senior vice president for the Economic Development Division of the El Paso Chamber of Commerce, says El Paso has seen growth for the same reason.

"We're experiencing good industrial growth for two reasons," Thomas says. Proximity to the 350 maquiladora factories directly across the border is one major reason, but Thomas says the other reason is "the fact that we have people to do the work."

Thomas says that El Paso's population is growing 2.5 percent per year thanks to childbirth and legal immigration, making it the third fastest-growing city in the nation among cities of 500,000 people or more.

At the same time, the unemployment rate is 6.6 percent. Thomas says the city may never achieve parity with national statistics since the population keeps growing, but that's an attraction for employers. Businesses looking to establish new facilities have taken notice of the steady supply of workers, and companies like EcoStar, Providian and ADC Telecommunications have all chosen El Paso for recent operations. EcoStar established a call center, Providian opened a credit card processing center, and ADC opened a plant to manufacture Internet-related broadband equipment.

A powerful draw
Labor is not the only reason companies come to Texas, though. TDED lists a number of factors that make the state attractive to businesses including no personal income tax; reformed worker's compensation laws, which have resulted in lower employers' costs; the fact that Texas is a right-to-work state with low unionization; and low business taxes. Texas also has comparatively low real estate costs, convenient time zones for conducting national and international business and low energy costs.

"Texas becomes a very desirable operation for businesses in California who will not have a reliable power source for the next five years," says Moseley. He also points to an amendable climate, water resources and "one of the finest transportations systems in the nation" as reasons companies want to set up shop in the state.

Still, the biggest reason companies give for coming to the state is its work force. Texas is the second most populous state, and its population is growing. TDED estimates that the civilian labor force in Texas grows by nearly 100,000 each year.

Happy campers
So, it's obvious that Texas can bring businesses in. But do they like what they find when they get here? And, do they plan to stay?

Thomas feels that expansions in El Paso prove companies are happy. In 1999, New York-based Brylane, a major catalog company, opened a call center in El Paso employing 850 people. That number quickly climbed to 1,200, and Thomas says the company predicts it will eventually employ 1,700 workers.

Steve Pritchett, economic development associate for the Amarillo Economic Development Corporation agrees. He says a recent survey by employment services provider Manpower Inc. indicates 20 to 30 percent of firms in the Amarillo area expect to increase employment, with 80 percent expecting to maintain their current levels.

Furnace cooling
Some wonder if the economy and some of Texas' ways of doing business will eventually force companies to leave or not choose Texas at all, though. The national economy shows signs of slowing, and some who favor changes in Texas' property tax system say Texas could be losing its edge to states more willing to give tax breaks to lure new businesses.

No one expects Texas to escape the effects of a slower economy, but few expect the slowdown to mean disaster for the state. Hayes says that in Beaumont, the slowing economy has had no effect on business recruiting. Moseley says the news should be similar statewide.

A weaker economy will have some impact, but Moseley expects the factors that brought companies to Texas in the first place will keep them here. Jean Campbell, plant manager for St. Louis-based Zoltek Companies Inc.'s Abilene facility, agrees.

Campbell says the global carbon fiber manufacturer chose Texas because of its tax structure, low cost of doing business and location. She says when they got here, they found a quality work force.

"That was an added bonus," she says. And now that Zoltek is here, economic peaks and valleys won't force them to move. "We want to stay in Texas. We are not going anywhere. We want to grow here."

Suzanne Staton

Pro-business

Companies are moving to Texas, opening offices here and expanding operations because the state has a pro-business environment. Some of the reasons businesses like to do business here are:

Texas is a right-to-work state.

Texas has instituted major reforms in workers' compensation, which have lowered employers' costs substantially over the past several years.

Texas has no personal income tax.

Among the 15 most populous states, Texas ranks as one of the lowest in business taxes as a percentage of total state tax revenue.

Texas' value added per production worker hour in manufacturing is 20 percent higher than the U.S. average.

Total energy costs in Texas rank among the lowest in the nation.

Retail costs for Class A office space in Dallas and Houston are priced far below those in Los Angeles and Boston, and are half the cost of office space in New York City.

More than 90 percent of the state is in the Central Time Zone, making nationwide and international business easier to conduct.

SOURCE: Texas Department of Economic Development.

From Our Readers

Dear Comptroller Rylander:

A friend has just passed on to me the Fiscal Notes for January 2001. I read every word. Every article was of utmost interest to this senior citizen. I learned a very long time ago that knowledge is invaluable. I certainly learned a lot from Fiscal Notes and would like to be on your mailing list.

Sincerely yours,
Lucille M. Lambie
Lubbock

To contact us, call 1-800-531-5441, ext. 3-4900; or 463-4900 in Austin, or write to P.O. Box 13528, Austin, Texas, 78711-3528. Internet users may send comments to fiscal.notes@cpa.state.tx.us.

From the Comptroller:
Rainy Day

At the beginning of each legislative session since I have been Comptroller, I have said Texas government needs to budget like any good Texas family--spend wisely, invest wisely and save for a rainy day.

Back in the 1980s, the Texas economy and the Texas budget were both in a mess. The price of oil plummeted, the real estate market crashed, banks and savings and loans failed and legislators increased taxes and cut services. That was a crisis.

With that economic collapse fresh in their minds, voters adopted a constitutional amendment in November 1988 that created the Economic Stabilization Fund, commonly referred to as the Rainy Day Fund. Right now there is only $191.6 million in the Rainy Day Fund. That is enough money to run state government--pay teachers, keep the prisons manned, build roads, care for the poor and provide all other state services--for less than 24 hours.

Today there are those who want to dip into the Rainy Day Fund. I say no. The state is not facing a crisis that warrants tapping into this fund. In fact, I believe now is the time to be steadily replenishing the fund, not raiding it.

I am asking the Legislature to let the people vote on a constitutional amendment that would transfer to the Rainy Day Fund 75 percent of the interest earned on the General Revenue Fund and investment income in excess of the amount estimated by the Comptroller in the Biennial Revenue Estimate.

Over the course of the last five years, if my plan had been in effect, $196.4 million additional dollars would have been transferred into the fund. Like any good savings plan, it's a steady, disciplined way to put additional money away when times are good to be used when times are tough.

There are currently four sources of money for the Rainy Day Fund: the oil production tax, the natural gas severance tax, the unencumbered General Revenue Fund balance and legislative appropriations. To date, there have been seven natural gas severance tax transfers, one oil production tax transfer, one unencumbered balance transfer and the Legislature has never appropriated money to the Rainy Day Fund.

These limited funding sources, combined with the Legislature twice appropriating money from the fund, have made the Texas Rainy Day Fund balance as a percentage of general appropriations dead last among the 42 states that have balances in their Rainy Day Funds.

Texas Comptroller

10 Principles for Texas
in the 21st Century

* Develop a better-educated workforce
* Direct more of every education dollar into the classroom
* Raise the bar on student performance
* Cut taxes in Texas
* Introduce competition into Texas government
* Improve government performance and accountability
* Reduce the size of government
* Bring common sense to regulations
* Use technology to cut costs and increase quality
* Return control to communities and individuals

Comptroller News

Kingsville ISD could save $5 million

A comprehensive Comptroller's Texas School Performance Review of the Kingsville Independent School District makes 87 recommendations that would save taxpayers $5 million over a five-year period.

"I have vowed to be the education watchdog for the people of Texas," Texas Comptroller Carole Keeton Rylander says. "My goal as your Comptroller is to drive more of every education dollar directly into the classroom where it belongs."

Recommendations include applying for federally funded, interest-free loans to renovate school buildings; updating the master plan and closing two underused schools; reducing the number of assistant principals from 10 to four; linking improvement, technology and facilities plans to the district budget; improving teacher hiring practices; and reviewing health and other benefits for employees.

The review also commended the district for best practices including student immunization, voter approval of a $30 million bond package, alternatives for at-risk students, sound investment strategies, budget controls and its energy management program.

The full report is available online at www.window.state.tx.us/tspr/kingsville/index.htm.

Texas Tomorrow Fund enrollment online

A new online enrollment option will make it more convenient for Texas families to enroll their children in the Texas Tomorrow Fund (TTF), the state's prepaid college tuition program.

"Parents and grandparents can go to the Texas Tomorrow Fund Web site and get answers to their questions about the program and now they can also fill out an online application and use their Visa, MasterCard, Discover or American Express card to pay the $50 application fee," Texas Comptroller Carole Keeton Rylander says.

Online enrollment could help reduce the traditional deluge of applications during the closing days of TTF enrollment periods. The current enrollment period ends May 25.

The Texas Tomorrow Fund Web address is www.texastomorrowfund.org, or go directly to the Texas Online payment portal at www.texasonline.com. For details, go to the Web address or call 1-800-445-GRAD (4723).

Comptroller brings fund manager from private sector

Texas Comptroller Carole Keeton Rylander hired Susan K. Anderson, senior portfolio manager for Public Financial Management Inc., as the agency's chief investment officer.

Anderson will manage investments for all funds under the care and custody of the agency, including about $8 billion in the Treasury Pool, $12.3 billion in TexPool and $4.3 billion in trust accounts. She also will monitor and oversee all portfolio management, research and trading activity.

"We're excited about bringing Susan on board," Comptroller Rylander says. "She is an expert in the areas of private and public sector financial management, bringing nearly 30 years of financial experience to this position and our agency."

Anderson also served as treasurer of the city of Austin and is a Certified Cash Manager, member of the Government Treasurer's Organization of Texas and member of the Government Finance Officers' Association at both the state and national levels.

Comptroller says expand tax holiday

Texas Comptroller Carole Keeton Rylander proposes expanding the sales tax holiday from three days to five days and adding to the list of tax exempt items. The Comptroller's proposal would save Texas taxpayers an additional $46 million from 2001 to 2003.

"The sales tax holiday is a tremendous help to hard working Texas families," Rylander says. "By expanding the holiday from three days to five and adding these items, the sales tax holiday will be less of a traffic jam and save Texans more of their hard earned dollars for their families."

The items added to the tax exempt list include buttons, zippers and fabric to make clothes; school supplilies, backpacks; and bicycle helmets, elbow and knee pads, and baby and children's car seats.

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