While it’s too late to prepare a list of suggestions for Santa Claus, this is a perfect time to consider New Year’s Resolutions. In fact, I’ll bet you have a list. I’ll go one further and hazard a guess that many of your items are the same as mine: do better with my exercise routine, work through my inbox, clean out my files….sound familiar? Another thing we should have in common is a resolution to improve the economy of our great state. While you may not spend a lot of time thinking about such arcane issues, I do. My family and friends might even say that’s practically all I do. In the spirit of the New Year, I have compiled a list of key resolutions related to economic development; I believe they can prove to be of great value to Texas, and hence all Texans.
Despite their shortcomings, monetary incentives are a fact of life in modern economic development processes. No matter how distasteful they may be in principle, they are an integral part of the “market” for quality corporate locations, the economic engines we need to sustain employment and income growth.
There is certainly nothing new about economic incentives, and they are not without longstanding historical precedent in the Lone Star State. For example, the first settlers who migrated to Texas from Mexico (the legendary “Texicans”) received free land and tax incentives as inducements to inhabit this rugged territory.
Today, business concerns are being encouraged to consider Texas for locations, expansions, and retentions. As part of this inducement process, the state is attempting to improve its competitive position in the market. That’s what my list is all about—suggestions regarding better ways to make it happen. They are not presented by priority, and one is not necessarily dependent on the other. Here they are:
1) Create a Strike Force Capability or “Deal-Closing” Fund. The designation of a discretionary pool of money to secure key incentives on an expedited basis for major projects is one of the most significant opportunities facing Texas. Enabling the Governor (possibly with input from a few others) the ability to deploy such revenues as part of an overall state and local government inducement strategy can be (and often is) the difference between success and failure.
2) Increase Existing Research and Development Incentive Programs. Texas should raise the research and development tax credit to a higher percentage in order to be more competitive with other states in this critical area for future growth. The state should also allow the overhead allocation from university research grants to be used for the intended purpose, rather than being transferred to general revenue.
3) Expand and Simplify the Investment Tax Credit and Jobs Tax Credit Program. Texas should increase the level of credit associated with these programs to a range more in line with other states. Provisions that make it difficult to access should be eliminated. In addition, the coverage should be extended to the entire state, rather than limiting it to Strategic Investment Areas.
4) Simplify House Bill 1200 (HB1200). This measure is a major advance in development policy because it directly affects the disproportionate property tax liability of capital-intensive firms. As long as the property tax is the primary mechanism to fund public education, HB1200 is essential for competitiveness. However, the process for using the program needs to be simplified, made more predictable, and implemented in a way that does not involve undue risks to the recipients or participating school districts.
5) Maintain and Strengthen the Economic Development Sales Tax. This program is the major competitive mechanism currently in place and is key to effective efforts by hundreds of communities. Some inappropriate uses have occurred and need to be corrected. Training and education of those involved can be helpful in this respect. On the other hand, the permitted uses should be extended in areas that are clearly related to development and job creation.
6) Develop a More Equitable and Competitive Taxation System for Inventories. With continuing reliance on the property tax to fund public schools, a disproportionate burden falls on goods-in-transit relative to other states and leads to direct, quantifiable losses in business activity. Efforts to address this issue (while being cognizant of local fiscal needs) will bring important benefits to state business activity.
It’s a brief list of suggestions, but enacting programs such as these can serve as guidelines for enhancing Texas’ competitive position in the modern, global market for economic development. Happy New Year!