The race for the national collegiate football championship is over, and the best pro football team will soon be decided in the Super Bowl. Unfortunately, Texas teams have not been involved in either race to any significant degree. Still, many people recall past glories and keep their football expectations high for the future. And, of course, we do have the Mavericks!
So how goes it with expectations for obtaining corporate locations in 2003? During the 1990s, the Texas economy performed extremely well. For the first half of that decade, the Lone Star State was the undisputed leader in new capital investments, job growth, and new and expanding facilities. Let me give you a little background.
Specifically, from 1990 to 1996, Texas was in first or second place among all states for the number of new manufacturing locations; by 1999, the state had dropped to fifth. Additionally, during a period in which total facilities in the US soared to record levels and some large states doubled or even tripled their numbers of new plants, Texas saw its annual gain tumble by 25%. The rate of expansion in all facilities (both manufacturing and non-manufacturing) also fell by almost the same percentage.
Following a very weak year in locations in 2000, Texas was ranked sixth in 2001 (behind Michigan, Illinois, California, New York, and Ohio) in the total number of new and expanded facilities. Today, the Lone Star State fails to appear even in the top ten when per capital measures are used for total new and expanded facilities, capital investment, or new jobs created.
Perhaps even more ominous is the decrease in major new projects with initial investments exceeding $500 million. These kinds of massive production complexes are critical to long-range growth and development as they spawn extensive supplier networks, typically implement multiple rounds of future expansion, and are a catalyst to other sizeable facilities. Large-scale locations of this nature can literally redefine the economy of an area, as seen in Gulf Coast petrochemicals, defense aviation in Fort Worth, and microelectronics in Austin.
Over the period from 1990 to 1996, Texas attracted 12 new investments of this magnitude, as well as 11 comparable expansions and modernizations in the petrochemical sector. Since 1996, there have been only two: an expansion of an existing facility (which required substantial local incentives and helped to preserve a significant employer) and the purchase and modification of an existing plant (which never reached capacity and recently announced closure).
Quite simply, Texas is falling behind. The state is getting a smaller absolute and relative share of a growing pool of manufacturers. Virtually all of the big ones are getting away (although we do have one on the line right now, with the hook almost set).
For example, California has attracted more new manufacturing plants than any other state in recent years, with the total number of new facilities rising by 385% between 1996 and 1999. This growth was the result of the state’s concerted efforts to create a more favorable business climate, in part by cutting bank and corporate taxes and expanding the research and development tax credit.
Another example is Michigan, which consistently ranks first in the nation in total new and expanded facilities and near the top in both new manufacturing plants and new and expanded global operations. The state has actively pursued a pro-business tax policy and its Legislature has removed some 3,000 outmoded regulations.
New York has also emerged recently as a formidable competitor for new manufacturing locations as a result of its aggressive business taxation strategy—the state’s corporate tax rate is steadily approaching its lowest level since 1970. Over the past five years, the fiscal cost of doing business in the Empire State has dropped by more than a third.
Similar examples can be found in Ohio, Illinois, and North Carolina. It’s evident that many states are being quite aggressive in implementing comprehensive and innovative programs to respond to the emerging forces shaping economic development in the new millennium. To remain in the race and get back on top, Texas needs to systematically examine its existing programs and implement an effective strategy for future competitiveness.