Business Climate and Stormy Weather
As the slogan used to promote the Lone Star State suggests, Texas is in fact Wide Open For Business™. The state’s business climate continues to garner major recognitions. Texas was named 2007 State of the Year by Business Facilities magazine in its first annual ranking of the most economically significant relocation and expansion projects of the year (December 2007). It was also chosen as the best place to be by corporate site seekers across the country in the Executive Survey Business Climate Rankings 2007 (Site Selection, November 2007).
In addition, Texas had the highest number of FORTUNE 100 Fastest-Growing Companies in 2007, home to eight companies in the top 25 and 32 companies on the list overall (FORTUNE, September 2007). Forbes 2007 Best States for Business placed Texas in the top five (Forbes, July 2007). Texas can also boast as the nation’s leading exporting state for the past five years, exporting about $150 billion in 2006, with 2007 looking even better based on information to date.
The December issue of Expansion Management recognized the hard work of the Texas Legislature by listing Texas number one overall in its 2007 Legislative Quotient. The Legislative Quotient ranks states according to the impact the state legislatures have on local business climates. Six different areas are measured, of which Texas placed either first or second on four of them. I could go on and on, but I suspect you get the picture.
One of the main advantages helping Texas is its commitment to low taxes. In the Legislative Quotient mentioned earlier, Texas ranked first on general tax bite as well as 5-year tax improvement. The Tax Foundation placed Texas among the ten best states overall regarding its 2008 State Business Tax Climate Index.
Among the list of tax advantages in Texas that matter to business is the absence of levies on equipment or machinery used in manufacturing goods as well as electricity used in manufacturing, processing, or fabricating. Moreover, Texas has no State tax on property used for pollution control or on goods while in transit. Research indicates that keeping taxes low is vital when it comes to job creation and retention as well as location, although adequate public services and infrastructure are also important.
In addition to competitive taxes, the Governor and lawmakers have created several initiatives to help seal the deal on large investments, expansions, and relocations in Texas which seem to be working. In 2003, the Texas Legislature established the Texas Enterprise Fund (TEF), which has awarded more than $300 million to companies resulting in more than $15 billion in capital investments in the state and over 40,000 jobs. This program moved Texas from the middle of the pack to undisputed leadership in economic development.
Texas’ commitment to attracting jobs in high-tech fields is complemented by the Texas Emerging Technology Fund (ETF), created in 2005 to expand development and commercialization of new technologies and attract and create jobs in high-tech fields. This initiative is designed to keep Texas at the forefront of economic performance for decades to come and to assist in implementing the next waves of high-growth sectors. These efforts, along with other incentive tools, regulation, and judicial reforms, have paid enormous dividends.
While it is fun to look at rankings, especially when your state is doing well, what does it all really mean to have a good business climate ranking nationally? It should mean a greater potential for job growth, expansion, and retention among the nation’s largest employers. While we do live in a global society, the Department of Labor reports that the largest segment of job relocation is still from one US state to another. Therefore, a good business climate is vital to a state’s economy. Additionally, these rankings serve to remind us that states do not enact legislative changes in a vacuum. All decisions made in Texas and for Texas also affect the state’s position relative to our competitors, our geographic neighbors, and ultimately the world.
Perhaps the best news at present is that, as the US economy faces a stormy future, Texas should experience relative calm. While our growth rates will likely back off a bit, the state should continue to expand at a solid rate and set the stage for even greater performance in the future. A portion of this good fortune is fortuitous, but much of it stems from visionary leadership and hard work.
posted @ 08:05 AM CST [link]
Friday, January 18, 2008
Economic Development Planning
It has often been said that “preparation is the key to success.” When a community seeks to strengthen its economy, the validity of such a statement certainly becomes evident. As the global mobility of products and personnel increases, corporations have far more options concerning their locations. Companies are no longer as constrained to one locale; they can choose where they want to be for various reasons.
Any community that wants to enter the “market” for economic development can take part. Think of the firms who are looking for a place to locate or expand as the “buyers.” The cities trying to attract those firms are the “sellers.” Each place has its own strengths to offer, and by being well prepared can greatly increase its probabilities of attracting new activity.
Over the past 25 years or so, my firm, The Perryman Group, has worked with hundreds of communities and advisory groups that have been charged with economic development responsibilities to help determine appropriate objectives and provide assistance on the most effective ways and means to reach them. Through this work, we’ve identified some of the keys to successful competition in the market for corporate locations.
Every community has positives and negatives, some of which are more important than others in determining economic potential, especially in the ever-changing atmosphere of the 21st century. The challenges a community faces can curtail economic possibilities; problems such as infrastructure or workforce insufficiencies can make it difficult to attract large firms.
To ensure sustainable long-term prosperity and stability, communities must have a clear vision for the future. In fact, for any economic development plan to succeed, it must be consistent with the desires of the residents and community leaders.
One of the keys to the success of an economic development plan is the degree of consensus of those involved. To build widespread community support, it is imperative to identify the groups that have influence on the economy, discover each group’s priorities and expectations, and ascertain the stake each group has in future growth. The potential consequences of economic stagnation or growth in undesirable directions must also be at the forefront.
For the greatest success, communities must be aggressive and proactive in seeking new, while also retaining current, economic activities. Resources must also be invested in initiatives to attract new businesses. For long-term success, it is necessary to decide what avenues will yield the greatest results and then be systematic and consistent in the approach to garner them. One aspect of the strategy must be competitive local incentives. While their merits can be legitimately and endlessly debated on a philosophical plane, they are essential in the “real world” where decisions are made. Major employers are aware of them and face pressures from shareholders to maximize profitability and returns. Moreover, they must seek every advantage possible to remain viable in the complex modern economy.
Among the best ways to create the highest potential for economic development success is to identify, analyze, and select target industry clusters suitable for a specific community. To accomplish this step, a region’s resources, both current and future, must be evaluated with regard to the types of production it is capable of supporting.
Further examination of industries that may be appropriate for a community should reveal the net export capabilities of the goods or services produced within their area. Generally, if the industry generates more than is required locally, it has the potential to become a net exporter. Local workforce and training capabilities to improve necessary skills are also important aspects of the picture.
This process can be quite involved as consideration should be given to market patterns, state and national econometric models, and global trade and production forecasts. However, a targeted strategy is an essential key to successfully attracting economic activity and allocating scarce development resources efficiently.
Once emerging industries and sectors that have a reasonable likelihood of opening or expanding existing plants are identified, target clusters can be selected and coordinated with a community’s resources, competitive strengths, and prospects for future development.
Today’s highly competitive environment requires that communities desiring to enhance their economic opportunities be diligent and determined in fashioning strategies that can create potential for the future. Like most aspects of today’s world, it is an increasingly information-intensive process. With a purposeful plan and proper preparation, a community’s prospects for sustained prosperity can be greatly multiplied.