Killing the Golden Goose
In 1993, the Texas Legislature created a program called “Smart Jobs” to provide incentives to companies to train high-tech workers for the emerging jobs of the future. It was a great idea and many companies made excellent use of it. Smart Jobs resulted in some significant investments in Texas that are still paying dividends. Over time, however, lawmakers (no doubt with the best of intentions) made it available to a broad range of jobs (most of which weren’t too “smart”), burdened it with a lot of new and cumbersome regulations, required certain geographic distribution of the funds, and even used some of the funds to retrain prisoners.
All of these things may have served a worthwhile purpose, but they destroyed the whole concept of encouraging “smart” jobs. Given all of these factors and some serious administrative problems, the program was ultimately cancelled in 2001. The mere mention of “Smart Jobs” still brings groans in the halls of our majestic Capitol. In truth, the concept didn’t fail; it was simply changed beyond recognition.
I bring up this unpleasant chapter from our recent past only because I see ominous signs of history repeating itself a decade later. In 2003, the legislature created the Texas Enterprise Fund as a vehicle to restore our competitiveness for major corporate locations. In the preceding eight years, we had fallen from the unchallenged national leader in economic development to one of the also-rans in the lower middle of the pack.
By any reasonable standard, the Enterprise Fund has been a rousing success. We have obtained more major locations than any other state, and have seen thousands of jobs and billions of dollars in investment come to Texas that otherwise would have gone elsewhere. Many of these projects serve to keep Texas at the cutting edge of key emerging industries. Others have created large numbers of much-needed jobs. Some have occurred in conjunction with university research and teaching programs, thus creating even greater long-term synergies and benefits. The commitment of public resources will be returned dozens of times over. If there ever was a winner, this is it.
Despite this rousing start, there is a rising and at times vitriolic echo of criticism. Some want to compel a certain geographic distribution of the funds; others want more rules, regulations, and oversight. Sound familiar? The whole idea is to give the state the capacity to deploy resources where they are most needed, and to do so in innovative ways. By handcuffing the Texas Enterprise Fund, you run the distinct risk of destroying it. If we are not careful, we will kill our golden goose.
Quite frankly, if there is any valid criticism of the program, it is just the opposite. Economic development professionals who are out “where the rubber meets the road” feel that the Fund is too restrictive and doesn’t offer sufficient flexibility. Corporations who have received grants have comments about the tedious and cumbersome nature of the contracting process. What takes days (and, in some cases, hours) in other states still takes months in Texas. Nonetheless, you can’t argue with success, and it is certainly getting the job done.
I am often in the middle of these projects, and I can assure you the public interest is well protected. Every award requires the approval of the Governor, the Lieutenant Governor, and the Speaker. In case you haven’t noticed, these folks are not exactly spendthrifts, and they certainly don’t always agree on things. Each of them has experienced staff assigned to review and evaluate applications, and the process is very rigorous and analytical. To date, less than 20% of the proposals have been approved and many of those have had their initial request reduced. In addition, there are hundreds of potential applicants who don’t apply because people like me let them know they simply don’t meet the very high standards. There are plenty of safeguards in the system.
In short, the Texas Enterprise Fund is an outstanding initiative that has exceeded even my expectations (it was the most important recommendation for the statewide economic development plan I prepared in 2003). It has been the primary factor transforming the economic prosperity of the state in dramatic ways. In fact, it is highly unusual to see a public sector initiative work so well and bring such enormous benefits to taxpayers and citizens. The worst thing we could possibly do is stifle the very characteristics that make it work so well. The Enterprise Fund ain’t broke; don’t fix it!
posted @ 08:42 AM CST [link]
Friday, February 18, 2005
Texas Economic Evolution
In the early days of Texas’ statehood (1845 to the turn of the century), the primary growth engines of the state were cotton and beef. The Texas energy industry was born in 1901 with the discovery of oil in the southeastern portion of the state (Spindletop in Beaumont). The existence of petroleum had been known in the state for more than a century, and wells had been drilled since the 1800s, but massive fields coming on line at the same time as airplanes and cars started generating demand changed the economic landscape of Texas. By July 1931, more than 3,000 wells had been drilled in East Texas, and some periods averaged more than one new well per hour. East Texas was soon the center of the Black Gold Rush, and shortly thereafter, the Permian Basin in West Texas became the largest oil producing region in the continental US.
In the 1970s, cattle, cotton, and oil continued to be substantial contributors to the state’s economic foundation. The cattle inventory in the state peaked in 1975, with over 16 million head (at that time, there were actually more cows in Texas than people). However, the state’s economy had grown increasingly diverse in recent years.
In 1973, several major events occurred which played important roles in redefining the Texas economy. Texas bank holding companies began an aggressive era of acquisitions and growth. The transportation sector in the state took off with the birth of Southwest Airlines and the inauguration of the Dallas/Fort Worth (DFW) International Airport. Real estate boomed, with massive developments such as Las Colinas in Dallas. The outbreak of the Yom Kippur War led OPEC to seek a substantial embargo on oil to countries identified as hostile. At the same time, the cartel cut daily production by 5%. Oil prices immediately skyrocketed, up from a price-control era cost of $3 per barrel to almost $40 per barrel over the next 8 years.
From 1973 through 1981, Texas experienced an economic explosion, while the national economy faced substantial difficulties. During this timeframe, the Texas economy soared: personal income and retail sales almost tripled; the state gained 2.2 million jobs (a 40% increase); population expanded by some 3 million people; and real gross product increased 40%, 9.4% just in 1981. In fact, a major 1975 study rated Houston, Dallas, and Fort Worth as the top three cities in the US in terms of future job prospects.
With worldwide overproduction of oil in 1982, petroleum demand and prices declined markedly. In 1986, prices plummeted to $8 per barrel. Banks that had prospered mightily from energy lending found themselves in trouble and in search of new avenues for generating profitable activity. Many turned to the burgeoning real estate market, buoyed by new tax laws that encouraged development almost irrespective of the health of the underlying economy. Savings and loans, endowed with expanding lending capacity and powers courtesy of deregulation, were jumping into commercial real estate ventures like never before.
In 1986, federal tax law changes eliminated many tax advantages of real estate and oil well investments. Financial institutions, already weakened by the decline in the energy sector, found themselves overburdened with nonperforming real estate loans. Job losses were at times measured in the hundreds of thousands. Some giant corporations went bankrupt or were taken over by mega-mergers.
Although a national recession of 1991-1992 dampened business activity somewhat, by the middle of the decade, Texas had recovered at a more rapid pace than other areas of the country. Broad-based economic growth was enhancing diversity, and production in high-tech equipment (such as electronics and telecommunications apparatus), air transportation, healthcare, and aircraft manufacturing was growing. Economic development organizations across the state were aided by passage of legislation in 1991 providing cities with an additional form of sales tax to enhance their competitiveness.
Manufacturing and services industries played strategic roles in job creation, and numerous high-tech firms moved into Texas. The implementation of the North American Free Trade Agreement (NAFTA) opened the door to economic expansion in many areas of the state. Although Texas remained intricately linked to petroleum, its reliance on the energy sector continued to weaken, with 1997 mining sector employment (167,000) at barely more than half the peak level.
During the 1990s, Texas exceeded national norms in all major performance indicators. Texas led all states in net job creation with more than 2 million new positions. The population of the Lone Star State expanded by 22.8%, an addition of some 3.9 million people. Texas ranked first among all states in creating positions within the construction; transportation, communications, and utilities; manufacturing; and wholesale and retail trade sectors. Much of the overall growth was due to the development of a substantial presence in microelectronics, computers, telecommunications equipment, and other technology sectors. Texas was a leader in securing new corporate locations and business expansions. By the end of the decade, Texas was firmly established as a center for growth and opportunity.
Looking down the road, there’s every reason to believe the Lone Star State will continue to be a national growth leader. However, it is crucial that we take care of important issues such as providing for adequate training for our greatest natural resource—Texas’ large and growing workforce. Growing the right industries is also a key ingredient in ensuring future success. Another factor is keeping this a business friendly state by actions such as adjusting the tax structure so that it’s more equitable and able to provide necessary revenues. All in all, we’ve come a long way and the future looks bright indeed.
posted @ 08:25 PM CST [link]
Friday, February 11, 2005
Health Care Funding Reductions Are a Losing Proposition
The expression “Robbing Peter to pay Paul,” comes to mind when I think about the state’s reduction in spending for Medicaid and the Children’s Health Insurance Program (CHIP). But, there’s a twist. The implementation of the program cuts and provider payment reductions mandated by the 2003 Texas Legislature during the midst of a serious fiscal crisis is more like “Robbing both Peter and Paul.”
Despite the intense pressure to balance the State budget, lawmakers can do nothing to lessen the underlying need for health care. The burden of providing for those in need remained; it merely shifted from the State to local governments, hospitals and other providers, and the people of Texas.
While it may have looked good on paper, the actual effects were to reduce Federal health care funding for Texas and create a growing burden on providers, local taxpayers, and companies that offer health insurance to their workers. (Every State Medicaid dollar brings about $1.50 in Federal revenue; for CHIP, the matching is $2.60.) In addition, since Texas does not have an adequate program for preventive care, the cost could increase because of the tendency for minor medical issues to escalate into larger problems.
Inadequate public-sector health coverage is one of the reasons why many people are uninsured. About 55% of Texas residents receive some kind of health benefit from their employers. Hence, approximately 45% must obtain private insurance, rely on public initiatives, or just do without any coverage.
Texas’ aging population and their health care needs, combined with the rapidly growing number of people with insufficient insurance or other resources to pay, is straining the capacity of hospitals, physicians, and other providers to offer quality care.
The disproportionate concentration of elderly and low-income people in small and rural communities is particularly acute. Dealing with this situation may be complex, but it is highly important to the overall well-being of Texas.
The state’s efforts to take money from one pocket and put it in another has actually resulted in damaging both pockets. As the health care needs of Texas residents have increased, the hole in the bottom of the pocket that funds Medicaid and CHIP has become larger. The top of the pocket, however, has been almost sewn shut, thereby eliminating substantial amounts of Federal money from being deposited. As a result, hospitals, other health care providers, and individuals have to make up the difference and then some.
In other words, for every dollar the State has attempted to save through budget reductions, far more is being lost in Federal funding, insurance premiums, and other associated costs. Measured on a dynamic basis, each dollar in cuts in State funding for Medicaid and CHIP results in significant losses, specifically, $2.32 in Federal health care funding, $3.66 in total health care funding losses, $13.18 in total expenditure losses, $6.92 in gross state product losses, and $4.80 in personal income losses.
In addition, every dollar cut means $1.81 in retail sales losses, $1.59 increase in insurance premiums, $1.52 in out-of-pocket and other private health care costs, and $0.58 in local government costs increases and revenue losses.
If Texans are to be able to maintain their quality of life and the state is to continue on the path of economic advancement, it is essential that we respond to the daunting medical care delivery challenge and make the required investments. Sacrificing health care has proven to be an illusionary and counterproductive way to balance budgets, as funding cuts do more harm than good economically.
posted @ 08:38 AM CST [link]
Friday, February 4, 2005
Growing the Smart Way
The idealized neighborhood of the “Leave It To Beaver” era was one composed primarily of single-family houses creating a safe haven in which residents could live, play, and enjoy the necessities and niceties of life. Although that scene still dots the landscapes in some parts of Texas, in many other areas, neighborhoods are quite different, particularly those in the inner city.
A significant portion of the wide-open environment that formed the centerpiece of the Texas mystique during the 19th century and much of the 20th century has morphed from countryside settings to urbanized landscapes. Since World War II, Texans have been leaving the farm and heading for the city.
For the first time in Texas history, the 1950 census reported that more Texans lived in urban areas than in the country. Today, 8 out of every 10 people reside in metropolitan statistical areas. These metros represent 58 of the state’s 254 counties.
In recent years, numerous cities in the Lone Star State which have faced expanding populations—the product of migration as well as natural increase—have moved outward, creating what is sometimes called “urban sprawl.” This march to the suburbs near the edge of the city has been devastating to scores of downtown areas and inner-city neighborhoods.
Many economic development leaders have recognized the value of reclaiming these vacated or underused properties and buildings. As a result, they are striving to create new mixed-use environments for these neighborhoods that will preserve open spaces, restore the integrity of the infrastructure, and provide options for family residences. Redeveloping various blighted and abandoned areas and designing new structures reflecting the architectural character of the neighborhood is vital to the process of restoring the economic and social fabric of the areas.
Redesigning these areas in a manner offering open spaces and a mix of activities within walking distances is a smart idea. Engaging current residents in the planning and development of dwellings as well as recreational, civic, and business activities is also extremely wise. Changes such as these will enable inner-city neighborhoods to become more livable and help revitalize downtown cores, thus establishing an ongoing process to create and promote socio-economic equity.
To achieve such objectives, some cities may have to change or relax local regulations that do not support infill and redevelopment. Incentives might even become necessary. Developers and entrepreneurs may have to forego traditional concepts regarding marketability and embrace new approaches. Residents of the affected neighborhoods may also have to re-evaluate the value of commercial operations within their midst and understand the advantages and disadvantages such facilities could be to their routines and lifestyles.
To facilitate rehabilitation in inner-city neighborhoods, some financial institutions may even have to rethink or redraft policies regarding ways to assist property owners in these areas. Redevelopment and restoration of urban areas requires a variety of public and private partnerships and involves visionary and daring community and industry leaders. The results of such relationships could prove well worth the effort, however, and could foster diverse and thriving local economies that could enhance a city’s tax base.
I applaud those communities currently engaged in such processes and encourage others to consider initiatives that could change hundreds of lives for the better while also proving highly beneficial to an area’s economic growth and development.
posted @ 08:33 AM CST [link]