Targets for Texas A few months ago, we at The Perryman Group took a good, hard look at the Lone Star State’s economic development prospects. We reviewed workforce conditions, industrial composition, natural resources, infrastructure, and many other factors affecting the path of growth in business activity. This endeavor was part of a much larger (some might say too much larger) study, which we’ll be happy to share with you if you give us a call or drop us an email. One of the key questions we were looking to answer was how to maximize the “bang for the buck” in the arena of the state’s expenditure of scarce budget dollars on industrial recruitment.
Bringing in new businesses (and keeping existing ones) can be very challenging, particularly in a sluggish economy. In order to effectively utilize state resources for maximum impact, strategies should be focused toward clusters of production where Texas is presently competitive or has definitive prospects for success. Our analysis identified fifteen such segments, although these will change over time as new market conditions and technologies surface.
While any viable prospects for desirable activity should certainly be vigorously pursued, the industrial recruitment process must be focused. The rationale is simply that resources are limited and must be deployed in a manner to optimize prospects for success. The process of identifying appropriate targets involves (1) extensive empirical analysis to determine the resources and linkages which point to probable success and (2) detailed industrial evaluation to access those sectors with sufficient growth potential to merit recruitment. In order to be a viable candidate for long-term expansion, a sector must be characterized by both an appropriate match with the structure and resources of Texas and at least moderate prospects for new and expanded facilities.
Although the clusters described in the full study are not the only areas of potential growth, they represent sectors which offer the best promise of success. When developing marketing strategies, attending trade shows, planning international trade missions, or visiting key corporations, it is helpful to focus on the industries offering genuine opportunities. It can also help to pursue regional development strategies because they are often superior to purely local ones; the Council of Governments areas are remarkably well defined and institutionally suited to this purpose.
A few industries, such as tourism, represent viable targets for virtually all parts of Texas. Others (such as distribution, transportation, and logistics or information services) are a good bet for almost every region. The applied technology, corporate headquarters, and business services clusters are generally only good prospects for the state’s largest metro areas, though it’s important to note that different cities are better suited for some sectors than others.
Energy, production support manufacturing, and agriculture and foods are good fits for portions of most regions; heavy construction and transportation equipment each match up well with a spectrum of areas. On the other hand, the requirements of the emerging biotechnology and medical, as well as emerging nanotechnology and materials clusters are only suited to specific areas, primarily those with larger cities, concentrations of research facilities, major universities, or healthcare complexes.
There just isn’t enough space here to get into a lengthy description of the industries, nor can I tell you all I’d like to about which clusters fit each region. Suffice it to say that the great state of Texas is a vast space. Different areas have unique characteristics, from workforce to industrial base to higher education facilities to natural resources and then some. No cookie cutter plan will work across the board.
To maximize the returns on our economic development investments, it is imperative to look to those industries where we have the right linkages. It’s also wise to work on prospects in growing industries. However, just because an industry is in the headlines doesn’t make it a good bet everywhere. A successful industrial recruitment strategy begins with a thoughtful analysis of which types of firms are most likely to be recruitable. While the State must do some things to make us competitive, economic development is ultimately a local, focused endeavor.
posted @ 07:57 AM CST [link]
Friday, April 4, 2003
A Bad Idea While Texas grapples with a mounting crisis in the State budget, every line item is subject to close scrutiny. Large and growing categories of spending are, naturally, receiving particular attention as legislators struggle to find ways to reduce expenditures. As one of the largest segments of the state budget, Medicaid and the Children’s Health Insurance Program (CHIP) have recently come under fire. These programs, partially funded by State resources, provide healthcare access for low-income individuals and qualifying children, respectively. Currently, they are facing significant and rapidly escalating costs. Not surprisingly, numerous proposals have surfaced to reduce commitments to Medicaid and CHIP.
It is certainly worthwhile to explore any available options to enhance efficiency or decrease costs without sacrificing healthcare access. However, limits on the medical service delivery system can be detrimental from several perspectives. First, the health of the populace is a defining characteristic in the prosperity of every region. Second, the majority of Medicaid and CHIP financing occurs at the federal level. Thus, each dollar of reductions in the State commitment brings a net withdrawal of even larger magnitude in money available for healthcare in Texas. Third, the proposed cuts in Medicaid and CHIP set off a chain reaction of responses in terms of access, insurance rates, local taxes, and dynamic fiscal resources which yields adverse consequences and minimizes or eliminates any short-term increases in revenue.
The nature and magnitude of the cuts is clearly a moving target, with new twists surfacing almost daily. While the primary benefits of Medicaid and CHIP lie in the provision of medical and related services to the least advantaged segments of the population, they are also important elements of the Texas economy which are largely supported by external sources. Any potential reduction in funding for these two programs causes not only enormous consequences for those no longer eligible for much-needed insurance, but imposes a notable cost to the state economy as well. In a recent study, my firm analyzed the economic fallout from plans to scale back Medicaid and CHIP spending. Among the provisions typically included are elimination of coverage for large numbers of the CHIP and some Medicaid recipients and significant decline in physician reimbursements for Medicaid patients.
Reductions in Medicaid and CHIP benefits are unlikely to cause a decline in the cost of healthcare delivery in Texas. Instead, the most probable outcome is that the burdens will be shifted to other entities. The reimbursement decreases, for example, are likely to substantially reduce access, as less than half of physicians accept new Medicaid patients at present payout levels. Similarly, it is probable that the reductions in coverage will increase the expense associated with medical services. There is also every reason to believe that insurance costs will rise as a portion of the financial burden stemming from the larger numbers of uninsured Texans is spread through the private insurance system.
So how bad an idea are the proposed reductions? We looked at what happens when $1.00 of state revenue is taken out of the Medicaid and CHIP Plans. Here are some key findings. Business activity in Texas declines by $19.14 (measured on a dynamic basis). The State has a dynamic revenue loss of $0.46, meaning that reduced economic activity causes a loss of tax revenue. Local taxes rise by $0.51. Private insurance premiums rise by $1.34. Some $2.81 in federal funds leave the Texas healthcare system (measured on a dynamic basis). Texas healthcare providers suffer direct uncompensated losses of $0.53. Individuals in Texas pay out-of-pocket increases in taxes and insurance of $1.01 and see total losses of $3.38. Businesses in Texas pay out-of-pocket increases in taxes and insurance of $1.58 and suffer total revenue losses of $10.28. Induced losses of insurance coverage raise healthcare costs by $0.62. Retail sales decline by $1.77.
A comprehensive examination of the economic aspects of the key programs in the medical safety net leads to one basic conclusion: any benefits of funding reductions to the State budget are more than offset by the adverse consequences for business activity. When combined with the economic development implications of higher insurance rates and the detriment to the critical infrastructure which ensures physical wellbeing, it is evident that, even in a fiscally constrained environment, maintaining adequate funding for Medicaid and CHIP represents a critical investment in the ongoing prosperity of Texas.
posted @ 08:09 AM CST [link]