Make that Five in a Row

By: Dr. M. Ray Perryman
Published in syndication March 22, 2017

The Lone Star State has once again prevailed in Site Selection Magazine's "Governor's Cup" competition. The Governor's Cup goes to the state with the most major corporate location and expansion projects. To be counted, a project has to either involve a capital investment of at least $1 million, 20 or more new jobs, or 20,000 square feet of new construction.

Texas had 642 major projects in 2016, down slightly from the 702 in 2015. Ohio came in second with 515, followed by Illinois (434), North Carolina (289), and Georgia (271). The top four ranked the same this year as last, and this is the fifth year in a row Texas topped the list. The Lone Star State won in 2004, 2005, 2010, 2012, 2013, 2014, and 2015, and was a close second in several of the years between.

What's really impressive is that the win comes as the energy sector has been struggling. To generate more than 200,000 jobs and 642 major projects with the leading export industry bottoming out speaks to the resilience of the state economy. In January, the state added 51,300 net new jobs (as measured by seasonally adjusted nonagricultural wage and salary employment), and the unemployment rate now stands at 4.8%. Not bad!

The largest projects by size of capital investment include several petroleum refineries and chemicals facilities. Clearly, the state's resource base and port access is a primary consideration in these location decisions. However, there were also major investments in electronic appliances, financial services, food processing, data processing, pharmaceuticals, and others. Many of these industry groups have been purposefully encouraged, supported, and otherwise targeted by economic development strategy. Another Governor's Cup win is a very tangible sign that these efforts are paying off, generating desirable corporate locations and expansions and job opportunities.

In addition to strategic economic development policy, Texas also compares fairly well in terms of the business climate. There are other states with abundant natural resources and a large workforce that are not seeing this level of new activity. California, for example, had only 250 major projects last year.

The Texas business climate is arguably among the best in the nation, offering advantages in the areas of workforce, cost structure, location, natural resources, and available land, in addition to notable incentives programs. Also, the state compares fairly well by most tax measures, particularly from the perspective of individuals since there is no state income tax. For industries which rely on large numbers of knowledge workers, this can be a significant advantage.

This is not to say that we can become complacent and assume good things will continue to happen. Site Selection also does a per-capita ranking, and once again Texas is not in the top 10. The per-capita list is not all small states either; Ohio is number three. Clearly there is still room (and a need) for strong programs and further progress.

Looking to the future, we are likely to see significant investment in the Gulf Coast region for petrochemicals (such as refining, liquefied natural gas, and chemicals) for several years. In addition, Texas continues to emerge in a number of aspects of technology, and several of these advanced industries are expected to take on increased importance. The research ongoing at the state's universities will generate additional startups. The convergence of technology, biosciences, and health care also has the potential to lead to future growth.

It is crucial that we continue to improve the state's workforce through enhancing education at all levels. Infrastructure and the regulatory environment are also critical. Furthermore, it is essential to support strong economic development programs. Risks to future growth include policies that could curtail future expansion, tax imbalances which place a heavy burden on capital-intensive industries, and national decisions such as damaging the United States' relationship with Mexico and other major trading partners.

Although there are certainly areas which could be improved, by most measures Texas is ahead of the curve. Let's keep it that way!