2015 Governors Cup

Texas and Kentucky have again won the Governors Cups for attracting new facilities the previous year — Texas for total qualifying projects and Kentucky for total projects per capita (a widely applauded recognition added to this facilities race in 2014).

As Yogi Berra would say, it’s like déjà vu all over again. Except this time the new governor involved, Matt Bevin, is on the Kentucky side. Last March, Texas Gov. Greg Abbott made his first appearance in the pages of Site Selection when he accepted the Governor’s Cup for total project activity in 2014, having just taken office a few weeks previously.

Gov. Bevin of Kentucky has that experience this year as the Commonwealth claims the other Governor’s Cup — he just took office in December 2015. Both governors in this situation transferred credit for their wins immediately to those economic development professionals on the state and local levels who did the hard work of attracting new businesses and retaining and growing existing ones during the calendar years for which they were recognized.

Six governors, illustrated above, made the Top 5 states in either the Total Projects or Total Per Capita Projects Governors Cup contests — see the chart for the Top 10 States in each category. Gov. Matt Bevin of Kentucky, lower right, won first place in the Per Capita Projects contest and came in fifth in total projects.

Illustrations by Bob Gravlee

The Governors Cups reflect yearly project totals as tracked by the Conway Projects Database. Qualifying projects must meet one or more of these criteria for inclusion in the database: a minimum capital investment of $1 million, 20 or more new jobs created, and 20,000 or more square feet of new space.

Both Texas and Kentucky increased their winning totals in 2015. Texas finished the year with 702 projects, up from 689 last year; Kentucky had 285, up from 258. Ohio claimed second place in both total projects and total projects per capita in last year’s facilities race — ditto the previous year — and it retains that recognition on the total projects side with 517 projects (down from 582 in 2015). Nebraska ranks second on the per capita side with 118 projects.

Changing of the Guard

Step back from the numbers and the bigger picture comes into view: Two new governors inherit state business climates that while not perfect are strong enough to deliver trophies for attracting facilities. More to the point, the economic developers on the front lines secured the capital investment that resulted in the Cups. But some new generals are now in charge, and they intend for their states to keep winning.

Greg Abbott has one year as Governor of Texas behind him. Now it’s on to the next.

“We are going to go to work every single day to continue to win this — that is our goal and our aspiration,” he tells Site Selection.

This year, business attraction is taking place in Texas against the backdrop of lower oil and gas prices, which directly affects energy, one of the Lone Star State’s key industry sectors — but just one.

“One of the reasons so many businesses and individuals choose to relocate to Texas is because we have the model of governing that promotes individual prosperity and the ability for businesses to grow and expand. We are able to do that, and improve on that, despite the downturn in oil prices,” says Abbott. The downturn began during the last legislative session in Austin, he recalls. “We knew what was going to happen, and we prepared for it. We put aside $10 billion in a rainy day fund and left another $4 billion in our checking account, leaving Texas with the strongest balance sheet of any state in the nation.” Another step taken, says Abbott, that will allow Texas to attract more investment and to grow existing industry, was cutting taxes on businesses, families and homeowners.

“We have no personal income tax nor corporate income tax, but we do have a business franchise tax known as the margin tax that we slashed by 25 percent,” says the governor. “We also cut property taxes for homeowners. So the cost of doing business, as low as it was before, got even lower. We cut regulations and sped up the permitting process to make it even easier for businesses to come here and to grow here.”

Severance taxes are particularly linked to oil, gas and other commodities, so that revenue is particularly vulnerable until oil prices climb again, as they invariably do. Even there, says Abbott, there is no cause for concern. “The primary use of the revenue that comes from the severance tax goes into the rainy day fund or our savings account. General revenue comes mainly from other sources. So the downturn will have minimal effect on the way we run the government.”

Gravy for the Meal

A native Texan, Abbott points out that every decade has seen a downturn in oil prices like that of today, “and every decade we have come out of it. The important point is that Texas was hit hard in the 1980s, and at that time we understood Texas had to diversify our economy. The reason Texas has continued to prosper over this past year is because we succeeded in diversifying our economy. Even as Texas was challenged over this past year, it was still third in the nation in creating new jobs. It has not been a problem for the Texas economy as a whole.”

“As great as Texas is now, its future is even more promising. We will continue to make the case that Texas is the right location for businesses and their employees.”

— Texas Governor Greg Abbott

Technology, including data centers; financial services; and health care and life sciences are among the state’s most active industry sectors, “and they have nothing whatsoever to do with the energy sector,” notes Abbott. Aerospace, logistics, food processing and other sectors also are seeing healthy rates of investment. “Oil and gas used to be a key component of the Texas economy. Now, it’s like gravy on the meal, and the meal is based on so many other sectors. The more we pump oil, that’s more gravy for the meal.”

Technology companies in particular have made a bee line from California to Texas, particularly the Austin area (think Apple and Oracle among others), citing lower living and tax costs. Austin is a high-tech hub, but Abbott points out that there are more technology workers in the Dallas-Fort Worth and Houston metro areas than in Austin, and San Antonio’s not far behind.

That’s a key point. Amazon operates three fulfillment centers in North Texas alone. Gov. Abbott says executives at the Seattle-based e-commerce giant recently told him Texas’ workforce is the main driver of its facilities growth in the state. “We know that quality of workforce is one of the most important issues employers look at when they consider which location to move to. For that reason, we have a laser-like focus on continuing to improve the quality of our workforce.”

During this same time, says Abbott, Texas made two important investments that he says will make its business climate the strongest in the nation for the next decade.

“First,” he says, “we set money aside to build the best infrastructure of any state in the country.” How much money? “About $4 billion per year for the next 10 years, or about $40 billion, to build more roads so that people and businesses can move around in our fast growing cities, to unclog the roadways. We know that is an important quality-of-life issue, and we want to ensure that businesses that come here will have a top-notch quality of life.”

Education is the second, says Abbott, “from early education all the way through higher education.” The University Research Initiative is a recent example. “This is a new fund that is attracting the best and brightest researchers from across the country, and we’ve already seen tangible results.”

Texas in recent months has added four more universities to Carnegie Foundation Tier One status, “giving employers access to the best and brightest students graduating from some of the premier universities in the United States, and opportunities to collaborate with the best and brightest researchers in the country,” Abbott relates. Three were already on the list — UT at Austin, Texas A&M and Rice University. The newcomers are UT at Dallas, UT at Arlington, the University of North Texas and Texas Tech.

What’s the plan for 2016? “As great as Texas is now, its future is even more promising,” says Abbott, who intends to build on the business climate attributes this year that have worked so well in the past. “We will continue to make the case that Texas is the right location for businesses and their employees.”

The Per Capita Prize: How to Keep Winning It

If Kentucky’s new governor, Matt Bevin, accomplishes even a fraction of what he intends to in the next few years, the Bluegrass State will remain a daunting defender of the Governor’s Cup awarded on per capita projects. It’s even a strong contender in the total projects Cup race, finishing in fifth place in that contest with 285 projects in 2015.

“Right-to-work legislation has come to every single state in the South except for us, to every state in the manufacturing belt in America, and we are the buckle of that belt.”

— Kentucky Governor Matt Bevin

“I can’t lay claim to any of that, but we are very grateful nonetheless,” says Gov. Bevin, who comes to his new role as Kentucky’s Chief Executive from the business world. “I do speak the language of business. That’s where I come from. I’m a business person and entrepreneur, someone who has dealt with the regulatory and tax hurdles and burdens that are often placed on businesses. I know what it’s like to be on the other side of that equation. When legislation and regulations are passed, there are costs associated with that — an absolute cost, an opportunity cost. Being able to understand that and speak that language is helpful. It affords me the opportunity to be more than just sympathetic to business, but to be empathetic, and there’s a big difference. In just a couple of months, that has given me the ability to connect with some of our business community, and that has given some hope and excitement that as sharp as we have been, we will be sharper still in the years to come.”

Governor Bevin has a few areas in which he plans to demonstrate that.

Shoring Up the Financial Foundation

“People want to see us get our financial house in order, first of all,” he says. “No one wants to be in, expand in or relocate to a state that is becoming fiscally insolvent. We have struggled with unfunded pension liabilities and a variety of other things — with getting our financial foundation straight. So my number one focus, driven by what I know as a business person and as someone who knows the investment world a bit, and by what my peers and taxpayers are saying, is to get the financial house in order, to stop the financial bleeding. This must be done.

“Second,” the governor continues, “and in a similar vein, is to get our credit rating straightened out, which is largely driven by the first part. The credit rating agencies are indicating that if we don’t start to take that seriously, they would have no alternative [but to downgrade]. Well, there’s no cold water to a business looking to expand or relocate than that. I get that from a business point of view.

“I also hear from bigger businesses in particular, as well as small, the desire for right-to-work legislation,” says Bevin. “We probably don’t have the legislative appetite for that in this session, so it’s not likely to happen this calendar year, but it will come. Right-to-work legislation has come to every single state in the South except for us, to every state in the manufacturing belt in America, and we are the buckle of that belt. It extends from the Canadian border, including Wisconsin, all the way to the Gulf, and we’re smack dab in the middle. I have seen studies that state that a full third of companies have stated that they will not look to expand in a state in any significant way that has not passed this. That’s not to say that two thirds won’t expand, but why would we want to fish in a pond that is two thirds the size of a pond others are fishing in? To handcuff ourselves is a bad idea.”

If that is sounding like the language of businesses that intend to succeed, wait. There’s more.

“People desperately want to see some tort reform. Kentucky is known to be a state that is litigiously friendly — to the detriment of business and to the detriment of our economy,” says Bevin. “People want us to get our healthcare situation in place. They want a healthy populace, healthy employees.” School choice is another area where Kentucky can better compete nationally, because the issue is important to facility locators working on site strategies that may involve personnel relocations, he relates.

Putting the ‘Work’ in Workforce Development

Workforce development is another arena ripe for attention, says Bevin, pointing to “thousands of unfilled jobs right now. The growth [Site Selection] reports on and that has been stellar to the degree it has been relative to others could be so much more robust — so much stronger and better if we had the kinds of workforce development programs in place to ensure that people were workforce ready. Having degrees is of no value to people if they are not skilled at what employers want.”

Outcomes-based funding and using public education dollars to ensure students are ready for the post-secondary world are very much on the governor’s agenda. Look for greater use of certification programs and degree program redesigns that better align with industry requirements.

“I just put out a budget that calls for spending $100 million over the next two years on workforce development. The plan is for people in the private sector and the education community, together with their locally elected officials, will work together and come forward with a solution where they, in collaboration with each other, with their own skin in the game financial and otherwise, will come up with solutions and the state will help prime that pump. That’s where I want to spend that money.

“As a business person, these are the kinds of things that have always intrigued me,” Bevin adds. “I am intrigued by situations where you take an idea and you turn it into opportunity — you create jobs, economic growth. I want this state to be the very best version of itself in doing that.”

On the Border

On February 22nd, Gov. Greg Abbott met with Mexico President Enrique Peña Nieto in Houston to follow up on issues the two leaders first discussed in Mexico City in September.

“The focus of this meeting was two-fold,” the governor told Site Selection. “One is the burgeoning private-sector development of the energy sector in Mexico and the role Texas businesses can play in that. The second is working to expand trade with Mexico, which is Texas’ largest trading partner.” (See the New Mexico Spotlight for a conversation with Gov. Susana Martinez about, among other topics, her state’s efforts in these areas.)

Laredo, Texas, on Interstate 35, is the largest inland trading port in the world, Gov. Abbott points out. “But the trade areas between Texas and Mexico are vast and large, including, along the Rio Grande Valley, Brownsville and McAllen and the many cities in Cameron and Hidalgo Counties and elsewhere where commerce is bustling – Laredo and El Paso and others. We are working to improve infrastructure at those trading locations and to expedite trade. Time is money, and we want to speed up that process.”

California businesses with trade operations in Texas tell Gov. Abbott they are there because of the efficiency of the Texas locations. “Trade along the border is going to continue to increase and be a source of prosperity for the state,” he predicts.