Real GDP increased in 43 states in the first quarter of 2017, according to the Bureau of Economic Analysis. But only Texas grew to within a hair’s breadth of 4 percent, at 3.9 percent. The Lone Star State also had the largest gain in nonfarm payroll employment in June with an increase of more than 319,000 jobs, according to the Bureau of Labor Statistics. Texas is not without challenges, but economic growth is not one of them in mid-2017.
On August 8, Site Selection Editor in Chief Mark Arend spoke with Governor Greg Abbott about Texas’ industrial landscape and signature energy industry, NAFTA renegotiation, property tax reform and other issues. At the time, the state legislature was meeting in a special session to resolve some matters of great interest to the governor, some of which were not resolved — property tax reform most notably — and will be revisited in the next regular session. Following are highlights of the discussion.
Site Selection: Is the energy industry in Texas any different now that former Texas Governor Rick Perry is Secretary of Energy in the Trump Administration?
Gov. Abbott: A lot of the Energy Department operations concern nuclear-based issues, and there has been some intersection between those and Texas. To the extent it involves energy-based issues, it’s helpful to have Governor Perry in that position. But the Secretary of the Interior has a large role also with regard to the energy industry. From a bigger picture, the Trump Administration has been very favorable to the energy industry by working to peel back regulations that were heavy-handed and challenging for the energy industry. One of the great appointments by the president in that regard is EPA Administrator Scott Pruitt, who is from Oklahoma and understands the energy industry well and has been working collaboratively to ensure that while we maintain protections of the environment we can also expand the oil and gas industry in Texas and across the country.
Site Selection: How is the shift from import to export of energy benefitting Texas specifically?
Gov. Abbott: There is a coming boon to the oil and gas sector in Texas with the increasing exportation of oil and natural gas. That’s good for oil and gas producers but also the midstream providers and chemical plants in Texas, and it is a factor that has stimulated jobs and employment in Texas. [Negotiations were under way between Texas and several world markets at press time involving exportation of natural gas—Ed.] On the natural gas and the oil side, this will be a tremendous growth opportunity for years to come. Texas has a tremendous amount of natural gas, as do a lot of other locations in the United States. Some of that gets piped to Texas, which has become a prominent, if not the leading state, as it concerns exporting natural gas. It’s a clean-burning fuel in demand across the world, and it could bring meaningful expansion to the Texas energy sector.
The most efficient production location for oil in the world, certainly in the United States, is the Permian Basin in West Texas. There are tremendous reserves and low-cost production there, which has stimulated increased hiring and jobs in the oil and gas sector in Texas at prices that are one-third where they were a couple of years ago.
Site Selection: Beyond energy, Texas has long enjoyed a diverse economy with significant clusters in aerospace, automotive, IT, data centers and advanced manufacturing. Which sectors would you add to that list as now being drivers of Texas’ economy?
Gov. Abbott: I would add health care and finance. There is dramatic growth in the number of finance-based employers moving to Texas. We have broken ground on two very large locations for Charles Schwab — one in Austin and one between Dallas and Fort Worth at Alliance. The latter should employ about 5,000 where there has been a dramatic increase in the number of other finance-related projects. A report about a year ago talked about the percentage of the workforce in the region focused on the finance sector. It asked which of the following regions have the greatest percentage of the workforce concentrated in the finance sector — New York, Boston or Dallas? It was Dallas. Employers in the finance sector are really geared up about the workforce quality for the finance sector.
In health care, we have the largest medical center in the world in Houston, and with the burgeoning medical centers in Dallas and San Antonio, there has been a tremendous amount of health care hiring. There is also dramatic expansion in the health care sector in Texas in a couple of other ways. One is McKesson — the largest medical supply company and number five on the Fortune 500 — where I just participated in their latest expansion in Texas. We opened their third Texas building in Las Colinas in Irving, near Dallas. They continue to expand operations here. We just made an announcement from the Texas Enterprise Fund of a grant going to Merck, which will be a cornerstone tenant in a research corridor that is being built connected to the University of Texas Dell Medical Center in Austin, where Merck will be working collaboratively with the medical school.
Site Selection: You mentioned the Texas Enterprise Fund. What is the status of that deal-closing resource at this time?
Gov. Abbott: In the most concluded session, it was fully funded. That continues on, and we have the same robust resources that we’ve had in the past. We’ve been very aggressive in using it and bringing in a lot of projects. Another fund that is also important and that also was fully funded is the Governor’s University Research Initiative. This is important for two reasons. It continues to help Texas bring in the best and brightest researchers across the country in STEM-related sectors — not just the researcher, but their team and their labs. They also partner with the private sector here. When private-sector companies are looking to relocate or expand, they see this pipeline of talent and products and innovation coming out of these labs that connect with the private sector. This is beneficial to our universities and to developing the talent these companies want. It’s also beneficial to encouraging the private sector to grow and expand here in Texas in the medical and related fields.
Site Selection: Property taxes in Texas are deemed by many to be high, due in part to lack of a state income tax. Is this becoming an issue for out-of-state capital investors considering a Texas location?
Gov. Abbott: We’re making sure that property taxes will not be a detriment either for companies or for individuals. My focal point in this special session is in reducing property taxes. We have several bills that are working their way hopefully to my desk that I will be able to sign that will rein in property taxes. There was a headline recently in the Austin American-Statesman saying the property tax reform I proposed would rein in property taxes in Austin. This is the first step of a multi-step process to reduce property taxes in Texas. The second step we are working on in the special session but will carry on through the next regular session is what’s called school finance reform, which will have a component that works to reduce property taxes in Texas. The bottom line is that legislators fully understand the importance of corralling property taxes so that we can lower the tax burden for homeowners and also the job creators.
Currently, if a municipality or county increases property taxes by more than 8 percent, citizens can petition for a rate rollback. They reject the property tax increase. Here’s how we’re trying to change it: We want to lower the rate rollback threshold from 8 percent to 4 percent. If cities and counties increase property taxes by 3 percent or less, then there is no rate rollback issue whatsoever. City and county officials will be held accountable in the election, but nothing can happen to their proposal to increase the rate. Under the Senate proposal, if the city or county seeks to increase property taxes by 4 percent or more, that triggers an automatic rate rollback election. Voters may well approve it, or they may not approve it. It’s a way of putting a lid on expansion of cities’ spending.
There are exceptions there that account for growth, as we have some that are faster-growing cities. The proposal accommodates for levels of growth. The difference between the House and Senate proposals at this time is the Senate [election trigger] is 4 percent and the House version is 6 percent or more. So we need to negotiate between the House and Senate some compromise that will pass muster. Under this legislation, municipalities would still have the ability to increase property taxes, but we are trying to constrain the growth of those taxes as well as ensure more responsible and focused spending practices. [The special session concluded August 15 without a property tax reform compromise being achieved.—Ed.]
Site Selection: Does NAFTA need to be renegotiated, as the Trump Administration intends, and what are Texas companies’ hopes or concerns in this arena?
Gov. Abbott: It’s a treaty that is about 25 years old that was entered into around the time the Internet came into widespread use, and certainly before electronic transactions were made the way they are today. That’s an example of how dated it is. Commerce is far different today than at the time NAFTA was originally negotiated. Every quarter of a century it’s probably a smart idea to update that trade treaty. But importantly, everything we see out of the Trump Administration, and everyone I’ve talked to in the administration insists on the necessity to create more jobs, spur economic growth and do what is best for the American worker. I don’t believe the president wants to harm the working relationship between the US and Mexico, but rather to reform NAFTA, improve it and bring it up to date. If extreme changes were imposed on NAFTA that would impair trade, then it would frustrate the president’s articulated goal of increasing employment and increasing trade and doing what’s best for the American worker. I think there will be modifications made, but they will not be draconian or detrimental to economic activity in Texas or the United States.
On the topic of the border, concerns were raised months ago about the BAT or Border Adjustment Tax and the challenges that could pose to economic activity especially for border states like Texas. It seems the key leaders on this in the US House of Representatives have conceded that a BAT will not be moving forward. That conclusion is good for the US economy and trade, and it’s particularly good for the Texas economy and trade.