The committee met to consider the following two interim charges:

  • Oversee implementation of HB 26 (84R). Review best practices for measuring success of economic development incentives. Consider general metrics or principles to aid the Legislature in determining viable and sustainable incentive programs that provide a "Return on Investment" for taxpayers.
  • Examine if the state has an adequately diversified economic foundation and make recommendations on how to better achieve diversification. Look at ways to achieve balance between rural and urban economic development. Consider methods to improve workforce development initiatives and incentives that will improve re-employment after layoffs and release from incarceration as well as methods to improve employment rates for recent graduates.

 
Opening Remarks
Chair Angie Chen Button

  • Texas is no longer the number 1 job creator; need to work harder to restore us back to the number 1 position
  • Next hearing will be April 6 in Garland; will be discussing Interim Charge 2 – what local governments are doing to attract businesses, and Interim Charge 5 – evaluating Texas’ competitiveness with other states

 
Bryan Daniel, Executive Director for Economic Development and Tourism, Office of the Governor

  • Following legislative session, started working on several components of implementing HB 26
    • Have been able to quickly implement some new time frames for a speedier approval process
    • Moving investments from the Emerging Technology Fund to the Texas Safekeeping Trust was a large endeavor and went very smoothly
      • Governor’s Office continues to maintain multiple grants in educational settings
    • Moved the events trust funds from the Comptroller’s Office to the Governor’s Office; that was also a very smooth transition
    • Have spent a lot of time working up rules for the Governor’s University Research Initiative; evaluating comments now and will be making modifications; may publish the final rule as early as next week
    • Have been working to identify individuals for the Economic Incentives Oversight Board; have identified several individuals already; should announcing those selections in the next few weeks
  • For the most part, have successfully completed all of the elements of the bill
  • Also worked on implementing items from the audit of Texas Enterprise Fund
    • One major issue had to do with the way the post-event economic impacts are calculated; spent a lot of time with economists working on that issue
  • Have enhanced the small business department within the office; small business and entrepreneurs need some specialized assistance apart from what large businesses receive
  • Working with TWC to expand access to resources to small businesses and entrepreneurs
  • Trying to resolve the issue of who cities can call to find out more about companies moving into their areas
  • Button noted she is very happy to see the Office putting an emphasis on helping small businesses
  • When comparing 2014 to 2015 numbers, the Office has not seen a significant change in the inquiries received or in the opportunity for the Office to help businesses move into the state; when looking at economic indicators such as sales tax collections decreasing and job numbers one might expect business movement to slow down
  • Starting with FY15, the Office has developed 240 business prospects and shared about 70 leads with communities; these are fairly healthy numbers
  • Looking at FY16, have not seen a change in the way companies are looking at the state or what they want to invest
  • Net job numbers for the state are revolving around a few industries; energy numbers are decreasing but other industry numbers are increasing
  • Have seen 2 of 12 offers made recently declined by the businesses; one was because the company didn’t want any incentives, the other was because the State of New York offered 7x what Texas was offering; of the other 10, 5 have announced their awards and the other 5 are still in the site selection process
    • Seeing a nice balance between manufacturing, financial sector, headquarters relocations
  • So far, Texas is continuing to see healthy diversity in the types of companies the Office is working with
  • Communities are remaining very active and working very hard to keep their communities attractive to potential companies
  • Rep. Hubert Vo asked if any study has been done regarding the impact on the region of the high speed rail project
    • No
  • Vo noted he is wondering what the impact will be on the airline industry
    • Communities have come to the Office with questions about the project; will continue to keep a close eye on that project
  • Vo asked if they have approached the state with questions about incentives
    • No
  • Button noted she has heard that the Toyota plant moving to Plano has caused quite a few well known Japanese companies to consider moving to Texas; it appears that Texas is not as aggressive as other states in trying to further leverage that success; Texas is still using a more traditional style and not actively seeking out companies
    • Texas does need to be more aggressive both internationally and domestically; some states are copying from Texas’ playbook; will have to develop some new strategies; have found that in other regions of the globe there is a different way of doing business, building relationships is a very important aspect of doing business internationally; Texas is spending time trying to build those relationships
  • Button noted that not too long ago Texas was number one in job creations and has now moved to number 6 (Button later corrected this number from 6 to 3)
  • Rep. Jason Villalba noted there is a developing opinion of corporatism and that perhaps spending money on economic incentives is a waste of taxpayer dollars; Villalba noted that Texas is falling behind because other states are catching up and perhaps Texas is not doing enough; curious how the idea of corporatism can be refuted
    • First, to unilaterally disarm a state of incentives will put that state at an immediate disadvantage regardless of the economic performance of the state; a deal closing fund like the Enterprise Fund in conjunction with the economic benefits of the state  can make Texas more attractive than other states with far fewer dollars from the deal closing fund than other states would need to use; some companies really rely on state incentives to help with cost of moving their business so they can realize the economic benefits of the state
    • 10 awards made from calendar year 2015 total expenditures of around $27 million; if all of those projects come to fruition Texas could realize over $1.3 billion in economic activity, not including collateral activity
  • Rep. Doc Anderson asked if there are any efforts to diminish the opinion in the business world that Texas is not as aggressive as other states in bringing businesses to the state
    • The Texas Economic Development Corporation markets the state and makes efforts toward public relations; not directly from the Governor’s Office but in tandem; the Governor’s programs directly benefit from the efforts of the EDC

 
Paul Ballard, CEO and Chief Investment Officer, Texas Treasury Safekeeping Trust Company

  • Since September 1, the goal has been to manage the ETF and monetize those assets as significantly as possible
  • Have held active discussions with 45 of the companies trying to understand more about them and learn about the prospects of their business
    • Have identified 38 companies that are very likely to receive outside capital and will be focusing on those companies as candidates for follow on funding
    • Have been budgeting for follow on funding to ensure the state’s investments are leveraged to their full potential
  • Bringing in expertise to help understand market sectors the state is invested in and trying to fill board seats with individuals with more investing expertise in particular market sectors
  • Converting to common or preferred stock on all eligible promissory notes
  • Also working individually with companies to help their businesses come to fruition by putting them in contact with the right people as well as helping them with other aspects of their business to get money behind their ideas
  • For companies that are likely to go bankrupt, the state is helping them to monetize the ideas behind their businesses in the form of intellectual property
  • Villalba asked if there are resources to participate in the event follow on funding is required to prevent cram down or dilution
    • $12 million was appropriated for that purpose

 
Melissa Maynard, Pew Charitable Trust Economic Incentives Project

  • Pew does not take a position on whether incentives are good or bad
  • Pew helps states with processes to regularly evaluate their incentive programs
  • Also identify subtle changes that can be made to improve programs
  • HB 26 and the creation of the Economic Incentive Oversight Board were great steps to help make incentives more beneficial to the state
  • Questions the state could answer to ensure all information needed is present:
    • Are there stated goals that are being achieved?
    • Is the program being administered efficiently?
    • In what way did the incentive change business behavior?
    • Are there indirect effects, whether positive by creating economy or negative by creating competition?
    • Is this strategy a worthwhile use of the state’s resources?

 
Dr. Jojo Estrada, Local Government Assistance and Economic Development Division, Office of the Comptroller

  • Over the previous 10 years, Texas has had a far more sustainable growth path than the nation as a whole; 21% job growth for Texas, 11% for the nation
  • A huge portion of job growth in the state has been driven by public education jobs, leisure and hospitality, health services, business services and retail trade
    • Broken out further, the goods producing category which includes mining, logging, construction and manufacturing has grown significantly in the last 10 years; this is true despite the recent shedding of oil and gas jobs
    • The service producing category which includes, retail, wholesaling, transportation and utilities has also grown higher than the state as a whole
  • In nearly every sector, Texas has outperformed the nation over the same 10 year period

 
Keith Phillips, Federal Reserve Bank of Dallas

  • Most energy analysts expected oil per barrel prices to be about twice what they are right now; this is causing the Texas economy to grow at a fairly weak rate
  • For some states, when energy declined, the states took a serious dive in economy growth such as North Dakota; in Texas, when energy declined, it didn’t hurt the economy as much as those other states showing that energy isn’t the only industry driving the Texas economy
  • The unemployment rate for Texas is still doing better than the national rate and is especially low in the larger cities
  • Leisure and hospitality industry has grown in the state likely due to the reduction in gas prices and consumers having more spending money
  • Health care spending has increased rapidly as well
  • There is strength in the construction market likely due to people holding off on building during the rains in the early part of the year that have dwindled recently
  • Housing markets remain very tight and in very good shape
  • Office vacancy rates remain very low; expecting those rates to increase over the next few months in Houston
  • Manufacturing has been weak over the last year; there has been a recent pickup though likely due to construction manufacturing
  • Texas remains above the national average for banking profitability and non-current loans are well below the national average; non-current loans are starting to tick upwards likely due to oil and gas loans
  • Texas maintains positive growth despite the energy decline because Texas is more diversified than it was in the 1980s

 
Jason Fearneyhough, Deputy Commissioner, Texas Department of Agriculture

  • Agriculture and its related impact on urban and rural Texas are vital parts of the Texas economy
  • One out of every seven Texans works in ag related industries
  • TDA houses many loan and grant programs to help farm and non-farm rural businesses
  • TDA works with the US Dept. of Ag to develop loan programs to help individual businesses
  • TDA also helps identify and publicize sales and connects business owners with the right people to help grow their businesses and find customers
  • Button noted the committee understands the importance of a very balanced approach to economic development and appreciates the efforts of TDA

 
Doug Smith, Texas Criminal Justice Coalition

  • There are around 12 million people in Texas with a criminal record
  • People with any type of criminal record have a hard time finding employment in the state
  • This problem is exacerbated by the wide access to criminal records in the state
  • Employment after release minimizes the occurrence of re-arrest thereby improving public safety
  • There are programs in place to incentivize companies to hire people with criminal records but the barriers remain in place even if a person has been fully rehabilitated
  • Those incentive programs may need to be more robust and Texas may need to do more to ensure people coming back into the population are work-ready

 
Larry Temple, Executive Director, Texas Workforce Commission

  • Unemployment rate in the state is currently 5%, well below the national average
  • There are about 400,000 people in the TWC system looking for jobs and there are about 217,000 job postings in the system
  • Since the recession, outreach to the employer community has worked and there are now more jobs posted in the system than there were before the recession
  • 28% of employers in the state are using the system; would like to have more and TWC is looking at how to serve more employers
    • The national average for workforce systems is 7-8% so Texas is doing very well
  • TWC is involved in job training and has been able to prevent layoffs by getting current employees trained for new skills
  • Also involved in job fair activities to assist employees when layoffs are projected; can go in and help business get their employees enrolled in unemployment benefits and make them aware of job opportunities
  • Vo asked if the TWC keeps track of how much money people make in different jobs based on the degree they have
    • Not with that level of detail but TWC does track what different industries pay on average across all employees