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The joint committee met to hear invited and public testimony on the following charge:

Study the economic impact of the aviation, aerospace, & defense manufacturing industry in Texas and the state’s ability to facilitate industry job growth and investment. Review the relationship between the economic vitality of industry and military veterans transitioning into the workforce. Determine existing and potential barriers to the retention and expansion of the manufacturing industry in the state and the broader economic implications it may have on workforce readiness, as well as veteran employment and support services. (Joint charge with the House Committee on Defense & Veterans’ Affairs)

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. This report is not a verbatim transcript of the hearing; it is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Bob Greer, Texas Veteran’s Leadership program with Texas Workforce Commission

  • Gave a summary of the services of the programs provided through TWC
    • Peer-to-Peer mentoring aimed at certain veteran’s but note they have never turned a veteran away
    • College Credit for Heroes – helps get credit for veterans while they are training and could receive an average of 25 credits for their training
      • HB 493 – in the process of working on this and obtaining the data
    • Hiring Red, White & You – have had over 1,800 employers participate in this program
      • Work opportunity tax credits are still in place
    • Texas Operation Welcome Home – targeting relationships, transition alliance is a key component (have held 3 meetings so far to look at best practices)
      • Skills for Transition Program – assist with training for high demand occupations in areas they are in or moving to
      • We hire vets campaign – recognizes employers who hire vets (10% of more of hires)
      • Military family support – engage military spouses in training for workforce, have learned licensing transfer is a hurdle, this grant ends in December
    • Blanco – what about skills in aerospace that TWC is looking at?
      • In several areas that is a demand but that would start at the board and see how they do the funding
    • Flynn – asked about veteran’s job bill from the 84th and how is it doing?
      • Certain MOSs transfer over very well
      • Flynn – it was designed for truck drivers, nurses, electricians, etc; gave truck driver example
      • Working with trucking companies but insurance companies are the barrier
      • Chair will get with him and work with him
    • Lambert – Skills for Transition program, is it pilot program?
      • skills for transition program is ongoing program
    • Gutierrez – Asked if Helmets for Hardhats have contacted them?
      • He will be looking for that group to make further connections
    • Gutierrez – Anything you can do regarding heavy trades, ideas to incentivize veterans or agencies to be able to figure out licensure piece; licensure on spouses should be something we should look at
    • Wilson – existing or potential barriers regarding job workforce
      • Gaining certifications, military is looking at it
      • Army may look at help obtaining certain certification, but something they are looking at
    • Wilson – what are we doing in Texas to look at future needs and leverage community in terms of employment?
      • Will have to get back with him on that overall strategy
    • Wilson – anything that TWC working with other agencies and departments looking at this issue holistically to bring a certain type of industry to Texas?
      • Employers associations are in transitional alliance meetings
      • TDLR, etc are a part of the alliance meetings
      • But have no information about comprehensive plan at this time
    • Button – invited Wilson to sit on their committee at 1p for further discussions
    • Hinojosa – is there a specific partnership with their office?
      • Yes, working with 2 – Army Program manager and believes apprenticeship program are a good start and after these two believes others will come forward
    • Flynn – do you all work closely with TDLR on licensing? Would want to know if they have a problem with that
      • Yes, in a transition sense and they get veteran’s in contact with TDLR
      • Typically, a small number of MOS, not a problem

 

Dale Craymer, Texas Taxpayers and Research Association

  • Reviews many positives of the state but notes, Taxes have made Texas a relatively high tax state
  • Says tax system relies on sales and property taxes, a two-legged stool not relying on personal income tax for example
    • As a result of being a two-legged stool, argues taxes are being unfairly assessed so 40% of sales tax paid by businesses
  • Rely on two taxes that fall relatively hard on business and tax system is heavily reliant on businesses to foot the bill
  • Regarding business franchise tax, calls it a unique creation and reviews some of the areas of concern with it such as tax base is 3x larger, if providing combination of goods and services then not able to fully deduct operating cost
  • Button – why are we not making progress on inventory tax
    • Price tag – eliminating property tax on inventories costs almost as much as eliminating margin tax
    • Freeport exemptions – allow for some benefit but overall tax on inventories is a clear negative
  • Leach – any documents relating to tax relief targeted at our veterans
    • Does not know of anything specific, will have to do some research on it in regard to what they are seeing in other states

 

Tony Bennett, Texas Association of Manufacturing

  • Texas remains a leading exporting state in the Nation
  • Texas Defense Aviation Alliance (TDAA) – reviewed details on this industry sector
  • Defense companies are not like other companies, they face unique challenges from federal regulations such as providing ongoing services that support the products
    • Franchise tax structure is not favorable to this
    • R&D tax credit in 2013 has resulted in more R&D
  • Tax equity is impacting defense industry
  • Other states also have a sales tax exemption for certain aviation aircraft but in Texas is it limited to commercial aviation aircraft
  • Flynn – concerned of the bleak picture painted
    • Don’t intend this to be a criticism for the state of Texas but to demonstrate where they might be falling behind
    • Craymer – clearly an attractive place to be is Texas, Texas is a low tax state with the absence of a personal income tax but on major industrial plant it is hard to compete without some package of incentives but generally Texas has a reputation as a state of making it work
    • Craymer – regulatory environment and desire of Texas to work with companies cannot be underestimated
  • Button – Texas is competing at a global level, doing great but how can Texas stay ahead
  • Button – referred to a conversation on a panel she had with Sen. Van Taylor, asked about tax rates at federal level
    • Companies will have more cash in hand to invest more than what they have been in last several years but there are concerns on the longevity of the federal tax bill
  • Hinojosa – didn’t hear about deficits in workforce, need funding for education in state and an area where Texas is struggling
    • Making a lot of progress but know they have a skills gap
    • Even before HB 5 was trying to address issues so they can align what industries need to what institutions and higher education are teaching
    • Need a highly skilled workforce, it is a major factor
  • Blanco – can you identify barriers and retention as it relates to workforce readiness
    • Parents need better education about what is available in the manufacturing world
    • Need quick efficient education system that gets people needed skills, hit the bulls eye rapidly
    • Blanco – what about veterans?
      • Same thing
    • Gutierrez – what’s the answer? What do you need?
      • Will be hearing from TDAA witnesses – thinks we need that host plants, big operations come to the state so we can attract smaller operations so whatever we can do to attract them
      • Thinks math behind it, has to do with federal acquisition and how it aligns up to franchise tax
    • Gutierrez – can’t have planes serviced in other countries, outsourcing of services for this transportation needs to change, imagine folks in the industry would benefit from this, need to make serious demands of federal counterparts
      • Would love to see it, whatever to do to make this state attractive and attract business
    • Gutierrez – refers to commercial airlines and argues last incident may have been due to outsourcing of labor force and that needs to stop which would benefit the industry discussing today
    • Gutierrez – speaks to appraisal cap on commercial business, wants to hear about appraisal caps for business and wants to talk to witness more about this in the interim
    • Wilson – what agency would help with apple to apple comparison in terms of regulation?
      • Each industry has experts, doesn’t think the fiscal note should be thing to stop discussions, this is only a problem as long as we have franchise tax
      • Mexico and Canada are number one exporting countries
    • Wilson – regarding new technologies, is Texas gathering fair share?
      • Manufacturing is becoming more advances, property tax system is different from most states in regarding to taxing inventories and equipment
    • Craymer – R&D tax credit is relatively new on the books, still have some growth that is out there they will see in next couple of years
    • Craymer – franchise tax is using an entirely different type of accounting, companies have to keep two sets of books and that is an additional cost that often gets overlooked

 

Aimee Gilroy, Raytheon Company 

  • Gave quick background and overview of Raytheon, and recent member visit reviewing next generation technologies
  • Employees over 10,500 veterans over workforce and have two programs to support recruitment and retention
  • Student Veterans outreach – 700k student veterans impacted
  • Felt last session did not have a voice during regular discussion

 

Dana Schenck, Bell Textron, Inc

  • Gave background on company and contributions to economy
  • Developing third generation title rotor, etc
  • Establishing certain incentives would be helpful for industry such as recognizing retention

 

Becky Redmond, Lockheed Martin

  • History of plant goes back over 75 years
  • Employees more than 18k workers in Texas
  • Provides further background detail on company

 

Tyler Schroeder, Boeing Company

  • Employ nearly 4k Texans throughout the state
  • Support troops through products and career opportunities
  • Hopes for expansion can only be met with strong workforce, creating and sustaining business environment, etc
  • Tax environment has reared its head as contributing factor to business environment, need to look at parity issues in taxes across states
  • Right tax environment and a robust workforce pipeline are vital
  • Blanco – asked about parity and workforce readiness, what can we learn from other states? What does advanced manufacturing mean and how does it impact veterans?
    • Runs the gambit, but really focus on STEM education
    • Redmond – works with local schools in Project Lead the Way and have many intern programs that includes more than STEM such as finance
    • Gilroy – don’t all have to be multi decade engineers, at all ages and ranges; programs are outlined on their website

 

Q&A for panel

Ortega – how has investing in STEM paid off and what would you recommend to the state?

  • Gilroy – coding at early ages and cyber at early ages will be paramount
  • Schroeder – exposure is critical, Port San Antonio exposure to STEM example

Gutierrez – asked about fiscal impact of margin tax ($26 million said Schroeder) will try to help; also would like federal lobbyists to stop outsourcing jobs to other nations

  • Schroeder – yes
  • Gutierrez – would like to hear back from them and their federal lobbyists on what is being done

Blanco – federal budget has increased significantly, can you shed light on what we are looking at in Texas in regard to growth and what does Texas need to prepare for in workforce aside from STEM?

  • Redmond – have been ramping up to build more jets, looking at more block buys, preparing for workforce of future
  • Schenck – Bell’s footprint has lessened, trying to figure out what next steps means for them and how to ramp up

Lambert – Budget next session is predicted to be almost like budget challenge in 2011, if can’t help on Franchise tax what help could be offer in regard to regulatory burden?

  • Gilroy – Texas known for good business regulation, if Texas continues to ask is this a necessary regulation, will continue to have high scores in that area
  • Points out if businesses left the state because of the franchise tax cost, that impact may be larger than the cost in the budget to have addressed franchise tax concern

Wilson – just want to make a statement with an invitation, looks forward to opportunity to have discussion in regards to what they can do regarding policy and ability to get back to vocational and apprenticeship opportunities like when he was younger and partnership with DEPPOS

 

Jim Perschbach, Port of San Antonio

  • Speaks about synergy and industries on same site where industries can be integrated
  • Texas is front and center on everyone
  • Example of Hill Airforce Base in Utah, Utah right now has a very robust cyber presence
  • State can compete on value, not on price
  • Provided story on Casino having a smart fish tank which allowed them to be hacked
  • Everyone on this planet is trying to figure out ways to protect data and it is the future of defense industry

 

Keith Graf, Texas Military Preparedness Commission

  • Texas ranks 3rd in defense spending
  • Great opportunities to grow – must remain vigilant
  • Regarding base closures – working on plans to help during this process
  • Blanco – how does workforce for defense contractors play into decision making?
    • Doesn’t play as much in last two rounds of BRAC
    • If installations go away, then contractors will go away – there is a symbiotic relationship between them
  • Blanco – how many military spouses employed by certain aeronautics, etc
    • No but there was a recent signed program by President he will send it on
  • Wilson – looks forward to continuing conversations