Best & Worst States: Texas Is Still No. 1

The piece below is part of Chief Executive‘s annual Best & Worst States for Business ranking. Read the full report here. 

Some day another state may topple Texas from No. 1 in the Chief Executive Best & Worst States for Business rankings. But don’t count on that anytime soon.

The stunning plunge in oil prices during the pandemic idled thousands of oil and gas wells and froze energy-development activity across the Lone Star State. Its millions of white-collar and service-sector jobs also were endangered.

But Texas just keeps shedding potential threats to its position atop the perceptual pinnacle for business leaders. They continue to be attracted by the state’s lack of an individual income tax, low business taxes, friendly regulators, reasonable cost of living, and diverse and growing labor force. Add to that a mid-country location and robust recreational options.

Existing employers keep expanding, and new ones keep coming to the Lone Star State, especially from California. The latest big example: Discount brokerage firm Charles Schwab merged with TD Ameritrade and then announced plans to move its headquarters from San Francisco to Texas.

Rejected in Amazon’s HQ2 search, Houston is plowing right through the disappointment, already having more Fortune 500 headquarters than any city but New York, a diversified industrial economy, strong healthcare and academic institutions, and under-appreciated ethnic diversity.

Amazon cited a lack of an “urban core” of tech workers in Houston. Part of the city’s response was to establish The Ion, a downtown tech incubator that will bring together all Houston’s strands of innovation when it opens next year. “More and more, talent wants to live close to where they work and not have to get in the car, and they want restaurants and theaters and the rest of their lives close to them,” says Gabriella Rowe, The Ion’s executive director. “And in a sprawling city like Houston with limited public transportation, that very much means being in the urban core.”

Its historic relationship with the oil and gas sector might have been problematic for Texas’s growth by now, especially amid 2020’s historic swoon in oil prices. But despite the fracking boom, Texas had cut its dependence on the rollercoaster exploration and production part of the business over time.

Downstream aspects that are less cyclical now comprise the biggest part of the oil industry in Texas, such as refining, which is centered on the Gulf Coast. “While we’re still connected to oil and gas, the relationship isn’t what it used to be, says Karr Ingham, petroleum economist for the Texas Alliance of Energy Producers.

Meanwhile, the Texas economy continues to diversify. For example, Waco—known as the site of the mass deaths of Branch Davidian cult members in 1993—has become a central-Texas tourism mecca due to the success of reality-TV entrepreneurs Chip and Joanna Gaines, who built a thriving retail and entertainment district there.

Diversification is a big reason business leaders find Texas favorable for M&A activity too. More than 80 percent of a group of 200 enterprise leaders said that they’re planning such moves in the next three years in a pre-Covid-19 survey by West Monroe Partners. “The strong talent and employee base is leading to private equity clients moving and expanding in all the big cities in the state,” says Adam Gersting, a senior director.