Regional Report 2015: The Southwest

TEXAS: STILL ON TOP

Through the halls of the Dallas Federal Reserve Bank and into the conference room walked the A-list of the Texas business establishment last September. In came Mike Ullman, chief of JCPenney; David Seton, CEO of Fluor; and Thomas Falk, corner-office man from Kimberly-Clark. The chiefs mingled with Fed officials, were glad-handed by economic professors and business school deans and stood up and delivered plummy Texas-centric growth forecasts from the podium.

Striking the default twangy/triumphalist tone that has come to characterize economic conversations in America’s most pro-business state, the conference started out putting the 49 states not named Texas in their place. A dean from the local McCombs School of Business noted that, at long last, we’re starting to see phrases “like optimism, revenue growth, more hiring and GDP increases” being applied to the rest of the U.S. “Without Texas,” he added, “the nation’s economy would be stuck in slow motion.”

As they say in Houston, it ain’t braggin’ if you can do it. And Texas has indeed been doing it throughout this young century. For the tenth year in a row, the readers of Chief Executive rated Texas the No. 1 state in which to do business. Our readers also ranked the Lone Star state one of the seven best states for startups. If economic development were an oil field, Texas would be gushing.

By many indicators, possessor of the nation’s most robust economy, Texas was expected to add as many as 400,000 new jobs last year, more than any state save California, with its high-flying Silicon Valley, and shale-rich Nebraska. Most new jobs are homegrown, at small-but-growing Lone Star companies. But the lion’s share of attention these days goes to suburban Dallas, where Toyota is filling more than 4,000 positions at its still-under-construction location, selected after decades in Southern California. The move, like so many corporate transfers over the past decade, originated with now-departed Gov. Rick Perry’s relentless Texas salesmanship, free use of incentives and a long-running, CEO-whispering road show.

There are so many jobs that even Texas has to go outside to fill them. From around the country and around the globe, people move to Texas at the rate of about 1.4 million a year. Residents of perennially funky Austin gripe that their way-cool town is losing hipster cred as hordes of young software entrepreneurs flow in, altering the character of the city Willie Nelson calls home. Even Houston is in the picture, anointed America’s coolest city—say what?—by Forbes in 2012. Houston’s reign was short lived—just one year of coolness. But in 2014, the business magazine again short-listed Houston and added Austin and Dallas (of all places) to its Top Ten of Cool. Okay, it’s Forbes. But still. Generating the most new jobs is, no surprise, the energy sector. Warehousing, utilities, construction, professional and business services and leisure and hospitality added to the continuing employment surge.

Few economic-development conversations start in Texas without citing the state’s tax structure. You’ve heard it before, you’ll hear it again: Texas lacks both corporate tax and individual income tax. Some celebrate this policy; others raise their eyebrows and cite compensatory costs, such as sky-high property taxes and the gross receipts tax. The Tax Foundation ranks Texas’s tax burden 4th lowest out of 50 states, and ranks the state 11th in business tax climate. “Texas is a very desirable place for companies to relocate due to business climate and tax structure, among the many reasons,” says John Rocca, managing director of CBRE’s strategic consulting, location analysis and economic incentives office in Los Angeles. “It’s a low-cost and favorable operating environment. It’s ideally located between the coasts. From the incentive perspective, it’s also quite attractive. In terms of the Southwest, Texas is the leader, hands down.”