Texas Is Getting Good Marks for Handling Growth

All the congratulatory publicity aside, it is now time for Texas to show CEOs what it’s made of. Namely, can the state’s infrastructure—highways, city streets, schools and utilities—handle all of the business moving in? And can it possibly accommodate even more growth over the next five to 10 years?

Mid-market department store Kohl’s provides a good example for Toyota and other companies to watch. The retailer’s 240,000 square foot North Dallas facility opened its new customer-service operations center in April, which is expected to hire 500 people through mid-2014 and a total of more than 1,500 within four years.

At least two outside organizations feel that Texas is on the right track. The southern state won Site Selection magazine’s Governor’s Cup for 2013, the fifth time it had received that award under Gov. Rick Perry’s leadership. The award is given annually to the state with the most new and expanded corporate facilities announced over the year. And Texas was named the Best State for Business for the tenth year in a row by Chief Executive magazine in May of this year.

Texas took Site Selection’s top spot with 657 qualifying projects in 2013. Ohio finished second, with 480 qualifying projects. Qualifying projects must meet one or more of the following criteria: capital investment of at least $1 million; 50 or more new jobs created; 20,000 or more sq. ft. of new construction. And Houston made the list of Site Selection’s list of the “World’s Most Competitive Cities,” ranked competitively with places like Singapore and Shanghai.

“States are the laboratories of innovation, and Texas continues to be a beacon of opportunity for job creators and entrepreneurs,” Gov. Perry said. “Over the past 12 years, we’ve built a strong foundation for the future of this state with our low taxes, smart regulation, fair courts and skilled workers. Companies nationally and internationally know that Texas works, and is the best place to live, work, raise a family and own a business.”

And while Texas does face some general challenges in assimilating its recent and continuing population surge—due to a persistent drought there, among other things—economic development experts foresee little difficulty for the robust economy of the state in digesting Toyota’s move, the people who will come with it, and the development demands of housing and schooling the families of the 4,000 white-collar employees Toyota eventually is expected to employ there.

ALL EYES ON TOYOTA
Toyota’s move may bring $7.2 billion of economic activity over 10 years, according to an analysis for Plano, Texas, where it will relocate its headquarters from Torrance, Calif. The figure includes $4.2 billion from payroll, along with direct and indirect spending, and sales and property tax revenue, according to Grant Thornton LLP.

Toyota’s move to Texas is a high-profile relocation, but Texas has been used to adding new jobs at a superlative pace. The state added more than 1.9 million new jobs from December 1999 to April 2014, more than 35 percent of the entire nation’s total for that 15-year period, noted Michael Cox, an economics professor at Southern Methodist University in Dallas. And Texas had an unemployment rate of just 5.1 percent in May, the 16th-lowest in the United States.

Meanwhile, Cox noted, Texas’s median wages are 28th-highest in the nation; and they rank 8th-highest after adjusting for taxes and prices. Texas schools rank 3rd, he said, after adjusting for variations in student demographics. “We’re able to accomplish all this and more because the business environment in our state is largely competitive, and free markets solve problems,” Cox told CEO Briefing. “Texas is a meritocracy, where incentives still work to produce good results.”

Toyota executives perceived all this and more before deciding to relocate. Among other things, they had the experience of how San Antonio accommodated the new Toyota assembly plant a decade ago, which added 5,000 truck-making jobs.

“The Dallas metro area has hundreds of thousands of people employed in management, engineering, professional and administrative and office support occupations—the population and skill sets needed to staff headquarters operations,” said Dennis Cuneo, former senior vice president of Toyota North America. He played a key role in the launch of manufacturing operations and site selection throughout the continent, such as the San Antonio plant.

Cuneo told CEO Briefing that Texas will face challenges in accommodating the new growth, “but those problems are easier to deal with than the problems caused by no growth or negative growth. Growth,” he says, “creates new public revenues that can be used to pay for the needed infrastructure.”

Besides, he said, Texas already “gets it right” when it comes to keeping its infrastructure ahead of the economic-growth curve. The American Society of Civil Engineers’ latest state-by-state ranking on infrastructure gives Texas a “C” grade, which is better than the nation as a whole (D+) and better than high-tax states including Illinois (D+), Ohio (C-) and Maryland (C-). And a C ranking was about the highest for any state. Still, it’s not an “A.”

Cox acknowledged that inland parts of Texas, especially, face a huge hit from the continuing severe drought, a crisis that could be deeply exacerbated by the move of another 1 million people to Dallas-Ft. Worth every seven or eight years.

Additional reading:

Kohl’s starts hiring 500 people for its new customer service center in North Dallas

Texas Wins Site Selection Magazine’s 2013 Governor’s Cup

Toyota Texas Move Seen to Help Economy by $7.2 Billion

It’s Not About Incentives: Toyota’s Texas Move Is A Corporate-Culture Gambit