The Texas Formula: How They Keep Winning Over CEOs

Everything is big in Texas, of course, and that includes the state’s appetite for economic success. The longer the Lone Star State keeps its stranglehold on the title of Best State for Business according to Chief Executive’s annual survey, the more government and corporate leaders in the state want to achieve.

Jim Lentz, CEO of Toyota North America, saw the Texas approach in action as the state lured the giant automaker to relocate and consolidate its corporate headquarters in new digs near Dallas over the last few years, with most existing employees coming from California.

“One thing leaders in Texas all agree on is, ‘Let’s make good decisions that are best for Texas,” Lentz tells Chief Executive. “They know it’s best to keep this economic machine working well.”

View the complete rankings to the 2019 Best & Worst States for Business.

Texas’s continued success starts with Governor Greg Abbott, whose approach to stoking the economic momentum of his state begins with partnership. He was elected in 2014 and succeeded fellow Republican Rick Perry.

“The way Texas and I, personally, operate is to view ourselves as partners with businesses,” Abbott tells Chief Executive. “Some states view companies as entities for taxation, or in a hostile way. We like to build good, strong relationships with companies doing business in our state … We try to comprehend the vision of what these businesses seek to achieve and work to help them achieve their vision.”

Abbott says that the Texas formula includes “policies that are replicable and scalable that can be used at the local, state or national level. One of the most important is to keep taxes low – we’re actually working with the state legislature to cut property taxes now and to make Texas an even-lower-tax state.”

At the same time, however, Abbott called for the state’s first sales-tax increase in nearly 30 years as Republican leaders tried to boost Texas outlays for education while wanting to pare property taxes. Ironically, the proposed new 7.25-percent sales-tax rate would tie Texas with California for America’s highest.

“Texans are fed up with skyrocketing property taxes,” Abbott and GOP leaders said in a joint statement in April. “If the one-cent increase in the sales tax passes, it will result in billions of dollars of revenue to help drive down property taxes in the short and long term.”

Meantime, Abbott continues to pursue other parts of the Texas formula, including “easily predictable regulations where we cut the red tape but also hold business accountable when they violate the law,” he says. Litigation reform, workforce development, and further improvement in the state’s well-regarded transportation infrastructure are other components of his approach.

So is aggressive promotion of technology-based strains of the new economy that range from cooperating with the U.S. military on expansion of cybersecurity research in Austin and San Antonio, to development of advanced techniques for carbon capture in the oil fields of West Texas.

In fact, says Jim Fish, CEO of Waste Management, “Texas has started to do some interesting things to focus on sustainability. It’s always been thought of as an oil-and-gas state,” says the head of the Houston-based company, “but now there’s a lot more focus on the environment. That includes beautification of the major cities.”

Still, the state’s appetite for more business investment and jobs often causes Texas to cast a hungry eye toward easy prey: California companies. “We’re taking applications” from California CEOs, Abbott quips. “In economic development, we’re like the Alabama football team of recruiting: We get our pick of the five-star [companies].”

“That’s especially true in the aftermath” of Trump-administration tax reform in 2017 that capped federal deductibility of state income taxes, hurting high-tax states, the governor notes. Texas has no personal income tax.

“So the companies that are fleeing California and New York have accelerated. We’re working to find the companies that are the best fit for what we’re trying to do in Texas, further diversifying our economy and also geographically.”

Perry – who decided not to run for a fourth term as governor and now is secretary of the U.S. Energy Department — became infamous for barnstorming tours of California meant to poach companies for Texas, including Toyota. Abbott takes his own approach to the coasts but specializes in hand-holding the companies Texas has landed from there.

For example, last December, Abbott took a personal trip to Tokyo on his own dime, he said, and while there met with Toyota President Akio Toyoda, scion of the founder of the global automotive giant. “He and I have a good personal relationship; he’s been in the governor’s mansion a couple of times,” Abbott says.

About 70 percent of Toyota’s employees in Southern California and Kentucky moved to the company’s new North American headquarters in Plano, Texas. “That’s a huge number, relatively speaking, for a big corporation moving across state lines,” Lentz says. They were taking advantage of good things about Texas for workers and families that include “relatively low taxes and relatively affordable housing, as well as commute times that are much better. All those things that make quality of life much better.”

One quality-of-life issue that threatens to lap at Texas is immigration. It’s “less of a business-related issue” than many other things, Abbott avers. CEOs are more concerned about expansion of H1-B visas than with rising concerns about illegal immigration into the state from Mexico. And of course, he says, responsibility for dealing with it lies with the federal, not state, government.

“Texas and the country have a long legacy of legal immigration and we are proponents of that,” Abbott says. “Illegal immigration has had some ebbs and flows over the last decade, but it’s only been in the last year … that there has been a dramatic escalation of illegal immigration, or excessive asylum-seeking, putting a crush on our border.”