In 2012, Chief Executive rated Texas as the No. 1 state for business, while California was the worst. Both states have held their titles for eight years in a row. In the survey, based on 650 CEO responses, Texas earned high marks in business-friendly tax, regulatory environment and workforce quality.
Ryan K. Robinson, president and co-owner of Signal Metal Industries Inc., couldn’t imagine his manufacturing business anywhere else. A second-generation company in the area for 40 years, Signal specializes in building heavy equipment and machinery designed to specification.
“Texas is surely one of the most business-friendly states in the union,” Robinson says. “I think within Texas, the city of Irving is somewhat unique in that 70 percent of Irving’s tax base comes from businesses. So the city of Irving and the Greater Irving-Las Colinas Chamber understand that business is the driver of this community.”
Smart Business spoke with Robinson about why Irving is the best location for them, and how to create a good working relationship with municipal organizations.
Why is Irving, Texas, a good location for your business and others?
First and foremost, Irving is centrally located. My company builds large, heavy products that ship coast-to-coast and out of the deep-water port of Houston. Another factor is our plant is located within 10 minutes of the Dallas/Fort Worth International Airport.
Also, the workforce in Irving is great. North Irving is a bit glitzier and where Las Colinas is located. This, along with our new Orange Line light rail service, gives Irving sophistication, while South Irving residents are the blue collar, hard-working folks. Therefore, a manufacturing company has a tremendous pool of qualified workers to draw from.
Finally, the city and Greater Irving-Las Colinas Chamber of Commerce have a lot to offer. In Irving, there are headquarters of Fortune 500 companies, medium-sized companies like Signal Metal and a whole host of the mom-and-pop types. The city and chamber realize the value in all of them and tailor programs for the big guys, the medium guys and the small guys.
What makes a good relationship between a manufacturing company like yours and the city or chamber of commerce?
I became a member of the Greater Irving-Las Colinas Chamber three years ago, but my relationship is somewhat unique — as with all of us in Irving — because the chamber is the economic development wing of the city of Irving. Most cities have their own economic development department, but the city of Irving does not. As a member who sits on the chamber’s board, it gives me the ability to directly network with city managers and the mayor of Irving.
Why is this relationship important?
Once you have a relationship with the city, you understand how the city works. A lot of Irving chamber members are retail companies that sell locally, but I don’t have a single customer in Irving. However, you always have to deal with the bureaucracy of the city when you grow — as Signal has in the past five years — and buy property, construct buildings or expand existing facilities.
Since I’ve been involved in the chamber, it’s easier because I know who does what and I have a chance to visit with them. I think that gives me an advantage when getting through the red tape in a timely fashion.
Signal hasn’t grown because of its membership with the chamber, but the relationship with the chamber has facilitated that growth because the chamber has helped make sure everything is in line, whether it be with the fire department, building permits or code enforcement.
Do you have any advice about creating a smooth working relationship with city officials or a chamber of commerce?
My advice is to join and get involved. Your local chamber will welcome you with open arms to serve on a committee or to just take advantage of all the mixers and networking opportunities you get as a member.
Once you get involved in the chamber, you learn more about how the city operates because city officials sit on the board. You’re right there in the middle of it. Getting involved gets you plugged in, and then you can take it from there.
Ryan K. Robinson is president and co-owner at Signal Metal Industries Inc. Reach him at (972) 438-1022 or email@example.com.
Insights Economic Development is brought to you by the Greater Irving-Las Colinas Chamber of Commerce
Irving, Texas is a recipient of the 2012 Malcolm Baldrige National Quality Award, the nation’s highest Presidential honor for performance through innovation, improvement and visionary leadership. Irving is only the second municipality to receive the award in its 25-year history.
City Manager Tommy Gonzalez said Irving has reduced costs by $44 million and improved satisfaction service levels by double digits.
“We reduced our work force by 10 percent without laying anyone off or implementing furloughs and, at the same time, increased benefits,” he says. “We identified numerous efficiencies that resulted in 50,000 labor hours saved. Code enforcement improved by 88 percent, and we dropped the number of days to turn around commercial building permits from 16 to three and a half. These efforts culminated with Irving retaining its AAA bond rating from Standard & Poor’s and Moody’s during a recession, while offering residents and business owners among the lowest tax rates and water fees in North Texas.”
Smart Business spoke with Gonzalez about the way Irving works with businesses and how to apply these lessons.
How should a good relationship between a business owner and the municipality work?
Good communication between the city and business community is important. By having a proactive communication flow, the city gets intelligence on issues business owners are having with city processes. For example, Irving was considering an ordinance that would impact the certification of restaurant servers. Because the city reached out to businesses, it was able to make the ordinance helpful to customer safety but not so onerous to implement. Another example was a state highway project through the middle of Irving where the city and the chamber of commerce coordinated with the state to help businesses relocate and/or work with the department of transportation.
So, both sides need to reach out to each other?
Yes. Irving has 39 different ways to communicate with customers — in this case businesses — like newsletters, our website, Facebook, Twitter, email blasts, etc. If there’s a new project, the city can let others know how it might impact them and keep them in the loop.
What are some of the best ways through government bureaucracy and red tape, including navigating the permit process?
The city made an effort to speed up the permit process because when a business is building a large structure, in order to create several hundred jobs, and in some cases thousands of jobs, you don’t want to hold up the work. Irving’s permitting process now takes three and a half days after eliminating unnecessary steps. Using incentives, Irving built a new culture and a new way of thinking. Another way to minimize the red tape is through surveys. Between random and point of service surveys, done at the departmental level, the city can listen and then change the way it does business. Many times problems or improvements are obvious to business owners, but not to the city.
Aside from letting the municipality know about issues, when business owners show up for permits, bring as much information — plans and documents — as you can. Those that come forward with complete and comprehensive information in hand will get processed quicker.
How can local entities assist employers with state or federal issues?
Cities can work in cooperation with businesses on some developmental opportunities. In some cases Irving has received federal grants that not only help the public sector but also tie in with private development, especially for environmental issues. The local government also can supplement state or federal services. For example, the state picks up litter along state highways twice a year, but Irving stepped in to pick up litter more often, resulting in a cleaner highway that people assume is safer, which in turn increases the community’s value.
Tommy Gonzalez is city manager of Irving, Texas. Reach him at (972) 721-2521 or firstname.lastname@example.org. Visit the Greater Irving-Las Colinas Chamber of Commerce at www.irvingchamber.com.
Click for the National Institute of Standards and Technology’s profile on Irving — Baldrige: Irving is ‘A Lone Star Model of Fiscal Achievement.'
Insights Economic Development is brought to you by the Greater Irving-Las Colinas Chamber of Commerce
Small business owners are increasingly concerned about obtaining long-term or short-term business loans, according to a survey by the National Federation of Independent Business. However, by showing enthusiasm and understanding for your business, you can get started in a good way with your banking relationship, thereby increasing your changes of securing a loan.
“Build a support group, have good financial understanding and really keep your books in the best possible order that you can,” says Hank Holmes, president, Texas Region, of Cadence Bank.
Smart Business spoke with Holmes about how business owners can use good financial practices and a trusted relationship with their bank as a foundation for future lending needs.
What does a bank look for in a good borrower?
It’s important for borrowers to be prepared and understand their business as much as possible, including the risks. Often you can talk about the upside — what you can do to generate new revenue — but you also need to understand what could cause you to miss your revenue goals, such as increased expenses from health care or a change in the industry’s environment.
Additionally, many times credit decisions are a function of a small or mid-sized business owner’s personal financial performance and credit history. So, as you’re developing your business, it’s important to maintain your personal financial affairs.
How do you find the right bank?
Start developing a relationship with your current bank. The earlier you can develop that trust and understanding with your banker, the better.
You want a bank that meets your needs and understands it’s a relationship-driven business. That way the banker can alert you when your business could be impacted by trends in other industries. If you have a banker that you’ve dealt with — that you’ve developed a relationship with — typically he or she will know that kind of thing is happening at the same time as you do. They can see when there’s an improvement versus a potential bump in the road.
As a business owner, you also can use your contacts in trade organizations or the industry to reach out and find a bank that understands your industry.
What steps can you take to best prepare for meeting with your prospective banker?
• Have your financial statements in order. Understand the revenue/expense side of your business — have a good grasp of the things that are going to positively and negatively impact your company. There are a number of good options, such as QuickBooks, that can be used to maintain your finances at the highest level you possibly can.
• Be able to explain what your business is and what would influence your financial statements. Is it the price of oil and gas? Is it the cost of electricity? Are you going to be able to get the inventory you need in order to meet the revenue needs of your clients?
• Be aware of your personal capacity and credit worthiness. It’s important to not only be able to run and understand your business, but also maintain your personal credit worthiness as positively as you can. In general, if you’re a company that has revenue of a million dollars or less, banks look at the individual who is driving that business, who is there on a day-to-day basis. And, it’s important for that person to show his or her capacity and support for that credit.
When you build and maintain a relationship with your banker, especially one who understands your business, you can take it one step further. If for some reason you get turned down for a loan, then find out why in order to determine what you can do on the next effort.
Hank Holmes is president, Texas Region, at Cadence Bank. Reach him at (713) 871-3913 or email@example.com.
Insights Banking & Finance is brought to you by Cadence Bank
In 2012, Chief Executive rated Texas as the No. 1 state for business, while California was the worst. Both states have held their titles for eight years in a row. In the survey, based on 650 CEO responses, Texas earned high marks in business-friendly tax, regulatory environment and work force quality.
Ryan K. Robinson, president and co-owner of Signal Metal Industries Inc., says he couldn’t imagine having his manufacturing business anywhere else. A second-generation company that has been in the area for 40 years, Signal specializes in building heavy equipment and machinery designed to specification.
“Texas is surely one of the most business-friendly states in the Union,” Robinson says. “I think within Texas, the city of Irving is somewhat unique in that 70 percent of Irving’s tax base comes from businesses. So the city of Irving and the Greater Irving-Las Colinas Chamber understand that business is the driver of this community.”
Smart Business spoke with Robinson about why Irving is the best location for them, and how to create a good working relationship between your business and municipal organizations.
Why is Irving, Texas, a good location for your business and others?
First and foremost, Irving is centrally located within the country. My company builds large, heavy products that ship coast to coast and out of the deep water port of Houston Another factor is our great airport — our plant is located within 10 minutes of the Dallas/Fort Worth International Airport, one of the five busiest airports in the world.
Also, the work force in Irving is great. North Irving is a bit glitzier and is where Las Colinas is located. This, along with our new Orange Line light rail service, gives Irving the sophistication that it needs to be a power player with everyone around the country.
South Irving residents are the blue collar, hard-working folks. Therefore, we have a tremendous pool of qualified workers that we eagerly draw from. It’s a great place to have a manufacturing company, especially if you are located in the southern part of the city along with many other manufacturing companies.
Finally, the city and Greater Irving-Las Colinas Chamber of Commerce have a lot to offer any business. In Irving, there are headquarters of Fortune 500 companies, medium-sized companies like Signal Metal and a whole host of the mom-and-pop types. The city and chamber realize the value in all of them and tailor programs for the big guys, the medium guys and the small guys.
In your experience, what makes a good relationship between a manufacturing company like yours and the city or chamber of commerce?
Becoming a member of the Greater Irving-Las Colinas Chamber three years ago created the relationship, but my relationship is somewhat unique — as with all of us here in Irving — because the chamber is the economic development wing of the city of Irving.
Most cities have their own economic development department. The city of Irving does not; it is a partnership between the city and the chamber. That is one of the main reasons why Signal wanted to become a member of the chamber and why I wanted to serve on the board, because it gives me the ability to network with city managers and the mayor of Irving directly because they sit on the same board as I do.
Why is this relationship important?
Once you have a relationship with the city, you understand how the city works. A lot of members in the Irving Chamber are retail companies that sell to the public in Irving, but I don’t have a single customer in Irving. However, you always have to deal with the bureaucracy of the city when you grow — as Signal has in the past five years — and buy property, construct buildings or expand existing facilities.
Since I’ve been involved in the chamber, it’s made things much easier because I know who does what and I have a chance to visit with them. I think that gives me an advantage when it comes to getting through the red tape in a timely fashion.
Signal hasn’t grown because of its membership with the chamber, but the relationship with the chamber has facilitated that growth because the chamber has helped negotiate and make sure everything is in line, whether it be with the fire department, building permits or code enforcement.
Do you have any advice for other business owners about creating a smooth working relationship with city officials or the chamber of commerce?
My advice is to join and get involved. There’s plenty of opportunity to get involved at the Irving Chamber. Your local chamber will welcome you with open arms to serve on a committee or to just take advantage of all the mixers and networking opportunities you get as a member.
Once you get involved in the chamber, you learn more about how the city operates because city officials sit on the board. They talk about the opportunities and the successes of the city. You’re right there in the middle of it. Getting involved gets you plugged in, and then you can take it from there.
Ryan K. Robinson is president and co-owner of Signal Metal Industries Inc. Reach him at (972) 438-1022 or firstname.lastname@example.org. Visit the Greater Irving-Las Colinas Chamber of Commerce at www.irvingchamber.com.
When Dr. Paul Klotman took over in 2010 as president and CEO of Baylor College of Medicine, the school had been losing up to $70 million a year — for the previous five to six years. The financial books were not a pretty sight.
A previous conflict had developed between Baylor and one of its hospital affiliates and a different pathway was chosen for the two. Unfortunately, it cost Baylor about $40 million a year.
“It was not huge in size as part of a $1.5 billion revenue stream, but it was a fair amount,” Klotman says. “We had a new financial challenge that presented itself, and because we were in the process of building some facilities right before the housing market burst, we had a significant problem with debt service and negative cash flows.”
But Klotman was ready to jump into the challenge for which he had been hired. He was no stranger to turnarounds. He had been involved in a major financial about-face at the Mount Sinai School of Medicine in New York as the chair of the Samuel Bronfman Department of Medicine. He moved the department to a top-tier academic program by expanding the faculty practice, increasing basic and clinical research revenue and focusing on the educational mission.
“I felt very comfortable in what had to be done,” Klotman says. “Taking the job was actually easy, because Baylor is such a fabulous organization and all the fundamentals were extremely solid. It was just an issue of dealing with the budgetary deficit and turning around the institution’s financial operational deficit.
“I had been at a Veterans Administration hospital, I was a federal employee at the National Institutes of Health for years as a scientist, I was at Duke University in the private sector, and I was at Mount Sinai in a very competitive clinical world, so it helped to have those experiences. I have to say as difficult as the situation was, there was very little that surprised me.”
Klotman set out on a path to initiate new processes to let the faculty do its own thing by following some traditional business principles — such as managing its budgets.
“It’s not rocket science, but it is surprising that it is not that common in academic organizations to worry about your margin, your expenses and making sure you’re maximizing your revenue,” he says.
“When I first came in, we focused on doing just that. We created zero-based budgeting that was all mission-based. In a very short time, within two years, we went from a $70 million deficit on an annual basis to where we are basically cash positive.”
It wasn’t just a matter of spreadsheets and figures. A change in culture from varying processes to one with solid business principles is an unsettling process, and is indeed sometimes not undertaken because it is so disquieting.
“I think one of the hardest parts is gaining leadership’s support of converting to the business sentiments,” Klotman says. “All of the leaders were supportive. All of them were willing to give it a shot. We would never have turned it around as quickly as we had if it weren’t for the leadership of the chairs, the senate directors and the faculty.”
Here are Klotman’s keys to stem the bleeding at Baylor and engage the leadership in new types of financial management.
Face the situation
One of the things that a crisis does is that it gets every employee’s attention. Once the stark news is delivered, the workforce should be able to know and understand the financial realities.
“The crisis allowed us to change the budget process at a time when it otherwise might not have been very accepted,” Klotman says.
Unfortunately, keeping the status quo is not an option. There is going to be change.
“When the boat has to go in one direction you’ve got to have everyone rowing in the same direction,” he says.
Some organizations may call in a consulting firm to dissect the financial and management processes and it can be beneficial. In other cases, the analysis by an outside group is just that – an outsider’s look at internal problems.
“Before I arrived, a consulting firm had been there, and I would say the faculty and leadership were probably not as responsive to the consultancy, because the consultants didn’t have any of the same experiences,” Klotman says. “You could see the cultural rift. When I first arrived and saw the interaction with the consulting group, which actually did a fine job in getting us in the right direction, you could see the disconnect between faculty and leadership and the consulting group, because they did not speak the same language.”
The most important action to take as the first step in the cultural makeover is to be transparent in all the processes.
“Show the data,” Klotman says. “If you show them the information, there are not a lot of arguments that you can have about your situation. If you’re not transparent about it, it’s very easy to blame everybody else. But if you just are transparent with the data, it’s simple to establish accountability.”
But transparency is something that is very hard to get if your data is disorganized. If it lacks uniformity and completeness, it is crucial to get the data in order.
“Getting transparency may be complicated, because there may be a lot of dollar movement from one bucket to another bucket,” he says. “Part of it is where you assign expenses to the right unit — making sure that you are allocating expenses correctly, and that you are attributing revenues to the right sources. Otherwise you can’t make good decisions.
“Part of our first year was cleaning up that kind of data — and we still have issues with it today.”
The better and more accurate the data is, the better you will be able to manage your financial situation. It may take a year to get the data to the point so that you can provide accurate information about your mission – so accurate utilization of data is needed about billing and collections, efficiency processes, revenue, expenses, space density, etc.
“There are hundreds of metrics that you can do,” Klotman says. “Once we collated all the data, we were able to create a report that all the leaders get. Have your financial people help them interpret that, then get together quarterly and review it together. It’s something we call Numbers Day.”
Holding a Numbers Day is an effective way to review your mission-based budget. Any department or division of a business should earn its operational budget based on its performance the year before.
“Everybody gets to see all the data, including where everyone sits financially so it’s completely transparent,” Klotman says. “If there are disagreements about the data, discuss it. It’s an iterative process so they can ask questions about it; you can make sure that it’s accurate.
“But the main thing is that it provides the leaders with management tools so they can then break it down by department or mission base, look at their own business unit and see how they can improve it.”
This is an obvious key factor in driving improvements. If you measure processes and performances and show your managers, they will have the tool to improve matters.
“If you do it in a way that everyone sees the data, then it is hard to really argue with,” Klotman says. “That’s why it’s an iterative process. You need to have that public forum where people can discuss it.
“It also helps to unify everyone with the understanding, ‘Well, these are the things that are important to executive leadership because they are measuring them.’”
Most of the leaders should be happy to have the data. Initially there may be some arguing about its validity. Ultimately, it provides them with management tools — and it also helps C-level executives understand who can manage, because some of them use the data very well and improve their operations and others just won’t get it.
“You can see that in the long run you may have a certain number of leaders that probably have to be replaced,” Klotman says. “The point is that you are giving them tools to use. There should be no one who really objects to the data.”
Communicate and get feedback
You’ve heard it over and over. Communication is critical for success in any organization and even more so in large ones. The most effective approach lies in the old adages that one size does not fit all and the more, the better.
“You will need to focus on your internal communications to reach more people,” Klotman said. “We had certain levels of publications before, but we created a whole new set of ways to communicate internally from hard copy to Web-based publications.”
He also used town hall meetings where he regularly met with groups and held small staff meetings.
Despite all those things, you still may have issues with communication because each form of communication only hits a certain population.
“We will have a town hall meeting where we are thrilled because 200 people show up,” he says. “Well, we have 7,500 employees. So we have to find multiple ways to constantly say the same thing and get the message out. Of all the things that you will face, I think communication remains one of the biggest challenges.”
In addition to finding other communication routes, you can create feedback committees to represent departments or specialties.
“You can do this through input committees; we have those that represent clinicians, researchers and even students,” Klotman says. “We combine in a council so we can get feedback from the various constituencies and that helps inform us of the kinds of communications that we have to give back to them.
“One of the great things that our director of communications has been able to get members to do is to come with both positive and negative statements about the institution so it never turns into just a complaining session.”
This is extremely helpful in figuring out the things your organization does well in addition to the things you do poorly.
“You’ll get both the benefit of knowing you should continue to do certain things because they are working, and you’ll learn what things aren’t working well so you can begin to focus on them,” Klotman says.
“But you can’t fix things unless you get feedback about the problems, and if you look at the most highly functioning organizations, they almost always have a very robust feedback system where line employees, people on the ground and the rest, can send feedback to you about problems.
“We’ve received individual complaints from staff across our organization where I would say that 95 percent of the time we immediately fixed the problem,” he says. “We’ve had things like the glare in a window where all we had to do was install a shade.
“These are the things that if you create a culture where people feel that they can give you feedback, then you can actually improve things much more dramatically than if everyone was waiting around for a CEO to fix a broken lock.
“You want people to actually give you legitimate feedback about things that are broken and the processes that don’t work, as long as they understand there are some things that you can fix and some things you really can’t.”
Your employees should understand there is no risk in reporting a problem, that there’s no punishment for saying something is broken.
“My favorite example is the aircraft carriers of the world that function with 19-year-olds in the most dangerous, high-risk places where they have almost no accidents,” Klotman says. “We are in health care and education, and every day, we screw up about 100 things, so we ought to be able to do something better. Part of the difference is the culture in the aircraft carrier: everybody reports a problem.”
Give merit rewards
While a new management system and better ways to communicate will go far in helping an organization begin to turn around, a rewards system will help it even further. With the new data available, metrics can be established to ensure that goals are being met.
“You take your leaders and based on their ability to manage their margin and the mission values that you have, allow them to pick a few metrics that they think are important in their own particular area so they can earn bonuses based on that,” Klotman says.
You can implement this as far down the labor ladder as you want, the lower, the better.
“Once again, this is to get them in line with upper management,” he says. “That way it’s a self-correcting ship. Middle management is really important in great companies, and you need middle management to be active managers to make sure they are going in the direction that you want.”
Give your employees 10 things that you want to have happen, and say, “You pick your four, and we will measure you on those.”
“There is one collective goal: The organization as a whole has to be on a positive margin for you to bonus the leaders,” Klotman says. “People earn their budgets and they earn their salaries. If you’re on margin, and if the departments are on margin, then there will be bonuses available based on producing results that are a combination of ones the CEO picked and ones they have picked.
“As I mentioned before, one of the keys is having things that you can measure. Make sure that you create metrics that can show whether you are getting better or you aren’t.”
How to reach: Baylor College of Medicine, (713) 798-4951 or www.bcm.edu
Paul Klotman, M.D.
President and CEO
Baylor College of Medicine
The Klotman file
Born: I was born and raised in Cleveland, Ohio. My father’s from Cleveland. My mother was born and raised in Galveston, Texas. I went to Western Reserve Academy in Hudson, Ohio.
Education: University of Michigan. I studied zoology and entomology. I went to medical school at Indiana University. You may wonder, I followed my parents — and got in-state tuition wherever I went. I also trained at Duke University Medical Center.
What was your first job?
I was folding pants as a 16-year-old in downtown Detroit. It was a very popular African-American suit store. I also was a day camp counselor there during the 1960s’ race riots. I was right there, and it was actually a wonderful experience. They never touched my car — I was providing a service to the community.
Who do you admire most in the business world?
There are a couple of people that I think are really interesting. One is Tom Kaplan, who I met in New York and who founded Panthera Corp. He’s probably the biggest leader in the gold movement. I’ve gotten to know him personally, and he is just a really remarkable person. The other person that I admire greatly is Norbert Bischofberger, who is the number two person at Gilead Sciences Inc. Of all the people I’ve met, he’s one of the few people who just cares about understanding everything he can to make a difference to help people.
What was the best business advice you’ve ever received?
I know it seems silly but the importance of cash. The CFO at my old organization was really, really talented, and had a huge role in turning around the old hospital focusing on the details of your cash position.
What is your definition of business success?
I view my role in every place I’ve been as a steward of the program, and I think your success is if you leave the place better than when you came. That’s not a measure of personal success; it’s not a measure for a for-profit company but for a not-for-profit organization. I think there is a level of stewardship that is greater than in other areas, and I think that your responsibility is to improve the institution.
Smart Business spoke to Robert Winningham, Executive Director/CEO of the Allen Economic Development Corporation (AEDC), about the current economic climate in Texas.
With most of the motivation for corporate real estate decisions is still focused on cost reduction and consolidation, the justification for incentives to support business relocations and expansions is stronger than ever. This is at odds with the traditional motivations for granting incentives.
The changing incentive environment is truly the result of today’s “business not as usual” climate. With increased leasing and reliance on landlord tenant improvement budgets versus significant real property investment, many projects fall short of the qualifying thresholds outlined in outdated policies. In response to continuing economic uncertainty, incentive policies are currently in transition in seven states, with others surveying ways to increase their competitiveness.
According to the Texas Comptroller’s Economic Outlook, the “Texas economy has emerged from the recent recession” with job growth and sales tax collections up from business and consumer purchases. Private sector employment benefitted, as expected, from the strong performance of mining and energy industries. The state economy also benefitted from aggressive, flexible incentive programs geared toward recruitment, expansion and retention. In a down economy, retention can be the equivalent of growth and has become increasingly important to municipalities experiencing revenue shortfalls and shrinking budgets. Although most communities’ policies for incentives do not apply to retention projects, the reality today is that many communities are using incentives to retain or expand businesses. Texas is one of the few states where there are local and state incentives that can be adapted for this purpose. These same flexible programs came under fire this year by some state legislators, however, the argument by proponents is that incentives, whether for retention or new business, are needed to help our struggling economy prevailed.
Texas’ state and local incentive programs survived this year’s 82nd Texas Legislative session despite a massive $27 billion state budget deficit.* Texas added 537,500 nonfarm jobs between June 2006 and June 2011, based on the latest seasonally adjusted figures from the U.S. Bureau of Labor Statistics. That’s nearly 10 times larger than the second-biggest increase by any state over the same five-year span, which is Louisiana’s gain of 55,900 nonfarm jobs. Texas also became the second-largest economy, passing New York and coming in second to California, per data released by the U.S. Department of Commerce Bureau of Economic Analysis.
Texas communities tend to work with performance-based incentives where a project is evaluated based on job creation, capital investment, and/or sales tax generation. Performance-based incentives are becoming increasingly popular nationally where the long term trend has been to offer tax credits rather than grants. Most of these newer performance-based incentive programs are limited and usually tied to recruitment, screening and job training costs. Texas’ Economic Development Sales Tax, which allows local communities to use up to a half-cent of their sales tax for economic development efforts, serves as the backbone of local economic development efforts in more than 500 communities. These sales tax economic development corporations have become a model program by which communities can provide businesses with cash grants for relocation, tenant improvement costs, job training and assistance with infrastructure costs.
The credit crunch, coupled with the continued pursuit for bottom line revenue and cost reductions, has made locales with discretionary grant and financing-driven incentive programs increasingly attractive. There are new opportunities on the incentive front with nearby states, such as Oklahoma, Louisiana and Arkansas, following the lead of Texas with its discretionary cash grants, tax rebates and deal-closing fund either in place or in discussion.
Incentive programs may also face more scrutiny during the 2013 State Legislative session as a result of the review by the Legislature’s newly created Select Committee on Economic Development, whose role it will be to study and make recommendations on incentives. Add in the potential competition from the surrounding states’ incentive programs and it will mean added pressure for Texas. Continued global economic instability and intense competition abroad and at home for jobs and capital investment will have us watching to see if Texas can stay at the forefront of economic recovery.
*The Texas Legislature meets in odd-numbered years.
Robert Winningham is Executive Director/CEO of the Allen Economic Development Corporation (AEDC), in the Dallas-Ft. Worth MSA. In January 1992, the citizens of Allen passed a citywide half-cent Economic Development Sales Tax in support of economic recruitment, expansion and retention. A board of directors, appointed by the City Council, oversees the corporation’s operations.