In recent years Texas has received numerous well-deserved accolades for our business climate, job growth and economic development. So what can the 85th Texas Legislature do to build on that foundation when they convene in January of 2017?
The state budget is a primary driver for many big decisions. During a Legislative Budget Board (LBB) meeting in early December chaired by Lt. Gov. Dan Patrick and House Speaker Joe Straus, lawmakers set the state’s growth rate at 8 percent. The growth rate limits how much next year’s Legislature can spend compared to the previous one and is nearly 4 percent lower than the 11.68 percent rate approved prior to the 2015 session.
How does this translate? The state will have about $8.9 billion dollars less to spend in the 85th legislative session than during the 84th session — likely the tightest budget since 2011.
Although Texas Comptroller Glenn Hegar says Texas has weathered plunging oil prices better than other big energy-producing states, the plunge has significantly reduced tax collections from that sector.
The governor, lieutenant governor, speaker and 84th Texas Legislature deserve some credit for the ‘weathering’ of that storm. In 2015, they left $4 billion of the budget unspent and another $10 billion in the Economic Stabilization Fund — a “rainy day fund” for the state.
This may prove important as the state is on the hook for about $5 billion in transportation spending, an estimated $1.3 billion in Medicaid caseload growth, and yet another run at financing our public schools to satisfy the courts, all impacted by shifting state demographics. Medicaid is particularly impactful to the budget as it now accounts for 25 to 30 percent of the state’s overall spending, upwards of $30 billion per year.
As a first order of business, the LBB approved $150 million in much-needed emergency funds to raise salaries and hire caseworkers at the state’s Child Protective Services agency.
So, where to from here? The Governor, Lt. Governor, and Speaker have all released their priority issues for the coming session. Let’s focus on where there’s agreement.
Education and Workforce Skills Training
It’s not all rosy in Texas education, but there is positive news. Texas’ high school class of 2014 achieved an 88.3 percent on-time graduation rate, reaching an all-time high for Texas and surpassing the national average of 82.3 percent, according to the National Center for Education Statistics.
What’s more, college degrees and certificates awarded in Texas have increased by 61 percent since 2000, and African-American and Hispanic enrollment has doubled during that time, according to the Texas Higher Education Coordinating Board.
However, state leadership agrees we can do more by raising education standards to help students develop the skills they will need after graduation. This is especially important in preparing students for an increasingly diverse economy and providing pathways to high-paying skilled careers in high-growth STEM areas, graduate careers and college-readiness programs.
Governor Abbott’s Tri-Agency Workforce Initiative is assessing local economic activity, workforce challenges and opportunities, and innovative approaches to meeting the state’s workforce needs. They are likely to recommend programs that allow students to work toward an associate’s or bachelor’s degree while still in high school and initiatives like the 60x30TX plan, the goal of which is to confer a postsecondary credential or degree on at least 60 percent of Texans aged 25-34 by the year 2030.
Higher education plays an important role in the creation and cultivation of an innovation-centered economic development ecosystem, which is a key factor in long-term economic prosperity. To that end, funding for programs like the Governor’s University Research Initiative (GURI) and the Cancer Therapy and Research Institute of Texas (CPRIT) will be debates to watch.
Tools To Compete For Jobs
The Texas model of no personal income tax, balanced regulation and a predictable civil justice system has provided a strong foundation for economic success. These are important and necessary policy achievements, but what other state and local tools can help Texas compete for corporate expansions and relocations that add jobs to our economy?
Other states — and even countries — are aggressive in offering incentives for corporate expansion and relocation; many leaders know that Texas cannot unilaterally disarm in this area but the state will consider both the return on investment and the most accurate evaluation methods for programs like Chapter 313 agreements and the Texas Enterprise Fund. This could include, for example, a balance of emphasis on both capital investment and job creation and industry-specific measurement.
This topic will be hotly debated.
Business taxes and ad-valorem property taxes remain high compared to other states. In Texas, companies pay about 60 percent of all taxes versus an average of nearer 40 percent in other states. This “cost of doing business” issue will be addressed as it relates to Texas’ long-term economic competitiveness.
Related, Texas homeowners pay the sixth-highest property tax in the nation, but relief may be on the way. Lt. Gov. Patrick is strongly supporting Senate Bill 2 — the Property Tax Reform and Relief Act of 2017 — which bodes well for its success.
Governor Abbott has made the case that physical and virtual connectivity of infrastructure assets, including transportation, energy, water and high technology/broadband will be critical to accommodate our growing population and support innovation-intensive industry.
While roads and bridges come naturally to mind when we think of infrastructure, regional innovation ecosystems are another key piece of the puzzle.
With thoughtful investment, Texas can and should develop regional innovation ecosystems to ensure we are competitive in the markets of the future by combining talent, technology, capital and specialized know-how.
There is work to be done to improve individual assets and the interconnections that leverage their value. Some of those assets require money, and all of it will require a long-term view and coordination among stakeholders.
Texas’ economic success was no fluke. Over the last decade, lawmakers have created a policy climate built for growth and, in turn, the entrepreneurial spirit in the state has flourished. Corporate executives and companies in other states and countries have recognized our business-friendly economic environment and brought their jobs to the state.
However, competition among states for jobs and corporate re-locations remains fierce so we cannot re-trench. After all, the true Texas model is to lead. The 85th Texas Legislature has an opportunity to provide a solid framework to keep Texas a beacon state for job creation and maintain a terrific quality of life for our citizens.
Craig Casselberry is founder and CEO of Quorum Public Affairs, Inc. A corporate communications specialist and former aide to two Texas Governors, Craig has managed legislative issues for public officials and companies of all sizes during the last 12 state legislative sessions. www.quorumpublicaffairs.com.
Mar 13, 2017 Comments Off on Business Tax Issues for 2017