Texas’ Big Bend Moment

The Big Bend National Park in far southwest Texas is reopening soon, like most of Texas.

The park has national significance as the largest protected area of Chihuahuan Desert topography and ecology in the United States and includes the entire Chisos mountain range. The park protects more than 1,200 species of plants, more than 450 species of birds, 56 species of reptiles, and 75 species of mammals. The Santa Elena Canyon, carved by the Rio Grande, features steep limestone cliffs.

If you haven’t seen it, to say it’s truly a Texas treasure is not hyperbole.

Big Bend is one of Texas’ most iconic gems, and I mention it because it brings to mind another expansive, perhaps underappreciated Texas treasure: our boundless drive for innovation.

It’s that innovative, forward-thinking spirit that, I believe, bodes well for Texas’ future beyond COVID-19.

Texas Plans Ahead. Years Like 2020 Are Why.

Let’s face it—we live in a world that’s very different today than it was even 150 days ago.

Every state in the country will be faced with enormous budget pressure given the loss of jobs and related tax revenue, which will surely extend at least all the way through 2020.

Texas will be no different; In fact, Texas sales tax revenue was down 13.2 percent in May 2020 compared to May 2019, the steepest year over year decline since January 2010. Sales tax is the largest source of state funding, accounting for 57 percent of all tax collections. Other tax revenue sources were also down in May from 38 percent for motor vehicle sales and rental taxes to as much as 88 percent in hotel occupancy taxes.

However, as you heard from me in previous issues of Texas CEO Magazine, we are better positioned for recovery than most of other states. Why? Precisely because we invest so heavily in the future, not only through innovation but through strong planning and the fiscal austerity required by our state constitution and—for the most part—practiced by our legislative leadership.

In fact, thanks to these factors, Texas will arguably be much better positioned not only than most other states but other countries as well.

When it comes to economic development, we play in a global arena. That context is important if we want to come out of this pandemic even stronger than we are today, on a relative basis.

To do so, Texas can continue doing what we normally do: plan ahead. There are many historical examples of Texas doing just that.

The Economic Stabilization Fund (our “Rainy Day Fund”) was established by constitutional amendment in 1988 following an oil and gas crisis and is now valued at almost $ 11 billion dollars. A good chunk of that money will be needed for the state’s next budget cycle, but it may allow us to avoid deficit spending.

The Governor’s University Research Initiative (GURI) and the Cancer Prevention and Research Institute of Texas (CPRIT) are more recent examples of Texas investing in the future, attracting the brightest minds from across the globe and the most cutting-edge technologies to the state.

Innovation: Beyond the Buzzword

What is innovation, really? A bit of a buzzword, admittedly. But innovation isn’t only about things that might immediately come to mind, like the latest app or digital technology; it is those things, of course, but it’s also about doing things differently to create an industry or transform one.

Dell Technologies was built on made-to-order personal computers. The “hub and spoke” model mastered by Southwest Airlines and FedEx’s (and now Amazon’s) modern delivery system are often cited as major, impactful innovations in recent history. As Gary Hoover, founder of Bookstop and entrepreneur-in-residence at UT–Austin’s School of Information, notes, these are “all new, innovative technologies, a new way of delivering or making a new technology or service.”

Innovating can be large or small, and it often happens on a daily basis in a competitive, free-market, capitalist society.

Why does Texas need to think big and innovate while we do it? According to the organization Texas 2036:

• Our population will grow by 10 million in less than two decades and we’ll need 8 million jobs to keep pace with the growth.
• In a 21st century economy, 77 percent of jobs will require a college degree or certificate, but just 23 percent of Texas eighth graders are meeting that qualification within six years of high school graduation.
• Texas ranks 49th among the 50 states in overall health system performance, last in accessibility and affordability, and healthcare has an enormous impact on our state budget.

Recommendations for Texas’ Road Ahead

How can Texas continue to innovate and lead in terms of public policy? Here a few thoughts.

1. Secure education and the future of jobs

Texas will need innovative thinking and sustained investments in a workforce that will meet the demands of a 21st century economy and maintain our state’s prosperity.

And we need it now.

A focus on accountability and outcomes will be important, as will the creation of clear pathways from high schools to community colleges to the workforce and four-year universities—with a vision of turning high schools into community colleges.

The specialized needs of Corporate America and the demand for jobs will drive the tailoring of education to the needs, skills, and goals of individual students. In some cases, that means highly skilled technical education that helps our citizens fill a needed role in the workforce.

The one-size-fits-all approach to education will need to evolve, just like economies.

Public schools, community colleges, and industry must work together to prepare students not just for jobs, but for careers. And we must grow the number of students who attain at least a two-year college degree, if not a diploma from a four-year university—and to create opportunity for every Texan, regardless of where they grow up.

Community colleges and vocational schools will play a critical role in teaching skills that students need to fill vital jobs in the economy and they meet students where they are—whatever that requires. As an example, San Jacinto College in the greater Houston area teaches a welding class from 11:00 p.m. to 2:00 a.m. because, the school notes, “that’s when students are available.”

Companies themselves will need to get involved directly on high school and postsecondary campuses for directed skills training; some of that is happening now and the trend will need to continue to fill the jobs required to sustain the state’s population growth.

2. Create a domestic venture capital industry

Equity capital is critical fuel for innovation-intensive companies, and there is much more Texas needs to do to ensure an adequate supply and an efficient marketplace to create our own domestic venture industry.

According to the Texas Foundation for Innovative Communities, states have created more than 200 programs for enhancing early-stage investment. However, Texas venture funding has started to drop sharply among the states, from #3 for most of the past three decades, to #5 today, and soon to #6. A major reason for this is that Texas has always relied primarily on investment coming from out of state. However, the investment climates in those states has now improved to the point that Texas has lost its comparative advantage in attracting those funds.

There are many approaches we need to explore to improve our standing in terms of venture funding. And there are many stakeholder groups we’ll need to engage to determine the best way to raise and invest funds in our state.

We’ll also need to find a suitable role for public policy in support of the effort.

Options might include allowing the Economic Stabilization Fund more latitude in its investments to accelerate returns, even investing alongside private investment funds to get capital into the hands of Texas small businesses. A “Texas Legacy Fund” to this end was proposed to the Legislature in 2019 and partially implemented. Expect the idea to be revisited when the 87th Legislature convenes in 2021.

The same could be true of the large Texas pension funds, although the politics are tricky. Universities like the UT and Texas A&M systems—both with very large endowments—have a role to play as well to invest and spin off commercially viable enterprises and create the jobs of the future.

Sources of capital like these could support certain industries. Additionally, small businesses that rely on state appropriations and tax incentives could work with state government and the private sector to create permanent sources of funding to out-compete other states.

3. Address the cost, effectiveness, and accessibility of healthcare

Medicaid alone now accounts for almost 40 percent of the total Texas budget—yes, that’s 40 cents of every dollar Texas spends. Unfortunately, that number is growing, and it isn’t sustainable.

Overall, the average annual growth in healthcare expenditures in Texas is 6.9 percent, above the national average of 6.0 percent. 

Addressing the cost of healthcare will be a key focus of the 87th Legislature, out of necessity. Texas will need to engage in a thorough, thoughtful conversation about how to produce the best health outcomes, put limited resources to their most effective use, and deliver healthcare more efficiently.

Texas ranks 49th in overall health system performance and last in accessibility and affordability. Health outcomes and access are not equal across the state, varying by geography, race, ethnicity, and income.

Solutions may include a greater emphasis on improving the health of patients (as opposed to simply treating them when they are sick) and increasing competition in the system and relying more heavily on technologies such as telemedicine.

Experts have noted the potential value of artificial intelligence in helping to improve diagnoses and speed treatment, thereby reducing the need for long-term care and hospital stays.

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These are a few examples of where Texas can lead the future. Infrastructure is another, although we’ll need an injection of private capital given the state of the budget. And all of it needs to be measured to know how we’re doing; today, just one-third of Texas state agencies have analytic capacity.

Make no mistake, economic growth is the most powerful tool for reducing poverty, reducing income inequality, and ensuring a future of shared prosperity for all Texans. Innovation is the primary currency of economic growth, and Texas has the risk takers and big thinkers to swiftly create new ideas and transform those ideas into high-growth companies.

If you can get to Big Bend, go. You won’t regret it. If you can’t get there, just picture it. I like to think of it as a symbol of the expansive, future-focused spirit Texas needs at this moment.