• June 13, 2021

The Exodus to Texas

The Exodus to Texas

A conversation with Maher Maso, former mayor of the City of Frisco, on what goes into corporate relocation decisions—and why so many companies choose the Lone Star State.

COVID-19 slowed down many aspects of the economy—but not the corporate exodus to Texas. For years, companies big and small have decided to make a new home in Texas, including recent announcements from heavy hitters like Hewlett Packard Enterprise (moving to the Houston area in 2022), Oracle (relocating its headquarters to Austin), and Tesla (with Elon Musk heading to Texas to be closer to a new factory in Austin).

To understand Texas’ ongoing corporate appeal, I spoke with Maher Maso, who has been involved in company relocations and expansions from both sides of the table, as mayor of Frisco from 2008 to 2017 and currently as principal at Ryan, where he helps negotiate and arrange major relocation decisions for the firm’s clients, which include a majority of the Fortune 500. In the conversation below, Maso sheds light on the top factors that companies look at when they consider a move—and the common mistakes leaders should avoid.

—Ed Curtis, CEO, YTexas

Ed Curtis: As a leader in the site-selection business, have you seen COVID change how companies think about relocations and expansions?

Maher Maso: Yes. Many companies are having to think differently and more strategically than they have in the past. Before, many companies didn’t want to rock the boat or make major changes while they had strong revenue. Well, that boat is sitting on dry land for many now, so a lot of companies are rethinking things, including where they are located. For many companies, this has been a time to take a breath and consider the major strategic changes that need to take place.

Maher Maso

Curtis: When a company decides to relocate or expand into a new area, what are the usual trigger points in the decision? And why do so many end up choosing Texas?

Maso: When companies look to relocate their headquarters, the number-one thing they look at is the workforce. Without a workforce relevant to their needs—which also ties into the education systems—they will not be successful in a community. They also look at transportation and how their employees and customers get around.

Of course, they look too at the tax situation and the local government. Is the tax situation fair, and do government partners support businesses, or do they take it for granted and create obstacles? Every company expects to pay taxes; they rely on the services that local, state, and federal governments provide, such as public safety, roads, quality of life, and other things a good workforce values. But they also expect the taxes to be fair. So, the site selection process analyzes the fees, taxes, and other burdens of any specific location. Our goal at Ryan is to have companies pay their fair share of taxes and not a penny more. Texas has done well because there is no state income or corporate income tax and less regulation, which promotes growth for all.

And finally, companies look at the incentives available to them. Incentive negotiation is a key business vertical at Ryan. While incentives are not usually at the top of a company’s site selection criteria, those incentives often allow companies to add more jobs or make the move more attractive overall.

Curtis: If I go to the website of a city or of a governor’s office, they usually have a list of those incentives—tax abatements, credits, and so on. What should CEOs know about these types of incentives?

Maso: First, I would say that not all incentives appear on those websites. The more creative cities and states have tools that may not be listed, especially in Texas. Here, we have “home rule” cities with a lot of autonomy. Because they may not receive much funding from the state, cities may offer unique, local, creative tools. That means it’s more of a dialogue; these cities may want to know more about your company before sharing all of the incentives they offer. For example, how many jobs will you be creating? What’s the average salary? What’s the company’s investment? Is your company in the business sector they’re interested in?

There are many incentive programs CEOs should be aware of when considering relocating to Texas. If a company doesn’t already have a presence here, the Texas Enterprise Fund can come into play on top of local incentive packages.

If a company is already located in Texas, the Texas Enterprise Zone Fund can be a very attractive program that rewards employers for being in Texas as well as for hiring people in distressed areas. It’s one of the best-kept secrets. For companies with 200+ employees, the Texas Enterprise Zone Fund can help a company receive state sales tax refunds over many years, based on how much they are paying in sales tax. In other words, if you’re adding a new division or renovating a building and buying new equipment, the sales tax you pay could be refunded to you. That program has been great for retaining companies in Texas and helping them continue to create jobs.

Historic tax credits is another program that is very strong in Texas. It allows companies that are renovating historic places and landmarks to qualify for credits.

At the city level, the number of programs is extensive. For example, some Texas cities have adopted what is called 4A/4B, which creates economic development funding through sales tax. It’s very important to understand the city you are considering, and which programs they may have on offer. Ryan has the resources to help uncover these opportunities.

Plus, there are also federal programs, such as new markets tax credits. This gives companies an opportunity to get federal tax credits for renovations or relocations in certain areas or census tracts. And finally, some companies forget about R&D credits. People think of R&D as high technology, but you could be researching and developing lots of types of things—a new type of fertilizer for a tree farm could qualify, for example.

Curtis:  At what point in the process do you think it’s best to begin having those discussions with government partners?

Maso: It’s best to look internally first and figure out what the company’s goals are before announcing any moves or starting any dialogues. Are you trying to improve the workforce aspects of your company? Are you trying to create new products or services? How many employees are you bringing or hiring? What’s your five-year plan? What’s your investment? Once you can tell that story, then you can seek out the best location for meeting those goals and have those dialogues about the programs available to you. The mistake I see sometimes is the mindset of “Let’s go after those incentives” before the company has a clear idea of what it’s trying to do.

Every city feels it has a duty to create jobs, to give its residents an opportunity to earn a living and provide for their families, so they’ll be willing to work with you if you can tell them what you plan to do. I encourage my clients to think about them as partnerships, because they are partnerships—you’re not asking for a handout. The best kind of incentive is one that gives the community what it’s looking for—measurable job creation, return on investment, etc.,—and that gives the company what it’s looking for too: the right workforce, a lower cost of doing business, etc. When we put these deals together, we know what companies and local governments both want, and there’s always a way to create win-win and public/private partnerships that benefit everyone.

Curtis: I understand that Tesla isn’t getting any state incentives for relocating to Texas, but that they got a lot of local and city incentives. But if you think about the long-term impact of Tesla to that area of the state, it’s going to be huge.

Maso: Right. As I mentioned, the incentives on their own are not the primary reason companies move or build new facilities. It is part of a puzzle. A company like Tesla will likely look at the tax savings in Texas as a long-term, forever incentive. And the same with the workforce available here; they will spend less on turnover and less on training. They are probably receiving workforce training credits, with local community colleges and the state providing them funding to do the specialized training their employees may need.

These relocation decisions are always a combination of several factors. Sometimes the large ones may not seem to involve a lot of incentives, but that’s just if you look at the cash paid to the company. It’s so much more than that. It’s local government permitting, taxes, transportation, education, and workforce. Elon Musk probably looked at the move to Texas as a lucrative financial move because of all those things.

Curtis: The area Tesla is developing was a vacant piece of land that earned virtually nothing in tax revenue compared to what it will generate with Tesla there, plus the employees buying homes there and of course paying sales tax. Those seem like things the local community will appreciate.

Maso: As a previous mayor, I can tell you that local government is the best government. They’re building the local roads; they’re putting in sidewalks, hike-and-bike trails, parks, and libraries; they’re taking care of public safety. Even though a company may get abatements, they’re still paying taxes in the community. And when you pay local taxes, 100 percent of them stay there—they get invested in the community, providing services you see every day. Garbage collections, emergency services, the school system that your employees may be drawn to for their children and that is educating your next generation of employees.

Curtis: It’s interesting, too, because the community has to vote to approve giving a certain percentage of sales tax revenue to economic development.

Maso: Absolutely. As you mentioned, the community is typically behind these incentives because the tools available to the city have generally been voted on by the residents. In my term as mayor of Frisco, we were very successful because the taxpayers gave us the tools needed to attract the Dallas Cowboys World Headquarters, the PGA, and billions of dollars of corporate offices. Those tools weren’t something we made up in local government; they were supported by the residents. The community funded the direction it wanted to go. It’s rare that a company will come into a community where it’s not wanted.

Curtis: What is the process like at Ryan when you’re helping a company assess different locations?

Maso: Because there are so many factors, due diligence on site selection can be complicated. It’s not just about local taxes. It’s not just about the workforce. It’s holistic. Are we wanted by the community? Do we have a chance to prosper long-term here? Will we partner with the city? Those things have to be looked into and evaluated, because there can be hidden dangers.

For example, if you’re a company that may need public safety assistance—fire department, medics, hazmat, etc.—it’s important to assess those aspects. What’s the ISO [Insurance Services Office] rating? What’s the fire department’s response time? You may have gotten the best taxes and a great workforce, but if the fire trucks don’t show up for 30 minutes when you need them, that could be a significant financial hit to you.

Curtis: What mistakes should companies avoid if they’re thinking about relocating to Texas or anywhere else?

Maso: I would say that when it comes to site selection, you can never start too early. The number-one mistake I see made in the process is that interaction with local government happens too late in the process. You can start doing that early, even if you’re not sure where you’re going. As I said, you will want to know the story you’re telling and the goals you want to achieve beforehand. If you’re thinking of moving your headquarters in two years, start now. At Ryan, we’re sometimes given two weeks to pick a location for a company because they’ve already narrowed it down to two or three cities. But you’re not going to maximize the programs available to you that way. If you’re handling the relocation internally, get your team together early. If you’re working with a site selection company like Ryan, make us part of that team early on. We’ll give you things to consider and steer you at a very early stage. Starting early makes for a much easier and smoother process, and we can really create some pretty interesting public/private partnerships if we have the time.

Another mistake I see is making promises you can’t deliver on. That creates bad blood between the community and a company in the long term. You have to be careful, because there’s a compliance aspect of these relocations, and I see many companies fail to hold up their end of the bargain. At Ryan, we handle compliance because, out of fairness to the community, we want to show that the client has accomplished what they said they would. Again, you have to keep that ongoing dialogue so there’s no surprises. Many times, a company makes a move and then doesn’t engage in the community, and then we’re called to put out the fires. That’s not nearly as much fun as putting the deals together on the front end.

Ed Curtis

Ed Curtis

Ed Curtis is the founder and CEO of YTEXAS. He launched YTEXAS after 20 years in banking and private sector business, where he held various positions such as Market CEO, Chief Lending Officer, and Chief Executive Officer.

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