Looking For A Favorable Business Climate? Try Texas

Wednesday, October 1, 2008 - 01:00

Editor: Does your firm counsel clients on the advantages of locating business facilities in Texas? Is this an important and growing area of your practice?

Yelkin: Yes. Gardere Wynne Sewell ("Gardere") has a substantial practice with existing and new clients wishing to expand business operations in Texas or relocate business operations to Texas. The Texas economy is very dynamic and continues to expand while other states and the national economy has been slowing towards recession. Gardere has positioned the firm to better serve economic development interests by hiring an expert attorney with state economic development experience and who helped to create or implement Texas economic development programs. In addition, Gardere has joined Texas-One, the Texas Governor's organization to promote economic development and tourism in Texas, and Gardere has become active in foreign and domestic economic development trade missions through its membership in Texas-One. Gardere has participated in outreach and seminars to promote its economic development practice area.

Editor: Do organizations or companies that use your firm to help them find a Texas business site subsequently use your firm to handle issues relating to the construction of a facility there, including relationships with governmental bodies? Do they become permanent clients?

Weber: Yes, the organizations or companies that utilize our economic development practice area usually benefit from legal services available from other practice areas within Gardere. Our existing and potential economic development clients benefit from Gardere's wide array of legal services that are available in addition to our extensive expertise in economic development incentives. These additional practice areas may include: taxation, litigation, administrative law, banking and finance, construction, corporate governance, environmental practice, government affairs, real estate and securities.

In addition to the specific practice areas mentioned, Gardere is supported by almost 300 firm lawyers whose practices span more than 35 areas and disciplines.

In seeking new economic development clients, Gardere promotes its ability to cross-serve the client in several practice areas within the firm. Gardere already represents several Fortune 100 companies, large and small privately held companies, trade associations, and numerous other entities. Specifically, Gardere has a Governmental Affairs practice that allows a client to benefit from our collective years of experience and representation before the Texas Legislature, Texas executive branch agencies, and local governments in legislative or regulatory matters.

Editor: Generally speaking, what aspects of the business environment attract business to Texas? Legal Climate? Regulatory Climate? Business Organizations? Attitude of and quality of labor? Other?

Weber: Financial incentives: Texas has been very successful at creating state and local incentive programs that are attractive to businesses wanting to locate in Texas. In 2003, the $295 million Texas Enterprise Fund was created as a "deal-closing" financial incentive program to provide an advantage to Texas sites when competing with other states or foreign nations. Additionally, in 2005 Texas created the Texas Emerging Technology Fund to provide money to start-up companies for the development of new and emerging technologies in Texas. In 2007, Texas voters approved the creation and funding of the Cancer Prevention and Research Institute of Texas ("Institute") with a total of $3 billion in bonding authority. Over the next ten years, $300 million in general obligation bonds will be issued annually to fund scientific cancer research. The Institute may invest the grants strategically in cancer research, clinical trials, and laboratory facility construction in Texas. Local governments may also provide financial incentives, gifts of property, waiver of certain fees and permiting, sales tax rebates and loan programs.

Taxation and Tort Reform Issues: Texas is attractive to businesses because it does not have a personal income tax. A minor business tax exists that recently replaced the state's corporate franchise tax. Overall the tax burden in Texas is lower than in other states. Texas has been successful in addressing tort reform issues in 1995 and 2003. Recently, a report was issued by a key Texas economist, Dr. Ray Perryman1 , which shows that lawsuit reforms enacted in Texas beginning in 1995 has resulted in $112.5 billion in annual spending in Texas, 499,000 new, permanent jobs and a $2.6 billion increase in state tax revenue giving Texas a resounding competitive advantage in these challenging economic times.

Workforce: Texas has a young, large, and diverse workforce. State programs exist for providing training grants to businesses needing specific training for employees. Texas is a right-to-work state without any strong influence from labor organizations. Texas is also the only state that does not require workers' compensation coverage. Businesses may insure under a workers' compensation policy, self-insurance, or opt out of the workers' compensation system, which would subject the business to possible tort actions. Graduation rates have been increasing and Texas has several quality institutions of higher education and community colleges throughout the state.

Transportation and Electrical Infrastructure: Texas has a very good road transportation system that utilizes several interstates, state highways, and toll roads in certain areas of the state. Texas also has substantial rail service within the state to help transport goods and services. Texas has two of the nation's largest ports, Houston and Corpus Christi, and several minor deep-water ports and access to the Gulf Intracoastal Waterway for barge travel. For electrical service, Texas is uniquely situated to ensure uninterrupted electrical service to businesses because most of Texas is situated on its own electrical grid under the authority of the Electric Reliability Council of Texas ("ERCOT"). Though Texas is largely known for its oil and gas production, green energy resources are being developed. Recently, Texas adopted an expansion plan to utilize wind energy into ERCOT, which will ensure additional megawatt production for future growth in Texas of electrical needs. This plan includes major infrastructure improvement in service lines that will be bringing this energy from west Texas to more populated parts of the state. In the near future, Texas will be looking to expand solar energy into its available energy grid. Two companies have also announced their intention to expand nuclear power in Texas after federal regulatory approval.

Other: Texas enjoys a high quality of life. Texas cities routinely are named to "Best Places to Live" lists and best places to purchase a home. Texas enjoys mild temperatures in the winter and access to environmental diversity from the Texas gulf coast, the Guadalupe Mountains in West Texas, the Texas hill country, and the rolling plains in the northern part of Texas.

Editor: Why would a global business with headquarters outside the U.S. want to consider Texas as a site for its U.S. western hemisphere headquarters? What does it offer?

Yelkin: Texas offers proximity to the other nations within the western hemisphere and enhanced trade opportunities resulting from the North Amercian Free Trade Agreement and other related free trade agreements. According to the Texas Secretary of State, Texas has led the nation in export revenues for the past five years, totaling more than $150 billion in 2006 alone. Additionally, Texas currently holds the second-largest number of international trade-related jobs in the United States. Texas' top exporting partners were Mexico, Canada, China (mainland), South Korea and the Netherlands. Other countries in the Americas region that rank at the top 25 largest export markets for Texas in 2007 include: Brazil (8th) with $3.9 billion; Venezuela (13th) with $2.8 billion; Colombia (14th) with almost $2.3 billion; Chile (21st) with $1.44 billion; and Peru (23rd) with over $1.2 billion.2 Texas offers access to international trade and travel through key airports like the Dallas-Fort Worth airport (DFW) and Intercontinental Airport in Houston and large deep-water ports like Corpus Christi and Houston. Texas has a diverse population that supports its rich culture and history.

Editor: Among the cities or areas in Texas, which do you feel are most attractive as business locations for foreign companies? Why?

Weber: Depending on the type of business one might wish to locate in Texas, certain areas may be more beneficial than others. However, in a general discussion, the following cities are most attractive for businesses:

Dallas - Proximity to international flights; skilled and educated workforce; diverse culture.

Austin - Quality of life; very highly educated and diverse workforce; growing community; the University of Texas at Austin, the state flagship university, is sited in Austin.

South Texas (San Antonio and Rio Grande Valley) - Large numbers of available workforce; proximity to Mexico.

Houston - International city; international flights; deep-water port; educated and diverse workforce.

Editor: How do potential clients learn that your firm can help them find a location?

Weber: Gardere promotes economic development as a key practice area of the firm. We promote this practice in the media, forums, and on the firm's website. Web search engines should also direct potential clients to our websites. Another source is referrals from other lawfirms who do not practice in this area and from attorneys within the firm with existing clients wanting to seek economic development incentives.

Editor: In attracting companies seeking a location, how important are the activities of state and local bodies? Which local bodies do the best jobs and how do they help with the process? Are there websites or publications that are particularly helpful?

Yelkin: Before the legislative enactments of 2003, the state did not have the tools necessary to assist local governments in bringing economic development projects to Texas. However, with the passage of key legislation, the state now has very important economic development tools and works very closely with local governments. Both the state and local entities now work together in creating the best economic development incentive program available to any potential company looking to expand in Texas. This team approach has been very successful in bringing new businesses to Texas. At the local government level, a business may have to negotiate with cities, counties, local economic development corporations, local industrial development corporations, chambers of commerce and other political subdivisions of the state of Texas including port authorities or river authorities. Since incentives may be provided by both state and local governments, it is very beneficial to have all these entities working together in bringing a company to Texas. Our experience in working with local entities illustrates that there are very educated, knowledgeable, and dedicated individuals at all levels of the economic development process. However, metropolitan areas usually have more financial tools to provide incentives than rural areas of the state, thus the metropolitan areas usually have a competitive advantage over those communities without professional staff or available funds, public lands or other incentives. All government entities have websites that illustrate available incentives. Two useful websites of state incentives are: www.texasone.us and www.governor. state.tx.us/divisions/ecodev.

Editor: What incentives are available to attract businesses to Texas? I understand that Texas is one of the few states to be running a budget surplus. Does this make it less likely that incentives will be reduced?

Weber: Texas has a budget surplus which may be a direct result of positive legislative changes in Texas laws over the past few years that have benefitted economic development and growth. In recent years, funding has been created or increased for several economic development programs, and it is unlikely there will be any reduction of funding in the next legislative session in 2009. It should be noted that the Texas legislature meets every two years, in odd years for 140 days. During the legislative session, a two-year budget is passed for state funding needs. Several state programs exist to assist businesses looking to locate in Texas.3

Editor: Before deciding on Texas as a location or selecting a particular location within Texas, why should corporations seek the help of a law firm like yours? What does counseling with a firm like yours add to information obtained from a governmental development body?

Weber: In addition to the merits of any potential economic development project, obtaining state incentives is a political process that requires personal knowledge of the people, process, and political pitfalls. Clients can read all the available information on potential sites and programs, but personal knowledge and connections are prominent in receiving financial incentives and assistance. There may be political advantages to locating in one location of the state versus another location. Having key personal relationships in Texas may be beneficial to businesses wishing to locate in Texas because our firm's direct relationships will allow a client to move through any consideration process quicker and with ease.

Please visit our website at www.metrocorpcounsel.com for the footnotes to this article.

Please email the interviewees at dweber@gardere.com or kyelkin@gardere.com with questions about this article.