Texas Governor Rick Perry - Advocate For Free Enterprise

Friday, September 1, 2006 - 01:00

The Editor interviews the Governor of Texas.

Editor: Our readers are interested in knowing about the advantages that various jurisdictions of the U.S. offer. Texas would appear to have many advantages for attracting new enterprises - a favorable tax and regulatory environment, a skilled and educated work force and a fine transportation system. Why did you feel that the creation of the Texas Enterprise Fund with its appropriation of approximately $300 million was needed?

Perry: What we found was that we were at a competitive disadvantage because we were losing jobs and business opportunities to other states which had these incentive programs. For instance, when Governor Ann Richards was in office in 1991-94, about the best thing that she could do was to get on the phone, speak to a chief executive officer and say, 'You all come down.' That's a nice thing, which lasted about as long as the conversation; it didn't do much for the bottom line. Today, companies want to know that a state has a vested interest by way of a financial involvement. They will not make a multi-billion dollar investment in your state just based on the goodwill of the party inviting them to come in. It is a very powerful thing to have the ability to sit down and close a deal with real money, particularly when you are in competition with other states. The fact of the matter is that it is a highly competitive world that we live in. It's not just the 49 other states that we are competing with, but all countries around the globe.

For instance, when Texas Instruments was considering the building of a $300 million chip manufacturing plant, Singapore was our competition. As a matter of fact, if we had not been able to put $50 million on the table, using the University of Texas-Dallas as our conduit, as well as working with the University in designing curriculum for TI, the company would have gone to Singapore, and Texas would have missed the extraordinary opportunity to see that type of job and wealth creation in the state of Texas.

Another anecdotal story I like to tell involves the film industry. Six or so years ago Canada developed a type of enterprise fund to lure the film industry. Subsequently, some of our neighboring states - Louisiana and New Mexico - have actively gotten involved in putting together tax incentive packages to attract film industries to their states. They have been to a large extent successful. We have not had a similar program in Texas but I hope to initiate one at the next session of the legislature so that we can be competitive in that arena.

Editor: When was the Fund initiated? How much has been appropriated and how much actually drawn down to date? What progress has been made in: (1) job creation; (2) generating new revenues in the communities served by the projects?

Perry: Initially, the amount appropriated by the Legislature in 2003 was $295 million. Since the Legislature meets biennially, at the next meeting in 2005 the Legislature re-authorized $182.25 million. To date the Texas Enterprise Fund has awarded slightly more than $308 million to over 30 different businesses. More than 42,000 new jobs have been secured with nearly $9.4 billion in new capital investment having been made as a consequence.

Editor: It would be of interest to know what the multiplier effect is for the communities served by new businesses.

Perry: According to Ray Perryman, the $50 million investment at UT-Dallas that helped leverage a $3 billion investment by Texas Instruments will lead to the creation of 1,000 direct jobs and over 4,000 indirect jobs. This $3 billion investment is one of the largest capital investments in the history of Texas and was the single largest capital investment announced in the US in 2003.

Potential economic effects of the UTD/TI deal include:

  • The construction and development phase of the new TI Facility is projected to generate $157 million in State revenue and when in full production, the Facility will generate $626 million in yearly total expenditures and a direct annual receipt by the State estimated to be $15.4 million in revenue; and
  • Numerous studies have shown institutions of higher education of academic excellence with significant science and engineering research capabilities have played an increasingly important role in regional economic development, especially in attracting and developing high tech businesses, whereby, every $1 million spent in such academic institutions in the subject research areas is estimated to ultimately provide greater than $10 million in annual economic activity and 50 jobs in the area; and
  • According to the Perryman Study, the portion of the funding aimed at the improvement of the facilities, equipment and programs at UTD, a component institution of UT System, is projected to create $49.8 million in State fiscal revenues, and the combination of the new Facility and a high quality education program at UTD is estimated to permit new economic development for the area with a potential value of State fiscal revenues of $329.2 million a year
  • Editor: Do private enterprise and other governmental entities share in the funding of new businesses?

    Perry: Yes. We look at local governments as a partner in attracting the employers and jobs to their communities. Likewise, we evaluate the size of the capital investment the company is making in the state.

    For example, the state worked closely with Austin city officials and school officials to help secure Samsung's new chip manufacturing plant. In addition to the $10.8 TEF grant from the state, city and school officials also developed incentives that secured the company's decision to build a new semi-conductor facility here and create 900 new jobs.

    Editor: When approaching the Texas Legislature for further funding,

    how do you measure outcomes resulting from the initial outlay of funds ?

    Perry: We actually have a matrix showing how many jobs a business must create. The new enterprise must sign a contract to the effect the new jobs will materialize within a given time frame. If those jobs do not manifest themselves according to the contractual time table, they are obligated to repay the money.

    Editor: Another major effort undertaken by the Governor and Legislature is the Texas Emerging Technology Fund with a similar size allocation. How does it differ in purpose from the Texas Enterprise Fund?

    Perry: The Texas Emerging Technology Fund has three components. First, half the funding, or $150 million, will be dedicated to funding projects brought together by Regional Centers of Innovation and Commercialization, which are collaborative efforts between institutions of higher education and the private sector.To date Texas has created eight such regional centers - seven centers are regionally distributed across the state and one statewide Life Science center. The Centers will be incubators for start-up companies, will attract capital from other companies and will support the commercialization of scientific discoveries within these start-up companies. Second, one-fourth of the funds, or $75 million, will be used to match research grants awarded by federal or private donors. The funded projects will be in collaboration with Texas institutions of higher learning in search of scientific breakthroughs. Third, one-fourth of the funds will be used to make Texas universities world leaders in research by attracting gifted researchers from around the world.

    While the Texas Emerging Technology Fund was created only in 2005, it may become the most powerful tool that we have, partly because of the size of the pie that we're competing for.

    The estimate is that over the next decade, there will be $3 trillion worth of wealth created in the emerging technology arena overall. While the number of jobs created will not be as great as those created by the Enterprise Fund, the monies that we put into the Emerging Technology Fund will leverage substantially more wealth long term in terms of future job and wealth creation. Texas regional centers will become incubators of innovation and commercialization, basically clusters for scientific research created by technology companies, which will lure top scientists from all parts of the world who will attract other scientists - having a magnetic effect.

    For instance, Dr. Thea Wilkins, one of the world's premiere cotton geneticists, was attracted from the University of California at Davis (UC-Davis) to become director of genomics at the International Center at Texas tech Tech University. Competing with several other states, we recruited Dr. Wilkins to Texas Tech University in Lubbock, which has become a world-class center for this study.

    Dr. Wilkins has generated more than 75 professional journal publications, is a regular featured speaker at genomics seminars and international symposiums, and has helped secure more than $6.5 million in competitive grants for her various research projects.

    Wilkins also will bring a research team to the International Center. There, a partnership of academic researchers and private companies will use cutting edge genomics and biotechnology to develop new agriculture products that will serve as the foundation for new business ventures.

    Wilkins' research work will bolster economic growth. For example, Bayer CropScience has grown from four employees in Lubbock to 70 in just six years, and has contributed more than $250 million to the state's economy.

    The innovations that occur as a result of Doctor Wilkins' work will lead to the creation of hundreds or even thousands of new Texas jobs as employers like Bayer CropScience take these new products to the marketplace. And Texas will also see millions of dollars in new farm-related income as growers increase production to meet higher demand.

    The biotechnologies developed by Wilkins and her research team are expected to lead to the development of such commercial products as flame-retardant fabrics; high-end, wrinkle-free business wear; and stronger fabrics used in the defense market.

    Editor: What you are describing resembles the various stages that a venture capital company passes through.

    Perry: Yes, that is exactly what it is - basically early stage capital for funding technology commercialization from Texas universities. There are so many concepts and ideas that get developed in a university laboratory or university setting that get stymied because many scientists don't take their discoveries to the next step of commercialization, not knowing how to take their inventions from the laboratory to the market. There will be business managers on hand helping them to make this occur.

    Editor: Your record shows that you are a strong supporter of public higher education, of affordability and accessibility of healthcare and of good transportation. Has there been opposition to setting up the two funds from detractors on the theory that the money should be spent directly on education or healthcare?

    Perry:Being in the political arena, there is always opposition. There would be opposition if we were doing it the other way around and putting all of our money into health and human service needs in the state.

    The key, I think, is to have the balance to do both. I think we do a fairly good job of being both pro-business and taking care of those in need, which state government historically was tasked with, i.e., making our schools the best they can be and supporting one of the best healthcare systems. Arguably, Texas has some of the finest public schools in the nation, particularly considering the challenges we have with 600,000 of our 4.4 million students speaking a language other than English. Texas is such a huge melting pot. In one of the Houston school districts, there are 78 different languages spoken in just one ISD.

    Editor: How do the measures you are taking in terms of enterprise development and high tech compare with those of other states?

    Perry: Well, I think the appropriate way to judge this situation is by return on investment, which is a powerful statement of good returns. Our total direct project return on the state's investment and job creation varies by project but exceeds 200 percent in 23 of 30 projects that have been funded.

    Another way of evaluating the investment is by looking at some of the independent sources which review all the states, using a number of parameters. One source I use is Site Selection magazine, one of the more substantial economic development publications in the world, which has chosen Texas in 2004 and 2005 as the number one state in the nation in which to do business.

    In making their evaluation the staff of the publication looks at the jobs created, capital investment, the legal climate, the skilled workforce, the educational system, the regulatory climate, new job announcements - all of those factors are taken into account. The fact that Texas is the number one state is directly attributable to the business climate in the state - of which the Texas Enterprise Fund and the Texas Emerging Technology Fund have played a part.

    Editor: What prospective goals do you have for another gubernatorial term?

    Perry: I have not completed the work I set out to accomplish in this term as governor. The fact of the matter is that as much as we have improved our systems over the past five to seven years, there is still improvement to be made. I believe that nurturing a climate for creating jobs and wealth in the state will allow Texans to pursue their dreams. One of our greatest gifts to anyone is a good job! Hopes of obtaining a good job provide an incentive for staying in school and going on to college with the prospect of a bright future. Continuing to improve opportunities for young Texans relative to their academic futures in grades K through 12 and in our colleges and universities is very important to me. I am living proof of this axiom. My parents never attended college and worked as tenant farmers on a cotton farm. The accessibility and affordability of an institution of higher learning opened many doors for me in my career.

    Editor: For what accomplishments do you wish to be remembered once your term as governor is over?

    Perry: I think that when Texans look back upon the policies we have put in place which enabled the state to grow, they will appreciate how much these practices helped them to achieve their dreams. That would be an accomplishment for which I would be quite happy to be remembered.