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Volume 22, Number 19

POLITICS AND GOVERNMENT

(09/18/09)

There is an important undercurrent to all the hand-to-hand combat between Democrats and Republicans. And it runs directly from Washington to Austin.

While much of the rhetoric revolves around the high profile issues of the moment in Washington, the savvy politicos are focusing a few years down the road. Of course the mid-term elections in 2010 will be in the spotlight, as they should be. Every single seat in the US House of Representatives will be on the ballot, as will almost half the seats in the US Senate. So political control of the next Congress will be uppermost in most discussions.

But the long-term undercurrent consequences have much more importance. The every-10-year US Census will be taken as of April 1, 2010. And when the results are finally officially tallied in 2011, Texas should gain more seats in Congress than any other state in the union.

Due to population gains over the past ten years, it is virtually certain that Texas will get at least three new seats when the 2011 reapportionment occurs. And some are estimating it could be as many as four. This is very significant. Because the total number of seats in the US House is constitutionally capped at 435, every seat that Texas gains means a seat is lost in another state.

States likely to lose seats include New York, Massachusetts, New Jersey, Pennsylvania, Ohio, Michigan, Iowa and Louisiana. So the clout of Texas relative to these states increases exponentially. Other states that may pick up a Congressional seat include Arizona, Utah, Florida, Nevada and Georgia.

Within Texas, more Congressional and Legislative districts will move from small town and rural Texas to rapid growth areas such as Austin, Dallas-Fort Worth, Houston, and San Antonio. Who draws these districts? The Texas Legislature. But the ultimate decision may involve the US Department of Justice (DOJ) and the federal courts.

The redistricting session of the Legislature in 2011 will be bloody, if recent history is an indicator. This is why the Dems and GOPers will be battling for majority control of the Texas House and Senate. And, due to a recent USSupreme Court ruling that, ironically involved an Austin Utility District, the boundary realignments must be approved by DOJ, after a Legislative bloodletting.

Unlike ten years ago when the Justice Department was run by Republican Attorney General John Ashcroft, the DOJ’s Voting Rights Division is now headed by Democrat Attorney General Eric Holder. So even if the Republicans retain control of the Texas Legislature, the new redistricting plan will have to gain the approval of the Democrat-controlled DOJ. And the losing side may ultimately take it to the courts. All of this has major implications for political power in Texas – and the US – over the next decade. And the pieces are being put into place as we speak.

(09/11/09)

As we’ve reported, government payrolls are vital to the Austin area economy. So, how financially sound is Texas state government, especially now that sales tax collections have steeply declined?

The state official charged with overseeing the state’s finances is State Comptroller Susan Combs. She and her staff of economists continually monitor the Texas economy and the revenue generated by various taxes and fees. By law, the Texas Legislature cannot spend more money than the State Comptroller certifies is – or, will be – available. The spending budget for the next two years has been approved. But with an economy that is not hitting on all cylinders, what does Combs think about the future fiscal health of the state?

The state’s fiscal year started this month. Sales tax collections are anemic, down 11.6% from one year ago This is important because, in a state with no income tax, sales taxes are a vital part of the revenue picture. Combs says the loss of sales tax revenue has been somewhat offset by lower spending by state agencies.

Helped by billions of federal economic stimulus dollars, the state’s spending plan was put into place without tapping into reserves. The Rainy Day Fund is just what its name implies – money that is set aside, not to be spent unless the Texas Legislature taps it. Combs said that when the current two-year budget cycle ends, the Rainy Day Fund balance should reach $9.1 billion.

When you look back at the previous stories this week, you’ll note that most are predicting the Texas economy will be back on track by 2011. Combs said she also expects a full recovery by then. This doesn’t mean the Rainy Day Fund will be secure in 2011. As a matter of fact, there are those who predict a budget shortfall that will exceed the Fund at that time. So, while everything seems okay so far, this is a situation that will bear monitoring.

Volume 22, Number 19

HIGH TECH

(8/28/09)

In four or five years, your cell phone will replace your office computer and phone. Far-fetched? Not likely. In fact, it is probable. And it’s amazing what you will be able to do.

Our friends at Kiplinger point out that smart phones will be more reliable and able to handle many more chores. New chips will speed processing and technology will make the airwaves less crowded. Battery power will be less of a problem as handsets hold their charge longer. Meanwhile, security fears are easing as protection software becomes more reliable. In fact, data can be erased remotely if a phone is stolen or lost. So, how will your iPhone, Blackberry or Palm Pre be used in this brave, new world?

You’ll soon be able to make PowerPoint presentations from your cell phone. What? Yep, just point your phone to the wall. No need to power up a laptop or use a projector.

Smart phones are especially useful for travel. Salespeople view sales records. TV repairers can see what the last service tech did. Building contractors may look at changes in design. Nobody has to go back to the office to file a report.

New iPhone applications are catching on fast: tracking FedEx shipments, scanning documents, viewing spreadsheets, converting text to speech, recording billable hours, approving travel requests, etc.

Blackberry is countering with: a credit card processor, a voice dictation recorder, a call time tracker to bill customers, an expense account writer, financial software, etc.

Many firms allow their own applications to be downloaded to smart phones: customers make their own reservations online for hair salons and restaurants, realty firms give home hunters pricing and location for various neighborhoods, Nationwide lets car drivers in accidents take photos and begin insurance claims, Pizza Hut patrons go online to pick toppings, owners of Schlage locks can even open the front door from afar when kids lose keys.

Retailers are moving to m-Commerce -- mobile online sales. Consumers are starting to buy event tickets, travel packages and travel insurance over smart phones. Many firms are making sure their stores appear on Google maps. Some are offering coupons that can be redeemed without a printout. Others put up bar codes on posters, storefronts and other places – to be scanned by smart phones. Some phones will even translate posters into other languages.

See what we mean. In your brave new world, you’ll connect a phone to a monitor and keyboard, using the same computer for work and home. Office and personal calls will be channeled to the same device. Callers will think you’re at work when you’re at the beach.

(8/21/09)

New technology is on its way to help speed you through airport security lines. But you are still going to have to shed your shoes.

Even though technological advancements ultimately will make your navigation of airport security systems easier and possibly quicker, you are still going to be asked to take off your shoes. The reasons: new technology for shoe scans flopped. But officials have higher hopes for other bits of technology.

A billion dollars has been set aside to buy and install these new items. First of all, new explosive detection systems for checked bags should allow security workers to more easily rule out bombs in checked bags. This will help keep baggage moving and it should cut the odds of evacuations.

What else? What about advanced screening equipment at security checkpoints? Well, you know one of the delays that occurs is when airport security personnel stop the process to hand-examine suspicious items. New X-Ray machines are planned that will allow multiple views of carry-on contents. The hope is that this will make it easier to identify items in your carry-on gear so the need for hand-examinations will diminish.

There is even the possibility the ban on liquids could be lifted if improvements in software that will allow detection of liquid and gel explosives are ultimately implemented. All this info comes from our friends at Kiplinger.

These should be installed in airports nationwide and should be in place in many terminals by the end of next year. One other point. Whole body scanners are still in limited use. The idea of letting screeners see your body outline under your clothes is still controversial. But the technology to produce less-revealing stick figures has not yet been approved.

Volume 22, Number 19

REAL ESTATE

(10.30.09))

Even as the Austin area climbs out of the recession, the commercial real estate sector needs to hunker down for the long haul.

So far, the national crisis in commercial real estate (CRE) has looked more like a slow-motion train wreck than the massive explosion felt when residential mortgage-backed securities failed. There is no need to go too deeply into esoteric economic analysis, but to fully understand the complexities affecting commercial real estate, some background is important.

First of all, according to the economists at the Real Estate Center at TexasA&M University, the CRE crisis is both financial and fundamental. The financial crisis is being fueled by a lack of available debt financing. Financial entities, except in the rarest of cases, are cracking down on commercial real estate funding.

The fundamental crisis is being driven by changing consumption levels. Consumers are spending less and saving more. And when they do shop, they look for lower-cost goods and services. The results are being felt in corporate earnings.

The dominant trend this year has been for firms to exceed profit expectations, but miss on revenue expectations. Profits are greater than expected because firms are cutting employees, reducing real estate holdings and negotiating lower rent levels with landlords. This has had a direct negative impact on net operating income for commercial real estate.

The real estate economists at TexasA&M predict that “the commercial real estate crisis is likely still in its early stages.” As a comparison, they point out the residential crisis did not suddenly materialize in the fall of 2008. They cite data that shows the crisis “took nearly two years to evolve … reaching a crescendo in the fall of 2008 when Lehman Brothers and AIG failed and the Troubled Asset Relief Program (TARP) was born.”

The TexasA&M takeaway: Commercial real estate will not have as large an impact on the financial system as the residential mortgage crisis, but the next four years will bring rising commercial foreclosures. An increase in the personal savings rate will dampen the demand. To avert a severe crisis, bank balance sheets must be repaired or the commercial mortgage-backed securities market must be restored. Keep reading for an evaluation of the Austin area.

(10.30.09)

Commercial office building construction in the Austin area is down. In fact, it is at a three-year low. Demand in the office market is not high enough to warrant new projects. What can be expected in the months and years ahead?

The reason the Austin area construction is at a three year low, is that for the past three years there was a tremendous surge in office building construction. According to Ted Doucet, with Oxford Commercial, more than 4.7 million square feet of new office space has been delivered to the Austin office market in the past three years.

Of that new construction, less than 2 million square feet has been leased. Hence, a current glut. Doucet points out the current overall vacancy rate hovers around 22%. So what is the outlook for the office market? “We believe the market will continue to soften for the next 12 to 26 months,” predicts Doucet.

And this is giving financial institutions that financed the tenant-hunting office buildings the heebie jeebies. Many of these tenant-hungry buildings are not generating the revenue needed to meet obligations to their lenders. Does this mean a surge in foreclosures?

Ummm, not so fast. The economists at the Real Estate Center at TexasA&M say the staffing levels at the Federal Deposit Insurance Corporation (FDIC) make it “difficult for them to force banks to foreclose on commercial real estate if doing so would place the bank in jeopardy. The FDIC could not achieve an orderly unwind of banks if too many failed simultaneously.”

So, the TexasA&M real estate economists are saying “at present, it seems that the forces working against a surge in commercial real estate foreclosures are stronger.”

But they hedge their bets by saying the “key to preventing a severe crisis will be to either repair bank balance sheets or develop a meaningfully large commercial mortgage-backed security market. In the absence of these actions, the risk of a large wave of foreclosures in the next year rises significantly.” Otherwise, the trend in foreclosures could match loan maturity dates that are stretched out over the next four years.

Just this month, a major Austin commercial real estate project – the W Hotel condo retail downtown project – secured new funding, after its Chicago-based lender collapsed. Don’t underestimate the significance of this. It not only was a vote of confidence for the developer and the Austin economy, but it was very rare in the current national commercial lending environment.

Still, it’ll take a while to shake out. Meantime, rental rates on Austin office building space continue to decrease. So tenants are in a good position to get a good deal in office space.

(8.21.09)

A Texas-based economist says he expects interest rates to stay near zero easily through the end of this year. What does his forecast mean for banks and those who borrow money?

When the Fed said it will keep its benchmark short-term interest rate at virtually zero for some time, it signaled a plan for the banking industry. Mark Dotzour, chief economist for the Real Estate Center at TexasA&M, said the Fed’s move to keep rates unchanged was no surprise. Here’s his take on what this means for banks:

“The federal government appears to have decided to postpone the recognition of the losses that banks have incurred,” Dotzour said. “It appears that we are now going to amortize those losses over a period of years, and keep interest rates low to allow banks to earn their way out of the losses they have incurred. I would expect rates to stay near zero easily through the end of this year.”

Dotzour also has some observations on the state of the housing market in Texas. But first, a bit of perspective. Two years ago, Dotzour said new home construction needed to fall dramatically to avoid the level of overbuilding that could damage Texas housing markets. He even picked summer 2009 as the bottom of the housing cycle. His reasoning was that banks would constrain credit to homebuilders and developers.

Looks like he hit the nail on the head. The Texas inventory of new and existing homes is in good shape. “It appears we are at the bottom of the housing market in most Texas cities,” he said. And this prompted him to say further:

“I feel now is the time to buy a house in most Texas cities. Housing affordability has never been higher and I never thought I would see 5% mortgages in my lifetime. If you plan to live in a house for at least two or three years, now is the time to buy.”

“If you are planning to build a home to retire to in the near future, now is a great time to do it. Contractors are plentiful, construction costs are lower and mortgage money is cheap,” he continued.

What will be the warning signs if this situation is poised to change? He said mortgage rates should remain low as long as the federal government continues to purchase almost all residential mortgages. “When they stop, rates will move up,” he predicted. And, he said all this hinges on one crucial assumption: “that the federal government doesn’t cause further damage to the US economy with higher levels of intervention in healthcare, taxation, cap and trade and rewriting accounting and legal standards.”

Another interesting tidbit. A Florida-based online real estate research firm declared Amarillo the most promising housing market in the country. #8 Austin was the only other Texas city in the Top Ten on Housing Predictor’s Top 25 Housing Markets.

Volume 22, Number 19

BUSINESS AND ECONOMICS

(09/18/09)

Even though many complain about fees and charges levied by Austin area banks, the banks themselves are subject to some serious charges that are not obvious to their customers.

You’ve heard the mantra: “Deposits insured by the Federal Deposit Insurance Corporation.” The FDIC is the organization that ensures your deposits are safe in a banking institution. For years, the maximum amount of your account that was insured was $100,000. That number was upped to $250,000 as the financial crisis started unfolding in the US.

If your friendly local bank fails, the shareholders lose everything but the customers are protected by the FDIC. The obvious question: where does the FDIC get the money to bail out depositors at failed banks? From the healthy banks.

The FDIC levies assessments on its member banks. The money goes into a pool. The pool is tapped to take care of the customers of banks that go under. There have been more than 80 bank failures in the US since the first of the year. Only a few of those were in Texas, but all surviving Texas banks are being asked to pony up more money to replenish the fund.

How big is the problem? A year ago, the FDIC had about $45 billion in its coffers. The latest balance we’ve seen reported in the fund is a little more than $10 billion. And banks are failing around the US almost weekly.

Austin area banks earlier this year were tapped for a special assessment, as were all banks. Most bankers realize that another assessment will be due soon. And some are predicting there may be one or two more assessments in 2010.

These fees couldn’t come at a worse time for banks. The assessment comes straight off the bottom line at banks, cutting into diminishing profits the banks are dealing with in this economic environment. And it obviously drains funds that could be loaned to its customers – loans that could help spur the economic growth of the Austin area.

The individual assessments depend upon a bank’s health. And most Austin area banks are healthy. But this FDIC action means that most Austin area bank fees have nearly quadrupled this year and more is on the way.

(09/11/09)

What is the prognosis for the Austin area economy? Some trend lines are indicating when an uptick might occur.

There are all sorts of Indexes and economic reports that regularly assimilate data from a variety of sources and chart them to see of a trend is emerging. When you aggregate those sources of economic information, a picture starts to emerge. While any forecast is just that – a prediction, a guess, an estimate – it does offer a window to analyze what might happen, and when. Let’s look at info from one Texas institution that has the reputation for cranking out so much economic data that it is touted as a sure cure for insomnia.

The Federal Reserve Bank of Dallas breaks down information from a number of different datapoints and compiles its findings into a report the Dallas Fed calls the Metro Business Cycle Index. The objective: to indicate the direction of each of Texas’ individual metro economies.

Without going into all the eye-glazing economic mumbo-jumbo, you can learn a little by looking at the results for the Austin metro area. The Business Cycle Indexes for both Texas and Austin remain in negative territory, but the pace of decline has slowed – giving the trend line an upward turn – and perhaps signaling that the end of the downturn is in sight.

“If you were to assume that the slope of the trend line stays constant, Austin’s economy would be expanding again by September 2010,” reports the Austin Chamber’s VP/Research Beverly Kerr. “While this may be further off than may be hoped for, it would still mean this period of contraction (as indicated by this Index) would be several months shorter duration for Austin than the previous one, as well as being less deep.”

Austin has been noted as an economic front-runner in Texas, and Texas has been the leading economic light for the nation. So a look at where Texas may be headed is vital to Austin’s future. The Dallas Fed also prepares what it calls the Texas Index of Leading Indicators. As its name implies, this Index is a composite of eight indicators that tend to change direction before the overall economy does. Many look at it as a barometer of the future of the economy of the state of Texas.

This Index edged up 1.5% in April – its first positive reading following 11 consecutive months of declines. It was followed by an even more impressive increase of 3.8% in May and a moderate decline of less than 1% in June.

So what does this foretell? The authors note these recent changes in the Texas Leading Index suggest employment will bottom out during the 3^rd quarter and then begin a gradual increase – leading to a mild rebound in job growth next year to about 1% to 1.5%. The reason the word “mild” was probably used is that the 30-year average for Texas job growth is 2.8%.

Volume 22, Number 19

ENVIRONMENT

(10/30/09)

Several Austin organizations, as well as others in Texas, have made the Environmental Protection Agency’s (EPA) Green Power Partnership’s Top Partner rankings.

The EPA rankings were awarded based upon high annual “green power” usage. And the Top Partner rankings were nationwide in scope and analysis.

The Austin and Round Rock Independent School Districts ranked #1 and #2 respectively among US schools for using the most power from renewable energy sources. AISD used 65.6 million kilowatt hours (kWh), while RRISD used nearly 17 million kWh. Pflugerville ISD ranked #12 in the nation with 996,000 kWh.

The #1 local government in the country was Houston, with annual usage of 438 million kWh. Dallas, #2, followed with 333.7 million kWh. The City of Austin ranked #9 with 62.5 million kWh and the Dallas-Fort Worth International Airport ranked #11 in the US with 52.5 million kWh.

In the college/university category, TexasA&M ranked #6 with 43.4 million kWh. It was the only Texas university to make the Top 20.

EPA’s Green Power Partnership works with more than 1,100 organizations to voluntarily purchase green power. The objective is to reduce the impacts of conventional energy use.

(10/30/09)

Speaking of alternate energy, Texas still leads the nation in total megawatt hours of wind-generated energy installed and in megawatts added during the 3^rd quarter 2009.

If you’ve traveled across the vast expanse of West Texas lately, you have doubtless taken note of the many wind-turbine windmills -- looking more like airplane-propellers-on-a-pole than the old fashioned windmills of the historic Texas past. Instead of pumping water out of the hardscrabble West Texas land, these new-fangled windmills generate electricity that is then fed along transmission lines to more populated areas of the Lone Star State.

The American Wind Energy Association reported this month that Texas added 436 megawatts of energy during the 3^rd quarter alone, 185 more megawatts than added by the 2^nd leading state, Oregon.

Not all the wind farms are in West Texas. Some are springing up along the Texas Gulf coast. The state’s total operating wind capacity is now 8,797 megawatts.

Wind farms are still being constructed, with fanciful names such as Gulf Wind, Papalote Creek and Penescal. When these three farms are operational later this year and into 2010, they will add almost 665 megawatts to the current 8,797 megawatts wind energy Texas production total.

Volume 22, Number 19

GROWTH AND DEVELOPMENT

(10/16/09)

The much-discussed and long-awaited vote this week by the UTSystem Board of Regents to expand medical research and teaching in Austin has far-reaching economic and healthcare implications for the Central Texas area.

For years, UTAustin’s top brass, major local healthcare players and Austin civic, business and governmental leaders have explored various avenues to create a medical school in association with UTAustin. This week’s action does not create a medical school. But it is the next best thing and it could morph into a full-fledged medical school down the line.

The action creates a partnership composed of one of the nation’s most lauded medical schools (the UT Southwestern Medical Center at Dallas, that boasts 4 Nobel Laureates on its faculty), UTSystem and the Seton Family of Hospitals.

This agreement provides for creation of a Joint Conference Council composed of those three entities. The Council will oversee the development and practice of academic medicine programs in Central Texas. This is now on a fast track. The agreement becomes effective next month, 11/30/09, and a regional dean will be appointed soon.

Who is picking up the tab? All academic, clinical research and administrative activities included in the partnership will be funded by Seton. And we’re talking big bucks – maybe as much as $100 million over the next four years.

As regular readers will recall, Seton has been working with the UT Medical Branch at Galveston (UTMB) in an ongoing program that currently has more than 100 third and fourth year med students in residence in facilities such as University Medical Center Brackenridge. It is expected that, over time, UTMB’s role in the Austin area will be diminished in favor of the more prestigious UT Southwestern. The new name says it all: “The Seton Family of Hospitals/UT Southwestern Clinical Research Institute.”

This expansion of academic medicine in Central Texas has ramifications for you and the entire Austin metro area. Especially when you consider what is going on in Williamson County in a separate medical initiative. We’ll explore some of those aspects and put this into perspective for you in the next item.

(10/16/09)

While it may never be of the magnitude of Houston’s world-class medical complexes, the leap forward this week in medical academics and research in Central Texas signals what could be of major importance to Austin’s economy and quality of life.

This isn’t just about a large local hospital complex working with a foremost medical institution to educate doctors. Not to diminish that. But this reaches far beyond what it may seem on the surface. Let’s break it down by lifestyle and economic parameters.

The Austin area is in the midst of a doctor shortage. It is way below the national average per capita, largely due to the fact that the 5-county Austin metro has been one of the fastest growing in the nation for years now. It has long been proven many doctors opt to live in the community where they serve their residency. The Seton Family of Hospitals/UT Southwestern Clinical Research Institute will increase the number of doctor residents training at Seton facilities. And more residents mean more doctors seeing more patients.

UTAustin will benefit greatly. Its leaders have long promoted collaborative research involving disciplines that are integral to medicine – physics, chemistry, pharmacy, computer science and engineering, to name a few. UTSystem Chancellor Francisco Cigarroa (himself a renowned, practicing physician) cited new opportunities for “translational research and collaborations … that will allow discoveries to transition more quickly from the laboratory bench to the patient bedside,” that will result from the initiative announced this week.

More educated minds will be attracted to Austin. In addition to those already working here within the UTMB relationship, “additional faculty and other employees involved in the education and research programs to be developed with Seton will be recruited to Austin specifically to support the graduate medical education programs,” Seton reported this week.

TexasA&M is well underway with a medical facility of its own in Williamson County. Check Volume 29, Number 42, February 1, 2008 edition by clicking “Archives”. Texas A&M is developing a Health Science Center in Round Rock. At that time, Nancy Dickey, the president of the center, said of the UT System medical school plans “we look forward to potential opportunities to partner with them.” The potential synergy among these institutions can only benefit the area.

There’s more, much more. And these initiatives will expand exponentially over the years. Also, remember, this effort reaches into most counties of the metro. Seton has ten hospitals in Central Texas, including University Medical Center Brackenridge and Dell Children’s Medical Center in Travis County, and facilities in Williamson, Hays, Burnet and Caldwell counties. And also, UTAustin is already operating the Dell Pediatric Research Institute, adjacent to Dell Children’s facility. You get the picture. And the picture will only get larger.