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Volume 22, Number 19

POLITICS AND GOVERNMENT

Polls seem to dominate the dialogue in the presidential campaign these days. But the polls focus on the popular vote, not the Electoral College tally. And an analysis of the Electoral College vote produces some interesting results.

Democrat Al Gore won the popular vote by 0.5% in 2000, but Republican George Bush won by one vote in the Electoral College. It takes 270 Electoral College votes to be elected president and Bush got 271. So, admitting it is a long time before the November election, what does the Electoral College map look like at this stage of the game? For this analysis, let’s assume the Dems nominate Barack Obama to run against John McCain.

Without getting specific for all 50 states, start with the fact that there are states that traditionally vote Republican (red states) and others that are solidly for the Democrats (blue states). So, let’s allocate them to either McCain or Obama by traditional voting patterns.

McCain’s strategists are encouraged by the fact that many of the states where Obama has beaten Hillary Clinton in the Democratic primaries/caucuses are states where the Democrats are still likely to lose in November. These states include those in the Deep South -- Georgia, Alabama, Louisiana, Mississippi, South Carolina and North Carolina.

There’s also a double whammy in play here. Some other states where Obama has defeated Clinton are states that will be in the Democrat column anyway – Oregon, Washington, Vermont, Maine, Maryland, Hawaii – so there is no net Electoral College vote gain for Obama if he wins those states in November.

Then there are the swing states that go back and forth between red and blue. How will they vote this fall? The swing states, with large electoral votes, are the kicker – states such as Ohio, Michigan, Pennsylvania, Florida. Clinton either beat, or is leading, Obama in those states. Not good news for Obama against McCain.

The McCain people don’t have to go overboard to see how the Arizona senator can win enough Electoral College votes to take the presidency. But the Republicans aren’t the only ones who are encouraged by this sort of analysis. The Clinton Democrats are using this same logic to try to convince the Dem Super Delegates to cast their votes for her. In fact, just as the Obama backers are saying “do the math – look at all the Democratic delegates he has amassed and all the states he has carried,” the Clinton supporters are also saying “do the math – look at the Electoral College votes represented by the states she has carried.”

Obviously, this is an exercise that could easily change as a result of campaign dynamics over the next eight months. In fact, when you look back eight months, the picture was decidedly different with delighted Dems and pundits and pollsters all claiming it was a slam dunk the next president would be a Democrat. Stay tuned.

(3/21/08)

The regional Texas economy is in much better shape than the nation as a whole, as we have repeatedly reported. But what about the financial stability of Texas state government, the entity that controls much of your taxes and generates a significant portion of Austin area jobs?

Nearly two dozen states are struggling to stay solvent, as their governmental leaders look at raising taxes and/or making deep cuts (that’s spelled j-o-b-s) in state programs. In California, for instance, legislators have made emergency cuts and are borrowing billions of dollars to try to cut a projected $16 billion deficit by 2009. In many other states where the financial situation has not reached a crisis point, revenues are down. So, what about Texas?

“The state’s largest general revenue source is the sales tax,” Texas Comptroller of Public Accounts Susan Combs points out. “And there have been double-digit gains in the sales tax revenue the last two fiscal years. So far this year, sales tax growth has been strong – at close to 7% -- but not at the red hot pace of previous years.” (Another big revenue source: oil and gas taxes, driven by high oil prices.)

What is triggering the sales tax growth? Jobs. Texans are spenders. They make money; they spend it. Texas gained 277,000 jobs from January 2007 to January 2008. Next closest: New York gained 84,000 and North Carolina, 81,000. Michigan lost 57,000 and Florida (previously #2 in gains) lost 7,000 jobs.

As we reported 2/29/08, “Texas will go into its next legislative session January 2009 with about $2.5 billion on the table” and another $9 billion set aside in a Rainy Day Fund in case of a state government emergency. Deficit? What deficit? Tax increase? What tax increase?

While it is never wise to predict what the 181 House members and Senators may do when they come to Austin, legislators will arrive facing a stable, even positive, financial situation. You can bet the state budget will increase, however – if only to keep up with the state’s growth.

And, remember, with several hundred-thousand Austin area residents dependent upon a state government payroll check, the financial stability of state government is essential to a solid economy for the Austin metro area. Barring an unforeseen economic calamity visiting Texas, state government finances should not be a worry for the foreseeable future.

(2/22/08)

It’s probably a good thing that certain Austin squabbles are not played out on the national scene. One such dilemma: millions of private sector dollars have been invested based upon a contract with the City of Austin and now residents have taken steps to void that agreement.

You thought the presidential election will garner all the attention in November when the Democratic and Republican nominees seek your vote. But think again. An agreement negotiated by the Austin City Council incensed some citizens so much that they gathered more than 20,000 signatures of registered city voters to put the question on the presidential ballot. It’s sure to generate its share of attention.

At the core of the controversy is a long-standing debate faced by most cities – whether to offer incentives to business enterprises, in return for creation of jobs for its residents. The lightning rod for this disagreement is the high-end, high-dollar retail/office/residential development in North Austin, The Domain, that boasts such tony stores as Tiffany’s, Gucci and Neiman-Marcus. The developer received tax incentives from the city.

While incentives have been a part of the Austin area’s economic development efforts for many years, some Austin residents felt this was the last straw. They complained that these fancy retailers shouldn’t get tax breaks to come here from out of town and compete against locally-owned retail operations. (The tax breaks, though, go to the developer – not the retailers).

So 27,391 lines of names were presented to the Austin City Clerk, calling for an amendment to the City Charter to void The Domain agreement and stop further incentives. The required minimum number of signatures of valid registered voters is 18,433. The City Clerk this week certified the petitioners had enough signatures to place an amendment on the ballot.

Simon Property Group, the operator/owner of The Domain, this week pointed out its project is a “destination center that draws sales tax into the City from all over the region, well outside the city’s current tax base.” It further noted that The Domain will “only receive the investment dollars if the project meets objective performance standards such as increased tax value to the city, job creation and creation of affordable housing.”

Then Simon threw down the gauntlet, in a statement that said, “The project was developed on the basis of the community investment, and we feel confident that the city will uphold its side of the development agreement.”

If the voters pass the charter amendment, what will the city do? Will it contradict the changed charter and keep the agreement? Or will it void the agreement it signed in a publicly vetted process? If so, what signal does that send to any entity that enters into an agreement with the city? Or will this end up in a costly legal battle that will be closely watched by those who deal with the city? Finally, will this wrangle end up on the national stage? Stay tuned.

Volume 22, Number 19

HIGH TECH

(2/29/08)

One determinant of an area’s long-term economic success is the competitiveness of a region in the quest for “businesses of the future” – the growth industries.

A perfect example of grabbing the wave of the future was found here in Austin in 1983 when civic and business leaders put on a full-court press to successfully woo MCC and SEMATECH. It marked the beginning of high tech in Austin, earning the moniker of the Silicon Hills of Austin, while at the same time triggering one of the nation’s most vibrant economic surges. So what is the next “big thing” for the nation, and will Austin and Texas be a player?

By most measures, health care and all of its ancillary components will be a major growth engine for the next decade. Just this week, one estimate said that 20% of average expenditures could be associated in some way with health within ten years. This is big and getting bigger for a number of reasons.

In that connection, a Washington DC-based newsletter, FierceBiotech, named Texas one of the top five biotechnology economic development regions in the world. Wow! The impetus for this designation was the state’s $3 billion investment in cancer research, led by the UTSystem’s MD Anderson Cancer Center in Houston. “With hundreds of millions of dollars a year being funneled into cancer programs, you can expect an immediate leap in the recruiting efforts underway for top oncology researchers,” according to the newsletter.

For several years now, we have been reporting on behind-the-scenes maneuvering to locate a medical school in Austin. The effort is now very public, and one economic study recently pointed out that a university-backed, research-focused, medical school in Austin would generate $2.38 billion in annual spending locally – creating 19,307 jobs in the Austin area.

If this comes to pass in one form or another, it will be huge for the area’s future economy. And it would complement a project that is further along – an academic medical campus planned by TexasA&M in Round Rock. All in all, Austin and Texas are well-positioned for the future.

Volume 22, Number 19

REAL ESTATE

(02/22/08)

An argument can be made that the national subprime mortgage mess may have been the best thing to happen to Austin area residential real estate.

If the national bubble hadn’t burst when it did, Austin could easily have been caught up in the frenzy. In fact, speculators from California and other high-rolling real estate markets had already descended on Austin, scooping up properties, hoping to replicate the increased valuations that made investors in those markets giddy as all get-out. If you click the Archives button at the top of this page and go to our 6/17/05 edition, here’s some of what you’ll find.

Speaking of Austin area house prices, we wrote: “They’ve ooched up only slightly over the past few years and some real estate ‘day traders’ feel Austin is next. As we’ve told you in past letters, they come to Austin, look at houses, call back home and say ‘Dude, this place is a total steal. It’s like a penny stock!’ (actual quote from a California speculator).

“They snap up houses, put out a ‘For Rent’ sign and wait for the price increases.” We also told you a week earlier, 6/10/05, that “we heard of three different California investors each buying 3 or 4 Austin homes during a weekend.”

We sounded the alarm in 2005 when we wrote “Whoop! Whoop! Whoop! Warning! Warning! Warning! This new residential real estate frenzy could be the new ‘day trading’ (where many people got caught up in the instant riches game and were burned big time).” It was crazy. And if this frenzied, irrational buying had continued, Austin would not be in the enviable position it is in today.

Luckily, soon thereafter, the financial roof caved-in on these out-of-state speculators and they pulled back from the Austin area. If the housing bubble had not burst in other states when it did, these “east/west coasters” could have driven Austin residential real estate prices sky-high. Instead, the Austin market continued its slow, reasonable, steady increase in home values.

Of course there were other factors at play (such as tightening credit requirements) that shut down the speculation. But it all stemmed from the national obsession with real estate as a get-rich-quick investment. While others now lick their wounds, the Austin area is healthy.

(02/22/08)

One of the most important aspects of the Austin area’s healthy economy is that business and opinion leaders nationwide are well aware of this.

On the front page of the business section (2/15/08) of one of the world’s most influential newspapers, The New York Times, the following words kicked off the story headlined “Some Cities Are Spared the Slide in Housing:”

“The real estate market these days is a tale of two Americas, and one of them is not doing too badly. In the America of big-city housing markets, especially on the coasts and in the struggling industrial Midwest, the huge run-up in values in recent years has given way to big drops in prices and sales volume. Millions of people owe more than their houses are worth.

“But in the other America, specifically in cities like Austin; Grand Forks, N.D.; Yakima, Wash.; and Salem, Ore., the available evidence suggests the real estate market is holding up. Prices there never boomed as crazily as they did in the big cities, and now, even though volume is down almost everywhere, prices in many of these towns are firm or rising.”

The Times analyzed three distinct data sets – mortgage data from the government, sales figures from the National Association of Realtors and courthouse records from a company called DataQuick. This analysis produced a list of 17 metropolitan areas in the US where all three sources of information agree that prices were still rising as of late last year.

“Austin is a good example of a real estate market that was slow and steady for years and now appears to be taking off,” reported The Times. “Austin’s high-tech industries are attracting well-heeled buyers from cities where real estate is far more expensive. Sales prices for existing homes barely moved from 2001 to 2005, when the markets in a handful of superstar cities were on fire. But last year, the median price for a single family home rose 6.4%, to $185,000. It was the second consecutive strong year.”

The national newspaper cited this example: “Consider the experience of one Austin resident, Dan Clark. Forced by a job change to put his house here on the market, he wondered whether he would get anything like the $385,000 he paid for it a year ago. He was floored when the second potential buyer to look at the place snapped it up for $429,000. ‘Manna from heaven,’ he said.”

The article went on to lump other cities with Austin to point out these strong markets generally do not have “bulging housing inventories,” have only “modest exposure to the subprime loan crisis” and that “falling mortgage rates are buoying these markets.” It also cited “new jobs” and “healthy income growth.” But, as we said at the top, it is the national recognition that could ultimately pay the greatest dividends in Austin’s long-term economic vitality.

Volume 22, Number 19

BUSINESS AND ECONOMICS

(3/14/08))

It seems every economic report you come across, the “R” word pops up. Even billionaire investor Warren Buffett says the US economy is essentially in a recession. But, in today’s world, recessions are more than likely regional – rather than national – in nature.

There is no question there are serious problems with the economy. And there is no question the Austin area is not totally immune from economic problems in other parts of the country. For instance, as the housing crisis escalated elsewhere -- causing the clamps to be tightened on lending requirements -- local lenders fall under the same rigid restrictions.

But the positive contrast between Texas, Austin and other parts of the nation is stark indeed. Cynics will say, hang on, the problems are heading our way. Optimists will say, yeah but, our fundamentals are too strong to fall as far as the others. But there is no question this is the place to be as the doom-and-gloom drumbeat continues elsewhere. Some examples:

Economist Fiona Sigalla, with the Federal Reserve Bank of Dallas, says “A Texas recession isn’t in the forecast. A relatively low cost of living continues to attract firms and residents to the state, and an economy that is more globally integrated than in other states boosts demand for Texas products and services.”

Sigalla went on to point out that Texas is also one of the few states that benefits from high energy prices, plus construction, she says, doesn’t appear too far ahead of demand. A business economist, D’Ann Petersen, says that a weakening Texas housing market still remains healthier than the national average.

Compare the two states in the national spotlight last week when presidential primaries were held in Texas and Ohio. Night and day! Ohio has lost 200,000 manufacturing jobs since 2000, home foreclosures are soaring, and real family income is lower now than in 2000. The Texas economy has boomed since 2004, with nearly twice the rate of new job creation as the rest of the nation.

A Wall Street Journal editorial put it this way: “Ohioans may not like to hear this, but for any company considering where to locate a new plant or move an existing one, the choice between Ohio and Texas isn’t even a close call. The challenge for our national economy in a world of competition is to become more like Texas and less like Ohio.”

(3/14/08)

Okay, okay, let’s cut to the chase. What about the hardest hit portion of this economy – housing? The premise that this recession is regional is dramatically underscored when you compare Austin to other major cities in the US.

Big, bold headlines this week pointed out that, nationally, homeowners’ share of the equity in their homes fell to a low not seen since WWII. Falling home prices are the culprit. Many homeowners are now “upside down,” with mortgages higher than the value of the home itself – in more than 8.8 million homes, according to Economy.com. Obviously, this is serious.

This week, the Standard & Poors/Case-Shiller Home Price Index reports that national home prices fell 8.9%. Of the top 20 markets tracked by the Index, 17 of the metro areas reported annual price declines and the remaining three reported flat or moderate growth rates. Also 14 of the metro areas reported record lows and eight are in double-digit decline. This is a sobering trend.

The Austin area is not included in this Index. But when you compare what is happening here to their 20 markets, you see how the Austin area region is not participating in this national recession palaver. The median price for a single-family home in the Austin area is up 7% from a year ago. Let this sink in for a moment. Now, let’s compare it to all other metros in their list of twenty.

First of all, the three that reported growth rates did not come close to the Austin metro’s dynamism. Portland is up 1.8%. Seattle is just barely hanging on with a 0.5% increase and Charlotte is expected to report a moderate increase. Remember, Austin is up 7%.

What about all the others? Take a look at the most recent Index numbers. They are all down. Atlanta, prices fell 3.4% year over year. Boston prices dropped 1.9%. Chicago had a modest decline. Cleveland prices fell 6.3%. Dallas had a modest decline of 2.4%. Denver home prices fell 4.5%. Detroit prices, hang on, are down 13.6%. Los Angeles dropped even more, down 13.7%. Miami is the weakest market of all with prices declining 17.5%.

There are more reporting falling values. Minneapolis sales prices have dropped 4.9%. New York dipped 5.6% year of year. Las Vegas and Phoenix are tied for second as the weakest markets with 15.3% each in home price declines. San Diego home prices fell 15%. San Francisco slipped into double-digit territory with an annual drop of 10.8%. Tampa home prices slipped 13.3%. And home prices in Washington, DC fell 9.4%. What was Austin again? UP 7%.

No wonder there is so much national hand-wringing -- especially when you note these are all major media markets, the home of those who run these numbers and those who report them on a national level. As we said at the outset this week, the Austin area is not immune to national economic problems, but you need to keep a perspective on where you live and work.

Volume 22, Number 19

ENVIRONMENT

(4/4/08)

You are going to hear a lot more about the Austin area’s air quality in the coming months. Ozone-measuring season started this week and runs through October. And there could be more Ozone Action Days this year than last.

As we mentioned in the previous story, the EPA recently issued new ozone standards. Without getting into technical detail, the effect of the standards is that the bar to exceed the standard has been lowered substantially. In other words, in years past, the levels of ozone that were viewed as “acceptable” will now get written-up in the federal records as exceeding the standard.

So, what? Well, of course there are the health problems for folks who have difficulty breathing (heart patients, asthmatics, the elderly with lung disease or breathing disorders, etc.) as the pollutants rise in the air. This is serious enough.

But the feds have put teeth into the standards by setting penalties for those areas where the standards are exceeded excessively. Economic development efforts can by stymied and transportation funding can be cut back. Keeping air pollution as low as possible is more than just a “do-good” “nice-to-have-if-possible” scenario. And the penalties are stiff, if standards are exceeded.

A coalition of Central Texas cities, counties, businesses and environmentalists was formed a few years back to address these problems. It is known as the Clean Air Force of Central Texas. It has had some success. Even with the rapid population growth in Central Texas, there was not the expected rise in emissions last year. Texas may challenge the new standards, as other states may also do. If so, implementation of the new regs could be delayed. Stay tuned.

(4/4/08)

One of the contributors to poor quality air cannot be easily controlled. It is the weather. And the long-range forecast for the spring and summer doesn’t look promising in this regard.

Ground-level ozone is a clear, odorless gas. Pollutants start “cooking” on very hot, very still windless days and this raises the ozone level. If it’s cool and breezy, not a problem. But when conditions are warm and no wind is present, then the ozone levels rise. This is why an Ozone Action Day can be predicted in advance by looking at the weather forecast.

After Central Texas enjoyed a wet and mild spring and summer – for the most part – last year, what can be expected this year? Bob Rose, the meteorologist with the Lower Colorado River Authority says: “a developing drought looks to be the dominant weather story this spring across Central Texas.”

“The latest forecast data indicates a moderate-to-strong La Nina pattern in the Pacific will likely persist into summer, causing drier than normal weather conditions across much of Texas. Many of the cold fronts will come through with little or no rain,” he added.

(3/7/08)

When it comes to energy generation Texas, long the US oil field leader, is now the top wind farm state. As a result, oil derricks and water-pumping wind mills are now losing their dominance on the state’s horizon to giant, propeller-driven wind energy turbines.

Out west, Texans long-ago grew accustomed to a pumping sound, as oil was pulled out of the ground, and a clacking of windmills as water was pumped out of the ground. Now a new whirring sound has joined the cacophony and all these sounds mean money. The sights of structures piercing the sky and constant sounds from these machines are re-making Texas.

While still not as pervasive as oil rigs and wind mills, these wind turbines are growing in number and their size alone is amazing. Some of these wind machines are twice as tall as the Statue of Liberty and their blades have a span as wide as the wingspan of a jumbo jet. They are huge, and larger versions are on drawing boards. By and large, landowners – especially in hardscrabble West Texas -- are welcoming them with open arms.

The math certainly works for them. Wind energy companies pay the landowner about $500 a month for each structure. One rancher, near Sweetwater, has allowed 78 to be built on a dusty, barren plateau populated by rattlesnakes and cactus, and is pulling down $39,000 a month, each month.

He’s contracted for 76 more and when they are built, he will be drawing down a total of $77,000 a month or an annual fee of $924,000. What do you bet he’ll enjoy sitting in a rockin’ chair on the porch, sipping a bourbon and branch water, listening to the whirring sound of money!

Even with Texas leading the nation in wind farms, it’s still early in the development of wind energy. The City of Austin is contracting for electricity generated by wind. But it is still a small fraction of electrical usage. However, Texas is ideal for wind-power development (no, not because we’re a bunch of blowhards!) due to the availability of land for wind farms. The Gulf of Mexico may also be the site of wind power, much like the oil derricks sited offshore. So, look for more of these 20-story structures with blades longer than a football field to pop up.

Volume 22, Number 19