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November 16, 2018

Volume 40, Number 33

Dear [MM_Member_Data name=’firstName’],

What would a race for President of the United States be that didnt include a Texan or two in the mix?  Remember last time around, the Republican primary featured Ted Cruz and Rick Perry.  It also included Jeb Bush, who was born in Texas and is a family member of the famed twoBushpresidentsfromTexas.  Now its the Democrats turn.  Lets start with two Texas Democrats in the very early speculation Julian Castro and Beto ORourke.

Castro is the Texan frontrunner as we speak.  The former San Antonio mayor and former Housing and Urban Development Secretary is making the most overt moves to get the Democratic Party’s nomination for president, even saying he is “likely” to run.

What do we mean by “overt” moves?  Just last week Castro had a private meeting in the Alamo City with roughly 20 possible donors to fatten his presidential campaign war chest, as first reported by PoliticoHes also building a paid staff in the early nominating state of Iowa.  And, he’s talked to lawyers about “the mechanics of a possible 2020 presidential campaign.”

Just as important, he crisscrossed the country during the recentlyconcluded midterm elections campaigning for Democratic candidates.  This was a significant effort to build support, as his Opportunity First PAC endorsed (meaning, gave money) to 89 Democrats.  He’s visited early primary states like New Hampshire, South Carolina and Nevada, as well as Arizona and Florida.  He was an early (2017) endorser of Andrew Gillum’s Florida campaign for governor.

And, right now, he is the only Hispanic to privately make major presidential moves.  Not coincidentally, Castro is raising money and speaking in Hispanic-heavy California late this week.

Ironically, O’Rourke while not making anywhere near the national moves as Castro, is more top-of-the-mind with his fellow Democrats.  He is a media darling, as well as an inspiration for liberal Democrats – with many speculating about a presidential run for him.

The El Paso Congressmans term ends in January.  So he has a national platform – if he decides to use it – as Dem leaders urge him to seek the presidency. His mega-financed race against Cruz raised his profile.  Check the next item for stats about O’Rourke’s campaign. Read more →

November 9, 2018

Volume 40, Number 32

Austins reputation as a home for heavyweight companies of the future is wellrecognized and welldeserved.  After all, when you start calling the roll of Austin majors Dell, Google, Apple, Facebook, Indeed, 3M, etc., its hard to know where to stop.  The list is long and impressive.  But what about smaller enterprises that could be the biggies of the future?  Where does Austin stand as the site for startups?  New information late this week:  startups accounted for a larger share of businesses in Austin than in nearly all major US metros in 2016.

Young companies account for a larger share of businesses in Austin than in nearly all other major US metros.  So, it’s important to note that for the first time, the Survey of Business Owners compiled as part of USCensus Bureau data, included data regarding the number of years a firm has been in business.

Here’s how the numbers break out.  Take the newbies, those firms with less than 2 years in businessAustin with 4,444 companies, or 11.6% of all employer firms, ranks #3 in the nation, behind #1 Las Vegas and #2, Orlando.

Those Austin companies that have been in business a little longer, but less than four years, break out this way:  10,807 Austin businesses, or 28.1% of employer firms, place Austin at #2 in the nation, behind #1 Las Vegas.

And the oldies?  Austin firms in business less than six years15,077 Austin businesses, or 39.3% of firms, place Austin at #2 in the nation, behind #1 Las Vegas.

How did other major Texas metros fare in this review of the 50 largest metros in the US, in business less than 6 years?  The DallasFt. Worth metro was 5th in the nation, Houston was ranked #10 and the San Antonio metro was 13th in the US.

In the past, Austin has been noted as a good place to start a company.  After all, Dell started in a UTAustin dorm room.  But, this is the first report putting precise numbers to the entrepreneurial environment in this area.  This late report came to us from the Austin Chambers VP/Research Beverly Kerr.  Her analysis goes much deeper by the way.  For instance, she breaks it down by womenowned firms, minority and veteran entrepreneurs.  And she reports on Austin’s #4 US 2016 ranking for firms receiving significant funding from outside investors. Read more →

November 2, 2018

Volume 40, Number 31

This story has nothing to do with political campaigning.  (Youre being bombarded with enough of those stories prior to next weeks important election.)  Lets focus instead on some developments that will have significant economic benefits for the Austin area, in fact for the entire state of Texas.  The benefits are long range, but will take a long time to implement.

Business leaders and economists alike breathed a sigh of relief when the new three-nation trade deal was announced.  The USMexicoCanada Agreement (USMCA) replaces the North American Free Trade Agreement (NAFTA).  Get used to the new initials, because the agreement, once implemented, will be very important for the Austin, and Texas, economy.

The key words in the previous sentence were “once implemented,” because the process is long and arduous.  Its been a long time coming and will be a long time before it might go into effect.  And the implementation process could hit a few political stumbling blocks.  The agreement is still not officially signed.  The agreement will be signed November 30th, Mexican President Enrique Pena Nietos last day in office.

Now comes the hard part,” observes Austinite Jack Martin who is the global Chair/CEO of Hill+Knowlton Strategies.  Martin points out USMCA will not go into effect until it gets legislative approval in all three countries.  “No one expects this to be much of a problem in Canada or Mexico.  But early next year, USMCA will arrive before the US Congress, which is when the task at hand moves from private negotiations to public salesmanship.”

Winning over America will be the hard part,” Martin predicted, “as it was in passing NAFTA in the ’90s.  It was, safe to say, an uphill fight.  Back then, the key to passing NAFTA was getting enough support from Democrats.  The core of opposition was led by labor unions.”

Now, what?  “There could be a devil hiding in USMCAs details that we dont know about yet,” Martin noted.  And the process itself is complicated.  Both the USHouse and USSenate must ratify the Agreement and they can only vote up or downNo amendments are allowed.  Also Congress can only start consideration when the administration decides to send it to Congress.  And, Martin says “what is likely to happen is that the administration will submit the legislation when it has the votes to pass it.”  Take a deep breath and be patient. Read more →

October 26, 2018

Volume 40, Number 30

Historic flooding upanddown the Central Texas Highland Lakes is affecting many more than those touched by the flood waters.  Lakes Buchanan, Inks, LBJ, Marble Falls and Travis have been closed by the Lower Colorado River Authority (LCRA) until further notice, as the surging waters move rapidly downstream, causing dangerous conditions on Lake Austin and Lady Bird Lake.  But the impact is broader than that.  A boil drinking water order was issued for 1.4 million users because of the massive amounts of silt, mud and debris1.4 million users!

One lakeside resident watching water surge into Lake Austin through the Mansfield Dam floodgates from the bottom of Lake Travis said the roaring water looked like chocolate milk because of all the silt, mud and debris.  This is the same water that is straining the facilities at Austin area water treatment plants.  These extreme levels of crud are 100 times the typical condition of the Highland Lakes.  And these levels have to be treated for your drinking water as well as for use by businesses, industries, agriculture interests, etc.

But here’s what is not being talked about in the lake water.  Think how many septic systems are being flushed by rising/flooding water.  Thats human wasteWhat about animal waste that is being washed from the nearby land into the lakeCan you say fecal coliform?  And what about flooded home propane tanks that are floating (leaking?)?  Construction portapotties?  And agricultural pesticides washed from the land into the water?  To purify your drinking water will take a massive effort beyond getting rid of silt, debris and mud.

As this is a weekly publication, it is not possible for us to provide up-to-minute info as you read this.  Buchanan is set to open to the public at noon Friday.  LCRA will assess the other lakes Tuesday.  But, when we are talking about such widespread impact, we can provide you with a sense of how we got here and, importantly, what you can expectbecause, frankly, millions of dollars are being spent right now to address the situation.

Just think what this unbelievable amount of water would be doing to the area if the LCRA weren’t controlling that water through its system of dam floodgates.  The biggest reservoir lake, Buchanan, was built way back in 1938.  It straddles Burnet and Llano counties.  Mansfield Dam created the other reservoir, Lake Travis.  It wasn’t completed in its present configuration until 1942.  It overlaps Travis and Burnet Counties.  Renovation work is underway on Mansfield now.  We’ll explore that and different solutions in the next item. Read more →

October 5, 2018

Volume 40, Number 27

The price of oil is surging toward an extremely high price of $100 a barrel.  In fact, this week the price moved up to bounce around $80/barrel.  Good for the Texas awl bidness.”  Good for state government, as tax revenue is pouring into state coffers in advance of the Texas legislative session starting in January.  Good for the Texas economy.  Yes, but.  What about the price of gasoline you pay at the pump for personal and business driving?  Good question.

There are predictions that the price of gasoline will be increasing, even though the summer heavy driving season is behind us and the demand theoretically is lessened.  It’s a logical forecast.  After all, it is costing more to buy and then process crude oil.  So it isn’t surprising to expect the price at the pump may go up.  If it does, though, how high could it go?

As of midweek, the price for a gallon of regular gas at Costco on Austins Research Blvd. was $2.48/gal.  (Admittedly, Costco generally has some of the lowest prices around.)  This is the same price range, slightly up and down, seen at Costco through the busy summer travel months.

Know what the gas price is in California?  “Gasoline prices are climbing toward $4.00 a gallon in Southern California, boosted in large part by a rise in worldwide crude oil prices,” reported the Los Angeles Times.  “The average pump price for regular gas in the Los Angeles-Long Beach area stood at $3.77.”

Wait a minute.  If crude prices were the biggest culprit, wouldnt you think similar prices could be found in Austin and all over the US where the price of crude is the same?  Hasn’t happened.  Something else is happening in LaLa Land.

The truth is that California policies, including its high state taxes on gasoline and diesel, drive up prices,” observed the conservative think tank Texas Public Policy Foundation.  “Regulations and corporate taxes also play a big role in determining refinery operating costs as well as expenses throughout the entire supply chain.  That’s why prices are rising, especially in California.”

You’ll probably always pay more at the pump in high-tax states than here in Austin or around Texas.  Competition and volume also play a part.  Still, the price you pay will likely rise.  See the next story. Read more →

September 21, 2018

Volume 40, Number 25

Face it.  Whether you like it or not, advances in robotics and artificial intelligence will be used in battle by someone an enemy or an ally.  And Austin will be on the cutting edge of the effort to ensure US soldiers will have the best technologies available.  This was securely set in stone when the first new 4-star command in 45 years the Army Futures Command (AFC) – was established, not in a remote military base, but in downtown Austin.

While this is a development of yet-to-be-fully-understood, long-term-significance to the Austin area, it is a continuation of Austins quiet involvement for more than a halfcentury in private and public warrelated activities.  Two quick examples:  1) UTAustins Defense Research Lab was active in World War II in North Austin, where the Pickle Research Lab now sits, and where Sam, the first monkey to launch into space, was trained and 2) Tracor, the first home-grown NYSE-listed company, was founded in 1955 to work on US defense electronics.

What we know about the AFC’s economic impact in Austin is that, once fully operational, it will employ about 500 employees, including 400 civilians.  Not Dell-huge in terms of numbers, but important in high-level positions.  This is where university graduates and private sector workers come in.

“By tapping into private-sector and academic know-how, the Army can better develop solutions to future problems,” observed longtime Texas economist Ray Perryman.  “With Austins large number of professionals in science and technology industries and thousands of graduates each year in science, technology, engineering, and mathematics career fields, the area is well equipped to work with the Army to modernize.”

The Army hasn’t said so yet, but you can anticipate that millions and millions of government dollars will start flowing, as if from a fire hose, into UTAustin, established tech and computer companies, startup tech innovators, leadingedge researchers, etc.  This is how the Army can maximize the advantages of all that Austin offers.  Make no mistake, this will provide a significant infusion of funds into the area.

Want a phrase from an expert that puts the Army Futures Command Austin/Texas location into perspective? Try this from Perryman:  “In one of the most important arenas imaginable, Texas has shown itself to be an innovation juggernaut of global significance.” Read more →

September 7, 2018

Volume 40, Number 23

For a year now, the Austin area has been considered one of the favored locations for Amazons 50,000person second headquarters, Amazon HQ2.  Still no public word on when Amazon will announce its next step.  A $5 billion investment in the HQ2 city, spread over 1020 years, has many cities salivating.  In fact, it has been said a prosperity bomb will be dropped on the ultimate HQ2 city.  How can the Austin area prepare for such an event?

Austin’s proposal has not been made public, but several cities have revealed proposals that have incentives valued up to a billion dollars.  Hey, they probably figure, if we invest a billion dollars for a $5 billion returnits worth it.  Don’t know if this was their logic.

But it emphatically emphasizes the humongous aspect of Amazon HQ2.  Amazon estimates it generated $38 billion in economic activity in its home base of Seattle between 2010 and 2016.  Okay, so HQ2 will be big.  Really big.

Washington, DC-based think tank Brookings Institution in a new study examined how the city that wins Amazon HQ2 could ensure its arrival does not rapidly drive up housing costs – an important element in the Austin area economy.

Brooking’s Joseph Parilla said this “should include not only stimulating new market-rate development through zoning, but also setting aside some of the tax revenue generated by Amazon to fund and preserve affordable housing.”

Other than housing, Parilla said Amazon should invest in local business initiatives, such as a startup accelerator and should source services and goods from resident suppliers.  And, the new HQ2 city should prepare existing residents to take advantage of employment opportunities created by Amazon.  In other words, the “diversity of the entire region” should be brought into play in business planning around Amazon.

Back to housing for a moment.  In Amazons HQ1 city, Seattle, the cost of housing has outpaced wage gains.  While the income of families at the 20th percentile of the earnings distribution grew by 14% between 2014 and 2016, rents increased at 19%, according to Zillow.  Sound familiar?  If Austin is selected for HQ2, Amazon will be on familiar territory and should work with Austin to alter such an imbalance. Read more →

August 31, 2018

Volume 40, Number 22

Dear [MM_Member_Data name=’firstName’],

The National Science Foundation announced this week that UTAustin will receive a $60 million grant to build one of the most powerful supercomputers in the world.  And, it will be the fastest of any university in the nation.  This moves UTAustin to the very top in the field.  And while vastly important for academic disciplines at UTAustin, the recognition also reinforces Austins overall tech economySo, how did UTAustin reach this pinnacle?  It got a rocket boost 35 years ago when it did something it had never done before, nor since.

First a little background:  In 1983, Microelectronics and Computer Technology Company (MCC) was a brand-new consortium composed of 15 of the US’s top tech companies (it later grew to 21).  MCC’s task was to counter Japanese dominance in the tech field, which was supported/funded by its government.  In other words, Japanese companies were beating the butts off US companies that didn’t have that level of R&D financial backing.

With a wink and a nod to US anti-trust rules (later validated by Congress), these companies ponied up big bucks and committed to offering their best and brightest minds to work together for far-sighted tech research.  Then the companies took the research results and competed in their own way in the world marketplace.  MCC’s site location was a prize sought by 57 cities in 27 states.

Bear with us.  We’re getting to UTAustin’s unprecedented role.  But, first you need to know Austin, Dallas and San Antonio were all part of the initial 57 cities.  Following a presentation led by Texas Governor Mark White and UTAustin Engineering Dean Ben Streetman, Austin became one of the four finalists along with San Diego, Atlanta, and Raleigh-Durham.

Governor White tapped his chief of staff, Pike Powers, to corral the full force of state and Austin resources to successfully lure MCC to Austin.  The governor said “Don’t leave anything to chance, Pike.”  So, a team of mostly volunteers collaborated to prepare a precedent-breaking proposal that involved UTAustin.

Keep in mind, at the time, the university already enjoyed a solid reputation in computer science and electrical engineering.  But, in 1983 it decided to make a quantum leap, and invest heavily and uniquely (with the help of benefactors) to support the bid to attract MCC to Austin.  UTAustins commitment raised Austins proposal above all others.  Check the next item for how UTAustin helped itself, while it helped the city and the state. Read more →

August 24, 2018

Volume 40, Number 21

Things are going so well in the Austin area right now you might be tempted to pinch yourself to see if youre dreaming.  This is especially true if you happen to remember two past disruptions that caused some serious damage the dotcom bust and the real estate recession.  They occurred in Austin less than 20 years ago.  And, they were like a slap upside the head.  A lot of people and companies were seriously hurt or even destroyed.

This report is not intended to be a downer.  And it’s not a dull recitation of local history.  But, there are so many new residents in the area, it might be helpful to remind them they have arrived at a great time.  Those who have lived/worked here for at least twenty years have vivid memories of when times were not-so-great.  And, more importantly, many of those who survived those times are responsible for Austin’s economic success stories today.

Think about this.  Roughly a million people have moved into Austin and the surrounding areas in the 5county metro during the decades following the two downturns.  They didn’t experience the hard times.  All they’ve seen is one of the most amazing periods of expansion experienced by any major world city.

Many of these new residents are pulling down compensation greater than those who were hammered by the downturns.  A lot of them are living and/or working in gleaming, modern towers downtown – or, in new office buildings, apartments and homes outside the Central Business District.

The downtown newbies probably can’t comprehend “see-through office buildings, where three million square feet of office space had to go begging – even though the spaces were cut-rate subleases from leases businesses committed to prior to the recession.  This is as much space as six Frost Bank Towers!

Here’s one example that vividly illustrates the contrast between then and now.  Drive to Fifth and San Antonio Streets downtown.  Marvel at the architecturallysignificant Federal Office Building that will still be standing on that site a century from now.  At one point, global semiconductor chipmaker Intel started building a $124 million tower on that site.  Then as the dot-com debacle hit, Intel pulled the plug half-way into the project in March 2001.  For six years, the “Intel Shell” reminded all of what might have been.  The takeaway:  Recent residents will do well to understand what they have inherited.  This is a special place. Read more →

August 17, 2018

Volume 40, Number 20

Mexico is the most important international trading partner for Texas by far.  Austin also benefitsRelations recently have been a bit dicey, especially with the NAFTA trade agreement between Canada, Mexico and the US under review.  “Review is a soft word.  Soon NAFTA that went into effect in 1994 may no longer resemble its former self.  With a newlyelected president of Mexico starting a 6year term December 1, 2018, lets examine what may happen.

This is not the stuff of everyday headlines.  In fact, many find a discussion of international trade pretty boring.  But this is very important for the future growth of the Austin area and the Texas state economy.  Take Texas first.  Texas has been the nations top exporting state for 14 years in a rowAnd Mexico, by far, is the top country for Texas exports — $97 billion to 2nd place Canada’s around $30 billion in 2017.  All other nations are back in the pack.

Austin takes a big chunk of this dynamic export business.  In fact, the AustinRound Rock area is the 26th largest exporter region in all of the US.  And it is growing.  Exports grew 30% over a 10-year period from 2006 to 2016.  The metro area exports approximately $10 billion in goods and services a year.  More than 2,000 businesses in the Austin metro exported $540 million worth of merchandise to Mexico in 2016.

So what could impact this significant hunk of our economy?  First of all, President Donald Trump has long maintained the US gets the short end of the stick in NAFTA saying the trade agreement favors Mexico and Canada.  He even called for abolition of NAFTA (which stands for North American Free Trade Agreement).

Now Trump is playing Mexico against Canada, saying the US might end up with two agreements, a different one for each nation.  Hes saying negotiations with Mexico started again July 26th and are coming along nicely.” But talks with Canada are on hold.  Trump is even praising Mexico’s left-leaning president.

So, what is likely to happen?  Former USAmbassador to Mexico Tony Garza (who lives and works in Austin and Mexico City) said the new Mexican president has his own man sitting in on current negotiations.  “The new administrations embrace of the talks has sparked renewed optimism for a quick finish, with some negotiators even pointing to completion by the end of August,” said Garza.  Stay tuned. Read more →