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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 14, 2018

Volume 40, Number 24

The Texas economy especially as it impacts the Austin area is so strong it has triggered an action not taken in 30 years.  State government, so important in Austin, is benefitting significantly from what is happening throughout the state not to mention the impact of the redhot Austin economy.  All this is due to betterthanexpected economic and revenue growth around Texas.

We’ve long maintained the Austin area is uniquely positioned economically.  Steady government paychecks provide a solid underpinning for the area.  In general, these jobs are not subject to ups-and-downs or twists-and-turns of the private sector.  So, add to this, the Silicon Hills of Austin is right now riding the crest of tech-driven private sector job growth, that is the envy of the rest of the nation.

Consider this:  the skyrocketing Austin private sector tech economy is set to get a rocketboost from normallystaid state government.  What?  How’s this?  The Texas Legislature that sets budget parameters for the many state agencies in Austin doesn’t even meet for almost four months.

Texas Comptroller Glenn Hegar, by law, is the state official who decides money guidelines the legislature must follow.  He says to legislators “this is how much money you will have to spend during the next two years of the biennium and you cant spend any more than that.”  Last October, he issued his forecast for fiscal year 2019.

For the first time other than a legislative session in 30 years, the State Comptroller has increased his certified revenue estimate he made last October.  And it was a big increase.  Remember, the Texas Legislature meets only once every two years for 140 days.  So its a big deal for setting a twoyear budget.

His reason for saying state agencies will have more money to spend starting in 2019 than earlier predicted are several fold:  sales tax revenue is up 10.5% over FY 2017 … oil/gas natural gas production tax revenue is up 56.1% … general revenue-related revenue, up 9.3%, etc.

The legislature will have more money to dole out.  If state agencies get bigger bucks, it will mean bigger paychecks circulating through the Austin economy.  A nice future boost. 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 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 →

July 27, 2018

Volume 40, Number 17

Dear [MM_Member_Data name=’firstName’],

As the state of Texas goes, so goes Austin.  Some think the vice versa is more true.  But since Austin is the home of the massive state government that must keep up with the impressive growth of Texas, its important to examine the economic health of the Lone Star State.  Especially as the Texas Legislature will meet in Austin in less than six months for its everytwoyears decisionmaking sessionAnd, legislators will have a lot of money to spread around.

When you think about it, it’s really impressive how the amazing Texas economy is churning out enormous amounts of money to run the government.  And, unlike the vast majority of other states, Texas is doing this without a state income tax.  The single largest source of revenue for Texas is the General Sales Tax instituted in 1961.  And, get this, the state sales tax rate of 6% has not increased since 1990.

The booming state economy has caused the sales tax source of revenue to zoom almost 10% since last year at this time.  As a result, State Comptroller Glenn Hegar now predicts legislators will have more than $110 billion (with a b”) to spend during the next biennium — $2.8 billion more to spend than originally anticipated.

Now then, enough about mind-numbing big bucks.  Let’s talk about another economic factor.  Separate from the sales tax, Texas has “benefitted from rising oil prices and production,” Hegar pointed out.  This translates simply into a 2019 balance in the states savings account – the Rainy Day Fund” – growing to almost $12 billion, the largest ending balance in the states history.  Talk about economic stability.

Not only that.  After voters approved a constitutional amendment in 2015 to increase funding for highways, the adopted formula means $2.5 billion will be allocated to highways from collections this 2018 fiscal year.  This is huge.  And it is occurring because of the increased sales tax receipts.

At least one group is urging legislators to “buy down some existing taxes” with additional funds. (Explanation:  Back in 1992, the legislature allowed municipalities and special districts, such as transit authorities, to levy local sales taxes.  The maximum municipal rate is 2%.  This is why some sales taxes are as high as 8.25%, depending upon the locale.) Read more →

June 29, 2018

Volume 40, Number 13

As Texas grows, so grows state government.  Right?  Uhhhh, not necessarily.  Government payrolls are a significant part of the Austin economy.  Always have been, always will be.  But, as the rest of the Austin area economy expands at one of the fastest rates in the nation to what extent is government keeping pace?  Bottom line:  private sector jobs are quickly growing in the Austin area.  And the jobs in the government sector are not in step.

This is not to downplay the role in Austin of steady government paychecks.  Far from it.  In fact government sector jobs are more than 17% of all jobs in the Austin area.  (These stats are lifted from a June report by the Austin Chamber’s VP/Research, Beverly Kerr.)  Other cities would die for such a solid job base.  Instead, the current economic situation is a testimony to the private sector that it is outshining the government jobs in the metro.

Without relying on the 17% government jobs (because government job growth was essentially unchanged) the Austin area added 33,900 net new jobs in the 12 months ending in May.  Let this sink in.  This growth of 3.3% made Austin the third fastest growing major metro in the US.  And it was basically in the private sector.  For the nation, private sector growth was 1.9% for the same period.

A half-century ago, we were quoted in TIME magazine as saying “Austin is a state government, state university town.”  True, then.  Not so much, now.  And it has occurred in less than one lifetime.

By most measures, the Austin area boasts of one of the most vibrant economies around.  And private sector jobs have been the defining difference compared to the area’s historical past.  This is a major economic sea change that has taken place in front of your very eyes.

Oh, by the way, all this is underscored when you understand that almost as soon as new jobs are created in the private sector, they are filled.  In May, Austins outstanding unemployment was at an eyepopping 2.8%.  Economists will tell you this is full employment – anyone who wants a job can get a job.  Other major metros in Texas are also doing well.  Their unemployment percentages are solid – ranging from 3.2% in San Antonio to 4.2% in HoustonDallas and Fort Worth were at 3.4% in May.  These are all better than the unemployment rates seen a year ago. Read more →

June 8, 2018

Volume 40, Number 10

You hear a lot about the Austin area being inundated by newcomers from California, New York, Boston, etc.  And its happening.  But you dont hear much about your fellow Texans leaving their hometowns to settle down in the Austin area. The common denominator is jobseeking. This is an important, often overlooked, part of the growth in the Austin metro.  And, in some cases the peoplemoving event is a twoway street.

According to a new study by a career-analysis website, Glassdoor, the biggest supplier of jobs for newcomers to Austin is tadahh, wait for it the DallasFort Worth (DFW) metroplexHouston and San Antonio are next.  New York City and Los Angeles follow in the pecking order.

Glassdoor measures job applicants.  The availability of wellpaying jobs in Austin is the lure, which we’ve chronicled for you for years.  And, of course, it’s easier to uproot and move down the road to attractive Austin, rather than make a cross-country move.  So, in that sense, it makes sense for ambitious Texans, seeking a better situation, to consider a move to the nearby Austin metro.

Not all Austinites stay here (I know, I know, it’s hard to believe).  And you must (grudgingly) admit, the much larger D-FW metro is also a pretty good area.  While Glassdoor reports DFW attracts the most job applicants from Houston and New York City, Austin comes in at #3, just ahead of Chicago and Los Angeles.  Aside from Austin, there’s a pattern here:  big city attracts residents from other big cities.  (Maybe, for some Austinites, it’s trying to “move-up” to the big city life.)

Another point that needs to be made:  weve always mentioned Austin area.  This population influx is not limited to the Austin city limits.  As we have regularly referenced, the nearby communities within the Austin metro offer more affordable accommodations and civic amenities such as nearby schools, quality neighborhoods and access to all Austin offers in terms of quality of life.  It’s part of the big picture.

Speaking of smaller Texas cities, didja know the most prosperous city in America is a small town in Texas?  And, a nearby city is also in the Top TenOdessa as #1 and Midland as #10 are stories unto themselves.  But, these boomtown oil patch Texas success stories bring with them a number of trade-offs.  Check out the next item. Read more →

May 11, 2018

Volume 40, Number 6

Multiinch rainfall fell throughout much of the Austin area last week.  The benefit is obvious when you look at the trees, shrubs, grass, etc.  Vegetation is thriving nowBut, emergency crews will tell you the dog days of summer harbor the potential for disaster.  Were not talking about flooding, were talking about wildfires.  As the summer temps rise, dry vegetation provides fuel for fastmoving wildfires.

Specifically, we’re referencing the northwest quadrant of Austin, lavishly graced with massive amounts of trees – especially cedar/mountain juniper.  Fire casualty companies have rated Austin #3 in the nation for high wildfire risk, with more than 37,000 homes at risk.

Public Safety Commission member Mike Levy says the Austin City Council chooses to ignore the critical, immediate need for another fullystaffed fire station in the Loop360 corridor.  “If a wildland fire pushed by high winds from the northwest is not contained at 360, there goes Austin,” Levy warns.

Pointing to recent widespread fires in California and Colorado, Levy says the heavily-wooded area of Austin along the 360 corridor poses even greater risk.  “We have massive amounts of cedar and persimmon,” he said.  “Because of their oils, they dont ignite; they explode.”

He envisions a scary perfect storm scenario:  Thirty-to-thirty-five mile an hour winds that don’t “lay down” at night.  Low humidity.  Very dry vegetation in large quantities serving as hot fuel.  “One home on the urban interface ignites, most likely by a flying ember under the eaves rather than direct contact with flame, similar to how Bastrop homes, several miles from the actual flames, ignited,” said Levy.

“Then that fire igniting homes on either side and then on either side of those, with the same pattern across the street, with the fire jumping to the homes behind those … Well, you get the idea of the checkerboard pattern of rapidlyspreading house fires,” he continued.  “A monstrous inferno.  In less than 2-3 hours, thousands of homes will be lost along with lives of firefighters and civilians.”

Levy continues to press for expanded fire protection in Austin’s northwest quadrant, saying “Austin so far has dodged the bullet.” Read more →

May 4, 2018

Volume 40, Number 5

Yes, median pay at Facebook really is about $240,000 a year.  The median is the midpoint at which half of workers make more and half make less.  $240,000 a year!  Median employee pay at Alphabet (parent company of Google) is $192,274How do we know these eye-popping numbers?  Congress required this disclosure to be made to the Securities Exchange Commission (SEC) starting this year as part of the DoddFrank law.  The objective was to compare employee salaries to their CEOs compensation to name and shame bad CEO actors.

Since this was the first year for the requirement to take effect, enterprising reporter Kathleen Pender dug up these numbers and published them this past weekend in the San Francisco Chronicle.  The problem is that the law is a bit obscure as to what is included in the compensation.  So Pender reports it is not quite apples-to-apples when you compare companies, even though the companies stand behind their SEC filings for their individual entities.

The employee totals are the most interesting numbers for Austin.  The CEO’s don’t live here.  Employee payrolls are of the utmost interest in the Austin area as these two companies are expanding their local workforces regularly.

But, let’s quickly look at the CEO figures.  Pender reports, “Facebook founder and CEO Mark Zuckerberg made 32 times what the median Facebook worker earned.  But, Zuckerberg only took a $1 salary last year and got no new stock grants (on top of the $70 billion in Facebook stock he already owns).  So where did the compensation figure come from?  His $8.8 million in compensation last year was mainly for his personal security detail and private aircraft use.

What about Alphabet’s CEO’s compensation?  Pender further reports, “its CEO and cofounder Larry Page took home his usual $1, producing a pay ratio near zero.”  Other CEO’s (not just tech) pull down annual salaries ranging in the eight-digit millions.

For this report, weve selected just a couple of companies with a major, growing presence in Austin.  The law was designed to single out companies perceived to be bad actors.  But, there are other ramifications.  Some “CEOs got pay envy” and sought more bucks.  As for employees, backlashes occurred when disgruntled workers found they were earning less than the median and poaching of employees is starting to occur.  Stay tuned. Read more →