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July 7, 2017

Volume 39, Number 14

The President of the Austin Chamber of Commerce Mike Rollins published an article titled Heres how your city can become the next Austin, Texas in a major Washingtonbased publication.  What gives?  Is he giving away secrets?”  Nope.  It was a clever ploy to do a little bragging and to lobby for additional resources for Austin.

An Austin area delegation of business and civic leaders descended upon Washington DC, shortly after titans of Silicon Valley met at the White House.  Rollins said they wanted to “share a fivepoint agenda we believe will create and strengthen more regions like ours.”  And, as a Chamber exec should do, he extolled Austin’s successes: “We have added more new jobs 350,000 in 12 years as a percentage of our labor market than any major US metro.”

But he did more, much more, than that.  He suggested ways Austin’s success can be enhanced, and replicated, with actions needed in Washington, such as investments in research, technology and innovation.

Congress and the White House must shoulder the lions share of Americas basic and translational research investment:  energy, the National Institute of Health, the National Science Foundation, advanced research projects and education sciences all need funding increases,” he argued.

We can’t cover all he recommended here.  But he did emphasize an Austin hot-button issue – physical infrastructure on a “scale of investment contemplated by the president’s $1 trillion vision.”  Rollins said “we need Congress to pass a plan which recognizes fastgrowing regions by using uptodate census data and includes states like Texas that lack new publicprivate highway partnerships.”

Pointing out “regions like Austin need more and better-prepared talent.  Austin maintains a low unemployment rate, despite 110 net new people moving here each day. We applaud the president and Congress for focusing on apprenticeships and $1 billion net workforce investment,” Rollins reinforced.

He supported international trade agreements that benefit American workers and grow jobs here at home.”  But, he devoted some of his strongest comments toward taxes, in combination with another pitch about the Austin area’s successes.  See the next item. Read more →

May 26, 2017

Volume 39, Number 8

Last year, Austin Energys rate case settlement financed the shuttering of the coalfired Fayette power plant.”  This is a direct quote from Austin Mayor Steve Adler and former NYC mayor Mike Bloomberg taken from a cowritten commentary about a coalfree America.”  When you reread the phrase above, “financed the shuttering of the coalfired Fayette power plant,” doesnt the use of the word shuttering make it sound like the plant just 66 miles from Austin is already closed or could be shut down as a result of Austins action?  Nothing could be further from the truth.  Lets examine the facts.

First of all, a portion of the electricity you are using as we speak is more than likely generated by the coal-fired Fayette Power Project (FPP) just east of La Grange, about an hour from Austin.  And no matter what Austin Energy does, the coalfired plant will keep generating electricity.  FPP will not be shuttered.  Here’s the situation.

FPP has three units capable of generating about 1,615 megawatts of electricity on its 10-sq.-mile Central Texas site.  Austin Energy and the Lower Colorado River Authority (LCRA) co-own units 1 and 2.  LCRA owns Unit 3.  Obviously Austin Energy owns less than half of FPP.  And LCRA has indicated privately and publicly that no matter what Austin does, FPP will keep generating power.

Adler and Bloomberg deride “coal pollution” and they claim “coal is still the single largest driver of climate change” in the commentary.  What they don’t say in the commentary titled “Why Austin is leading the charge to create a coal-free America” is even if Austin Energy does not use electricity from FPP, the plant will continue to operate as it has since 1979.

FPP uses low-sulfur coal, delivered by rail, from the Powder River Basin of Wyoming which contains less ash than other types of coal or lignite.  FPP uses electrostatic precipitators to filter fine particles like dust and smoke from the flow of gases through the unitsAt a cost of $400 million, desulfurization equipment known as scrubbers, was also installed to reduce emissions.

The City of Austin is one of the nation’s leaders in switching to solar and wind.  In fact, it has an ambitious pledge to have more than 50% of its power come from renewable energy by 2025 – and to achieve netzero greenhouse gas emissions by 2050.  But, FPP has indicated it will continue to generate electricity from coal in Central Texas, no matter what Austin does. Read more →

May 19, 2017

Volume 39, Number 7

The Austin areas labor force is one of its greatest economic assets.  In fact, it became part of a promotional campaign when the phrase human capital was coined to reference Austins enviable workforce.  However, major changes are likely to occur over the next few years if the nations demographics are an indicator a slowing growth rate and an older and more diverse labor force.

“The percentage of the population which is working will also continue to fall,” said veteran Texas economist Ray Perryman.  “The implications for businesses, the economy, and society are profoundPopulation growth will slowThe labor force is projected to expand even slower.”

One of the biggest factors according to Perryman is participation.  He points out the Bureau of Labor Statistics predicts that, by the late 2020s, only about 60% of Americans 16 and older will be part of the labor force, with the proportion dropping to only 57% by 2060.  Demographic patterns have a lot to do with this.  “The baby boom generation has been a large share of the labor force, but is now aging beyond prime working years,” noted Perryman, “the oldest boomers began to reach retirement age several years ago.”

But, it’s more than just an aging of the workforce.  “Young people (ages 16 to 24) are less likely to work than in the past,” Perryman said.  And, “even among people in the prime working age range of 25 to 54, which has the strongest attachment to the labor market, the labor force participation rate is falling.”  He states there are numerous reasons for the decline.  Years of slow hiring led some to drop out of the workforce, never to return.  Skill mismatches between the unemployed and available jobs are another contributing factor.

As with most economists, Perryman can bury you with “facks and figgers.”  He also said social programs will be impacted.  (Social Security anyone?)  So, let’s fast forward.  After running the numbers, he raises the very real question:  “how will we get the work done?”  He tossed out a few possible solutions — such as trying to entice more prime working-aged people back into the workforce.  But then Perryman added:  “dropping labor force participation is likely going to be a fact of life for the foreseeable future.  Slower work force growth is coming.  Were going to have to deal with (this) as a society.”  Will Austin be immune? Read more →

March 31, 2017

Volume 38, Number 51

You may not know the precise numbers, but you certainly know the impact of the Austin metro areas population surge.  For the numbers right now this year, youre looking at 2.1 million people in our 5county metro area.  And this fastestgrowing large metro area in the US is on track to reach and surpass the 3.0 million mark by 2030But how does this break down by individual counties in the metro?

Metropolitan area analysis is really important because the Austin area is so interconnected.  Many residents live in one section of the metro, work in another part of the area and shop or play in still another.  So a metro-wide examination is always essential to understand the dynamics of what is going on around you.

And while the Austin metro has yet to crack the Top 30 in population, it is THE fastestgrowing large metro, by far, (almost 3% between 20142015) in the US.  Second-place Orlando is just above the 2.5% growth rate and all but seven of the Top 30 have growth rates less than 2.0%.

But what is happening in the individual counties in the metro is intriguing.  First of all, when you consider people living within city limits only, as of January 1, 2017, Austins city limits population of 945,000 places it as the 11th largest US city ahead of such big cities as San Francisco, Fort Worth, Detroit, Seattle, Denver, Boston, Baltimore and Portland.  Think about this as you ponder Austin’s city government.

But, look at what’s happening to the five individual counties in the metro?  Travis County is quickly diminishing in its population influence.  For example, in 2010-2011, 58.8% of metro’s residence were in Travis County.  In 2014-2015, it dropped dramatically to 44.5%.  Using the same parameters, Williamson County increased from 29.7% to 33.3% … Hays County came close to doubling, going from 9.3% to 16.8% … Bastrop County almost tripled, from 1.5% to 4.1% and Caldwell County increased from 0.7% to 1.3%.

This sea change shift of your neighbors’ influence has implications for future regional decision-making.  It remains to be seen how those muscles are flexed.  By the way, these stats are courtesy of the City of Austin Demographer, Ryan Robinson. Read more →

December 2, 2016

Volume 38, Number 36

 

When the Texas Senate Select Committee on Property Tax Reform and Relief released its report this week designed to hold down your city property taxes, it immediately unleashed a firestorm of opposition, primarily from many cities, including Austin.  Right now, its just a recommendation that will be considered by the Texas Legislature when its members descend upon Austin next month.  But if the negative reaction is any indication, it will be a hot topic.

The proposal is a 4% revenue cap on property taxes levied by Texas cities.  It recommends the cap could be exceeded only by asking local voters if they approve such a move.  If this had been the law over the past decade, the cities of Austin, San Antonio, San Marcos and New Braunfels would have lost at least $770 million, according to a joint statement from the cities.

While holding down the increase in property taxes may seem on the surface a good move, it appears to be targeting the wrong culprit, say the cities.  According to the Texas Municipal League (TML) “cities are not the cause of high property taxes in Texas.  Cities only get 16% of the property taxes paid by Texans (in Austin, it’s 20%), while 55% is levied by school districts.”

Legislators dont want to deal with the real cause of high property taxes the school finance system because the legislature depends on rising school property taxes to balance the state budget,” charges the TML.  (Check the Archives for the 2nd item in our 10/28/16 edition to get more detail on the school/city property tax imbalance.)

Under the Robin Hood funding scheme, 230 school districts are forced to send part of their property taxes to the state treasury this year,” the TML noted.  Locally the large Austin and Eanes school districts, for example, send millions of their property tax dollars to the state to be re-distributed.

Austin Mayor Steve Adler weighed in by claiming “if the legislature really wants to help local taxpayers, it should better fund education because thats most of the Austin property tax bill.”  Adler picked up on the argument many cities make – especially the fastest-growing cities — when he raised the specter of what less revenue would do for the Austin city budget.  “We should not risk police, firefighting, EMS, parks, safety nets and transportation projects all to save Austin homeowners only $2.60 a month.  Its risky and not real tax relief.” Read more →

November 25, 2016

Volume 38, Number 35

When legislators arrive in Austin in January, theyll face a tight budget situation.  Not news. We, and a host of others, have pointed this out.  But here is something else to point out:  about $10 billion will be just sitting there, unallocated.  Its in the Rainy Day Funda savings account to be used during unforeseen financial emergences.  But the temptation to tap this money will be mounting, especially as individual pet projects surface.

The official name is the Economic Stabilization Fund (ESF).  But it quickly was referred to as the Rainy Day Fund when it was established by the Texas Legislature in 1989.  It was a good idea.  The state had hit some financial hard times (remember the recession of the 1980s?).  And over the last quarter century, the ESF has now grown to more than $10 billion, even though it has been partially drawn down by certain legislatures in the past.

The arguments – pro and con – will be powerful.  The purists say “don’t’ invade the Rainy Day Fund, we need it in case of a natural disaster or a recession.  After all we’re deciding on spending for the next two years.”  Those who may want to siphon off some money say “look, as a state, were growing so fast we cant keep up and our oil and gas tax revenue has been down for the past two years.  We need more money to keep Texas on the upswing.”

It’s pretty hard to draw down money from the Rainy Day Fund.  It takes a twothirds vote of both the House and the Senate to use the Fund for any purpose.

Changes may be discussed in how the Fund is managed.  For instance, those who want to keep the ESF almost sacrosanct want the threshold set at a fourfifths vote of both Chambers to make it really hard to tap the Fund.  Another change suggested is that when the Rainy Day Fund exceeds a cap, the excess could be used to reduce taxes or pay off existing state obligations.

The huge size of Texas’ Rainy Day Fund has long been the envy of most other states.  It has helped the state’s bond rating, resulting in lower interest rates on borrowed money.  And, psychologically, it helps keep an even balance among varied economic measurements.  But underlying the ESFs growth, and also questioning its future size, is the health of the states oil and gas business that produces critical tax revenue for the state.  Check out the next item for an out-of-state economist’s view of a potential oil and gas recovery in Texas. Read more →

September 9, 2016

Volume 38, Number 24

Austin is one of six US markets where low residential housing inventory may be a permanent condition, according to a national online real estate company.  Whoa!  Think what this may mean for the Austin housing market.  For one thing, sellers will always have an advantage over buyers and the pressure would continue to push home prices higher and higher.  Demand would always be greater than supply.  This permanent condition is also happening elsewhere.

As an example, the house-hungry in certain California markets are seeking out homes that are, in theory at least, not for sale.  A reporter for the Redwood City Journal began his story with a hypothetical knock on a homeowners’ door:  “Swelllooking home youve got here.  Ever think about selling it?  How about to me?  Right now.”  Of course, this was a “made-up” conversation, but it tracked what is happening more frequently as demand is outpacing supply.

Assessing this growing situation, the CEO of the online real estate company Redfin, Glenn Kelman said their research showed low inventory of homes for sale is a permanent condition in Austin, Denver, San Francisco, Silicon Valley, Boston and Seattle.

The TexasA&M Real Estate Center’s research shows a six month inventory of homes for sale at the current sales pace is equilibrium.  It’s a solid economic balance.  Neither the home buyer nor seller has an advantage.  It’s been a long time since Austin had 6-months inventory.

The Austin Board of Realtors latest figures for the 5-county Austin metro area show 2.8 months inventory unchanged from the previous month.  Homes under $300,000 have less than two months of inventory.  The chief economist for the TexasA&M Real Estate Center Jim Gaines sayshousing at these price ranges is essentially nonexistent.”

So, whats a homebuyer to do?  Pick a neighborhood and knock on doors as mentioned above?  Yep, this is essentially what’s starting to happen in California.  Realtors are also cold-calling homeowners to see if they will sell.  Some are writing old-fashioned hand-written personal letters, seeking sellers.

With home prices at historic highs in the Austin metro, this might push some owners over the edge to sell.  If Redfin’s prediction is accurate, a new way of selling is closing in on Austin. Read more →

August 19, 2016

Volume 38, Number 21

The management of Austin, the nations 11th largest city, will soon change for the first time in almost nine years.  The implications are huge for the citys future.  Austins Mayor and City Council should have an amazing array of applicants to replace Marc Ott as City Manager, who will officially stay onthejob through October.  What can we expect after that?

By most measures, Austin is widely-recognized as one of the nation’s hottest cities.  You would think almost every City Manager (outside the Top Ten cities) and City Manager Wannabees (some maybe from the Top Ten, looking to move up to CEO) are carefully considering making a run for the Austin job.  Austins Mayor/City Council need to make the right decision on a CEO to manage this complex city – especially over the next five years.  Pressure?  You bet.

Each good-to-great city probably thinks it is unique.  But, Austin can make a serious claim to being one of the few cities that is truly complex.  (No, I’m not referring to its activist citizens right now.  That’s to be covered later.)  In addition to regular city functions such as fire, police, libraries, parks, roads, etc., Austin is the rare US city that manages three major enterprises.  And “major” is underlined, because in other cities many of these types of enterprises have their own governing boards that are not subject to Mayoral/Council control.

Were talking about an international airport, an electric utility and a water utility all subject to increasing problems due to demands of fast growth.  They are essential enterprises and they are revenue-generating.  Is there a city manager applicant out there who can claim to be able to manage 13,000 employees performing city functions (where traffic is nearcrisis levels), with about a billion-dollar budget, and have experience overseeing an airport and two utilities?  If so, the city better pay big bucks for such a highly-qualified individual.

A city manager candidate looking at the three enterprises will correctly assume that only two out of the three are going to need serious oversight.  The exception?  Austin-Bergstrom International Airport.  It is a jewel of operation, with minimal concerns.  It regularly garners accolades, and is expanding to meet growing demand.

But, the other twoAustin Energy and Austin Water are going to need top managerial focus.  More about that in the next item – as well as a look at some personnel concerns. Read more →

July 15, 2016

Volume 38, Number 16

For years, movers and shakers in the Austin real estate community pressed and pushed for an updated land development code.  The city was cussed by businesses and citizens alike, because it took too long and was too costly to get necessary approvals through the city code process.  So, in June 2012, the Austin City Council finally unanimously acted to embark on a major code rewrite.  Today, its two years behind schedule and hundreds of thousands of dollars over budget.  Is the effort in danger of collapsing under its own weight?

Some fear a collapse is a real possibility.  After all, a draft of the rewrite has yet to be made public.  Who knows what it will contain and what the approval process might involve once the draft is released?  The pressure has been ratcheted up on the city staff to, finally, make public a draft of the proposed code in January.  And two top staffers resigned in recent weeks.  (The process, by the way, has been dubbed by the city as CodeNEXT.  Catchy, huh?)

Admittedly this is arcane stuff for those not making a living dealing with the city.  So we won’t take the time to go into the details today.  But as Austin’s growth has put pressure on almost all aspects of city government, the development code has become vastly more important – impacting all facets of daily life including housing affordability and traffic congestion.

For instance, CodeNEXT is charged with addressing outdated, suburban regulations.  It should comprehensively evaluate the entire land development code.  And, of course, it must must! — examine the archaic review process.  As the critics have said over and over, approvals take too long and are much too costly – raising the price tag of practically all items related to real estate.

While real estate is the obvious focus of CodeNEXT, the development code is much more far-reaching than just that.  It impacts the ultimate placement of stores, schools, public facilities such as fire stations, etc.  In other words, it guides the way Austinites live and do business.

For four years this re-write effort has been going on.  And, there’s six more months before the January deadline (with additional time needed for approval before final adoption).  Meanwhile, the city has been changing right before your eyes, and further governmental change may be on tap.  Remember, about half the City Council seats are up for election in November. Read more →

June 24, 2016

Volume 38, Number 13

In about six months, the Texas Legislature will convene in Austin to determine how much money the vast majority of state agencies will spend in Austin and around the state.  Revenues have been impacted negatively due to the downturn in the oil and gas business.  So what are the prospects for this important Texas revenue source?  Lets drill down to find the new magic number for oil prices.

You don’t have to dig very far when you examine reports from the Federal Reserve Bank of Dallas.  (First, a quick review:  oil prices were north of $100/barrel just a couple of years ago.  When Middle Eastern interests started flooding the global markets with oil, Texas drilling slowed and even stopped in some quarters.  The price plummeted to about $26/barrel.)  So, where does it currently stand and how far is that from the “magic number”?

Oil is bouncing around the $50/barrel mark right now.  The Dallas Fed issued a new report this week that shows $53/barrel might be the new magic number for the nearby Eagle Ford Shale play in South Texas.  The Fed suggested the magic number was closer to $51/barrel in the Permian Basin of West Texas.

Just a minute, what do you mean by “magic number?”  Participants operating in the Eagle Ford area told the Fed they would hit a breakeven number – enough to cover their drilling costs in the mid-$50-$60/barrel range.  One economics expert was quoted as saying this pricing structure would need to be sustained for at least two months or longer to be effective.

After two years of the worst oil price rout in a generation, large and mid-sized producers expressed cautious optimism this week to Reuters news agency reporters.  During this downturn, many producers said they slashed costs in half and doubled down on improved techniques to squeeze more oil from each new well.  Now they are eyeing growth again as leaner organizations.

As we’ve said many times, even though you don’t see drilling rigs in the Austin area, the income generated for the state is vital to Austins economic success.  The Dallas Fed launched a new energy analysis Monday that will give you a snapshot of the state of the oil/gas industry each quarter.  This will provide you, and state lawmakers, a tracking tool on this vital energy sector. Read more →