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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 4, 2016

Volume 38, Number 32

Austin popped to the top in a widelyread national real estate publication.  This is not one of those popularity polls.”  This report offers a hardnosed analysis for real estate investors everywhere.  And it is forwardlooking, as opposed to a lookback at how Austin has stacked up in the past.  The Austin metro emerged #1 in the nation in the Urban Land Institute (ULI) 2016 edition of Emerging Trends in Real Estate.

This is a big deal.  It ranks cities by their opportunities for investors.  And it is not a surprise.  It is a validation because last year Austin was #2 nationally on the same list.  If you like to track trends, this is confirmation that what is happening is ongoing.  What did ULI see?

Austin received high marks as a city where local, regional, and national real estate participants operate in relative harmony, ULI observed.  “Such cooperation helps keep adequate levels of debt and equity capital available for investment opportunities,” according to the Institute.

“Despite Austin’s growing popularity,” said the report, “it remains a comparatively small market in terms of investment opportunities.  While Austin is unlikely to attract a meaningful amount of offshore capital, it tops many domestic investors wish lists.  This makes the market very competitive.”

Obviously the Austin metro is riding a tsunami of economic success these days.  But lest you get too smug about it, you need to realize the state of Texas has a lot to do with this analysis.  This becomes crystal clear when you look at past ULI rankings.

We mentioned Austin was #1.  But which metro was #2 this year following a #1 ranking last year?  DallasFort Worth, thats who.  ULI said the Metroplex is “perceived as a business-friendly environment that offers an attractive cost of doing business, an adequate and well-educated workforce, and worldclass transportation by air, rail and road.

These two cities aren’t the only Texas cities ranked by ULI.  San Antonio is #32 (“Institutional investors are looking for opportunities in ‘this very affordable market’”).  Houston is #40 (“where investors are in a waiting game to see how the energy sector will recover”).  All in all, the state has reason to be proud with Austin as the cherry on top of the sundae. Read more →

September 16, 2016

Volume 38, Number 25

How did Austin jump past all the other oncesleepy state university/state capital metros to earn the designation as the #1 US city for technology innovation startups?  Think about it.  What contributed to this economic sea change that no one absolutely no one predicted.  Those of us who were around prior to the beginning of the evolution, and some who later became part of it, now marvel at what has happenedThe answer to what contributed to the change is being carefully analyzed, funded and researched at a high level.

Austin experienced one of the most exceptional economic transformations in the US urban landscape – growing from an economy that revolved almost totally around state government and a state university town of 250,000 in 1970, to leading a technology-based region with a population of about two million today.  So, the Kauffman Foundation is funding a study on the development of Austins hightechnology entrepreneurial system.

Why us?  Why here?  What set the Austin metro apart?  The beginning of the tech surge in Austin in the 1980s has been well-chronicled, and the role of business, civic and university collaboration that moved Austin into the top ranks of high-tech cities has been highlighed.

Now, the Kauffman-funded study is focusing on the evolution of the Austin technopolis from the 1980s, before the digital revolution and through several economic downturns, to Austin’s current ranking as an internationally-recognized center of creativity, innovation and tech growth.

Some questions it is trying to answer:  What institutions and policies have been important in the growth and sustainability of local, innovative startups?  How did the 2000 DotCom bust change the Austin entrepreneurial scene?  How has UTAustin contributed to the supply of startups in the city?

Another important area of examination is the role played by large corporations in the birth and growth of Austin’s entrepreneurial ecosystem.  There are other questions as well, such as the role of individuals who acted as influencers and the enduring institutions they built.

The results of the 18-month project are due in Spring 2017.  They’ll be interesting. 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 →

May 13, 2016

Volume 38, Number 7

You probably know Austin is one of the most technology intensive metro economies in the USBut do you know how many tech employers are in Austin?  Employees?  How many tech firms are in manufacturing and how many are nonmanufacturing?  Average annual salaries for tech-sters?  How all this compares to other Austin jobs?  And how these numbers have been changing?  Weve got answers for you.

To start with a perspective:  the tech economic phenomenon in this state government/state university area is relatively recent.  The tech surge began when a tech research consortium, composed of the US’s leading technology businesses, picked Austin in 1983 as HQ for a high-stakes gamble to regain world tech dominance.  So, how far has Austin come in 33 years?

First of all, the big picture.  There are 5,485 high tech employers in the Austin metro.  And employed/self-employed workers in tech industries total nearly 132,300, or 13.3% of all jobs in the metro – and this represents an increase of 6.0% over the previous year.  These numbers, and the subsequent deeper dive into more detail that is coming up, were compiled by the Austin Chamber’s VP/Research Beverly Kerr.

Over the past five years, the number of firms has grown 33.1% in high tech industries, compared to 24.7% overall.  In Austin, among tech firms, 5.4% (297) are manufacturing and 94.6% (5,187) are nonmanufacturing.

Okay, step back a minute.  Look out the window.  Rub your eyes a bit, ’cause a whole buncha numbers can make your eyes glaze over.  But these tech numbers are important to understand what is happening to the Austin economy.  So, let’s keep going and talk about paychecks money that goes into the jeans of these techsters, money that they spend all over town.

High tech payrolls in 2015 totaled $13.3 billion or 23.3% of the Austin metros total payroll of $57.1 billion.  This is a huge number.  And tech payrolls have shown better gains than employment.  The gain for tech industries (7.4%) exceeds the gain for all industries (5.6%).

For all industries, the average annual salary in Austin is $54,678, while the average salary across all tech jobs is $100,625.  Impressive.  Bear with me, there’s more info in the next item. Read more →

May 6, 2016

Volume 38, Number 6

Austin and its urban core is more than a destination and a neighborhood its a globallyrecognized brand.”  Thats the conclusion of the worlds largest commercial real estate services and investment firm, CBRE.  Its director of research and analysis for the TexasOklahoma division issued a 17page report this month about Austin titled There is more to the Texas Capital than you think.”  Lets look at some of what is contained in the report.

CBRE’s viewpoint is obviously from a commercial real estate perspective, but it’s exhaustive in its analysis, considering the vast array of factors affecting commercial real estate.  CBRE points to expansion of the tech industry as a driver of population and job growth, saying “this trend has influenced the purchasing activity and living patterns of Austins residents.”

“These social dynamics have physically altered the landscape of the multifamily, office, and retail real estate markets delivering new and diverse live/work/play alternatives for Austinites, new and native, a pattern that has made the Texas capital an exemplar of the 18hour city,” observed CBRE.  Note that phrase “18-hour city.”  We’ll come back to that in a minute.

The report went on to say “Austin has been one of the biggest beneficiaries of the tech revolution.  It transformed the culture of the Texas Hill Country, bringing in a new era of urbanized business and commerce to a city once almost exclusively driven by the public sector.”

“It brought swarms of jobs to the region boosting the local and regional economy, but also adding sector diversity,” added the CBRE analyst.  “The fact that these new tech jobs pay more, and attract younger workers, has influenced the retail and the multifamily marketsRetail has skewed more towards the highend, and millennials have wanted more mixed-use urban multifamily projects.”

The convergence of these factors has led the way for a new lifestyle illustrating why Austin is a premiere 18-hour city, concludes CBRE.  There’s that “18-hour city” reference again.  Promise we’ll get to that shortly.  In the meantime, CBRE Research has identified six key trends bringing the Texas capital into the ranks of Americas major metros and altering its commercial real estate sectors right along with them.  Check out the next item for a list of those six items. Read more →

April 1, 2016

Volume 38, Number 1

Have you seen a Google driverless car being slowly testdriven on Austin streets?  This is one of the few places you can spot them on public roads.  Besides being covered with gadgets and gizmos, another way the Google driverless car is easy to differentiate from Austins in-a-hurry drivers:  the car waits 1.5 seconds when the light turns green, then it slowwwly moves forwardSo, how do these cars really work on Austins notoriously congested roadways?

First, this is a huge experiment.  The effort is nowhere near complete, though amazing strides have been made.  Engineers constantly assess the cars performance in a variety of roadway conditions, with an eye toward improving the product.  Google says safety is paramount.  In fact, the vehicle has a top speed of 25 mph (which means you probably won’t spot one on the section of the Texas130 toll road that has a speed limit of 85 mph!)

Its all about software and sensors.  Google says it is so sophisticated the engineers know within 10 centimeters the precise location of the driverless car.  It can “anticipate” what other vehicles will do.  Even assesses their speed.  It can identify pedestrians and read hand signals given by bicycle riders.

It does all this with sensors that have a 360-degree field of “vision” all around the car.  Hey, what if a dog darts out in front of the car?  No problem.  What if a bicyclist or another vehicle runs a red light?  It can also handle that situation.  The same holds true if an adjacent vehicle makes an unexpected move (however, we should note that driverless cars have been involved in a few accidents, mostly the fault of the driver in the other vehicle).

Yeah, but.  How about parking — the bane of many drivers?  Nope, parking hasnt been programmed yet.  Well, what if a glitch occurs in the software, can the passenger reach over and take control?  That’s not yet part of the design.  In fact, Google driverless cars have no brake, steering wheel or accelerator.  Well, what about flooding conditions?  And what about high winds?  Both occur frequently in Austin.  Sorry.  Those conditions are still to be addressed.

As we said, the driverless car still has a ways to go before you can run down to a local dealership and buy one.  But this effort is just another example of how the techcentric aspect of Austins economy distinguishes itself on the world stage.  Keep your eyes open.  You may spot the next wave of the driving future moving, albeit slowly, on Austin streets. Read more →

October 16, 2015

Volume 37, Number 30

To bus or not to bus?  Actually not to bus is no longer an option for leaders pondering Austins transportation future.  Despite Capital Metros past problems, the recent failure of a rail transit option means having to move more people by buses.  In order to help reduce the impact of ever increasing auto traffic, the focus of nearterm mobility improvements will be on busesand on new toll roads that will help speed bus travel time.

How long has it been since you’ve ridden the bus in Austin?  That long, huh?  Well then how frequently do you cuss the bus in front of you?  Or for taking up a lane designated “bus only” that you used to drive?  Well, get ready for more of the same and then some.  CapMetro’s new fiscal year budget kicked in this month to the tune of $357.2 million.  And money has been allocated for expansion and enhancement of Austin bus service.

We’re not just talking about downtown Austin.  This new fiscal year, CapMetro will continue working with cities outside its current service area to expand bus service to some of the fastestgrowing areas in the region, including Georgetown, Pflugerville, Round Rock, Hutto and Buda.

What about those fancy, elongated buses?  Youll see more of em on additional routes.  Fancy?  Well, if you haven’t climbed aboard the spiffy MetroRapid buses, you may be surprised at the amenities.  You can use an app to pay your fare by swiping your smartphone under the scanner validator. Then take a seat and get more done onthego with free WiFi.  During peak weekday periods, they run every 12-15 minutes.

We mentioned toll roads.  Well, it has been the plan all along for CapMetro’s express buses to use the new MoPac Express Lanes for free – so they can zip riders to their destinations quicker and more reliably.  And the new budget includes capital improvement funds for additional bus purchases to support expanded service as well as additional MetroRapid computerenabled, covered stations.

What does all this mean?  Simply put, immediate public transit solutions for the Austin area will mean heavy emphasis on buses.  If rail is resurrected after its resounding defeat last year, it will be several years before that option could be approved, much less implemented.  So, for now, buses will be an everincreasing part of mobility solutions in the Austin area. Read more →

October 9, 2015

Volume 37, Number 29

Tech jobs are surging in Austin, ranking the Silicon Hills of Austin third among top tech markets in the US, behind San Francisco and Phoenix.  This is pushing office rents significantly higher downtown, even though Northwest Austin still has a growing tech concentration.  And, maybe the scariest effect of this tech surge is that it might push residential rental rates toward a stratosphere occupied by ridiculouslyhighpriced San Francisco.

CBRE Group Inc. reported Austin is one of the nation’s hottest tech markets.  As a result, businesses should expect to pay a premium to be in the red-hot middle – downtown – of this tech surge.  (A shift is occurring in the geographical concentration of Austin tech businessesAnd downtown is usurping Northwest Austin as the new hotspot.)

Best example:  average office rental asking rate in Northwest Austin was 2.4% below the metro-wide rate at the end of Qtr2/2015.  Contrast this with downtown Austin that more recently emerged as a hightech submarket with more than 100 tech companies, and has a rent premium of 28.6%,” reports CBRE.

“The tech ecosystem in downtown Austin is different than any other local office submarket and it continues to flourish, despite the higher cost of entry,” says CBRE/VP Nate Stricklen.  “A vibrant landscape of hightech users is developing in our urban core thanks to a plethora of resources, including access to funding and accelerator groups like Capital Factory, TechStars and Dreamit Ventures, quality tech talent and flexible co-working solutions like WeWork and the recently announced TechSpace.”

Okay, this is all well and good.  Most US cities are envious of Austin’s vibrant downtown.  But how is San Francisco a scary model of what might happen to residential rentals for workers who want to live close to work?  According to a recent San Francisco study, mid-to-senior level engineers need to spend anywhere from 42% to 54% of their salaries on rent in order to live within a halfmile radius of the office.  What!

The old financial rule-of-thumb is that you shouldnt spend more than 30% of your income on rent.  But a San Francisco tech worker making $120,000/year spending 54% of his/her income to rent a onebedroom pad near the downtown office is courting financial disaster.  Is Austin far behind?  This question needs to be pondered. Read more →

April 24, 2015

Volume 37, Number 5

The leadership of UTAustin and the UTSystem have weathered four tumultuous years.  It spilled over into Legislative action, a grand jury investigation, and involved faculty, students, alumni and former university leaders.  It had the potential to do great harm to one of the Austin areas most important economic engines, UTAustin.  Now what?  An influential alum who was deeply involved the past four years shared his insider assessment with us.

The basic battle involving UTSystem Regents/Chancellor and UTAustin Bill Powers has been widely reported.  No sense re-hashing that.  Lets look at where we it stands today through the eyes of one who was on the front lines of that battle.  This insider did not give us permission to use his name.  But we will share with you direct quotes from his email.

Because of important new leadership at both the System and University level, he sees what he calls “the promise of an enviable future.”  He points to new regents David Beck, a Houston attorney and Sara Martinez Tucker, CEO of the National Math and Science Initiative … new Chancellor Bill McRaven and newly-named President Greg Fenves (who takes over from Powers June 3, 2015).

If a person less qualified than any of these four had been put in their position, the prospects for the future of UTAustin would have been far less secure,” the influential insider alum noted.  He also said “the reappointment of Steve Hicks to the Board of Regents (therefore not a ‘new face’) is a significant component of the optimistic prospects for the future.” Read more →