North Texas NAIOP

Elections:

Campaign season is in full swing.  The Texas primary is March 1, and voters will have the chance to select both national and state leaders.  While most statewide offices are not on the ballot this session, legislative races will still be in the spotlight.  State House members serve two-year terms, and all 150 of those seats will be on the 2016 ballot. Sixteen House incumbents- including 8 Chairs are not seeking reelection.  Texas Senators serve four year terms and half of the senators are up for reelection- Only two of the state’s 31 senators — Kevin Eltife, R-Tyler, and Troy Fraser, R-Horseshoe Bay are not seeking re-election.

 

Interim Committees:

Each legislative interim, the Speaker of the House and the Lt. Governor issue a list of interim charges to House and Senate committee to look in depth into important issues facing the state that are under each committees jurisdiction. During this time, House and Senate Committees hold committee hearings and conduct research based on these charges and make recommendations, usually in the form of an interim report.   Committee charges and reports often form the basis of legislation filed during the regular session and give us a good idea of each chamber’s priorities.

 

Interim committees have already begun to meet, and the pace will pick up after the March 1 primaries.  A full list of charges that may be of interest to NAIOP is attached.

 

Below are a few highlights from recent committee meetings and important issues that have come up.

 

Texas’ Economic Outlook is on everyone’s mind.

 

Legislators have taken the opportunity during legislative hearings held this month to ask the Texas comptroller about his revenue projections  – Comptroller Glenn Hegar appeared before two interim committee hearings in January to discuss the state’s economic outlook. At the House Committee on Transportation Funding, he cautioned the committee members not to panic.  In spite of the economic slowdown, the economy will continue to be strong. He said, “I have continued to point out, this is not the Texas of the 1980’s. We’re a much more diverse economy than we were in the 1980’s. Oil and gas is 14 percent of the economy, but it’s not the 20-plus percent it was during the 1980’s.” He said that for the 2016 budget year, which started in September, 2015, Texas is pouring $1.1 billion in oil and gas severance taxes into the State Highway Fund. The transfers are expected to go down to $594 million in fiscal 2017 and are predicted to be $740 in fiscal 2018. Further, under Proposition 7, which the voters approved last November, any sales tax collections above $28 billion will be going into transportation, up to $2.5 billion, starting in 2017. Hegar said that Texas is still expected to be able to transfer $2.5 billion in 2018.

On January 26th, Hegar gave invited testimony to the Senate Finance Committee. Senator Royce West asked him, “Is the sky falling?” Comptroller Hegar replied, “No sir, while there are clouds on the horizon, I would rather be in Texas than any other state.” He reported that between November 2014 and November 2015, the petroleum and manufacturing sectors of the economy each lost more than 30,000 jobs each; however, that loss was offset by the rest of the economy, which gained 179,000 jobs during that same period. He told the Senators that while the revised revenue estimate he released in October was based on significantly higher oil prices, much of the estimate has remained accurate. And, lawmakers left a $4 billion cushion of unallocated funds on the table when passing the budget for this biennium. Hegar promised to keep legislators updated as oil prices continue to fluctuate.

 

Taxes:

The Senate Select Committee on Property Tax Reform and Relief held its second meeting in San Antonio on January 27th.  The committee was charged to study the property tax process, including the appraisal system, recommend ways to promote transparency, simplicity, and accountability by all taxing entities, and examine and develop options to further reduce the tax burden on property owners. Chairman Paul Bettencourt kicked off the meeting saying, “Property taxes throughout the State are increasing much faster than average median family income…In Bexar County, for example, county tax revenue has increased almost 30% between 2012 and 2015. We are seeing similar trends all over the State. Clearly there is a problem and this committee intends to tackle it and solve it.” Comptroller Glenn Hegar’s office data presented at the hearing shows that statewide between 2005 and 2014, county tax levies were up 70%, city tax levies were up 61%, while median household income was only up 26%. On behalf of Texas Taxpayers and Research Association, Dale Craymer provided testimony pointing out that Texas not only taxes property at a much higher rate than other states, Texas also taxes certain types of property exempt in other states, such as inventories and business personal property in general. He also pointed out that you cannot effectively control property taxes by limiting appraisal growth because districts can simply raise tax rates to offset the exempted property, shifting the tax onto other properties.

 

The committee will be holding hearings throughout the state during the interim.

 

Economic Development:

The House Economic and Small Business Development Committee met on January 7th to hear invited testimony on interim charges to look at economic development incentive including  general metrics or principles to aid the legislature in determining viable and sustainable incentive programs that provide “return on investment” for taxpayers and diversification of the state’s economy.

 

Chair Angie Chen Button kicked off the hearing by saying “Texas is no longer #1 in job creation. We have to work harder to stay in front of the curve.”

 

Keith Phillips of the Federal Reserve Bank in Dallas gave an update on the Texas economy and its outlook. He said that oil prices and labor market tightness have reduced job growth and he predicted a 3.6% drop in job growth. In 2015, Texas ranked 32nd in the US for job growth and Texas dipped below the national average for the first time. The Texas unemployment rate is still below the national average but is rising. Texas has maintained positive growth despite energy sector decline because the state is more diversified than in the 1980’s. Specific observations he made:

  • Texas weakened in the first half of 2015 but the outlook improved as oil prices stabilized near $60, but the recent fall to $40 (or below) has weakened the outlook.
  • Last year Texas did much better that in the 1980’s and better than other energy states.
  • Tight real estate markets and continued growth in sectors such as health care and leisure and hospitality are helping Texas to sustain positive job growth.
  • 2015 Texas job growth (when the final numbers are in) are likely to be about 1.3%, and if oil prices stay near $40 – $50, growth will be similar in 2016, but there is still a lot of uncertainty about this year.

 

 

Paul Ballard of the Texas Treasury Safekeeping Trust Company discussed transition of Texas Enterprise Fund assets and its management. A summary of their activities includes:

  • Trust Company received files on 128 portfolio companies from the former ETF on September 1, 2015;
  • 98 companies are still operating;
  • 3 companies have completed are in the process of completing Initial Public Offerings;
  • 38 companies have raised A.B.C. or D Series of capital from outside investors and are being evaluated for potential follow-on investment;
  • 36 companies have completed a Qualifying Financing Transaction where notes initially issued by the State have been converted to equity; and they are being evaluated for potential follow-on investment;
  • 21 companies more recently funded or in the process of being funded but have not yet completed Qualifying Financing Transaction;
  • 5 companies are dormant, have minimal cash, and are likely to cease operations, file bankruptcy or possibly sell intellectual property; and
  • 25 companies were commended to the State Attorney General’s Office for legal disposition because they are bankrupt or have ceased operations.