Tuesday, April 29, 2014
Can Texas Ruin Its Own Good Thing?
For a moment, it sounded like old times.
Over this past weekend, word trickled out of California that Toyota Motor Corporation is planning on relocating its North American headquarters to Texas. Yesterday, the rumors were confirmed, and Texans celebrated. According to the media, approximately 4,000 jobs from Torrance, California, and suburban Cincinnati, Ohio, are coming to Plano, in suburban Dallas.
The giddiness with which our local news media here in the Fort Worth - Dallas area reported the news hearkened back to the 1970's and 80's, when it seemed like every other month, some huge company was pulling up stakes and moving to the Lone Star State. Recently, the string of blockbuster moves had gotten a bit thin. So, instead of simply waiting for corporations to find Texas, Texas officials, like our big-talking governor, had gone out, poaching jobs themselves from other states.
Back in the day, most of those huge, relocating companies were from up north, abandoning aging, high-cost states like New York, New Jersey, Ohio, and Illinois. Of all the growth coming from out of state, however, local boosters here would take particular pride in winning yet another corporate move from New York City, the town all of Texas seems to have targeted as Economic Enemy Number One.
When American Airlines came down here from Manhattan to take over most of what was then the newly-built, state-of-the-art international airport between Fort Worth and Dallas, Texans either swooned at their coup, or scorned the invasion of so many Yankees all at the same time.
When Exxon came down here from their digs in prestigious Rockefeller Center, to hear our local reporters tell it, you'd have thought the Big Apple might as well close up shop.
When JCPenney came down, relocation experts hired by the venerable retailer to welcome corporate employees to Texas were so cocky, they boasted to a busload of executives who were touring suburban Dallas with their spouses that, as could be plainly seen, graffiti did not mar residential neighborhoods here. To which several employees - who apparently lived in exclusive villages surrounding New York City that far outclassed north Texas' treeless, cookie-clutter subdivisions - retorted that not everybody who works in Gotham lives in a ghetto.
On the Move
Indeed, it's not that corporations have relocated to the Dallas area because of our scenery, or our idyllic weather. Plenty of other factors come into play when corporations relocate, particularly to Texas. With JCPenney's move in 1987, for example, experts speculated that the retailer, having suffered through several years of slumping profits, would make as much money from the sale of its prime Midtown Manhattan office tower as it had been earning in a year. For a fading brand in an industry that was rapidly consolidating in the 1980's, that kind of money was too good to pass up. Especially since Penney's could buy land in suburban Dallas for a pittance, compared with New York's real estate values.
Penney's move took approximately 4,000 jobs out of New York City. Exxon's relocation in 1989 involved about 300 people, after it had been whittling down its employee base in Gotham for a couple of decades. Exxon's exit made sense even to New Yorkers, who knew Texas is a hub of America's petroleum industry. When it moved from New York in 1979, American Airlines was actually returning to its Texas roots. You might be surprised to learn that the Lone Star State has played a key role in the development of America's aviation industry. Then too, at the time, historic deregulation in the industry was compelling all airlines to eek profits from an increasingly competitive marketplace, and opportunities for growth were far more plentiful in spacious Texas than New York City, with its old, cramped airports run by the bureaucracy-choked Port Authority of New York and New Jersey.
On the one hand, I understand why Toyota is relocating another 4,000 people to Texas. Plano, the Dallas suburb where the car maker will be building its new headquarters, is a prosperous, affluent city with landscaped streets and a low crime rate. It enjoys multiple freeway links and light rail connectivity all the way to downtown Dallas. Its housing stock runs from high-end traditional ranch homes to luxury apartments to small estates, at a fraction of the cost similar homes command on either coast. And if you're not impressed by its highly-rated public school system, Plano has plenty of prestigious prep schools. It's the city where JCPenney built its sprawling headquarters complex, for all the same reasons Toyota is going to do the same thing.
Toyota may claim that its move isn't primarily because of California's high taxes, high housing costs, high cost of doing business, and onerous regulations. However, the company obviously is going to benefit economically by leaving all of those negative California factors behind. And that's not all. The skeptic in me says that Toyota has even other benefits it hopes to achieve with this move.
Consider, for example, the fact that they've spent the last 50 years in the same place, and have likely accumulated during that time an oversized collection of legacy employees who they might not want or need anymore. Creating a drastic change within a company that uproots workers and their families has become a sneaky yet effective way of "culling the herd," so to speak. Why wouldn't Toyota give it a try?
After all, widespread layoffs are bad for public relations. And firing selected employees - and even whole teams of workers - can be legally challenging. The trick is to make the move worthwhile for the people you want to retain, yet too drastic for those you don't. Not all of those 4,000 people are going to decide to move to Texas, no matter how wonderful a place Plano is. Yes, the company risks a brain drain, if too much of its core talent decides to remain in California. But smart people know good jobs don't grow on trees anymore. It's usually the folks with a lesser loyalty to their employer that stay behind during these cross-country corporate relocations. Plus, to Toyota's continuing benefit, it has chosen a new hometown with a large enough population that it can be choosy when replacing those employees who don't make the move.
Until the Grass Isn't Greener Any More
Okay, so repopulating essential jobs that transfer unfilled from California helps workers who are already here in north Texas, and are looking for new employment. Having a brand-new million-square-foot corporate complex paying property taxes on currently vacant scrubland also helps boost Plano's economy. Goody for them! However, for the rest of us here in the Fort Worth - Dallas area, corporate relocations may be getting far less beneficial as they used to be.
If you think about it, there are limits within all of the variables that currently make Texas an attractive place to do business, aren't there? Scrupulously low taxes have kept public infrastructure investment at a bare minimum for decades, and cities have to borrow heavily to built what the state won't. Texas ranks at or near the bottom of most quality-of-life indicators that involve public funding, like education, healthcare, and parklands.
At some point, our cities are going to get too crowded and too congested, and the relatively low cost of living of which we currently boast could be put at risk. Already, housing values have begun to rise across the state, as homebuilding on available plots of land fails to keep pace with the number of buyers. Exurban sprawl can only go out so far from our employment centers before daily commutes become too burdensome. Cheap and abundant land has so far kept housing prices artificially low here, but as cities like Austin are beginning to learn, raw dirt isn't as cheap as it used to be.
There's also reason to be concerned about Texas' water supply. Some of this state's proudest boosters scoff at questions about water availability, reasoning that no drought lasts forever, or that if push comes to shove, everybody can simply replace their grass lawns with pebbles and mulch. But with much of the state's economic growth coming from water-intensive industries like gas fracking and technology, at some point, planners are going to have to evaluate whether long-term investment here is worth the risk of running dry.
Water is used at high pressures to help extract oil and gas from unprecedented depths within the earth, and water is essential to cool the condensers that help keep computer equipment from overheating. Even if the state's growth-at-any-cost pundits don't want to fret about everyday drinking water, the economic benefits of having an abundant water supply cannot be forgotten.
These are considerations that people who are here now, and who are now making plans to move here, find too inconvenient to worry about. Besides, immediate gratification isn't just a Texas fixation, but a Western one. It's not like Toyota's current home in southern California doesn't have its own sustainability problems.
Yet California used to be what Texas currently is. Even New York, in its heyday, offered the opportunities Texas offers now. Today, states like California and New York can only reminisce, while Texas poaches and grows.
We can gloat about our success. Or we can start acting on the warnings these other states are providing us.
The good times never last forever. But can't the bad times be delayed? Winning corporate relocations is one thing. Sustaining the economic environment for doing so is another.