Report - 87R Interim Interim Report International Relations Economic Development Committee Interim Report 2022

Issuer: Congressional materials
Document type: Report
Case: 87R Interim Interim Report International Relations Economic Development Committee Interim Report 2022

Summary

The interim report of the Texas House Committee on International Relations and Economic Development to the 88th Texas Legislature, dated November 2022 and submitted by Chairwoman Angie Chen Button to Speaker Dade Phelan by a letter of November 28, 2022. It covers seven interim charges: agency oversight, trade with Mexico, economic recovery, economic development incentives, semiconductor investment, workforce, and trade with Russia. The agency oversight section reviews implementation of HB 619, HB 1792, HB 2607, HB 3767 and SB 1555, including childcare legislation and the Tri-Agency Workforce Initiative. The Russia section reports that indirect state investment of $18.6 million was lowered to $1.2 million, and the committee finds the potential effects on the Texas economy of curtailing trade and investment with Russia would be minimal.

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“Report - 87R Interim Interim Report International Relations Economic Development Committee Interim Report 2022.” Original at www.house.texas.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/87r-interim-interim-report-international-relations-economic-development-committee-interim-report-2022/, SHA-256 8e6d87333365de880e544d8599c28d451f53ec983f95579547e52f9ddf113205.

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I N T E R I M R E P O RT
TO THE 88 TH TEX AS LEGISL ATURE

HOUSE COMMITTEE ON
INTERNATIONAL RELATIONS & ECONOMIC DEVELOPMENT
NOVEMBER 2022
HOUSE COMMITTEE ON INTERNATIONAL RELATIONS
AND ECONOMIC DEVELOPMENT

A REPORT TO THE
HOUSE OF REPRESENTATIVES
88TH TEXAS LEGISLATURE

ANGIE CHEN BUTTON
CHAIRWOMAN

COMMITTEE CLERK
VICTORIA A. SMITH
Committee on
International Relations and Economic
Development

November 28, 2022

Angie Chen Button P.O. Box 2910
Chairwoman Austin, Texas 78768-2910

The Honorable Dade Phelan
Speaker, Texas House of Representatives
Members of the Texas House of Representatives
Texas State Capitol, Rm. 2W.13
Austin, Texas 78701

Dear Mr. Speaker and Fellow Members:

The Committee on International Relations and Economic Development of the Eighty-seventh Legislature
hereby submits its interim report including recommendations for consideration by the Eighty-eighth
Legislature.

Respectfully submitted,

_______________________ _______________________ _______________________
Angie Chen Button Christina Morales Michelle Beckley

_______________________ _______________________ _______________________
Cecil Bell Terry Canales Erin Gamez

_______________________ _______________________ _______________________
Todd Hunter Lyle Larson Claudia Ordaz

Christina Morales
Vice-Chairwoman

Members: Michelle Beckley, Cecil Bell, Terry Canales, Erin Gamez, Todd Hunter, Lyle Larson, Claudia Ordaz
TABLE OF CONTENTS
INTRODUCTION .......................................................................................................................... 1
INTERIM CHARGES .................................................................................................................... 3
COMMITTEE FINDINGS AND OVERALL RECOMMENDATIONS ...................................... 5
CHARGE 1: AGENCY OVERSIGHT ........................................................................................... 7
Childcare Legislation ................................................................................................................. 7
Tri-Agency Workforce Initiative ................................................................................................ 8
Recommendations ...................................................................................................................... 9
CHARGE II: TRADE WITH MEXICO ....................................................................................... 11
Trade......................................................................................................................................... 11
Migration .................................................................................................................................. 12
Case Study: Del Rio Closure ...................................................................................................... 13
Recommendations .................................................................................................................... 13
CHARGE III: ECONOMIC RECOVERY ................................................................................... 15
Pandemic Recovery .................................................................................................................. 15
Effects on Employers ................................................................................................................ 16
Recommendations .................................................................................................................... 17
CHARGE IV: ECONOMIC DEVELOPMENT INCENTIVES .................................................. 19
Local Incentives ........................................................................................................................ 19
State Incentives ........................................................................................................................ 20
Recommendations .................................................................................................................... 22
CHARGE V: SEMICONDUCTOR INVESTMENT ................................................................... 23
Federal CHIPS Act .................................................................................................................... 23
State Level Incentives ............................................................................................................... 25
Recommendations .................................................................................................................... 25
CHARGE VI: WORKFORCE...................................................................................................... 27
Employment Data .................................................................................................................... 27
TWC and Workforce Development .......................................................................................... 29
Recommendations .................................................................................................................... 29
CHARGE VII: TRADE WITH RUSSIA ..................................................................................... 31
Trade......................................................................................................................................... 31
State Impact and Investments ................................................................................................. 32
Recommendations .................................................................................................................... 33
INTRODUCTION
At the beginning of the 87th Legislative session, the Honorable Dade Phelan, Speaker of the
Texas House of Representatives, appointed nine members to the House Committee on
International Relations and Economic Development. The Committee membership included:
Angie Chen Button, Chair, Christina Morales, Vice Chair, Michelle Beckley, Cecil Bell, Terry
Canales, Todd Hunter, Lyle Larson, Claudia Ordaz, and later Erin Gamez.

The Committee was given jurisdiction over all matters pertaining to:

(1) the relations between the State of Texas and other
nations, including matters related to trade relations and
international trade zones;
(2) the relations between the State of Texas and the
federal government other than matters involving defense, emergency
preparedness, and veterans issues;
(3) the relations between the State of Texas and other
states of the United States;
(4) commerce, trade, and manufacturing, including
international commerce and trade and the regulation of persons
participating in international commerce and trade;
(5) cooperation between the state or a local
governmental entity and the scientific and technological
community, including private businesses, institutions of higher
education, and federal governmental laboratories;
(6) weights and measures;
(7) workforce training;
(8) economic and industrial development;
(9) development and support of small businesses;
(10) job creation and job-training programs;
(11) hours, wages, collective bargaining, and the
relationship between employers and employees;
(12) international and border regions (as described in
Sections 2056.002(e)(2) and (3), Government Code) economic
development, public health and safety issues affecting the border,
tourist development, and goodwill, and economic development,
tourist development, and goodwill in other areas of the state that
have experienced a significant increase in the percentage of the
population that consists of immigrants from other nations,
according to the last two federal decennial censuses or another
reliable measure;
(13) the provision of public services to persons
residing in proximity to Texas' international border or in other
areas of the state that have experienced a significant increase in
the percentage of the population that consists of immigrants from
other nations, according to the last two federal decennial censuses

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or another reliable measure; and
(14) the following state agencies: the Office of
State-Federal Relations, the Texas Economic Development and
Tourism Office, the Texas Workforce Commission, and the Texas
Workforce Investment Council.

The Committee would like to thank everyone who testified, attended the hearings, and
contributed to this report including Amanda Willard, Dylan Matthews and all the hardworking
staff in the Committee Coordinator's office. After three public hearings, a joint hearing, hours of
testimony, and a field trip, the Committee on International Relations and Economic Development
has adopted the following report.

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INTERIM CHARGES
CHARGE I: Monitor the agencies and programs under the Committee's
AGENCY jurisdiction and oversee the implementation of relevant legislation
OVERSIGHT passed by the 87th Legislature. Conduct active oversight of all
associated rulemaking and other governmental actions taken to ensure
the intended legislative outcome of all legislation, including the
following:
▪ HB 619, relating to developing a strategic plan to support the
child-care workforce;
▪ HB 1792, relating to the evaluation of child-care providers
participating in the Texas Rising Star Program;
▪ HB 2607, relating to the powers and duties of the Texas
Workforce Commission and local workforce development
boards regarding the provision of childcare and the subsidized
childcare program;
▪ HB 3767, relating to measures to support the alignment of
education and workforce development with state workforce
needs, including the establishment of the Tri-Agency
Workforce Initiative; and
▪ SB 1555, relating to establishing reimbursement rates for
certain child-care providers participating in the subsidized
childcare program.

CHARGE II: Review the impact that trade across the Texas-Mexico border has on
TRADE WITH the Texas economy. Consider the impact of the recent increase in
MEXICO border migration on transnational trade, including its effects on the
communities along the border, points of entry, and access by Texas
businesses to supplies, labor, materials, and markets in Mexico.
(Joint charge with Committee on Transportation)

CHARGE III: Monitor the state’s economic recovery and identify obstacles
ECONOMIC impeding the state’s economic recovery. Examine the economic
RECOVERY impact of inflation on both employers and employees. Examine
global supply chain disruptions on state commerce and the flow of
trade at Texas ports. Explore opportunities to attract businesses to
Texas that have outsourced elements of their supply chain to foreign
countries.

CHARGE IV: Examine current economic development incentive programs and
ECONOMIC identify opportunities to enhance job creation in Texas. Make
DEVELOPMENT recommendations to promote transparency and enhance effectiveness
INCENTIVES of such programs.

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CHARGE V: Evaluate Texas’ current efforts to attract semiconductor investment to
SEMICONDUCTOR the state. Identify potential strengths and vulnerabilities that could
INVESTMENT impact the success of Texas’ semiconductor industry and the ability
to create and maintain a reliable semiconductor supply chain.

CHARGE VI: Evaluate labor shortages and Texas’ unemployment numbers. Identify
WORKFORCE initiatives within the Texas Workforce Commission to expand job
training and apprenticeship opportunities to help meet labor demands.
Identify opportunities to increase outreach and information regarding
career development.

CHARGE VII: Review the impact that trade with Russia has on the Texas economy,
TRADE WITH including Texas manufacturers. Consider the impact of Texas
RUSSIA investment in businesses and funds owned or controlled by the
Russian government or Russian nationals, and determine the need for
investment restrictions. Consider the impacts of any proposed
investment restrictions on access by Texas businesses and the Texas
scientific and technological community to capital investment, global
markets, and competitive knowledge.

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COMMITTEE FINDINGS AND OVERALL
RECOMMENDATIONS
Texas is the world's ninth largest economy because of the hardworking men and women of this
great state along with a commitment to cultivate an environment of growth and opportunity. This
success is no accident. In order to foster an economic environment that can weather and quickly
recover from adverse events, we must continually and proactively work to maintain Texas’
economic prosperity.

Economic development is a concerted effort of a responsible governing body through programs,
policies, or activities that seek to create sustained economic growth to improve the economic
well-being and quality of life for a community. With sustained economic growth comes
sufficient incomes for the local work force, profitable business opportunities for employers, and
tax revenue for maintaining an infrastructure that can support residents and growth. There are
many initiatives and opportunities for state and local governing bodies to work with the private
sector to attract investments where they are needed most in the community.

Along with pro-business policies, Texas offers economic development incentives and programs
that directly and indirectly attract jobs to our state. These programs should be regularly
examined and maintained in a manner that not only meet the needs of today but look to meet the
demands of the future. It is vital that these programs operate in a transparent manner and that
steps are regularly taken to ensure they are achieving desired outcomes. Information about
available economic development tools should be readily available to current and potential
employers wanting to retain or create jobs for Texans. Increased outreach efforts regarding the
available tools, training, and assistance currently available to employers of all sizes will further
the state’s economic success.

An economy is only as strong as its workforce. A strong workforce is one in which workers have
the skills, experience, and credentials employers require. Our economy is undergoing dramatic
changes. The shift to an open talent economy applies to almost every industry sector. This shift is
largely driven by trends such as technological innovations and demographic changes that are
fundamentally changing the structure of talent and work. As a result of these shifts, Texans need
improved, quicker, and more affordable pathways to employment, career advancement, and
continuing education. To that end, Texas must prioritize the creation of clear pathways to
available jobs.

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CHARGE 1: AGENCY OVERSIGHT
Monitor the agencies and programs under the Committee's jurisdiction and oversee the
implementation of relevant legislation passed by the 87th Legislature. Conduct active oversight
of all associated rulemaking and other governmental actions taken to ensure the intended
legislative outcome of all legislation, including the following:

▪ HB 619, relating to developing a strategic plan to support the child-care workforce;

▪ HB 1792, relating to the evaluation of child-care providers participating in the Texas
Rising Star Program;

▪ HB 2607, relating to the powers and duties of the Texas Workforce Commission and
local workforce development boards regarding the provision of childcare and the
subsidized childcare program;

▪ HB 3767, relating to measures to support the alignment of education and workforce
development with state workforce needs, including the establishment of the Tri-Agency
Workforce Initiative; and

▪ SB 1555, relating to establishing reimbursement rates for certain child-care providers
participating in the subsidized childcare program.

The Committee on International Relations and Economic Development met in a public hearing
on May 19, 2022 at the State Capitol in Austin to hear testimony from the following witnesses
regarding the charge of Agency Oversight:

1. Bryan Daniel (Texas Workforce Commission)
2. Harrison Keller (Texas Higher Education Coordinating Board)
3. Katie Ferrier (Ready Nation, San Antonino Chamber of Commerce)
4. Kim Kofron (Children at Risk)
5. Kishani Mathiasz (KIDS Early Learning Centers)
6. LaTrice Jones (Open Door Preschool Austin)
7. Mike Morath (Texas Education Agency)
8. Mike Reeser (Texas State Technical College)
9. Reagan Miller (Texas Workforce Commission)

Childcare Legislation

HB 619 (87R) requires a report on the plan to support to the childcare workforce due December
of this year. TWC has contracted with the University of Texas Lyndon B. Johnson School of
Public Affairs and they have partnered with the Prenatal-to-3 Policy Impact Center to conduct
the study and produce the report. The required stakeholder work group has been formed and has
met twice at the time of this hearing with two more scheduled later in the year. The required
survey of childcare directors has been sent to 3,000 directors and were awaiting responses.

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HB 1792 (87R) directs TWC to procure a single entity to oversee all the staff that evaluate
childcare programs for Texas Rising Star certification. This approach is intended to support
better consistency and reliability in the evaluation. At the time of the hearing, TWC was in the
procurement and rule-making process and gathering public comment. The new entity will be
chosen at the beginning of Fiscal Year 2023.

HB 2607 (87R) mandates that all childcare providers participating in TWC childcare services
program to attain Texas Rising Star certification. In doing so, TWC is required to create an entry
level rating and limit how long a provider may remain at that level, as well as a temporary
waiver period for providers with extenuating circumstances that need additional time. TWC rules
have been published and at the time of this hearing were open for public input.

SB 1555 (87R) directs TWC to align age groups with Health and Human Services Commission
ratios and group sizes and requires higher rates in the age groups with the lowest child-to-
caregiver ratios which is infant and toddlers. The Commissioners also approved higher rate
increases for infant and toddler care this fiscal year.

Tri-Agency Workforce Initiative

Created in March 2016 by Governor Greg Abbott, the Tri-Agency Workforce Initiative tasks the
Texas Higher Education Coordinating Board, the Texas Education Agency, and the Texas
Workforce Commission to work together to develop strong links between education and industry
with the goal of helping Texas grow in economic prosperity.

HB 3767 (87R) passed last session and called for further coordination of information and other
resources within the Tri-Agency Workforce Initiative to ensure that education and workforce
funds are efficiently aligned to achieve the state's career education and workforce development
goals. Among other provisions, the bill requires the following:

▪ the development and update of state workforce development goals and coordinated
interagency strategies for achieving those goals, including an opportunity for comment on
the proposed goals or strategies;
▪ development of a strategic plan for the unified repository for education and workforce
data;
▪ the establishment of a publicly accessible web‑based library of credentials; and
▪ the establishment of internet‑based resources for the Initiative.

The Tri-Agency Workforce Initiative released their detailed Goals and Strategies in early 2022.

As of this hearing, the Tri-Agency is in the process of creating a “publicly accessible web-based
library of credentials such as diplomas, certifications, licenses, or degrees.” The inventory will
include credentials awarded by various entities including public colleges, proprietary career
schools and colleges, registered apprenticeship programs, and industry. The Tri-Agency Master
Data Sharing Agreement will work together to streamline data sharing among the agencies, while
increasing data security and usability for the public and other stakeholders.

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There is consensus among stakeholders that taxpayer-funded education and training programs
should ideally lead to self-sufficient wages. Additionally at the Tri-Agency, a self-sufficient
wage tool is under development. A regionally adjusted self-sufficient wage will be determined
for each county. Stakeholders will be invited to review the tool and provide feedback.

Recommendations

There is a need to conduct robust employer engagement in state workforce planning. Embracing
Texas employers as partners in developing workforce goals and strategies should be a focus for
the Tri-Agency. Employers do not operate on the same timelines as state institutions. The time it
takes a Texas student to earn a post-secondary credential is not always conducive to filling
today’s open jobs. Additionally, if the state’s career pathways do not accommodate the rapidly
changing demands of the labor market, Texans’ education and training will not be aligned with
future workforce needs. By regularly and organically engaging Texas employers, the Tri-Agency
can focus education and workforce systems to better meet our state’s regional and local
workforce current and future needs.

In order for the Tri-Agency Workforce Initiative to best serve our diverse state, workforce goals
should be disaggregated by demographic data.

Access to quality affordable childcare is essential for our workforce. Not only do caregivers need
care for children while working, by increasing access to quality care, young Texans will be better
equipped to begin their academic careers prepared with the foundation needed for success.

The cost of care and dearth of quality programs in some areas leave Texas parents and caregivers
with little to no choice when they consider arrangements for their children. Strategies that
empower parents with options and the ability to make informed choices on early education
programs that work for them should be considered.

Childcare educators are paramount to ensuring quality childcare is available to families, yet
centers struggle to maintain adequate staffing to meet demand. Without enough qualified
providers, centers cannot operate at full capacity, further reducing an already limited childcare
supply. To meet the growing demand for skilled workers in the industry, Texas should support
legislative, regulatory, and funding efforts to attract and retain childcare educators and strengthen
the childcare workforce ecosystem, including educational partnerships and partnerships with
local industries.

By bolstering partnerships between public schools and high-quality childcare providers, the
capacity for pre-k and childcare for working families can increase. The Legislature took steps to
support a more integrated early learning system with the passage of HB 3 (86R). Additional
work is needed to strengthen partnerships between school districts and quality childcare
programs. Policies that better support the administration of partnerships, provide increased and
improved technical assistance, and break down bureaucratic barriers to make these partnerships
easier to set up and more effective should be considered. These steps will increase the number of
children ready to succeed in school while offering solutions to districts that struggle to meet
demand.

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CHARGE II: TRADE WITH MEXICO
Review the impact that trade across the Texas-Mexico border has on the Texas economy.
Consider the impact of the recent increase in border migration on transnational trade, including
its effects on the communities along the border, points of entry, and access by Texas businesses
to supplies, labor, materials, and markets in Mexico. (Joint charge with Committee on
Transportation)

The Committee on International Relations and Economic Development met jointly with the
Committee on Transportation in a public hearing on September 30, 2021 at the State Capitol in
Austin to hear testimony from the following witnesses regarding the charge of Trade with
Mexico:

1. Albert Zapanta (US-Mexico Chamber of Commerce)
2. Caroline Mays (Texas Department of Transportation)
3. Cindy Davidson-Ramos (El Paso Hispanic Chamber of Commerce)
4. Cynthia Garza-Reyes (Texas Border Coalition)
5. John Esparza (Texas Trucking Association)
6. Jon Barela (Borderplex Alliance)
7. Marc Williams (Texas Department of Transportation)
8. Pia Orrenius (Federal Reserve Bank of Dallas)

Trade

Texas is the top exporting state in the nation and Mexico is our top trading partner. Trade with
Mexico is not just vital to Texas but the entire United States. About 75% of the United State's
trade with Mexico is processed through the Texas-Mexico border.

The closure of the border to non-essential travel for almost 20 months due to the pandemic posed
a great threat to the livelihood of border communities. While it was open to commercial drivers
and students, it did not allow for relatives looking to visit family members or shoppers, for whom
border retail and hospitality industries rely. Although according to the Federal Reserve Bank of
Dallas, retail sales held steady in 2020 due in large part to the federal pandemic stimulus
packages.

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Migration

Immigration from Mexico to Texas has trended down for the past decade however, US Customs
and Border Protection encounters have surged beginning in late 2020. Although the number of
Mexican immigrants to the U.S. is trending down, the amount of immigrants through the Texas-
Mexico border from other countries and asylum seekers have increased.

This increase in encounters can lead to increased border wait times for trucks, delays in
processing, and in rare occasions closures, if resources are diverted from ports-of-entry to
process migrants as seen in Del Rio.

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Case Study: Del Rio Closure

In September 2021, U.S. Customs and Border Protection closed the International Bridge port of
entry in Del Rio, TX for a week due to a large influx of immigrants. Normal traffic was diverted
56 miles east to nearest port of entry in Eagle Pass, TX. The closure resulted in:
▪ ~$50,000 per day in increased trucking costs
▪ ~$455,000 per day in increased personal vehicle costs
▪ $22,000 per day in lost bridge toll revenue

Recommendations

The state should invest in infrastructure that supports this amount of trade. The Legislature
should continue to work collaboratively with relevant agencies to stay updated on the effects
migration has on international trade across the Texas-Mexico border while ensuring that
fluctuating migration does not impede our international trade infrastructure.

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CHARGE III: ECONOMIC RECOVERY
Monitor the state’s economic recovery and identify obstacles impeding the state’s economic
recovery. Examine the economic impact of inflation on both employers and employees. Examine
global supply chain disruptions on state commerce and the flow of trade at Texas ports. Explore
opportunities to attract businesses to Texas that have outsourced elements of their supply chain
to foreign countries.

1. Brian Adamek (Texas Farm Bureau)
2. Jorge Barro (Rice University Baker Institute for Public Policy)
3. Pia Orrenius (Federal Reserve Bank of Dallas) testimony on April 20, 2022
4. Tony Bennett (Texas Association of Manufacturers)

Pandemic Recovery

Despite significant impacts of COVID-19 on public health and labor supply, Texas growth has
outperformed the nation in the pandemic and through 2022. Texas was able to recover quickly
compared to other states from the pandemic. We were the fourth state, and at the time of this
hearing, one of only thirteen states to recover jobs back to their pre-pandemic levels. Texas' job
growth is strong and consistently above the national rate.

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Texas exports, which this Committee took a deep dive into with Russia and Mexico, rebounded
outpacing the rest of the nation and reached a record high in February 2022.

Exports Texas compared to United States

The Dallas Federal Reserve Bank's economic outlook suggests Texas will continue to
outperform the nation again in 2022 but risks to the outlook could include continued supply
chain constraints, tight labor markets, and inflation.

Effects on Employers

Texas manufacturers experienced serious supply disruptions out of Mexico, our state’s number
one trading partner. As COVID-19 spread, Mexican states completely shuttered most
maquiladora industries. Texas aviation, electronics, and automotive plants were hard hit, with
some forced to curtail production.

Be it a scarcity of workers, a lack of shipping containers and railcars, or a truck driver shortage,
there are plenty of pandemic disruption to go around. The unprecedented backlog at California
seaports means Texas’ ports should be better positioned to increase shipments through expansion
of both our container capacity and port-connected transportation corridors. Continuous supplier
disruptions endanger manufacturing operations that for decades have depended on “just-in-time”
production, where components arrive for final assembly in precisely staged deliveries.

Supply chain security is a top reason companies reshore back to the U.S. Texas must remain a
competitive prospect, particularly during this time of historic changes in global logistics. A
recent Forbes article notes that company executives are increasingly concerned with risk
management and ensuring supply chain resilience.

Texas Farm Bureau, the state's largest farming and ranching organization, elaborated on the
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impact on the agriculture industry. Inflation is higher in rural agricultural areas due to increased
travel and freight costs, particularly fuel costs. Agriculture producers rely heavily on fuel. Diesel,
which has seen prices rise 115% from 2021, is necessary for not only transport of goods but for
almost every step in the production of crops. Fertilizer is another key component in agriculture.
Nitrogen fertilizer is produced using natural gas. The price of natural gas has risen 220% over
the past year.

Farmers have also had difficulty receiving necessary parts and machinery in a timely manner.
Agriculture is a labor-intensive industry and, like other industries, experiencing a shortage of
labor. The rising price of foods in the grocery stores is reflective of all these greater costs but
farmers and ranchers are not seeing that profit. Although some commodities prices have risen, it
is not enough to keep up with the rate of inflation to cover their additional production costs.

Recommendations

Texas should take steps to make more products to strengthen our national security and better
insulate our economy from supply interruptions. Now is the time to use our economic
development expertise and move critical industries back to Texas with an immediate focus on
industry jobs and sensitive technologies that currently leave us venerable to global unrest.

Strategic investments are already planned for numerous projects involving carbon capture,
aerospace defense, space exploration, electric vehicles, semiconductors, and other critical
sectors. Texas should lead the nation for these investments.

Today, there are two primary sources for manufacturing investment wanting to locate or relocate
to the U.S. First, companies are reshoring their production back to the U.S. These are industries
that took production offshore decades ago to secure lower labor and material costs. Second, new
Foreign Direct Investment (FDI) includes companies coming to the U.S., the world’s largest
economy. Further efforts should be made to draw these investments to Texas.

Returning manufacturing to the United States, improves trade and budget deficits, boosts
employment, and can lower production costs. Reshoring also allows more secure and efficient
research & development and intellectual product innovation. In order for Texas to recruit
industries that may be considering other states and nations, we must continue to fund our current
economic development programs while exploring ways to encourage these vital sectors to
consider Texas.

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CHARGE IV: ECONOMIC DEVELOPMENT INCENTIVES
Examine current economic development incentive programs and identify opportunities to
enhance job creation in Texas. Make recommendations to promote transparency and enhance
effectiveness of such programs.

The Committee on International Relations and Economic Development met in a public hearing
on April 20, 2022 at the State Capitol in Austin to hear testimony from the following witnesses
regarding the charge of Economic Development Incentives:

1. Adrian Cannady (Temple Economic Development Corporation)
2. Adriana Cruz (Texas Economic Development & Tourism, Office of the Governor)
3. Angelou Angelos (Angelou Economics)
4. Carlton Schwab (Texas Economic Development Council)
5. Greg Sims (Greenville Economic Development Council)
6. Iain Vasey (Corpus Christi Regional Economic Development Council)
7. Kent Sharp (Sherman Economic Development Council)

Local Incentives

This Committee has heard that "In Texas, economic development is done at the local level."
Since 1979, cities have been able to adopt a sales tax to fund their Economic Development
Corporations (EDCs) with the goal of financing new and expanded business in their community.
The economic development sales tax has been the workhorse for business retention and
expansion and creation of numerous primary jobs for these communities.

Chapter 380 and 381 agreements are another local tool. Chapter 380 allows for loans and grants
of city funds or services to promote state and local economic development and to stimulate
business and commercial activity. Chapter 381 does the same but for counties. These allow for
cities and counties to negotiate directly with developers and businesses. To further transparency
of these agreements, the 87th Legislature passed HB 2404 (87R), requiring the Comptroller of
Public Accounts to create and make a publicly accessible online database for local governments
to report their economic development agreements authorized by Chapters 380 and 381.

In Texas, property taxes have been identified as placing a burden on the development of capital-
intensive projects that often provide higher-than-average paying jobs. Chapter 312 allows for
taxing entities, such as cities, counties, and special districts to enter into tax abatement
agreements for a period up to 10 years. These agreements exempt all or part of the increase in the
value of the real property. This is used to attract new industry and commercial enterprises and to
encourage the retention and development of existing businesses. Under Chapter 312, school
districts cannot enter into tax abatement agreements.

Chapter 313 agreements, also known as the Texas Economic Development Act, were designed to
attract new businesses by offering them a 10-year limitation on their appraised property value for
a portion of the school district property tax in exchange for the business agreeing to build or

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install new property and create jobs in the school district. School taxes make up approximately
54% of local property tax collections. The Texas Economic Development Act was not renewed
by the most recent Legislature and will expire at the end of 2022.

The pandemic global supply chain issues highlighted the urgent need for microchips or
semiconductors in almost every facet of our life including cars, computers, and phones. The vast
majority of these semiconductor chips are manufactured overseas. In 2021, Texas Instruments
chose Sherman, TX, a city with a population of 50,00 in North Texas, as the location for their
$30 billion 300-millimeter semiconductor wafer fabrication plant. This project, which broke
ground in May 2022, is estimated to create over 3,200 direct jobs with a predicted $274 million
in direct wages. These numbers do not include the indirect impact a project of this magnitude has
on the surrounding communities. The overall economic impact of this project is estimated at over
$600 million annually.

Sherman's main competition for this project was not another state, but the nation of Singapore.
The City of Sherman used all four of the economic development tools mentioned above:
▪ Chapter 312 for City of Sherman, Grayson County, and Grayson College tax
abatement
▪ Chapter 380 for City to extend the timeline of the abatement
▪ Chapter 381 for County to extend the timeline of the abatement
▪ Chapter 313 for Sherman ISD property tax valuation limitation

According to the Sherman Economic Development Council, all these tools were important for
Texas to compete, however the Chapter 313 agreement with Sherman ISD was the most critical
piece in the overall incentive offer. Without this program, they claim, it is highly likely that this
facility would be in Singapore.

State Incentives

The Office of the Governor's Economic Development & Tourism Office oversees the majority of
incentives offered at the state level. The Texas Enterprise Fund (TEF) is the largest "deal-
closing" fund of its kind in the nation. The Fund provides grants to businesses considering a new
project in Texas that is in competition with other out-of-state sites. The Fund serves as a
performance-based financial incentive for those companies whose projects would contribute
significant capital investment and new job opportunities to the state’s economy. Award dollar
amounts are determined using an analytical model applied uniformly to each TEF applicant. This
model assures that the state will see a full return on its investment.

The Event Trust Funds consists of three separate funds: Events Trust Fund (ETF), Major Events
Reimbursement Program (MERP), and the Motor Sports Racing Trust Fund (MSRTF). The
program helps Texas communities with costs related to preparing and conducting an event.
Monies are not appropriated by the Legislature but instead use projected gains in various local
and state taxes to fund the program. Funds are disbursed once allowable expenses have been
verified. Some notable events utilizing these funds in the last year include the 2022 NASCAR
All-Star Race in Fort Worth, the 2022 Red Bull Grand Prix of the Americas in Austin, and the
2021 Big 12 Football Conference Championship in Arlington.

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The Texas Enterprise Zone Program (EZP) is a state sales and use tax refund program designed
to encourage private investment and job creation in economically distressed areas of the state.
Texas communities must nominate companies in their jurisdiction to receive an Enterprise Zone
designation and to be eligible to receive state sales and use tax refunds on qualified expenditures.
Eligible businesses may receive a refund of state sales and use taxes paid up to $7,500 per job
created and/or retained during the five-year designation period up to a maximum of $3.75
million.

The Texas Moving Image Industry Incentive Program (TMIIIP) is an incentive to help attract
film, TV, commercial, animation, visual effects, video game, extended reality, and other moving
image productions to Texas. TMIIIP provides qualifying projects with a grant based on a
percentage of a project’s eligible Texas expenditures. Grants vary by budgets levels and type of
productions and are issued upon completion of a review of the project’s qualified expenditures.

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Recommendations

Texas should continue to take the initiative to invest in its future by offering competitive
incentives to companies who are creating jobs and driving innovation in Texas. For economic
development programs to be successful, they must operate in a transparent and efficient manner
that ensures tax-payer dollars are used appropriately and that the public confidence in the
operation of these programs is maintained. To that end, the Economic Incentive Oversight Board
was established by HB 26 (84R) by the 84th Legislature and tasked with examining the
effectiveness and efficiency of programs and funds. The development of a performance matrix
that establishes the economic performance indicators, measures, and metrics that will guide the
Board’s evaluations of those programs and funds, and with the development of a schedule for the
periodic review of each state incentive program or fund that meets the statutory requirement for
review by the Board. The Legislature should ensure the Board is operating as intended and
continue to look to the reports issued by the Board and work towards addressing any issues
identified on an ongoing basis.

The expiration of the widely used Chapter 313 will leave a void in the tools local governments
have to engage in economic development activities. The Legislature should consider possible
programs that will empower local communities to play an active role in bringing jobs and desired
industries to their communities.

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CHARGE V: SEMICONDUCTOR INVESTMENT
Evaluate Texas’ current efforts to attract semiconductor investment to the state. Identify
potential strengths and vulnerabilities that could impact the success of Texas’ semiconductor
industry and the ability to create and maintain a reliable semiconductor supply chain.

1. Joseph Pasetti (SEMI)
2. Peter Esser (FABSS Coalition, NXP Semiconductors USA)

After the hearing, the Committee members and staff were invited, along with members of the IT
Caucus, to tour and take part in a briefing at the Samsung Austin Semiconductor facilities in
North Austin.

Federal CHIPS Act

As mentioned earlier in this report, only 12% of chips are currently manufactured domestically,
compared to 37% in the 1990s. Many foreign competitors, including China, are investing heavily
to dominate the industry, with 75% of global production now occurring in East Asia. Foreign
government subsidies drive as much as 70% of the cost difference for producing semiconductors
overseas. Combined with other factors, the result is a 25 to 40% cost advantage for overseas
semiconductor production, as compared to the United States.

The bipartisan federal Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act was
signed into law in August 2022. The bill includes nearly $53 billion in federal funding to
promote domestic semiconductor production. A key aspect of the Act, to incentivize domestic
production, is the creation of a 25% tax credit for investments in semiconductor manufacturing.

Foreign governments provide generous incentives to attract and develop semiconductor
manufacturing capabilities, including direct grants, free land, equity investments, infrastructure
support, reduced utility rates, tax holidays or credits, and hiring credits.

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Semiconductor Industry Association https://www.semiconductors.org/resources/u-s-needs-greater-manufacturing-incentives/
*This data was collected before the passage of the federal CHIPS Act

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State Level Incentives

State level incentives to attract investments are needed for Texas to be competitive. The
semiconductor industry is a capital-intensive industry, requiring billions of dollars to be spent
before deriving any revenue. Incentives such as grants intended to quickly offset these capital
costs are generally considered the most effective and have been successfully employed in big
states like Texas and New York. State tax holidays can provide longer term certainty and have
been used in Oregon and other states.

While incentives are a central component of creating a competitive semiconductor ecosystem
that will attract significant investments in this critical and strategic industry, they are not the only
component. A business-friendly regulatory environment, strong educational institutions, skilled
and qualified workers for the variety of roles and educational levels needed in this industry,
strong workforce development policies to strengthen and grow that workforce, and adequate
infrastructure are other key factors in determining the competitiveness of a location. Texas is
well positioned in all these areas but must work to maintain these strengths. A critique when
considering Texas that other states were quick to capitalize on are reliable utilities, both available
water supply and a stable energy grid.

With the passing of the CHIPS Act, the race among states to leverage these funds is on. The
recently passed State of New York's Green CHIPS Act includes an investment tax credit (up to
5% of project capital expenditures), research & development tax credit (up to 8% of R&D
expenditures), salaries and wages tax credit (up to 7.5% of salaries and wages expenditures for
first $200,000 per net new job), real property tax credits (over 10 years), and discounted utility
service delivery rates. In October 2022, Micron announced an $100 billion investment to build a
“megafab” in Central New York, which will be the largest in the nation. Oregon, which prides
itself as being home to the "Silicon Forest," is considering expanding research and development
incentives and workforce programs to attract semiconductor investment. NXP Semiconductors
who has a presence in both Texas and Arizona cites Arizona's Commerce Authority as an easy
"one-stop shop" for all incentives in the state reflecting a more streamlined coordination between
the local governments and state government.

Recommendations

As a result of rising overall demand for semiconductors and their ever-increasing importance to
the global economy along with the vital role the industry plays in the supply chain and the
paramount importance domestic chip manufacturing is to our national security, Texas should
work to reinforce its position by fostering legislative, regulatory, and targeted incentives to make
semiconductor supply chains more resilient.

The time is now for Texas to capitalize on its existing semiconductor ecosystem, strengthening
the economy and facilitating job creation, by hardening and improving infrastructure, including
access to stable power, natural gas, and water supplies to retain and grow the industry.

The U.S. semiconductor industry is vital to the U.S. and Texas economy, significantly
contributing to U.S. GDP, encouraging innovation, and paying good wages to workers. The

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industry continues to grow and modernize; however, companies are faced with many challenges
to growing its workforce with skilled technicians and engineers. To meet the growing demand
for skilled workers for the industry, Texas should support legislative, regulatory, and funding
efforts to attract skilled talent and strengthen the domestic semiconductor workforce ecosystem,
including educational partnerships and curriculum developments.

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CHARGE VI: WORKFORCE
Evaluate labor shortages and Texas’ unemployment numbers. Identify initiatives within the
Texas Workforce Commission to expand job training and apprenticeship opportunities to help
meet labor demands. Identify opportunities to increase outreach and information regarding
career development.

1. Bryan Daniel, Texas Workforce Commission
2. Jorge Barro (Rice University Baker Institute for Public Policy)
3. Michael Reeser (Texas State Technical College)
4. Richard Froeschle (Texas State Technical College)

Employment Data

By most metrics, the Texas economy rebounded relatively quickly following the pandemic.
Texas' labor force growth also rebounded rapidly. This was due in part to domestic migration.
Texas' population was already increasing over the past decade and with a shift to more remote
work options, it saw a spike during the pandemic. This increase in population also means an
increase in workers. While labor force, those that are able to work, looks strong, employment,
those that are currently working, has seen a lag. Employment growth has not been as fast as
labor force growth which has led to an elevated unemployment rate in Texas as compared to the
nation. According to Rice University economist Jorge Barro, this speaks more to Texas' healthy
availability of workers rather than a lack of jobs.

Both general labor and specific skill shortages are inevitable. Many of the same occupation and
skill shortages that existed prior to the pandemic have and will return as the economy recovers.
As you can see below, the top fifteen most needed occupations are the same only slightly out of
order. The same industries that were driving demand pre-COVID 19 are doing the same today.

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Texas Job Postings from February 2020 compared to April 2022
Occupation 2020 Occupation 2022

Total Across All Occupations 833,500 Total Across All Occupations 1,210,819

Registered Nurses 38,196 Registered Nurses 57,835

Software Developers 33,488 Software Developers 40,899

Non-tech Sales Rep, WH & Man 30,302 Non-tech Sales Reps, WH & Man 31,641

Retail Salespersons 25,196 Retail Salespersons 30,356

Customer Service Reps. 20,192 Customer Service Reps. 30,245

Supervisor, Retail Sales Workers 17,039 Fast Food & Counter Workers 24,586

Computer Occupations, Misc. 14,253 Personal Service/Project Mgrs. 20,875

Personal Service/Project Mgrs. 12,932 Supervisors, Retail Sales Workers 20,385

Heavy Truck Drivers 12,826 Heavy Truck Drivers 20,113

Fast Food & Counter Workers 10,889 Computer Occupations, Misc. 19,071

Maintenance & Repair Workers 9,885 Manual Laborers/Freight Movers 17,584

Accountants and Auditors 9,780 Maintenance & Repair Workers 15,189

Medical Dosimetrists, E-HIT 9,731 Waiters and Waitresses 15,103

Sales Managers 9,713 Food Service Managers 14,166

Secretaries & Admin Assistants 9,669 Medical & Health Services Mgrs. 14,000
Source: Economic Modeling Inc.

The pandemic produced a new labor trend referred to as the "Great Resignation." There are
innumerable factors that contribute to an individual leaving the workforce. These factors may
include government incentives (expanded unemployment benefits, rent postponement etc.), shifts
of parents to in-home schooling or childcare, changing demographics, fewer work visas issued,
concerns for workplace health and safety, changing cultural values of work-life balance, or skills
mismatch. Inflation has been detrimental to labor markets with workers seeking higher wages.

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TWC and Workforce Development

The Texas Workforce Commission (TWC) estimates that unemployment benefit claimants in the
last two weeks of May are down 38% when compared to February 2020. February 2020 is used
as a benchmark as it marks the last full month before the pandemic.

At the time of this hearing, TWC notes Texas has about 600,000-700,000 available jobs. TWC
notes a narrow skills gap in the states' workforce. The most obvious is with middle-skills jobs.
These are jobs that require some training after high school but not necessarily a college degree.
Even though these are classified as "middle-skills" jobs they often have high wages. TWC
continues to use the popular Skills Development Fund, the Jobs & Education for Texans (JET)
program, apprenticeship programs, and some other federally funded programs to address these
needs.

Texas State Technical College (TSTC) is a public technical college with a narrow focus of
workforce training with economic development as a goal. TSTC analyzes the labor and
workforce trends and their relationships with employers to constantly curate their programs and
curriculum to meet actual job and skills demand. When there is no longer a need from employers
for a particular program or certification, those classes are removed. This responsiveness
separates TSTC from other community colleges and plays an important role in the state's
workforce development.

Recommendations

Texans continue to benefit from the Texas Workforce Commission’s Skills Development Fund,
the Jobs & Education for Texans (JET) program, and apprenticeship programs. Efforts should be
made to continue and where appropriate, expand these programs.

Workforce challenges can be further met with the expansion of community colleges’ quality dual
credit offerings that meet local workforce needs and reduce cost barriers to students.

Texas should continue to expand broadband availability to better facilitate remote work and
learning.

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CHARGE VII: TRADE WITH RUSSIA

Review the impact that trade with Russia has on the Texas economy, including Texas
manufacturers. Consider the impact of Texas investment in businesses and funds owned or
controlled by the Russian government or Russian nationals, and determine the need for
investment restrictions. Consider the impacts of any proposed investment restrictions on access
by Texas businesses and the Texas scientific and technological community to capital investment,
global markets, and competitive knowledge.

1. Mike Reissig (Texas Safekeeping Trust Company)
2. Ray Perryman (The Perryman Group)
3. Tom Currah (Texas Comptroller of Public Accounts)

Trade

Russia comprises less than 1% of Texas total import and export volume and a tiny percentage of
overall business activity in the state. Moreover, there are neither substantive Texas exports to
Russia for which other sources of demand are not readily available, nor imports for which other
suppliers are difficult to obtain. According to estimates prepared by The Perryman Group,
exports, imports, and all related multiplier effects comprise only an estimated 0.38% of gross
state product, 0.35% of earnings, and 0.63% of employment.

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Petroleum products and oil and gas comprise over 90% of Texas imports from Russia. The oil
imports likely stem from the fact that refineries are designed to take specific types of crude and
Russian products are used to meet those needs. However, the types of oil used will likely change
in the future as refineries adapt to the higher levels of US production. Moreover, the refined
products obtained from Russia, which alone reflect over 76% of total imports, could easily be
supplied by producers within the state using Texas' natural resources.

State Impact and Investments

The prominent exception to the minimal impact on Texas economy resulting from the invasion
of Ukraine is the state revenue from oil and natural gas production taxes. These taxes are directly
tied to the market value. Oil and gas prices were already on the rise before the Ukraine invasion
by Russia but certainly spiked afterward as a result. If prices remain elevated, it could also spur
greater production that would further increase revenue.

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After our hearing, in July 2022, the Comptroller revised the Certified Revenue Estimate upward
by nearly $14 billion from the November 2021 projected balance. In the press release, the
Comptroller's office noted: "Severance taxes performed extremely well due to elevated oil and
gas prices caused by energy market volatility. This is due in part to a strong global economic
recovery coupled with the war in Ukraine and a period of limited investment in fossil fuel
production and refining capacity."

Russia also appears to be a minimal source of capital and accounts for only small amounts of
Texas public sector investments. The Texas Safekeeping Trust Company invests, manages, and
oversees approximately $65 billion in assets. Investments include cash-equivalent funds such as
the Texas Treasury Pool and separately managed portfolios for various Texas state agencies. As
of December 31st, 2021, the Trust Company reported that the State had no direct investment in
Russia. However, there was a total of $18.6 million found in indirect investment through things
like mutual funds or exchange traded funds. The Trust Company directed their managers to
reduce such investments. After six weeks, the number was lowered to $1.2 million.

Recommendations

While allowing markets to determine where goods are produced and purchased and which assets
are acquired, there are circumstances where compelling public or humanitarian interests override
normal optimal patterns. If the Legislature determines that curtailing trade and investment
activities with Russia is one of these circumstances, the Committee finds that potential effects on
the Texas economy would be minimal.

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