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December 2000

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Brain Gain
From our Readers
From the Comptroller: Recommended Reading for 2001
Comptroller News

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Something to Hear
Mixed Reviews
Behind the Budget Bounce

Texas stats -- Fiscal and economic data

En español: Notas Fiscales de Diciembre 2000

Out-of-state dollars, educated workforce
fuel Texas economic growth

Brain Gain

Higher education doesn't just fuel Texas' economic engine--it builds the tracks and plots the course. The more sophisticated and information-based the state's economy becomes, the more it needs the intellectual spark and innovation that comes from an educated work force.

High-tech businesses aren't going to grow in states that don't have an abundant supply of highly trained employees, says Charles Miller, chairman of Houston investment firm Meridian Advisors and commissioner of the Comptroller's e-Texas education task force.

"Highly successful economic communities and the areas of strongest economic activity today in America must have two essential elements, growing populations and excellent institutions of higher education," Miller says. "This combination is crucial to superior economic growth. Texas is fortunate to have both."

The Comptroller's office estimates higher education pumps nearly $25 billion each year into the state's economy. That includes student, college, university and research spending. It also includes the increased earnings and productivity of everyone who attends college.

Texas colleges and universities receive about $4.6 billion in state general revenue and local property taxes each year--that's a return of more than $5 for every $1 the state invests in higher education.

A Special Report on The Impact of the State Higher Education System on the Texas Economy, released in December by Texas Comptroller Carole Keeton Rylander, examines the impact of higher education in Texas from two perspectives. The first and most immediate effect is the amount of money spent in Texas by the federal government, out-of-state students and other sources on the higher education system. That money has a multiplier effect on the economy as it is respent by businesses and consumers.

The second perspective is the long-term role higher education plays in expanding the state's economy through a more educated and more productive work force. "It is the human capital contributions from higher education that draw venture capital to support entrepreneurial activity," Miller says. "And it is entrepreneurial activity that creates the opportunity for economic growth."

Welcome invasion
The Comptroller's analysis shows that in 1998, spending by out-of-state and international students at community and technical colleges, public universities and health-related institutions supports $2.3 billion in economic activity across the state.

Federal and privately supported research added another $3.9 billion to the Texas economy that year, and out-of-state and international spending at the University of Texas M.D. Anderson Cancer Center generated another $605 million. In total, spending and respending from these sources by Texas businesses and consumers each year tops $6.8 billion in economic output.

The state could improve that figure if the Legislature would allow public universities to keep all of the money they are reimbursed by the federal government for spending on overhead and administration of federal programs. State law allows health-related institutions to keep all of the money they are reimbursed, about $66 million a year.

Public universities, on the other hand, only get to keep half of their $66 million reimbursement; the rest is cut from their state appropriations and kept in the general revenue fund. The state may be missing a good bet. If the $33 million in federal reimbursements were returned to public universities for research, the overall state economy would gain an estimated $110 million annually.

The Comptroller's e-Texas report to the 2001 Legislature recommends that over a five-year period the state phase in a return of higher education institutions' authority to keep all federal reimbursements for indirect costs.

Turning ideas into reality

Gerhardt Schulle, Jr., Executive Director of the Texas Society of Professional Engineers, says that the future growth of the high-tech industry in Texas depends on higher education. "Engineers are fond of saying they turn ideas into reality, but it is true. Every technological advance requires engineers to take a concept and make it work."

"Whatever you do--the roads you travel, the cars you drive to work and home, the machines in your house, all took engineers to design and produce. Nationally, the country benefits from about 65,000 new engineering graduates each year, but it is not enough.

"We're now forced to import engineers from around the world. Congress just increased the number of working visas to fill nearly 200,000 jobs for skilled workers per year over the next three years and many of those will be engineers. The biggest threat to high tech in Texas is the shortage of engineers, and higher education is the only homegrown source."

Smarter workers, stronger economy
The first, more immediate, economic impact of out-of-state spending on higher education in Texas is to provide jobs at colleges and universities, and in communities across the state. A more important factor is that those institutions improve the skills of the state's work force, and that increases productivity as smarter workers work smarter. The skills students learn in turn increases the overall capacity of the economy to produce more with the same number of employees--creating a larger economic pie for everyone to share.

To measure this increased capacity, the Comptroller's study calculated the potential lifetime earnings of those who attended college, but did not graduate, and the earnings of those who graduated with bachelor's and advanced degrees.

The study also measured the improved productivity that resulted from a better-educated work force. The Comptroller's office estimates that each year of knowledge added by the higher education system increases Texas' workers' productivity by $18.4 billion over the workers' lifetime.

Improved earnings and productivity from higher education adds an average of $17.85 billion to the Texas economy annually. Including the $6.82 billion impact from out-of-state expenditures, the state's higher education system adds nearly $24.7 billion to the Texas economy each year.

Peter Zandan, chairman of Zilliant, an Austin-based Internet software company, says the tech boom in Texas depends on higher education in many ways. "There is no way the new economy could work in this state without a highly trained work force. And that includes the engineers and business graduates, but also a much broader array of undergraduates and graduates in everything from liberal arts to public policy," Zandan says. "The genesis of a great deal of our state's innovation comes from the faculty and staff at our universities and, with the emergence of biotech as a major business sector, that dependency for innovation will grow."

What can't be measured
This enormous impact does not tell the whole story. There is no way to estimate accurately the other byproducts of higher education, including inventions, patents and the general advancement of knowledge.

Although higher education's role in expanding research and development and attracting business and workers from other states is generally accepted, the study could not quantify the size of its economic impact.

"Higher education is like the ABCs of the Texas economy. It's a basic necessity for success. You have to know the ABCs to read. You have to learn the skills required for a 21st Century work force to keep the economy on solid ground," says Bill Hammond, president of the Texas Association of Business & Chambers of Commerce and commissioner of the Comptroller's e-Texas competitive government task force.

"From technical training at Texas State Technical College campuses to work force initiatives at community colleges and engineering degrees at four-year universities, higher education plays a major role in determining how much and how fast a state's economy will grow. Not only is it necessary to help train our work force, but it is one of the biggest quality-of-life issues considered by new industries and companies relocating to Texas."

What's ahead
The fuel higher education adds to the Texas economy is potent, but it could do more, according to Texas' Commissioner of Higher Education Don Brown. "Higher education drives our economy in many ways, so Texas must close the gaps in participation and success at all levels of education for all of its people," Brown says. "The alternative is the bleak future projected by demographers--Texas will have a growing, unskilled and under-educated population that cannot meet the demands of a technology-based workplace..."

There are a lot of colleges and universities in Texas--140 public and private--and an increasing number of students. Enrollment in fall 1999 reached 966,840 students and is expected to climb to 1.1 million by 2015.

The Legislature budgeted $13.4 billion for higher education in 2000 and 2001, nearly 14 percent of the state's budget and an increase of $1.2 billion, or nearly 10 percent, from 1998 and 1999. State funding for higher education, however, still lags behind spending for other public services.

After adjusting for inflation, spending on public safety and corrections increased by 256 percent in the last 15 years, while higher education expenditures grew by 31 percent. Texas ranks 8th out of the 10 most populous states in the amount of state spending for each full-time student.

Steve Kester of the American Electronics Association says, "The number one issue for the technology industry in Texas today is its work force. It is a bottom line issue. Knowledge workers drive the technology industry and higher education produces the workers we need to continue the incredible economic growth we've seen over the last several years.

"Right now in Texas, we have between 25,000 and 35,000 positions open in the technology industry. These are good jobs with an average wage of about $60,000 annually--twice the average wage as that in the remainder of the private sector.

"We want to ensure higher education has the resources it needs to produce the workers we need. We also want to expand the public education system and prepare more qualified high school graduates who are ready for the rigors of higher education. Again, there is no issue more important to the industry than ensuring a skilled work force."

Zandan adds that business needs a greater amount of interaction between the private sector and higher education. "Business can benefit by impacting the curriculum to ensure relevancy, and likewise, the students can benefit from the availability of jobs."

Comptroller Carole Keeton Rylander says higher education must be a top priority if the state is to create and maintain the jobs of the 21st century. "Every dollar invested in our state's higher education system pumps more than five dollars into our Texas economy," Comptroller Rylander says. "It is a remarkable return on our money for Texans today and a vital stake in the future for successful generations of Texans tomorrow."

Tamara Plaut and
Pam Wagner

From Our Readers

Dear Comptroller Rylander:

On behalf of all the staff at Regnier, Valdez & Associates, I wanted to let you know how much we appreciate your newsletter, Fiscal Notes. The relevant content is beneficial for us to use in our daily work, as well as good information to know about our state. Keep up the good work.

Linda A. Valdez
San Antonio

Dear Comptroller Rylander:

I appreciate receiving your newsletter each month. I find the articles quite interesting and informative.

Peggy Ellison
Crosbyton Chamber of Commerce

To contact us, call 1-800-531-5441, ext. 3-4900; or 463-4900 in Austin, or write to P.O. Box 13528, Austin, Texas, 78711-3528. Internet users may send comments to

From the Comptroller:
Recommended Reading for 2001

While the Texas economy has never been stronger, Texas legislators will still have plenty of work to do when they convene in January. To greet them when they arrive in Austin, my agency has prepared several reports designed to help solve some of the toughest problems they will face.

One of the first things they will find on their desks is a report from e-Texas, a citizen commission created to bring state government into the 21st century. The e-Texas report highlights hundreds of ways state government can use technology to improve government services and cut costs, including Texans being online instead of in line to renew their drivers' licenses.

The e-Texas report tackles several issues, including one that will get a closer look in a report of its own--transportation. In that report, e-Texas recommends a number of ways to improve the way the Texas Department of Transportation does business.

It suggests the state take advantage of federally backed GARVEE bonds to finance desperately needed infrastructure along NAFTA trade routes, and meet other transportation needs across the state. The report also advises TxDOT to adopt design-build, a faster, more efficient way to contract for highway construction, as well as a number of recommendations for using technology to improve services. Two examples--digital car liens and Internet-based vehicle registration--are cost-saving services hardworking Texans deserve.

Another report will show legislators how the state's rapidly retreating school start dates cost our Texas economy more than $330 million a year. As the first day of school moves ever-earlier into August, Texans spend more money cooling schools while tourist attractions and mom-and-pop businesses lose employees and customers. More than half a million migrant workers give up about $2,000 a year in earnings when they return to Texas to get their kids to school on time--and most of them don't make more than $15,000 a year.

Most Texans favor a standard start date in September, which would also give teachers time to work on advanced degrees, improving the quality of education available to all our kiddos. As the "education watchdog" for the people of Texas, I am committed to driving more of every education dollar directly into the classroom where it belongs.

Texas Comptroller of Public Accounts

10 Principles for Texas
in the 21st Century

* Develop a better-educated workforce
* Direct more of every education dollar into the classroom
* Raise the bar on student performance
* Cut taxes in Texas
* Introduce competition into Texas government
* Improve government performance and accountability
* Reduce the size of government
* Bring common sense to regulations
* Use technology to cut costs and increase quality
* Return control to communities and individuals

Comptroller News

Don't wait for tomorrow

While the Texas Tomorrow Fund enrollment period runs from November 1, 2000 to May 25, 2001, parents of newborns don't need to worry about deadlines--they can enroll their child at any time. Nearly 100,000 Texas children and their families already have the peace of mind that comes with a college education guaranteed by the full faith and credit of the state of Texas.

Babies born after the enrollment period ends but before August 31 can still receive the current year's pricing. The Texas Tomorrow Fund must receive the completed application and proof of residency by August 31. Parents, grandparents or friends of babies born after August 31 can apply for a Texas Tomorrow Fund contract without having to wait for the next enrollment period. Those contracts will be sold at the rates adopted by the Texas Prepaid Higher Education Tuition Board for the upcoming enrollment period.

To enroll, call 1-800-445-GRAD (4723), or visit the Texas Tomorrow Fund Web site at

First IT class graduates

Texas Comptroller Carole Keeton Rylander personally congratulated the first 29 graduates of the Comptroller's Texas Information Technology (IT) Academy.

"I am thrilled to honor the first graduating class of the Texas IT Academy," Comptroller Rylander said. "These dedicated men and women are on the cutting edge of change in the 21st century and I am delighted they are also willing to serve their state."

The academy was created in 2000 as a public-private partnership to help fill high-tech state jobs. Part of the Comptroller's e-Texas initiative, it is designed to train college graduates and professionals looking for a career or new opportunities in the information technology field.

There are about 34,000 information technology jobs open in Texas, including an estimated 800 in state government. Private high-tech companies joined the Comptroller's office and other state agencies to provide staff and expertise for the school.

You can get more information on the IT Academy at

Tax rebates up 9.8 percent

Texas Comptroller Carole Keeton Rylander delivered $281.5 million in local sales tax revenue to 1,108 Texas cities and 119 counties in November. Sales tax rebates are up 15 percent compared with November 1999. Year-to-date sales tax rebates to cities and counties are up 9.8 percent compared with 1999.

November sales tax rebates include $261.4 million to Texas cities, up 14.9 percent compared with November 1999. Texas counties received rebates of $20.1 million, up 16.7 percent compared with a year ago.

In addition to city and county sales tax rebates, $96.2 million went to Texas' six metropolitan transit authorities and two city transit systems, and $8.9 million was paid to 54 special purpose districts.

November sales tax rebates represent sales taxes collected in September by monthly filers and in July, August and September by quarterly filers.

Comal ISD implements changes

The Comal Independent School District (CISD) implemented or is in the process of implementing 87 percent of the Texas School Performance Review (TSPR) report recommendations proposed by the Comptroller's office in May 1999.

CISD's implementation of the recommendations saved taxpayers more than $1.1 million and should save the district an additional $10.3 million over the next five years. CISD has implemented 66 of the Comptroller's 114 recommendations. Another 33 are in progress, 11 are not yet implemented and only four were rejected by district officials.

Key recommendations CISD has implemented include: spreading the staff more evenly; giving salary increases; developing a comprehensive security plan; appointing an ombudsman or complaint investigator; and developing prototype construction designs.

The full TSPR report can be found at .

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