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June 1999

On this page:
Lower taxes, better schools
From the Comptroller: Making Texas fortunes flourish
Texas fortunes, Fortune's Texans

On Page 2:
Know your rights
Bell ringers
Frantic reading in Fort Worth

Texas stats -- Fiscal and economic data

Lower taxes, better schools
Lawmakers adopt budget,
endorse Comptroller proposals

The 1999 Texas Legislature dealt with a record revenue surplus by approving a two-year, $98.1 billion state budget, cutting state taxes by more than $1.8 billion, and passing measures to bolster public education and government accountability.

Lawmakers achieved $506 million in sales and franchise tax reductions after Comptroller Carole Keeton Rylander in May raised the estimate for anticipated state revenue during the 2000-01 biennium by $807 million. That meant legislators had $6.4 billion more to work with in the two-year budget cycle that begins Sept. 1 than they did in the current biennium.

Property Tax reductions accounted for $1.35 billion. Combined, the state and school property tax cuts made possible a $3,000 pay raise for all Texas teachers.

"Legislators acted wisely in raising the pay of Texas teachers and cutting taxes for hard-working Texans who deserve it," the Comptroller said.

Lower taxes, better service
Lawmakers approved state sales, franchise and severance tax reductions, which are expected to save taxpayers $526 million over the two years of the state budget. S.B. 441, the major tax-reduction bill, eliminates state sales tax on over-the-counter medicines, designates a "back to school" sales-tax holiday on certain clothing items for three days in August each year and creates franchise tax credits for research and development and child-care expenses and other tax cuts.

Members also adopted the Comptroller's recommendations to improve taxpayer services. The changes will result in interest payments to taxpayers who overpay their taxes, streamlined tax regulations and the elimination of backlogged tax appeals.

Safer, better schools
Lawmakers acted to enhance school safety by requiring districts to report the number, rate and types of violent and criminal incidents occurring on each campus as part of each school's annual performance report issued to parents and the community, as recommended in Challenging the Status Quo. Members also approved S.B. 1724, which requires each school's site-based decision-making committee to include violence prevention measures in annual campus improvement plans.

Completing a long-term plan to make sure teacher retiree benefits keep up with inflation and a goal of the Comptroller, the Legislature increased the Teacher Retirement System of Texas multiplier from 2 percent to 2.2 percent for current and future retirees. S.B. 1128 increased benefits for current retirees from 2 percent to 7 percent, depending on their date of retirement, and authorized a new option for retirees to receive lump-sum retirement payments. S.B. 1130 implemented the lump-sum payment option for Employees Retirement System retirees.

On a related front, lawmakers increased teacher pay statewide by $3,000 a teacher as part of S.B. 4, a $3.8 billion school funding and property tax relief measure.

Legislators gave the Comptroller permission to spend $2 million of agency funds to increase the number of public school districts given performance reviews. The Comptroller's Texas School Performance Review plans to conduct 10 school district reviews during fiscal 2000 and 20 in fiscal 2001. Comptroller Rylander, noting that just 52 cents of every Texas education dollar goes into classroom instruction, has instructed the nationally recognized review team to redouble efforts to channel more money into the classroom. The additional spending was possible even though the agency budget was reduced by more than $1 million, at the Comptroller's request.

Economic development
Trade with Mexico, already Texas' biggest trading partner, has increased with the North American Free Trade Agreement. Economic activity has tripled on the Texas-Mexico border, underscoring the need to upgrade highways and other infrastructure.

In 1997, the last full year for which figures are available, more than 2.8 million trucks crossed into and from Mexico. The resulting load on border highways was huge. But spending on border highway projects lags compared to the rest of Texas. The border region received $83 per resident in highway construction and maintenance from 1992 to 1998 compared to statesiwde average of $109 per resident.

Challenging the Status Quo states that under existing funding methods, some border area highway projects might not get started for years. The Comptroller proposed a funding method to free millions of dollars for border highway improvements. In April, the Texas Senate endorsed S.B. 966, directing the Texas Department of Transportation to issue Grant Anticipation Revenue Vehicles (GARVEE), or highway construction bonds backed by future obligations of federal highway funds. The GARVEE bond proceeds would have freed up as much as $700 million more for Texas highway projects within a year.

But the Senate-approved measure was left pending before a Texas House committee at session's end. Comptroller Rylander described the proposal as held hostage by special interest groups. The Comptroller said she would push for GARVEE bonds in the next session.

In another border matter, the Legislature requested the Comptroller study cross-border traffic and report on ways the regulation of commerce might be separated from crime detection and prevention to reduce congestion.

Management of the Council on Competitive Government was shifted to the Comptroller from the General Services Commission. The Council, which identifies opportunities for competitively bidding state services, fits in with the Comptroller's commitment to bring competition and accountability to all levels of government.

Upon taking office, the Comptroller created a Competitive Strategies Division to implement the "Yellow Pages" test: government should do no job if there is a business in the Yellow Pages.

On another front, the Legislature directed the Comptroller to manage a new Texas Film Industry Development Loan Guarantee Fund available to qualifying filmmakers producing in Texas.

Gangs and crime
Juvenile crime received fresh attention from the 1999 Legislature. Lawmakers voted to create a state database to track juvenile gangs, whose membership more than doubled to 145,000 from 60,000 since 1995.

The database, suggested by the Comptroller, is expected to help local law enforcement identify and track gang members from community to community across state lines. The database would be coordinated by the Department of Public Safety.

Contributing to this article:
Gardner Selby

From the Comptroller:
Making Texas fortunes flourish

The Texas 100 companies and the Fortune 500's are very different lists. But together, they provide us with a clear profile of business in Texas. And they help us understand the direction we must go if we are to succeed, to expand our economy and prepare our state for the next millenium.

The 100 companies on the Texas list are chosen by the size of their workforce. They comprise the largest employers in the state, providing jobs for 930,000 people with an annual payroll in excess of $26 billion.

The Fortune 500 companies are chosen by the size of their revenues. They are the largest providers of goods and services in the United States, reporting billions of dollars of sales in domestic and foreign markets. Thirty six of the Fortune 500 companies call Texas home.

The two indexes paint a picture of a thriving business environment--an environment that boasts a good mixture of transplants and homegrown companies, large well-established businesses and younger ventures. We have high-tech entrepreneurial companies such as Dell Computer Corp. of Round Rock and Compaq Computer Corp. of Houston, which have grown to international prominence. Texas also is home to energy giant Exxon Corp. and retailer J.C. Penney Co. Inc., which moved its corporate headquarters from New York to Plano in the late 1980s.

But while Texas is doing well and enjoys a diverse economic base, it is clear that we could be doing a lot better. We are the second largest state in the union, yet we have the fourth largest concentration of Fortune 500 companies. The Texas 100 Index, which reflects the stock prices of the top employers in the state, has increased every month since it was created in January but most recently it trailed the Dow Jones industrial average.

The Texas economy, once a national leader, has slowed somewhat and is no longer expanding at the blistering pace of years past. We grew an annual average rate of 5.4 percent in 1997 and 1998. We are projecting a more moderate expansion of 3.6 percent a year over the next two years.

We must put strong initiatives in place that help Texas companies grow and make our state an attractive location for new ventures.

Our challenge is to reduce the size and cost of government and make it more accountable to taxpayers. At the same time, we must ensure that government treats all taxpayers fairly and equitably.

Some of the recommendations I made to the Texas Legislature, which lawmakers approved during the 1999 session, will accomplish that goal. For the first time, we are going to pay interest to taxpayers who overpay their taxes. The rate to be paid by the state will be the same as the amount charged to tax delinquents--1 percent over the prime rate.

Legislation I proposed to permit certain companies to do managed self-audits will free the Comptroller's office to concentrate on problem cases and pursue tax cheats more effectively. And for the first time, we are holding administrative hearings on tax cases outside Austin. We are making the hearings process more convenient and accessible to taxpayers.

In addition to business reforms, we must set high standards for education: the key to unlocking the door of the next millenium for all Texans. A well-educated workforce that can compete with workers not only from New York and California, but from Europe and Asia as well is crucial to our future.

I took the oath of office this year as the first woman Texas Comptroller. At that time, I pledged to use all of the energy, enthusiasm, know-how and dedication required to move this agency forward and help the people of Texas realize their full potential in the 21st century.

Together we have embarked on the journey into the next century. Along the way, we will shake the rafters of the status quo and make innovation our daily companion. Our goal must be a flourishing economy, an environment in which entrepreneurship is rewarded and a place where companies grow and prosper.

Texas Comptroller of Public Accounts

10 Principles for Texas
in the New 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

Texas Fortunes, Fortune's Texans
Top 500 company list reflects
changing economy in state and nation

Fortunes come and fortunes go, especially in Texas with its history of wildcatters and entrepreneurs.

The rise and fall of many Texas fortunes and the state's place in the national economy can be traced through the Fortune 500, the foremost listing of the United States' biggest companies. Texas ranks fourth among states with 36 Fortune 500 companies headquartered within its borders.

New York, the world's business and financial center, leads the list with 59, California, home to a growing number of big technology companies, is second with 56 and Illinois, with a mix of service and heavy industry companies, is third with 39.

Texas and Pennsylvania are the only states with two cities in the Top 10: Houston has 13 and Dallas has nine.

That Texas has gained prominence on the list over the years is testimony to its economic strength, flexibility and diversity. Those qualities have attracted companies to Texas and they have nourished homegrown firms. Companies that have moved headquarters to Texas include Exxon Corp., AMR Corp. (parent company of American Airlines), J.C. Penney Company Inc. and SBC Communications Inc., (parent company of Southwestern Bell).

Landing out-of-state companies is a priority of economic developers throughout Texas. Corporate headquarters have been their top prize because they bring prestige, high-salaried executives, support staff and other functions. The state ranked sixth in corporate expansions in 1998, according to Site Selection magazine. None, however, were Fortune 500 headquarters.

A low-cost environment is always an attractive incentive to companies seeking to move or expand. But other criteria also come into play, including the quality of life, a good, largely non-union workforce and research universities.

These are the qualities Texas offers--qualities that have brought new corporate blood to the state and have helped companies born and bred in Texas to grow.

Making the Fortune 500 is a right of passage into the upper ranks of American business. After making the list in 1989, Dell Computer Corp. has risen to the 78th spot. The list's newest Texas company is Suiza Foods Corp., the Dallas-based manufacturer and distributor of dairy products, which joined at 443 this year.

The Texas companies on the latest Fortune 500 show the shift from an oil-based state economy to one that is more diverse, but led by technology. It is the fastest growing sector among the list's Texas companies (notably Compaq Computer Corp., Dell and Electronic Data Systems Inc.), while there are just four oil companies on the list.

Though several energy companies continue to have a presence on the list proving that energy continues to be vital to the state, oil and gas isn't what it used to be in Texas.

Twenty-five years ago, energy companies led the Texas presence on the list. Top names included Shell, Tenneco and Pennzoil. In 1973, oil and gas was the dominant industry in Texas, accounting for 6.8 percent of nonfarm employment in the state. While four Texas oil-and-gas companies are on the current Fortune 500, the industry accounts for just 1.9 percent of Texas employment.

Exxon, a multinational oil company based in Irving, is the top Texas representative on the list at No. 4. It could move higher on next year's list with its merger with Mobil Corp. goes through. The new company would have annual revenues of about $200 billion and worldwide employment of 123,000, most of it outside Texas. General Motors Corp., the top company on the current list, had revenues of $161.3 billion.

As oil prices bounced up and down in the late 1970s and early 1980s, Texas oil companies bounced on and off the list. That revolving door closed for most Texas oil companies in 1986 when the average price of oil fell to $14.62 a barrel from $26.77 in 1985. The bigger, more established companies remained.

The Texas banking industry's Fortune 500 fortunes were largely tied to the oil business. In 1973, banks with names familiar to longtime Texans held high spots on the list.

First International Bancshares of Dallas ranked No. 22 in 1973, followed by Republic National of Dallas (25), First City of Houston (32) and Texas Commerce Bank (44).

Banks had taken profits from oil and pumped them into real estate, inflating prices. Then, as oil prices collapsed in the 1980s, so did the banks' assets. Coupled with the big drop in real estate values, even the biggest banks became prime targets for takeovers by out-of-state institutions.

The takeovers were accomplished by the early 1990s, leaving USAA, the San Antonio-based insurance company, as Texas' biggest financial services company on the Fortune 500. It ranks 244.

Comings and goings
As noted earlier, Texas has attracted several ready-made Fortune 500 headquarters.

Perhaps an even greater compliment to the Texas business climate is that no Fortune 500 companies have left the state in the past 25 years. That will change this year when Union Pacific Corp. moves its headquarters from Dallas to Omaha, Neb., where its railroad operations are based.

And that doesn't count the companies that went out of business, merged with other companies or were acquired. GTE Corp., based in Irving, will join that list when it moves its headquarters to New York, a result of its merger with Bell Atlantic Corp.

The economic story of the 1990s has been the shift to information technology and services. That shift is reflected in the entire Fortune 500 list, in its Texas-based companies and in the Texas economy. About 10 percent of the state's workforce is employed by technology companies.

The state is the home of the two biggest personal computer makers in the world. Compaq Computer Corp. of Houston is 28th, up from 42nd last year, and Dell is 78th on the Fortune list, up from 125. Texas Instruments Inc., the semiconductor company based in Dallas, made the Fortune 500 in the early 1960s and was 191 on the current list.

Contributing to this article:
Roger Rounsaville

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