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Texas: No One-Trick Pony

Every summer for the last 10 years CNBC has ranked America’s top states for business using a variety of competitive factors.

Impressively, in the prior nine years Texas held either the number one or number two position. However, one would naturally doubt the wisdom of even a top ten finish for Texas given the significant drop in energy prices and the concentrated impact from the oil patch upon the state.

At the beginning of 2015 oil prices were above $63 per barrel, but fell to $40 by the end of the year.  Oil and gas tax revenues to the state dropped by 50% in the first seven months of fiscal 2016 compared to the year prior. Such a precipitous drop must have a significant impact upon the Lone Star state similar to the 1980s.

Anyone who lived through the 1980s has that memory seared into their psyche. As oil prices plummeted, one in six homes and apartments in Houston stood vacant in 1987. Between 1986 and 1990, more than 700 Texas banks and thrifts failed and unemployment stood at 9.3%. It was painful.

Fortunately, Texas is a much different place than it was 30 years ago.

According to the Texas Comptroller, in 1980 Texas received about 20% of its tax revenues from the oil and gas sector. Today, that figure is half as much.

Texas boasts the second largest population, trailing only California. The Lone Star population grew 29% between 2000 and 2014, more than twice as fast as the U.S. as a whole, according to the Census Bureau. Coming out of the 2009 recession, Texas rebounded quickly and strongly growing at 7% per year adding 1.4 million new jobs. In doing so, Texas was responsible for the net positive increase in jobs for the nation as a whole.

At $1.64 trillion in GDP, Texas is the second highest producing state behind California—even though Texas has a third fewer citizens. If Texas were a stand-alone country it would have the twelfth highest GDP in the world, outpacing countries like Canada, Spain and Australia.

The Lone Star population is younger than average, meaning more citizens contribute to our workforce and productivity. Texas’s unemployment rate has been equal to or less than the national average for the last 110 consecutive months.

Texas is only one of seven states with no income tax. A low tax environment continues to attract business, investment and people.

And while energy is still important, services, technology and healthcare truly serve to diversify the Texas landscape.

Throughout the 2000s an exodus of high tech companies and jobs found their way to Texas. In the process they redirected roughly $1 billion of taxable income away from California to the Lone Star state. Furthermore, today the Texas Medical Center is the world’s largest medical complex, with more than 20 hospitals, three medical schools and six nursing schools, employing more than 100,000 people.

Texas is home to six of the top 50 companies on the Fortune 500 list and 51 overall.

Given this diverse and powerful landscape, it is not that surprising that Texas landed a solid second place finish in the CNBC ranking for 2016 and was the runaway winner as the top state for business over the last decade.

Interestingly, California, the nation’s most populous state, scored rather mediocre 32nd in the CNBC ranking.

In securing these honors, Texas scored top marks for the economy and infrastructure. The Lone Star State scored a top five finish in technology and innovation and a top ten finish for business friendliness and access to capital.

Not all areas were great, though. Texas ranked 40th in education, mainly due to poor K – 12 rankings and standardized test scores. Texas also ranked 37th in quality of life due to a high number of uninsured people. Obviously, some of the criteria for these determinations might be subject to dispute.

Given its solid performance over the last decade Texas continues to show it is much more than oil wells and pipelines. Although energy remains an important component of GDP and heritage, efforts made since the 1980s have proven successful in making Texas incredibly independent, diverse and competitive throughout a variety of environments. 

Dave Sather is a Victoria certified financial planner and owner of Sather Financial Group. His column, Money Matters, publishes every other week.