Analysts: Austin tech scene is back from recession

Brian Gaar, Austin American-Statesman, Analysts: Austin tech scene is back from recession

May 10, 2014

Back in 2009, in the middle of the nation’s economic downturn, Austin’s tech sector was taking a beating.

Worldwide PC sales were slowing. Companies were tightening their belts. Tech startups were failing. At the end of 2009, the area’s number of jobs in key tech industries had slumped to less than 82,000 — the lowest since the dot-com bust of the early 2000s.

“It was a grim place for tech in the worst of the recession as layoffs were being reported all over the city,” said tech analyst Patrick Moorhead of Moor Insights & Strategy. “It was ugly.”

But five years later, things are looking brighter for Austin’s technology sector.

Despite national fears of another tech bubble, local analysts and economists say they’re optimistic when it comes to the health of Austin’s tech sector.

Austin’s tech sector’s total employment has climbed back up to more than 100,000 jobs — a jump of about 19 percent since the end of the recession in 2009, according to Brian Kelsey, principal of Civic Analytics, an Austin-based economic consulting firm. Austin is on pace this year to exceed its 2001 tech employment, Kelsey said, “which would be a remarkable achievement given the depths of the recession experienced locally after the dot-com bust.”

Local high-tech companies supplied about 9 percent of the area’s jobs in 2012, according to data from Civic Analytics and the Austin Technology Council. If local tech jobs reach 101,000 this year, those numbers would rise to almost 12 percent of the metro area’s roughly 855,000 jobs.

As it bounces back, the area’s tech sector does, however, have a different look as it evolves away from hardware and PC sales. At the same time Dell Inc., long the anchor of the area’s tech scene, is now privately held and in transition. Apple Inc. is boosting its Austin presence with a new operations center. At Flextronics’ Austin site, they are building the first U.S.-made Apple computers in years. Advanced Micro Devices says it is poised to boom.

“The overall strength of Austin’s tech sector,” Kelsey said, “has created a much different experience during this recovery compared to the dot-com bust.”

Time of transition

Perhaps the biggest transition can be found at Dell Inc., which went private about six months ago in a $25 billion buyout headed by company CEO and founder Michael Dell. Since then, the company has downsized through a combination of layoffs and voluntary severances. The company hasn’t said how many employees have exited or been laid off.

That shrinkage comes as Dell Inc. — which made its name selling personal computers — continues to remake itself into a stronger supplier of advanced information technology hardware, software and services for business customers.

Dell Inc. needs to transition into more kinds of “infrastructure hardware” like data centers, which will require more expertise in networking and storage – things that Dell historically hasn’t been involved in as much, said Cody Acree, managing director and senior research analyst for Ascendiant Capital Markets.

Eventually, Dell will “look a bit more Cisco-like or IBM-like, for that matter, where there’s a lot of software and services that go along with the hardware,” he said.

Elsewhere, Advanced Micro Devices, which is struggling to regain lost sales in the lucrative market for server processors, unveiled a chip that’s aimed at reviving sales of chips that run servers, the powerful computers that store and dish out data for websites and corporations.

Lisa Su, a senior vice president at AMD, gave the first demonstration of the Seattle chip, which uses ARM Holdings technology, at a presentation in San Francisco last week.

AMD, the only other maker of processors using Intel’s x86 standard, is switching some of its designs to ARM, betting that the technology that dominates in phones and tablets will find a role in servers. The Sunnyvale, Calif.-based chipmaker is targeting machines used by companies such as Facebook Inc. and Google Inc. to perform simple functions, such as logging users into their accounts.

“For our customers, we’re trying to be here creating something you can’t get anywhere else,” Su said. “We are setting ourselves up for the future. It’ll take time.”

AMD, which has a significant presence in Austin, also said this month that it has obtained an ARM architecture license. That license will allow AMD to design its own ARM-based chips as opposed to just using the available ARM cores. The new chip could be huge for AMD, Moorhead said, because it could get AMD’s products into the tablet market, as well as Google-made laptops.

“This could be a game-changer,” Moorhead said.

Moorhead said Austin is tops in the country for chip design, with huge presences from such companies as AMD, as well as Intel, Apple, Samsung, ARM, Freescale and Qualcomm, all of which have design operations here.

The city is also strong in mobile technology, but not as much in devices, given lackluster offerings from companies like Dell, he said.

Moorhead pointed to venture capital as a soft spot locally, saying the level of investment has fallen off precipitously since the dot-com era of the late 1990s.

“Overall, the Austin tech scene is very healthy as there is a good deal (of) investments in mobile and the cloud,” he said. “We are a bit hardware heavy, and I’d like to see more world-class software and services activity, but we need more VC investment to make that happen.”

Austin is continuing to see an evolution from manufacturing to services, but job growth is evident in both lately, Kelsey said. Mobile is driving a lot of the growth in Austin — such industries as custom programming and systems design have grown by nearly 7,000 jobs since 2009. On the manufacturing side, Austin is back above 2009 employment levels in many industries, he said.

“In fact, comparing employment today to where we were coming out of the recession in 2009, a slight majority of tech manufacturing industries in Austin have added jobs,” he said.

According to data compiled by Economic Modeling Specialists International, there were more than 97,000 jobs in key tech industries in the Austin area last year – ranging from semiconductor manufacturing to software programmers.

That’s up from 2009, when there were less than 82,000 tech jobs. It’s also higher than 2007, when there were more than 91,000 such jobs.

The Dell factor

Of course, Austin’s tech sector health is always partially tied to Dell Inc.’s health, given that the company is the largest private employer in the area, with about 14,000 employees.

In a note to company employees this month commemorating the company’s 30th anniversary, Michael Dell said the company is building momentum.

“We’re leading the industry in enterprise flash deployments, and leading with our security and cloud integration solutions,” he wrote. “Our services business is rapidly acquiring new customers and huge deals in key verticals like healthcare and finance.”

If Dell Inc. is headed in the right way, that’s good news for the Austin area, Acree said.

“I think it’s continuing to grow and be very strong, but of course Dell’s position in the PC space drives a lot of that,” he said. “And with the PC market in decline – and that’s not likely to change – Dell has got to figure out … if it can be equally important to other sectors of tech.”

Other companies’ impact

Austin’s other major tech players are making important moves as well — among them tech giant Apple Inc.

The California-based computer maker is building on a 39-acre site adjacent to its present Austin operations, which employ more than 3,000 people in its Americas Operations Center. While the company didn’t respond to requests for comment from the American-Statesman, it has provided some details about its Austin project in return for the estimated $35 million in state and local tax incentives it will receive for the Austin expansion.

The company has said it plans to spend $282 million on new buildings and equipment in Austin over the next decade. That is expected to include seven new office buildings with a combined 1 million square feet or more of space. Those buildings will house an estimated 3,600 new workers needed to support Apple’s continued growth.

The jobs will run the gamut of skills required to run Apple’s business operations for the entire Western Hemisphere.

But Apple has also hired employees in chip design and development locally. Those jobs presumably are supporting the Intrinsity Inc. design team that Apple acquired in 2010. That design team, analysts say, has been heavily involved in developing the new systems chips that run Apple’s mobile products — both iPhones and iPads.

And late last year, Apple confirmed that its new Mac Pro computers would be built at the Flextronics Americas factory in Northwest Austin.

That further solidified Central Texas’ status as one of Apple’s primary hubs outside Silicon Valley. By locating Mac Pro production in Austin, Apple has established a direct or near-direct role in almost 5,000 current Central Texas jobs — and could expand that to as many as 8,700 over the next decade.

A Flextronics spokeswoman declined to discuss the company’s relationship with Apple.

Elsewhere in the Austin tech scene, IBM has shifted from a former manufacturing outpost to an engineering and technology development hub.

Last month, IBM introduced a new Power Systems server that was developed in Austin, with an open platform that gives programmers more flexibility to develop uses for the device.

Power8 is the name IBM has given to the new hardware, which includes a new microprocessor and a lineup of servers. The servers and processors were developed in Austin, which is a leading research and development site for IBM with an estimated 6,000 employees here.

Semiconductors are also one of Austin’s longtime areas of tech expertise. And perhaps no company has invested more heavily in Austin than South Korea-based Samsung Electronics Co.

Samsung has made a historically big manufacturing investment in Central Texas and created one of the biggest chip manufacturing complexes in North America, with at least $15 billion in new investment. The company employs about 2,600 people locally and produces, among other things, advanced low-power processors that are used in mobile devices such as phones and tablets.

“We make up a huge portion of Samsung’s overall capacity in that market,” Samsung spokeswoman Catherine Morse said. “And so what we do here is crucial.”

In another promising sign for local tech employers, Emerson Process Management earlier this year unveiled a $70 million facility in Round Rock designed to help its customers operate large-scale automation projects. And even smaller players like Active Power, which makes backup power systems, tout such big-name clients as Oracle, Yahoo and Hewlett-Packard.

Overall, analysts say, the future for Austin’s tech scene looks good, as Dell Inc., AMD and others move to diversify their businesses and become less reliant on PC sales.

“If companies can adjust to the new normal, which is really what has happened in the last two years,” Acree said, “then an economy like Austin’s reaches a degree of stability, where that diversity is offsetting the declines in the PC market.”

Additional information from Bloomberg News.

Austin jobs in key tech industries

2014: 101,000*

2013: 97,135

2012: 94,278

2011: 88,643

2010: 83,154

2009: 81,792

2008: 90,280

2007: 91,248

2006: 86,549

2005: 84,265

2004: 81,593

2003: 80,616

2002: 84,016

2001: 95,630

*Estimated

Source: Economic Modeling Specialists International

Major Austin tech employers

Dell Inc. (14,000 jobs) – PC maker and supplier of advanced IT hardware, software and services

IBM (6,000) – engineering and technology development

Freescale Semiconductor (5,000) — produces and designs embedded hardware

Apple Inc. (more than 3,000) – business operations, chip design

Samsung Electronics Co. (2,600) – chip manufacturing

Advanced Micro Devices (2,000) — develops computer processors and related technologies

Intel Corp. (more than 1,000) – chipmaker

Expert reporting

This story is part of the American-Statesman’s ongoing coverage of the Austin technology sector. Tech reporter Brian Gaar has tracked the area’s top technology-related stories, including Dell Inc.’s transition to a privately held company, Apple Inc.’s expansion in Central Texas and the growth of the area’s mobile technology sector.

One-person firms on rise in Austin

Dan Zehr, Austin American-StatesmanOne-person firms on rise in Austin

April 24, 2014

The idea of leaving an established employer to launch a company often seems fraught with risk. James Higginbotham took that leap because it offered more security.

Higginbotham realized that his company’s rapid development of new technologies meant its need for his product-management work would dissipate with each new launch. By leaving one employer and taking on a variety of clients — each with varying launch cycles — he could actually create a more secure stream of work.

“Those kinds of skill sets tend to lend themselves to specific seasons in a company’s life cycle, so it made sense to be independent and to help several companies in that capacity,” he said.

Blue Jazz Consulting was born in 2006. By 2012, Higginbotham’s firm was one of almost 153,000 non-employer companies in the Austin metro area, making it part of one of the largest and fastest-growing communities of one-person businesses in the country, according to data released Thursday by the U.S. Census Bureau.

Roughly 3,700 new non-employer firms went into business in Travis County alone during 2012, and their receipts jumped 9.1 percent from the prior year — the largest increase of any county in the nation, the Census Bureau said.

Across the entire metro area, almost 6,500 new one-person firms came online during the year, and their receipts grew at an even faster rate, rising 9.6 percent to almost $7.8 billion, according to Census data.

That was enough to rank Austin 21st among all the metro areas in the country. But on a per-capita basis, Central Texas ranked fifth, with its non-employer firms pulling in $4.25 for every resident in the metro area. It trailed only Miami, San Francisco, Los Angeles and New York on that score.

“I’ve seen a trend with businesses being more open to reaching out to someone like myself to get the expert insight they need while they’re growing their teams,” Higginbotham said.

In fact, the high-tech and other white-collar industries in the professional, scientific and technical services sector produced more than 1,000 new single-person businesses in 2012, more than any other major economic sector. Combined with the real estate and construction sectors, the trio dominated the ranks of non-employer companies in Central Texas.

According to Census data for 2012, the one-person shops in those three sectors accounted for 42 percent of all the non-employer businesses in the metro area and generated 56 percent of the total receipts, almost $4.4 billion.

“Self-employment usually tracks broader industry trends in a regional economy,” said Brian Kelsey, principal of Civic Analytics, an Austin-based economic consulting firm. “The home building and real estate markets in Austin right now are firing on all cylinders, and a significant portion of self-employed firms are in those industries”

The entrepreneurial spirit that pervades Austin’s high-tech scene lends itself to startups and single-person shops. Programmers and developers can work from afar, and startups that are cost sensitive often prefer the idea of contracting out tasks rather than taking on the expense of a full-time employee.

“Austin’s tech sector is creating plenty of opportunities for independent contractors, developers, etc., to launch and grow new businesses, which often start out as self-employment,” Kelsey said.

A wide range of economic, local and personal factors can influence the creation of non-employer firms. Their ranks often swell during times of tepid economic growth, when companies looking to control costs cut full-time positions and rely more heavily on temporary and contract workers.

Laid-off or underemployed workers might use the opportunity to start their own companies, or do so as a necessity in a difficult labor market.

The decision to jump into self-employment could become even more palatable with the passage of the Affordable Care Act, said Jon Roberts, principal of TIP Strategies, an Austin economic development firm.

By lessening a worker’s dependence on an employer for health insurance, Roberts said, the program could give people greater flexibility to start their own business without the risk of prohibitively costly medical expenses hanging over them.

“A lot of external factors will continue to influence the logic someone brings to decisions of self-employment,” Robert said. “But it will be easier to be self-employed, and more desirable for corporations to adopt that model as well.”

Leaders grapple with poverty at Williamson County summit

Andra Lim, Austin American-StatesmanLeaders grapple with poverty at Williamson County summit

April 22, 2014

ROUND ROCK —

At least 30 people are moving to Williamson County per day, and many are poorer than their new neighbors.

Local school and nonprofit leaders — who say they have already been straining to provide counseling, affordable housing, child care, gainful employment, equal access to education and transportation for residents — gathered Tuesday to discuss what to do as demand for their assistance grows even greater.

Working together to provide and fund a spectrum of services is one way to make few resources go a long way, agreed speakers at a summit organized by United Way of Williamson County, the Georgetown Health Foundation and other groups.

“We’re behind the game in meeting this need,” the Rev. Alan McGrath, who helped get the fledgling nonprofit Hutto Has Heart off the ground, said to an audience of more than 200. “We are heading out into a torrential storm with a $3 umbrella.”

Poverty’s quick spread to the suburbs is a nationwide phenomenon, but it has occurred most rapidly in the Austin metro area, said summit speaker Elizabeth Kneebone, who co-authored the book “Confronting Suburban Poverty in America.”

The number of Austin-area suburban residents living below the federal poverty line — which is $23,850 for a family of four — increased by 162 percent from 2000 to 2012.

A key reason for the shift to the suburbs is the affordability of housing outside the city, experts at the summit said.

For instance, the median cost of a square foot of housing in Williamson County is $112, compared with $165 in Austin, said Brian Kelsey, founder of the economic research and consulting firm Civic Analytics.

Many who flocked to the county near job-rich Austin in 2010 were low or moderate earners who brought in less than the $65,778 the average Williamson County household made that year, Kelsey said. Nearly half of households moving to Williamson County four years ago were from Travis County, and they made an average of $45,828, Internal Revenue Service data show.

Since around that time, Round Rock-based nonprofit Hope Alliance, which provides temporary housing to family and sexual violence survivors, has seen requests for service more than double in some areas of the county, executive director Patty Conner said.

“We’re turning away 40 families a month, and when I get a call in the middle of the night that a woman a mile and a half away from my shelter was killed, my first thought was, ‘Oh my gosh. Did she call the center trying to get in?’” Conner said.

Conner and two other panelists said the most critical need is affordable and accessible transportation, which can make it difficult for people to get to a job, or even to food.

“Certainly, it would be nice for me to go to Austin, see a concert and ride the train back home. That’s not the kind of transportation our clients need,” said Dan Hilliard, a board member at Williamson-Burnet County Opportunities, which runs a Meals on Wheels program.

Investing in education should be a priority, Kelsey said. Over the next decade, 70 percent of job openings for positions paying $17 an hour — enough to support a family of one adult and one child — will require a post-secondary degree, but the majority of Williamson County’s working-age population hasn’t attained that level of education.

But it can be difficult for suburbs, which are generally inexperienced in dealing with poverty, to address such issues, Kneebone said.

In Williamson County, there’s a reluctance to acknowledge the significant working poor population, or simply an ignorance of the issue, members of a six-person panel said.

“There’s a perception in Georgetown that there are no poor people,” said Ginna O’Connor, executive director of The Caring Place.

On top of that, federal anti-poverty programs, which receive $82 billion in government funds, were structured to help inner cities, Kneebone said. Suburbs tend to be more fragmented than an urban core, which could lead to competition, rather than collaboration, between neighboring agencies, she said.

Williamson County’s conservative bent means the private sector might take on a larger role here in paving a road out of poverty, said Scott Alarcon, chief executive officer of the Georgetown Health Foundation.

For now, nonprofits have seized the lead.

Alarcon and a United Way chief gave out their contact information at the end of the summit, saying they wanted to “help lead conversations” about community groups joining efforts. What happens after talks begin isn’t yet clear, they said.

Hutto Has Heart, a group started by pastors, city staff and a school official that meets once a month, could provide a model, McGrath said in an interview. The 15 or so people who attend meetings, including nonprofit representatives, discuss how they can help one another with community events, McGrath said. The organization also runs a hot line matching Hutto residents with services.

“It’s hard to claim what’s going on in your own backyard,” McGrath said. “It’s a lot easier to say, ‘The need is over there, it’s somewhere else. I can go over there and help. Or I can write a check.’”

Experts see signs pointing to strong Austin housing market for years to come

Shonda Novak, Austin American-StatesmanExperts see signs pointing to strong Austin housing market for years to come

April 19, 2014

If you’ve bought or sold a house — or even tried to buy a house — in the past 2 1/2 years in Central Texas, you know the local housing market roared back to life after the recession. Homes in many parts of the Austin area are selling fast, and there’s no shortage of would-be buyers battered by a bidding war.

All indications — job and population growth, housing starts, home sales, price appreciation, and a low supply of homes relative to high demand — “point to a very strong and robust housing market” with no signs of slowing in the near future, said Eldon Rude, a local housing market analyst who is principal of 360 Real Estate Analytics, an Austin-based market research and consulting firm.

“Austin, Texas, has probably the best economy on the planet,” said Mike Castleman Sr., who has been observing housing markets nationally for 40 years as a founder and former CEO of Houston-based Metrostudy, a housing market research and consulting firm that he and co-founder Mike Inselmann sold last year. “Look around. There just aren’t any economies any better.”

But as Castleman and other housing experts know, real estate is cyclical. So those who have ridden the merry-go-round over the decades say the current ride won’t last forever.

So how long can we expect this run last? Depending on which expert you ask, the answer could be another two to four years, or as many as eight years.

Castleman, who lives in Dripping Springs, said every market has its local set of variables that dictate how it behaves. External forces also come into play.

“On the local horizon, there do not seem to be any obvious pitfalls to the economy,” says Castleman, who with Metrostudy co-founder Mike Inselmann sold the firm last year. “So chances are if we are to encounter an interruption to this groundswell of prosperity over the next four or five years, it is most likely to be inflicted from the outside,” that is, originating outside of Austin, and Texas.

Castleman and others say the any number of triggers could precipitate a slowdown. It could come in the form of another financial collapse like in 2008. Or high inflation. Or soaring interest rates. Or what Castleman says is the next shoe to drop: the student-loan crisis, a $1 trillion debt bubble he says will ultimately pop.

Mark Sprague, another housing market analyst based in Austin, said economists can always tell when a market hit bottom and turned. “Unfortunately,”said Sprague, with Independence Title, “they can’t tell you when it’s going to turn.”

But Sprague, a predictably conservative forecaster — he says people tell him they listen to him because “‘if the baby’s ugly, you’ll tell the truth’” — surprised me when he recently said he thinks the Austin metro is 2 1/2 years into a postive run that will last more than 10 — that’s right, 10-plus — years.

“I just don’t see many hiccups, barring a catastrophic event,” that would cause the local housing market to lose its luster, Sprague said.

But Sprague himself pointed out in a recent newsletter that “most positive economic runs, particularly in Texas, last no longer than 6 years.” So where does his optimism come from?

Sprague backs up his forecast with a litany of pluses that Austin, and Texas as a whole, have going for them. Like California in 1950, Texas is a “land of opportunity” where families and corporations are flocking. Job creation. Low tax burden. Business-friendly climate. Housing affordability. And on and on.

“With wages staying stagnant, many consumers are looking to Texas because their paycheck stretches farther,” including their housing dollar, Sprague said.

The throngs moving to the Austin area are being drawn by job growth in a region that added an enviable 32,600 net new jobs in the 12 months through February, and continues to see “very low unemployment,” Rude said.

“The most reliable predictor of the real estate market is population growth, and the most reliable predictor of population growth is job growth, and we have full steam ahead for job growth,” said Steve Crossland, an Austin real estate broker.

Although the Austin area saw prices of existing homes rise 8.5 percent last year, which many locals might consider high, people moving from some other areas, including the West Coast and Northeast, “continue to look at Austin as very affordable,” Rude said.

Brian Kelsey, principal at Civic Analytics, an Austin-based economic research and consulting firm, said he thinks home prices will continue to increase provided that “job growth continues to outpace other regions and home prices are relatively cheaper compared to markets where we are drawing the most number of new residents from.” (He cautioned that “we should keep an eye on other high-performing job markets, such as Nashville, that offer many of the amenities that people report to love about Austin — at about half the cost in terms of housing.”)

Castleman said the local variables are so positive — Austin’s technology sector, the planned new medical school and teaching hospital, the stimulative effect of the oil and gas boom on the overall Texas economy, that “it’s very difficult to see anything locally that would all of a sudden just shut this thing down, or even gradually shut this down.”

Crossland concurs. Because the local housing market is being driven by “honest-to-God, true-blue supply and demand” — that is, loan-qualified buyers who need a place to live vs. speculators betting on some unsustainable bubble — “I think we have three to five years of running room ahead of us,” Crossland says.

“I just don’t see any of the leading indicators doing other than showing green lights,” Crossland said.

San Antonio suburb of Von Ormy goes ‘zero tax, zero fee’ to recruit business, provide services

Laylan Copelin, Austin American-StatesmanSan Antonio suburb of Von Ormy goes ‘zero tax, zero fee’ to recruit business, provide services

March 22, 2014

VON ORMY — As motorists speed past this tiny community along Interstate 35, they might not realize they have just passed the “Freest Little City in Texas,” as Mayor Art Martinez de Vara sometimes calls it.

The mayor shies away from political labels. But there is a libertarian tinge to a “zero tax, zero fee” goal as the best way to bring economic development to this poor but proud city that incorporated on the southwest side of San Antonio just six years ago. “I don’t consider myself a politician,” he said. “I just don’t like taxes and regulations.” It’s an attitude that prompted community leaders to cut the town’s property tax rate in half while almost tripling its sales tax revenue with the help of fast-food restaurants and truck stops lured to Von Ormy’s I-35 frontage. City officials hope to recruit larger enterprises once they have installed a sewer system and to eliminate the property tax altogether. But the “Von Ormy Way,” as it is called, is also about offering basic municipal services efficiently — and sometimes in innovative ways — to a community not accustomed to being served. “Here, you have a government experiment,” said Joe Phillips, a longtime Von Ormy property owner. It’s gotten the attention of the Texas Public Policy Foundation, the Austin-based conservative think tank, which invited Martinez de Vara to speak at its annual conference last month. “The primary lesson they’ve figured out is how to run their city more efficiently while creating a better business environment,” said Jess Fields, senior policy analyst at the foundation. “They encourage development by getting out of the way.” The “Von Ormy Way” isn’t for everyone. Von Ormy, population 1,300, relies on a city marshal and two dozen volunteer police officers as well as volunteer firefighters. Its police station is a mobile command trailer the size of an 18-wheeler. It cost $4,500. One of its two police cars was donated. Martinez de Vara said that residents — “after being ignored by San Antonio and Bexar County for years” — are patiently waiting for services as the city pursues a largely pay-as-you-go approach to creating a city from scratch. As the city has prospered, it has installed streetlights and paved streets, and it is building a fire station. It has trash pickup, curbside recycling and negotiated free ambulance service. The city’s only debt is a $120,000, seven-year note that, along with grants, helped buy land where the fire station, a school, a city hall and a park are planned. The key to the city’s future is its pursuit of a public-private partnership to develop a $4 million sewer line that would serve new businesses at the intersection of I-35 and Loop 1604. The revenue from that line, the mayor said, would finance extending sewers to the entire city. No frills This is a no-frills town. “Necessity helps enforce the philosophy,” Martinez de Vara said. The City Council, which meets in a church, has cut the property tax rate by 10 percent each year since its incorporation. The mayor said he expects that will continue until the tax is gone. Brian Kelsey, principal at Civic Analytics and a lecturer on economic development, said property taxes — which are less volatile than sales taxes — make up a larger share of general revenue for most cities. “It’s not uncommon for small communities to see 15 to 20 (percentage) point swings in year-to-year taxable sales during recessions,” he said. “It’s difficult to guarantee residents a minimum level of service they can expect from a city without a stable foundation of revenue.” Martinez de Vara agrees there is a greater risk in relying on one major tax, particularly a sales tax that fluctuates with the economy. For that reason, he said, the city had a reserve fund last year that was one-third of its annual budget and its surplus was almost 50 percent of its budget. “We can take a substantial hit without cutting into city operations,” he said. “We just have to hedge our taxes differently than other cities.” To Martinez de Vara, property taxes pose a risk to landowners: “The property tax is the greatest threat to keeping the land.” That philosophy is rooted in Von Ormy’s history. The mayor, who spent his summers as a child visiting his grandmother in Von Ormy, counts himself as a sixth-generation resident. He estimated 60 percent of the locals are descendants of five families with original Spanish land grants in the area. Their houses and land are handed down through generations. Although the city is almost 90 percent Hispanic, it is named for Count Norbert von Ormay Auffenberg, an Austrian nobleman, who arrived in 1886 with twenty servants. The count gave up his dream of becoming a cattle baron and left after 18 months. But a postmaster, apparently impressed by nobility, renamed the community, misspelling the count’s name in the process. Despite Von Ormy’s long history, it had withered in San Antonio’s shadow — and its extraterritorial jurisdiction. Growing area Von Ormy had tried and failed to incorporate in the past, but a group of community leaders led by Martinez de Vara, a lawyer with Capitol experience, tried again in 2007. The Legislature didn’t pass the bill that the wannabe municipality sought, but there was enough political pressure that San Antonio allowed Von Ormy to go its own way in 2008. “This was a no man’s land,” said Phillips, a landowner at Von Ormy’s intersection of I-35 and Loop 1604. “San Antonio made it very clear it didn’t care about this area before Eagle Ford Shale.” The recent shale oil boom south of San Antonio is increasing traffic and commerce through the area. San Antonio is growing towards Von Ormy. “We knew we couldn’t compete with San Antonio on incentives,” Martinez de Vara said of Von Ormy’s approach to economic development. Moe Lemos said he located his business, Manufactured Housing Consultants, a mobile home dealership, in Von Ormy because of its business climate. “Absolutely,” he said. “We enjoy the benefits of the big city without being burdened with overregulation.” He said the property tax cuts were a “pleasant surprise” that allowed him to expand the business and improve the facilities. Another property owner, Charlie Brown, said he wanted to be sure all of his 100 acres for the Alamo River RV Resort was part of Von Ormy. “Coming from California, I thought I had landed in paradise,” said Brown, a retired airline pilot. “I know how to run my life better than a bureaucrat knows.” Von Ormy typically doesn’t impose fees on companies locating here. When the Pilot Travel Center, a large truck stop, opened a year ago, it had a sign that was taller than normally allowed. Von Ormy granted a sign variance. “We didn’t realize we had a $50 fee for a sign variance,” the mayor said. “We repealed it.” Martinez de Vara estimated the city could have collected $30,000 in “impact fees” if it had the typical fees most cities charge. Instead, city leaders expected to make that up in a matter of months from the city’s share of the truck stop’s sales taxes. Von Ormy has one whopper of a fee, $1 million for would-be junkyards, to discourage those establishments. The city is also adopting “defensive zoning” to encourage commercial — as opposed to industrial — development that would continue its skyrocketing sales tax receipts, the mayor said. “We’re not anarchists,” he said. “We don’t believe in ‘no government.’ But we’re going to keep it simple.” He said city leaders are in the process of cutting 85 pages of a proposed zoning ordinance to about four pages. It’s that approach, Phillips said, that bigger businesses will appreciate. “You not only have no fees and a lowering of taxes,” he said. “You have a community saying, ‘We want you.’”

Oil, gas growing into key piece of Austin’s economy

Dan Zehr, Austin American-StatesmanOil, gas growing into key piece of Austin’s economy

August 11, 2013

A lot has changed since Bud Brigham moved his oil company to Austin in 1997.

Back then, he was one of a few working oilmen in a town that was blossoming into the high-tech center it is today.

While Austin started to boom, oil and gas companies like Brigham’s quietly went about their business. And under the radar, the industry that has become synonymous with Texas spread its roots throughout the state’s capital.

“It’s on the map now,” Brigham said. “It’s on the map, and people are starting to think about Austin as a place to come to potentially relocate or network with other oil and gas companies.”

With new technologies for both drilling and communications loosening the ties between engineers and the wells they drill, the industry’s employment base in Austin surged by almost one-third from 2009 to 2012.

The industry’s employment base here remains much smaller than those of the area’s high-tech firms, government agencies and universities. But a massive influx of money pouring into local energy firms, combined with the industry’s ripple effect through the region, is drilling oil and gas deeper and deeper into the Austin economy.

No deal stamped Austin as a potential landing spot for oil and gas firms more than Brigham’s sale of the exploration and production company he brought to the city: Brigham Exploration. Statoil, the Norwegian national oil company, paid $4.4 billion for Brigham in 2011.

That deal added a degree of imprimatur to Austin’s oil and gas ecosystem, industry officials say, noting that Statoil could eventually base all its North American onshore operations at its offices overlooking Lake Austin and the Loop 360 bridge.

Yet the lifeblood of the industry’s presence here remains the smaller, independent production companies and manufacturing firms. Brigham, for example, has recharged with Brigham Resources, a new company of 31 employees, and, flush with $650 million of private equity, expects to have as many as 50 workers by year’s end.

“Small firms with growth potential are the lifeblood of the Austin economy,” said Brian Kelsey, principal at Civic Analytics, a local economic consulting firm. “Eighty-two percent of firms in Austin have fewer than 20 employees, and collectively they account for nearly 1 out of every 5 jobs. … Eighty-three percent of firms in the mining and energy sector have fewer than 20 employees.”

From 2010 through the first half of this year, private equity invested in Austin-area energy companies has outpaced similar investments in local information technology companies by almost $770 million, almost 27 percent more, according to PitchBook Data Inc., a Seattle-based research firm that tracks private equity and venture capital deals.

Local exploration and production firms have accounted for much of the energy investments. Executives at Three Rivers, who last year sold their first incarnation for $1 billion to Concho Resources Inc., have reloaded with hundreds of millions of dollars in private equity funding for another turn. Other firms, including Venado Oil and Gas, which has raised $275 million since 2011, have pulled in similarly large investments.

And then there’s Jones Energy, a long-standing family-owned Austin outfit that went public last month in a $172 million initial public offering.

Technology has fundamentally changed the industry. Gone are the days of wildcatters drilling 10 holes in hopes of hitting one. With horizontal drilling and hydraulic fracturing, decent drillers hit on more than 90 percent of their efforts.

But each of those wells is much more expensive, on the order of $8 million apiece, officials said. Optimizing each well and cobbling together holdings large enough to attract the attention of the major oil and gas companies requires hundreds of millions of dollars.

That money has gushed into the Austin economy in recent years. Remove all the oil and gas companies, their employees and their economic ripple effect from the Austin metro area, and you’d shrink the regional economy by more than 5 percent, according to a data model compiled by Economic Modeling Specialists International, an Idaho-based economic consulting firm.

“It’s not purely an employee count thing,” said Jonny Jones, who brought Jones Energy to Austin in 1993 and built the firm from 10 employees to 80. Local oil and gas firms “don’t employ a tremendous amount of people, but they do employ high-skilled labor that makes a lot of money that flows back into the economy.”

‘Leverage our strength’

David Honeycutt remembers the oil boom of the early 1980s, when people cut deals on napkins in Houston restaurants. He also remembers the subsequent bust, which changed the industry forever.

“If you were going to be in this business, you suddenly needed to have more responsibility around what you were doing from a financial standpoint,” said Honeycutt, head of Texas American Resources, an exploration and production company headquartered in the Frost Tower.

That meant bringing in a much higher caliber professional, he said, on both the financial and the engineering sides.

While local oil and gas firms had just 4,277 full-time, part-time and self-employed workers in 2012, less than 1 percent of the Austin-area job base, those jobs paid far more than median wage in the area, according to EMSI data. Mike Wichterich, the head of Three Rivers, said his 45 employees take home an average of $130,000 or more a year.

That income helps fuel the industry’s far-reaching impact on the Austin economy, and it has some wondering whether local business and government leaders ought to do more to encourage more growth.

“Austin is already at the forefront of smart grid and consumer energy research with Pecan Street Inc.,” Kelsey said. “Why not leverage our strength in technological innovation to work toward a more sustainable future in partnership with other types of energy companies?”

From IT to oil

The same IT revolution that transformed the Austin economy opened the door for oil and gas companies to move here. With real-time communications, advanced drilling equipment and the ability to remotely monitor wells 24/7, the geographical ties to the oil basins have been loosed.

“These guys can sit there in their flip-flops and shorts, like the technologists used to in the Internet boom, geosteering wells off their iPad — anywhere the drilling is going on,” said Mike Bengtson, a partner at the Baker Botts law firm and one of the few Austin attorneys focused on oil and gas clients.

Those technological advancements have allowed entrepreneurs, engineers and most professional workers to live where they want. So, given the choice between Austin and, say, Midland, Tulsa or even Houston, more oil and gas professionals are choosing Austin.

When Three Rivers posted a few job openings on his website, Wichterich said, the company got more than 100 résumés within days.

“People are saying, ‘The technology works. Where do I want to live?’ ” he said. “And then they start picking the best cities in the countries to live in. … Austin is a great place to live.”

Gary McKinney always thought so. McKinney grew up in the Hill Country but, as head of Reliance Energy, now spends most of his time in Midland. He’s hoping to change that.

The company has already moved most of its accounting and financial operations to Austin — about 25 of its 170 employees. Within the next year, he’d like to move the rest of the financial operations. The company might never be “based” in Austin per se, he said, but it will have a notable presence here.

More attractions, less competition

The Austin lifestyle has been a key recruiting tool, industry officials said, but the fact that Austin is not an oil and gas hub offers other benefits. Local companies don’t have to fight tooth and nail with dozens of similar firms for the same talent.

Texas American Resources pulled several of its key engineers from major firms, Honeycutt said. The big companies do an excellent job of training workers and moving them along to the second stage of their careers, at which point many of them want to take a more active role and see the tangible fruits of their labor.

“They don’t want to just be a widget in a giant company, doing all this work and just passing it to a middle manager and not really knowing what happens with it,” Honeycutt said.

And, given that many of the leading oil and gas professionals come out of the cutting-edge programs at the University of Texas and Texas A&M, Central Texas has a strong allure both for graduates and for companies looking to tap into the schools’ expertise.

The research at UT provides a particularly strong draw for many oil and gas companies as well. The school’s department of petroleum and geosystems engineering is home to more than $21 million of external research, said Tad Patzek, the department chair. The UT Bureau of Economic Geology is clearing $30 million a year, Patzek said.

“We are a big magnet for all the major oil and gas and chemical companies that work with the petroleum industry to come to Austin and establish research projects,” he said.

Downstream services

The mention of oil and gas exploration conjures many an image, but few as iconic as the flare — that bright flame of burning gas off the top of a derrick or the side of an offshore oil rig.

Ironic, perhaps, that one of the leading manufacturers of those flares isn’t located in Houston, but in Austin.

Flare Industries is one of about a “dozen or so serious competitors” for technologies designed to burn off excess gases as cleanly as possible, said CEO Michael Hainsworth. The company, based in North Austin, has about 200 customers around the world, and about 170 of its 300 employees work here.

Flare isn’t alone, and other Austin-based companies have made headlines outside the industry in recent years. Paul Deere, the CEO of Tolteq, a Cedar Park company that makes cutting-edge drilling tools, is an Austin finalist for this year’s Ernst & Young Entrepreneur of the Year.

USA Compression, which provides gas compression products and services, made a splash in January with its $198 million initial public offering. Eric Long, who founded the company in 1998, said about 30 of its 270 worldwide employees work in Austin, mostly executives and managerial staffers.

“It takes a lot of money to buy our gizmos,” Long said, “so what (the IPO) allows us to do is to really tap the public marketplace, have stability with our financing structure and grow our business in the future.”

The ripple effect

Before he founded Drillinginfo Inc. in 1999, Allen Gilmer spent the better part of a decade exploring for and producing oil and gas. And while he wouldn’t call his Austin-based company an oil and gas firm, it has filled an increasingly critical role for the industry, taking reams of vital land data and records and putting them online.

“Our whole concept here was to go out and create a system in which you had very broad access to information so you could make better decisions,” Gilmer said.

Like those at Drillinginfo, the 900 people who work for Emerson Process Management in Austin don’t show up in the oil and gas employment numbers, but the bulk of their work goes directly into the central nervous system of hydrocarbon production.

From their two buildings in Round Rock, the company produces the technologies that govern anything moving through a pipe, said Jim Nyquist, president of Emerson’s systems and solutions business. Of the unit’s $7.9 billion revenue in its last fiscal year, about 40 percent came from oil and gas companies.

“If you look at a statistic, I guess we show up in a technology or manufacturing segment,” Nyquist said. “We don’t show up as oil and gas. Yet we feel as much a part of the oil and gas as we do technology and manufacturing.”

Nor do those jobs show up in the larger sphere of what EMSI defines as “extended proprietors,” essentially people who draw income from an industry. For the oil and gas extraction niche alone, adding in the extended proprietors boosts the area employee base more than tenfold—to 15,775 from 1,315, according to EMSI.

The massive extended proprietor class, which would include owners of oil and gas trusts and others who receive royalties from drilling activities, illustrates the broad impact of the industry on Austin.

“People who make some portion of their income from oil and gas — Tarrytown would be about two-thirds gone without it,” Gilmer joked.

Through its portfolio of oil and gas trusts, one of the largest in the country, Frost Bank handles about 800 accounts and about $170 million to $180 million of revenue annually, said Baker Duncan, senior vice president of oil and gas trusts. That’s an average of roughly $200,000, income that has been “life changing” for many people in the Eagle Ford play, which stretches south and west of San Antonio, Duncan said.

“We had people who were getting no income at all making a million dollars now,” he said.

The Statoil effect

Statoil won’t change many lives in Austin, but its presence here could help lift the area’s reputation in the oil and gas industry.

“To me, the Statoil transaction might have been an inflection point; it might have been a real step-change,” Brigham said. “I’m thinking they may be showing larger companies, ‘Hey, this isn’t just a community of small independents and promoters. This has become a real oil and gas community.’ ”

The industry has noticed the Statoil deal, as well as the success of other midsize upstream companies in Austin. And while no one expects Central Texas to come close to competing with Houston on oil and gas terms, there’s no longer any particular disadvantage to being here.

“It’s no longer important for vendors to be in the same city,” said Jim Rebello, a Houston-based managing director of Duff & Phelps, an investment bank and advisory firm. “Now, companies are of mindset that, if it’s quality product, they can’t afford to care if it’s in their backyard or not. They just need to source the best quality.”

Nor does an Austin headquarters pose a barrier to the massive amounts of capital that firms need. Money finds its way to respected management teams, said Mike Welsh, a partner at EnCap Investments, an $18 billion private equity firm that focuses on the oil and gas industry.

Welsh said many of EnCap’s investors live in Austin, so they always paid close attention to activity in the area. And that expanded with the $150 million the firm invested two years ago with Austin’s Venado Oil and Gas.

“There’s no stigma for being here anymore,” said Bengtson, the Baker Botts attorney. “The money understands you don’t have to be in Houston. … Houston’s the hub, but being in Austin or Dallas or Oklahoma City or Tulsa is kind of the same at this point.”

Who’s Moving to Austin? Hint: It’s Not Californians

Stephanie Myers, Austin PostWho’s Moving to Austin? Hint: It’s Not Californians

July 17, 2013

Californians are loathed by “original” Austinites. They move here, flooding the bars and buying the houses, making everything more expensive and turning the cool less cool. Lock up your daughters and hide the silver, because these West Coast jerks are here to take over. Or not.

As much as Austinites like to think our city is being ruined by people from the East and West Coasts destroying everything that used to make the city “weird,” the reality is that other Texans are moving to Austin in the largest numbers.

“What?” you ask, as the wooden “Bust Some Cali Ass”-engraved paddle falls from your hands and your unbelieving eyes bug out. Yep, it’s true. In fact, according to our very own U.S. Census, it’s Williamson County, our cousin to the north – home to Round Rock and Georgetown – that’s providing the most transplants to Austin.

The most recent comprehensive U.S. Census data available is from 2006 to 2010, but City of Austin Demographer Ryan Robinson asserts that present trends are probably in step. Between 2006 and 2010, an average of 1,500 people moved here from Los Angeles County every year. That’s a large number, but it pales in comparison to the average 10,500 people from Williamson County who moved to Austin each year.

In fact, not only is LA County not the leading supplier of transplants to Austin, it’s not even in the Top 5.

“We think of Austin’s in-migration stream as coming to us exclusively from places like California when, in fact, most of it is indeed coming from other parts of the state,” Robinson said. “My sense has always been that Austin gets a lot of two-step migrants. First, they move from New York to Houston or California to Dallas; then realize that where they really want to be is in Austin.”

From Where, Exactly?

The counties providing the most transplants to Austin are as follows, in descending order (a big thanks to Brian Kelsey of Civic Analytics for compiling the following info):

  • Williamson (TX)
  • Harris (TX) (Houston)
  • Hays (TX) (just south of us)
  • Dallas (TX)
  • Bexar (TX) (San Antonio)
  • Bastrop (TX)
  • Los Angeles (CA)
  • Tarrant (TX) (Fort Worth)
  • Fort Bend (TX) (Houston area)
  • Bell (TX) (Temple/Belton/Killeen)

 

After LA County, other out-of-Texas counties frontrunners include Cook County (Chicago), IL, in 11th; Orleans Parish (New Orleans), LA in 17th; Maricopa County (Phoenix), AZ in 18th; and Santa Clara County (San Jose), CA in 25th. What? Where’s that East Coast representation? Aren’t they also moving here and ruining the city? Apparently not so much.

While it’s obviously true that Austin is growing, not all of these folks stay put. Austin is actually a very fluid city, according to census data. Some of that is naturally due to the fluctuating student population of the University of Texas. However, for the most part, folks moving away from Austin aren’t going far. The Top 10 counties that people move to from Austin are as follows:

  • Williamson (TX)
  • Hays (TX)
  • Harris (TX)
  • Bexar (TX)
  • Dallas (TX)
  • Tarrant (TX)
  • Bastrop (TX)
  • Bell (TX)
  • Galveston (TX)
  • Nueces (TX)

 

It’s not until you get to Los Angeles County, in 13th place, that you see where people are moving outside of Texas. El Paso County, CO, home to Colorado Springs, comes in at 18th; Santa Clara, CA, home to San Jose, is in 21st; San Diego County, CA, is in 23rd; and King County, WA, home to Seattle, Bellevue and Tacoma, comes in at 24th.

What does that mean? It tells us that if Austinites don’t want to stay in Texas, they either want to go to California or to one of America’s great pot-smoking capitals.

The yearly average from 2006 to 2010 was that 219 people moved here per day. During that same time period, an average of 183 people moved away. Although the numbers are steadily rising, that does represent, to some extent, a transient population.

Beyond the Numbers

I can’t help but think, based on my own experience, that at least some of the people who move here from outside Texas ultimately decide not to stay here (or in Texas). Based on my personal experience, I’ve known:

  • A couple who moved to Austin from Boston, then back a year later;
  • A couple who moved to Austin from Boston, then to Seattle two years later;
  • A friend who moved from Portland to Austin, then back to Portland about two years later; and
  • A friend who moved from California to Austin, then back to California a year later.

 

Some of those moves were based on job transfers (a very welcome change in at least one occasion), but half of those moves were simply people moving here, it not being what they expected and then moving away. The media hypes up Austin to no end; hell, even my 80-year-old grandparents talk about how they’d move here if they were just a few years younger. But the reality is that Austin isn’t for everyone.

Like so many folks (including myself), Portland-Austin-Portland friend Ryan Geise first experienced Austin during a free drinks-fueled SXSW party week. When he moved here and discovered that Austin wasn’t the “party en masse in the streets” festival that it is during SXSW, he admits it took him a while to “get” Austin. Over time, he grew to appreciate aspects of the city and of Texas that weren’t evident to him right from the get-go.

“I liked the southern cowboy way of thinking that was sort of slowed down, straight laced, and good natured, but I also liked the badass punk feel of it all,” he said, adding that coming from a city with a great transportation system and compact feel, Austin’s subpar transit system and sprawl was bothersome.

Although Geise moved back to Portland, he said he’s “enormously happy” he gave Austin a shot. In fact, he said he’d “totally move back there when I get sick and tired of [Portland] again.”

Now if that isn’t transient, I don’t know what is.