Awake at 2 o'clock?

The national economy is recovering, but it has a long way to go. Residential and commercial foreclosures, consumer debt levels, and bloated public pensions will take some time to correct. Yet San Antonio has been named as one of the least affected cities in America, as well as one of the best positioned in the world to prosper in a recovery.

How does this “tale of two economies” (see my previous blog) come about? How does a city with limited resources, long a national backwater, charge to the fore in adverse economic conditions? Like most such things, some of it is luck. Much of it, however, has been accomplished by following some basic principles that apply to any business.

San Antonio isn’t a economic powerhouse. No one locates here to be in the middle of what’s happening, like they would in Chicago, New York or Los Angeles. Cost of living is relatively low (93 on the COLA index, against San Jose’s 158) but much of that is housing prices. You can only save so much on food and gas. As a market, it is unimpressive:

#7 in city population
#7 in percentage of obese population
#28 MSA (between Orlando and Kansas City)
#37 in television viewers (between Greenville NC and West Palm Beach)
#175 in average household income

So what has attracted a dozen projects that each, by itself, would be the envy of most US cities? Everyone offers tax relief and incentives. How does San Antonio generate employment, construction and infrastructure when so many cities are struggling to just maintain their population?

First, let’s discuss the lucky part and get it out of the way. Lyndon Johnson used his influence with the military-industrial complex to get lots of goodies for Texas. While SA took a huge hit early in the BRAC rounds (the closing of Kelly AFB) they more than made up for it with the very last round, which transferred all medical training in the Armed Forces to Fort Sam Houston and Brooks Army Medical Center.

The military has another effect. Retired officers, well trained and well educated, are able to fill thousands of private and public sector jobs for salaries and benefits that are subsidized by their military pensions.

San Antonio is also lucky in that it loses little productivity to weather. One attractive feature in the pitch to employers is lost days due to weather. For snow, ice, hurricanes, earthquakes, or tornadoes- none. For rain, one day every couple of years. To an employer who had to shut down for 5 days after a hurricane, or just had his third snow closure of the season, that sounds pretty good.

But the lucky part of the story is only a small piece of it. Mostly SA gets business because it runs like a business.

Strategy: While less than perfectly synchronized, most of the city leadership (both public and private) has agreed on the major areas to be pursued (manufacturing, health care, biotechnology, information security.)

Management: Saddled with a term limit law (recently changed) that put a revolving door on the mayor’s office, the power shifted to the County Judge (Nelson Wolff- 10 years,) and the City Manager (Sheryl Sculley, 5 years.) Both are competent, knowledgeable, and aggressive in seeking out potential deals. The last few mayors have been only too happy to cooperate when asked. This structure allows continuity through long negotiations, even when those talks span multiple election cycles.

Sales: As more than one company has said: “When we put out our short list of potential relocation sites, San Antonio was the only one who’s leaders flew out immediately to see what we needed.” It amazes me every time I read it. What part of paying attention to the customer have the rest of the cities forgotten? SA has a reputation for building the liaison team with the people the company needs, be they from education, industry or government. They also recruit past transferees from the same industry for testimonials. All merely classic sales techniques. (I should mention that Nelson Wolff is a former small business owner.)

Labor: This encompasses a number of areas. Of course, Texas is a right to work state with low union membership. More than merely offering a non-organized workforce, however, it means that new development doesn’t have to negotiate with unions to build facilities or sign with vendors.

For a long time San Antonio’s old guard thought that maintaining a low wage base was their competitive advantage. In the last 10 years, that has changed dramatically, and the new jobs aren’t in call centers any more. The employers being targeted have changed as the city demographics have changed. The textile and light assembly work in San Antonio moved out of the country. The city learned its lesson in the late 80’s and early 90’s, and realized that low wages were only a short-term advantage.

Taxes: Texas, and particularly San Antonio, has an unusually use-based tax structure. There is no state income tax. On a local level, revenue comes from three major sources: property tax, sales tax and the city’s ownership of the power utility.

Property taxes are high, but optional. If you want to keep your taxes low, don’t own an expensive home. The property tax burden also serves as a limiter on residential inflation. Of course, sales tax is easily avoided if you don’t buy things (like most places, food and most services are exempt.) Energy and water rates are high, but conservation there also makes the portion that supports the city budget at least partially optional. 

So a target company that wants to relocate gets the following pitch. “We’d love to have you. let us come out and talk about what you need. We’ll put a team together to make it happen, and put you in touch with folks in your industry that made the move before you. We can offer stable political, economic and environmental conditions, and after you pay your expenses and the Feds, the rest of your profit is yours. The same goes for your employees. Those that move with you will get a raise in their take-home paycheck, and a lower cost of living at the same time.”

It’s a straight business pitch. What’s for a business person not to like?