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RGV to Lead State in Growth through 2040–But are we Ready?

Jul 26David Girault
RGV state growth

I have long believed that the greatest opportunity in the state of Texas, and in the nation, is in the Rio Grande Valley.  After all, that’s why I concentrated my studies on international commercial law in law school, and why my bride and I returned home (for me) over 20 years ago. It is for that reason I read with great interest the recent article by noted economist Dr. Ray Perryman (read the full article here) discussing his firm’s prognosis of the Texas economy over the next generation.  The Perryman Group predicts that one-sixth of all new employment in Texas will come outside what has become known as the “Golden Triangle”, or “The Big 5”–Houston, Austin/San Antonio and Dallas/Ft. Worth for those of you unfamiliar with these terms.  Most significantly, the Rio Grande Valley, and specifically the McAllen-Edinburg-Mission segment of the region, will lead this growth, with an average 1.75% annual wage and salary growth over the next 25 years–equal to that of Dallas, and second only to Austin/Round Rock (projected at 2.02%).  Brownsville-Harlingen-San Benito will follow closely with 1.58% growth, as will Laredo at 1.56%.

“The area’s business ties with Mexico,” notes Perryman, “and the future growth in manufacturing expected on both sides of the border are primary reasons for my positive outlook.”  From what I see, I definitely agree with him.  That is not to say, however, that our region does not face some significant headwinds.  In my perview, population growth, access to education, and access to financial capital are the three greatest.

Lets look at population first.  The June labor market data, also recently released, in part confirms Perryman’s prognosis.  The McAllen MSA posted 2.0% year over year growth in jobs compared to June 2015; the Brownsville MSA showed 2.8% growth in the same period.  (See June employment data here) But juxtapose this against the Texas Water Development Board’s projections that the population of Hidalgo County (basically the McAllen MSA) will double by 2050, which implies a 2% annual growth rate. (See TWDB data here)  If jobs are growing at a 1.75% clip for the next 25 years, and the population of the region grows at a 2% clip over the same time period, we won’t see the needle move much on the regions unemployment rate (8.2% as of June, 2016, an increase of 1.2% over May, and a “normal” seasonal bump due to the summer break for schools); in fact, it may move in the wrong direction.  Perryman’s news is good, but our leadership in government and economic development can’t rest on their laurels.  The RGV needs growth above 2.0% (difficult in an era of 0-1% national growth) to move the needle on unemployment.   A silver lining is that in recruiting companies to a region, the qualifying question is almost always centered on an available workforce, and this data seems to show that despite the fastest job growth in the state, the RGV will continue to have an ample workforce available for growing businesses.

This leads us, then, to Education.  If memory serves me correctly, our area community colleges (STC and TSC) boast a combined enrollment somewhere north of 45,000 students (although not an insignificant part of those, at least at STC, are high school students taking dual enrollment classes).  UT-RGV, our only major university, enrolls another 30,000 or so students.  Meanwhile, last fall, Dr. Roberto Coronado, Asst. Vice President and Senior Economist for the Federal Reserve Bank of Dallas, El Paso Branch, pointed out in presentations to both the McAllen Economic Development Corporation and the UT-RGV 2015 Border Economics, Development and Entrepreneurship Symposium (BEDES), that educational attainment remains somewhat static in the region:  14% of the population holds a bachelors degree or higher (down from almost 16% in 1995), and another 28% has completed some college or holds an associates degree (unchanged from 1995).  Even with the meteoric growth of South Texas College (created in 1993), and the creation of the new UT-Rio Grande Valley, our institutions of higher education are merely treading water.  With population having almost doubled since 1995 (487,593 in 1995 vs. 842,304 in 2015), the great news is that our higher education system hasn’t drowned.  If, as the TWDB predicts, that number rises to 1.46 million by 2040, we are going to need to see better than 150,000 Valley residents enrolled in higher education to assure an adequately trained workforce.  For a perspective on the importance of higher education in employment, look no further than the World Economic Forum report published earlier this month:  “A new report from Georgetown University’s Center on Education and the Workforce says that 11.5 million of the 11.6 million jobs in the US created during the post-2008 recovery went to workers with at least some college education. Moreover, 73% went to workers with a bachelor’s degree or higher.  According to The Wall Street Journal, that makes this year the first time in which college-educated workers outnumber those with a high diploma or less.”  (see the full report here)  Doubling down again on education at the post-secondary level–more seats in community colleges, vocational certification programs, and universities–is critical to attaining Perryman’s projection, much less bettering it significantly.

Our population growth is a given. Growth in higher education is aspirational, but certainly has the focus of our regions’ elected officials at nearly every level.  Next, though, is the question of creating what Dr. Mark Kroll, Dean of the Vackar College of Business and Entrepreneurship at UT-RGV, calls an “entrepreneurial ecosystem.”  In looking at our entrepreneurial ecosystem, I like to look at where we are starting.  Table 1, below, compares the Rio Grande Valley metro area, to “peer” metros in terms of population (those that are +/- 100,000 in population and not directly tied to a far larger adjoining metro).  Because I work in the field of privately held, small and mid-size business (often called “SMEs”), that is the data I have focused on.  Table 1 compares the relative number of SMEs in the RGV at various thresholds to that of our peer metros (data aggregated from www.salesgenie.com reports).   At every level, the Valley scores significantly below its peers in the number of businesses reaching each threshold.  Likewise, the RGV has no public company headquarters (although there are regional and national HQs of foreign companies), while peer metros have an average of 22.  For my last comparison, I looked at the number of what I will term “private capital shops”–firms who’s primary business is investment banking, mergers & acquisitions advisory, venture capital investment, or private equity investment.  The data here shows 7 private capital shops (although this includes several major commercial banks who list investment banking as a secondary or tertiary activity and have no people actually located in the RGV performing these activities, and the remaining couple of firms did not answer the phone at the number reported in the database despite several attempts), versus an average of  25 in the peer metro group.  (The table also reflects population adjusted comparisons with the Big 5, yielding similar results.)  I bring this up, because my personal experience, along with some interesting research by Dr. David Altounian at St. Edwards University in Austin, indicate that a weak network of private capital shops appears to inhibit economic growth.  (see, e.g. Growth-stage investors needed in Austin, report says)  As the maquiladora sector expands in Reynosa and Matamoros, a healthy network of suppliers and support services will continue to develop across the Rio Grande Valley, consistent with Perryman’s prognostications.  For that growth to come in a way that is broadly based, and economically healthy to the region, entrepreneurs in the Rio Grande Valley need access to capital beyond that found in the community and regional banking system.  If the private capital shop market does not evolve here, then we will continue to see suppliers and service providers from outside the region dominate the marketplace, the result being limited advancement opportunities for middle and upper management, as well as a continued lack of C-Suite jobs in the RGV.

Table 1

Table

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