Dave Sather writes a column about financial issues for the Victoria Advocate.

Dave Sather

Dave Sather

It’s time to juice up the batteries. After months of speculation, Tesla founder Elon Musk revealed his new gigafactory will be built in the Lone Star state.

The new $1 billion facility will be built on 2,000 acres on the Colorado River just five minutes from the Austin airport and 15 minutes from downtown. They will employ about 5,000 people.

Given the numerous options available to Musk and Tesla, why did they choose Texas?

Incentives: Over the next 10 years Tesla will get more than $60 million in annual tax breaks from the federal government and local school districts. Cumulatively, these breaks should total $1.1 billion. These are actually pretty modest concessions. As such, this was not the sole contributor.

Technology: There is an abundance of high technology companies in Austin such as Dell, IBM, 3M, Intel and AMD. Those companies have all had a significant presence in the area for decades. This means the talent pool catering to manufacturing and technology is already geared to Austin.

Education: The top-rated public university in the state resides in Austin. However, statewide there are 170 universities with more than 800,000 students on an annual basis. As such, the talent pool is deep and constantly replenished. This is really a key factor as Tesla should not be thought of as a car manufacturer as much as it is a software and technology company.

Transportation: Texas is home to 10,539 miles of railroad track—more than any other state. Much of the rail traffic leads to the Port of Houston, the busiest port in the U.S. in terms of foreign tonnage.

The Texas highway network includes more than 180,000 lane miles of paved highways.

If highway, rail or shipping doesn’t get it done for you, use one of more than 725 airports in Texas. The Dallas/Fort Worth airport is the largest in Texas and second largest by land mass in the country. At 27 square miles, it is larger than the entire island of Manhattan.

Although the Austin airport is quite a bit smaller than D/FW or Houston Intercontinental, it is easy to navigate and offers lots of room for expansion.

Taxes: Texas is one of only seven states without an income tax.

If you think this fact escaped Musk, you’d be mistaken. The Tesla founder has a new set of Texas license plates for his ride. Most likely, Musk is subtly letting California know he will no longer pay their onerous state income taxes as Texas is his new adopted home.

The top rate on income and capital gains taxes in California is 13.3%. In 2018, Musk had stock-based compensation of more than $2 billion. If he had been a Texas resident that move, alone, would have saved him more than $250 million in taxes.

Obviously, Elon Musk did his homework. Furthermore, this wasn’t his first run in Texas. Previously, he established operations for another of his companies, Space-X, at multiple locations in Texas.

Or, it may have been that the super innovator simply observed the moving vans heading this way since 2008.

According to Spectrum Location Solutions, over the last 12 years, Texas has been the No. 1 destination for companies leaving California. This has been true not only cumulatively over the last dozen years, but every single year during this time frame.

In 2018 and 2019, about 660 California-based companies picked up and moved 765 facilities, factories, offices and operations out of the Golden State. The largest number landed in Texas.

Texas is now home to 49 Fortune 500 companies. Additionally, more than 1,400 foreign companies call Texas their U.S.-based home.

According to a 2020 report published by Texas Realtors, the Lone Star state attracted a net gain in population of 101,805 in 2018. At 14 million people total, this puts Texas in the enviable position of having the second-largest civilian workforce in the nation.

The cost of employment, taxation and regulation continues to stifle capitalism and innovation in high-cost states. Furthermore, unlike commerce of a century ago, the world we live in today allows businesses, especially those predicated upon intellectual capital, to pick up and relocate with relative ease.

Although it may not be rapidly apparent, capital flows to where it is most efficiently used.

My only remaining question for Musk is, “What took you so long?”

Dave Sather is a Victoria certified financial planner and owner of Sather Financial Group, a “fee-only” investment and strategic planning firm. His column, Money Matters, publishes every other week.

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