Houston: Economy

Major Industries and Commercial Activity

Energy has been the primary factor in the Houston economy since oil was first discovered in the region in 1901. Even during the oil and gas bust era of the 1980s and the recession of the early 2000s, the expertise, technology, and resources remained in the area, providing the crucial base required to meet current national and international market demands while laying the groundwork for future growth. Houston is home to major U.S. energy firms in every segment, including exploration, production, oil field service and supply, and development. About 3,600 energy-related companies lie within the Houston area, including 600 exploration and production firms and 170 pipeline companies. Given the existence of these firms, and the technically trained and experienced work force, Houston no doubt will remain the center of the energy industry in the United States.

During the last decades of the twentieth century, Houston's dependence on the upstream energy industry—which comprises oil and gas exploration and production, oilfield equipment manufacturing and wholesaling, and pipeline transportation—made it particularly vulnerable to economic downturns determined by energy prices, the national economy, and the value of the dollar against foreign currencies. In order to insulate itself from further economic distress, the city began diversifying into downstream energy (refining and chemicals manufacturing) as well as industries unrelated to the energy sector. In 1981 upstream energy represented 68.7 percent of the job market, while downstream energy represented 15.6 percent and diversified sectors represented 15.7 percent. By 2004 upstream energy's percentage was reduced to 31.4 percent while downstream energy increased to 17 percent and diversified industries nearly quadrupled to 51.6 percent.

Houston is also a world leader in the chemical industry, with nearly 40 percent of the nation's capacity for producing the basic chemicals that are used by downstream chemical operations. The Houston-Baytown-Huntsville area is home to 405 chemical plants employing roughly 36,000 people. With an extensive infrastructure that includes the world's most elaborate pipeline network, Houston is a key production center for derivatives and specialty chemicals. Nearly every major chemical company operates a plant near Houston, including BASF AG, Bayer Corp., Chevron Phillips Chemical Co., E. I. du Pont de Nemours Co., ExxonMobil Chemical Co., and Shell Chemical LP.

Through more than a quarter century of manned space flight, Houston has played an important role in space exploration. The Johnson Space Center of the National Aeronautics & Space Administration (NASA) is the focal point of the U.S. manned space flight program. It has primary responsibility for the research, design, development, and testing of the space shuttle, and also selects and trains astronauts and controls manned space flights. Opened in 1962, the 1,620-acre Johnson complex is an international powerhouse of technological development, employing approximately 17,000 engineers, scientists, and administrative personnel.

Financial services are a key component to Houston's economy. The finance/insurance/real estate sector represented 15.4 percent of the Houston region's gross area product in 2003. A number of major financial corporations are headquartered in the city, including American National Insurance Co., real estate firm Century Development, and AIG Retirement Services. Situated near the center of a twenty-county coastal prairie agricultural region, Houston is a major international agribusiness center emphasizing the marketing, processing, packaging, and distribution of agricultural commodities. The city also has a strong presence in computer software, electronics, engineering, and nanotechnology.

Items and goods produced: computer software, containers, processed foods, petrochemicals, steel, industrial gases, oil and gas field equipment, synthetic rubber, cement

Incentive Programs—New and Existing Companies

Local programs

The City of Houston offers four types of tax abatements to attract new businesses. Economic development tax abatements are offered to certain types of businesses to encourage investment and job creation. Redevelopment abatements are extended to new development within Tax Abatement Districts or Enterprise Zones, while residential abatements are restricted to Enterprise Zones. Brownfield abatements encourage the redevelopment of brownfields, areas where environmental contamination exists in the soil, surface water, or ground water.

The city also attracts investments in Tax Increment Rein-vestment Zones. These zones usually cover portions of the inner city, raw land in suburban fringe areas, or major activity center under decline. Several types of incentives are offered to businesses investing capital and creating new jobs in these areas, and can include capital costs, financing costs, real property assembly, relocation costs, professional services, and administrative costs.

State programs

The state of Texas offers a number of incentive programs to attract new and expanding businesses to the state. The Texas Economic Development Act of 2001 encourages large-scale manufacturing, research and development, and renewable energy by offering an eight-year reduction in property taxes. Other property tax incentives are offered to companies owning certain abated property and those that are located in specified areas known as reinvestment zones. The Texas Enterprise Zone Program offers sales and use tax refunds to companies that create jobs in certain economically distressed areas of the state. Other sales and use tax refunds are extended toward manufacturing machinery and equipment, with agricultural products and semiconductor components targeted in particular. Research and development expenditures may be qualified for franchise tax credits, as can businesses creating jobs or injecting capital into "strategic investment areas."

Job training programs

The Texas Workforce Commission (TWC) provides workforce development assistance to employers and jobseekers across the state through a network of 28 workforce boards. Programs for employers include recruitment, retention, training and retraining, and outplacement services for employees. TWC also administers the Skills Development Fund, a program that assists public community and technical colleges create customized job training for local businesses.

The Houston Community College System (HCC) is the city's leading vehicle for ongoing training and business development. With five regional colleges, HCC has quality, cost-effective training programs conveniently located throughout the Houston area. HCC staff members also can customize training programs to meet a company's specific needs and conduct those classes on site. The HCC Workforce Development Division oversees 67 degree and certificate programs, including accounting, biotechnology, computer science technology, international business, and real estate.

Development Projects

Two of Houston's biggest initiatives in the early 2000s were to improve the general quality of life and address the traffic situation. These goals were encompassed by Project Houston Hope, under which the city will begin to reverse the downward spiral of distressed neighborhoods by eliminating abandoned property, building affordable housing, attacking the problem of crime, collecting unpaid property taxes, and improving water, sewer, road, and educational services. Improvements to the timing of most of Houston's traffic lights eased traffic congestion and shortened commute times by 10 to 20 percent in 2004.

Houston also took steps to increase its trade infrastructure. Union Pacific Corp. committed $1.5 billion to railway improvements in the Houston-Gulf Coast region. The U.S. government and the State of Texas agreed to the construction of Interstate 69, which will connect Houston with the northeastern U.S. and Canada. An investment of $1.7 billion in George Bush Intercontinental Airport, William P. Hobby Airport, and Ellington Field will improve air connections for passengers and cargo by 2006. Several projects, including construction of new facilities and a channel deepening and widening, are underway at the Port of Houston.

Economic Development Information: Greater Houston Partnership, 1200 Smith, Ste. 700, Houston, TX 77002; telephone (713)844-3600; fax (713)844-0200; email ghp@houston.org

Commercial Shipping

The Port of Houston is the world's sixth largest port. It ranked first in the nation in total foreign tonnage handled in 2003, and second in total tonnage. More than 6,300 ships called on the port that year, moving 190 million short tons of cargo. This 25-mile long complex is served by the port authority and more than 150 private industrial companies. The port is also the site of Foreign Trade Zone #84, at which foreign goods can be temporarily stored or processed without an import duty. Two major railroads and 150 trucking lines connect the port to the rest of the continental United States, Canada, and Mexico. Major commodities traded at the port include chemicals, petroleum and petroleum products, machinery, motor vehicles, and iron and steel. The Port of Houston Authority is undertaking a number of projects, all scheduled for completion by the end of 2005, to increase and improve the capacity of the port. Among these projects are a deepening and widening of the Houston Ship Channel and a $1.2 billion expansion of its container facilities.

Houston is the international air gateway to the Southwest. George Bush Intercontinental Airport, the 11th largest international air cargo gateway in the nation, shipped 355,000 metric tons in 2004. The William P. Hobby Airport is primarily a domestic passenger airport, though 5,725 cargo tons passed through it in 2003.

Houston is one of the nation's busiest rail centers, with more than 700,000 rail cars passing through the system each year. In addition to links with the three airports, the Port of Houston, and local highways, the rail system is linked with the local trucking industry by six intermodal terminals. The Houston area is served by more than 1,100 trucking firms.

Labor Force and Employment Outlook

Houston lags just behind the national rate for high school graduates. According to the 2000 census, 76.3 percent of Houston adults completed high school, compared to 80.4 percent for the United States. However, its concentration of college graduates exceeds the national average, with Houston at 26.6 percent and the U.S. average at 24.4 percent.

The Texas Workforce Commission reports that between 1990 and 2005, the service industry accounted for 87 percent of all job growth across the Gulf Coast. Among the fastest growing sectors were computer systems design; architectural and engineering; arts, entertainment, and recreation; employment services; education; and health care and social assistance. The commission projects that the service industry will also be one of the fastest growing sectors throughout the first decade of the twenty-first century, second only to professional occupations. Between 2000 and 2010, professional and related occupations will experience a job growth of 28.9 percent, and service occupations will grow by 24.3 percent. These will be followed by management, business, and financial occupations (19 percent) and construction and extraction occupations (16.3 percent). The slowest growing sector will be farming, fishing, and forestry occupations, with a growth of only 9.8 percent. Overall, the labor force is expected to grow by 22.4 percent.

The following is a summary of data regarding the Houston metropolitan area labor force, 2003 annual averages.

Size of nonagricultural labor force: 2,095,800

Number of workers employed in . . .

natural resources and mining: 63,400

construction: 158,300

manufacturing: 188,900

trade, transportation and utilities: 440,900

information: 37,300

financial activities: 124,500

professional and business services: 293,000

educational and health services: 233,600

leisure and hospitality: 178,000

other services: 86,300

government: 291,700

Average hourly earnings of production workers employed in manufacturing: $17.16

Unemployment rate: 5.5% (December 2004)

Largest downtown employers	Number of employees
Shell Oil Co.	5,744
Harris County	4,750
Exxon Mobil Corp.	4,420
City of Houston	4,000
JPMorgan Chase	3,000
Continental Airlines Inc.	2,824
Foley's	2,500
U.S. Post Office	2,314
CenterPoint Energy Inc.	2,199
U.S. Government	2,100

Cost of Living

Historically, the cost of living has ranked lower in Houston than in most major U.S. cities because residents pay no state or local income tax. Housing in general is extremely attractive in Houston; low housing costs are the main reason Houston's overall living costs in 2004 were about 24 percent below the nationwide average for places of all sizes and run 45 percent below the average for metropolitan areas with a population of more than two million.

The following is a summary of data regarding several key cost of living factors for the Houston area.

2004 (3rd Quarter) ACCRA Average House Price: $186,722

2004 (3rd Quarter) ACCRA Cost of Living Index: 90.3 (U.S. average = 100.0)

State income tax rate: none for personal; $2.50 per $1,000 taxable capital for corporations

State sales tax rate: 6.25% (food and prescription drugs are exempt)

City income tax rate: none

City sales tax rate: 2.0% (of which 1.0% goes to transit authority)

Property tax rate: $0.655 per $100 assessed valuation

Economic Information: Greater Houston Partnership, 1200 Smith, Ste. 700, Houston, TX 77002; telephone (713)844-3600; fax (713)844-0200; email ghp@houston.org. Texas Workforce Commission, 101 E. 15th St., Rm. 651, Austin, TX 78778-0001; telephone (512)463-2236; email customers@twc.state.tx.us