For the state's business community, this week’s election results raise important questions about the future direction of economic policy in Texas, a state that has built much of its national reputation around relatively low taxes, limited regulation, energy production and an environment favorable for investment. With a new Democratic administration preparing to take office, businesses across Texas will be watching closely for signs of how the state's economic priorities may evolve.
Gina Hinojosa will be the first Democrat to occupy the governor's mansion since 1995. Democrat James Talarico defeated Republican Ken Paxton in the U.S. Senate race, giving Texas its first Democratic senator since 1988. Democrats also captured the lieutenant governor's office and attorney general's office, two positions with substantial influence over state policy and the direction of government.
Democrats will control the Texas House for the first time since 2003. Republicans, however, are expected to retain their majority in the state Senate. That division could prove particularly important for businesses. While the governor has substantial executive authority, major changes to taxation, spending, regulation and economic incentives generally require legislative approval. A Democratic governor working with a Republican-controlled Senate would need to negotiate with lawmakers whose policy priorities may differ significantly.
A few issues to keep on the radar with Hinojosa as Texas’s new governor:
1) Her stated positions on industrial development and corporate incentives suggest that some established economic-development practices could receive greater scrutiny.
2) She has called for a moratorium on new data center development, an end to certain tax incentives for the industry and changes requiring data centers to pay sales taxes on the electricity they consume. She has also raised concerns about associated water consumption and infrastructure costs.
3) Hinojosa has indicated that she wants to reconsider certain corporate tax breaks. Her broader campaign messaging has emphasized public accountability, economic fairness and directing more resources toward public services.
4) She has opposed the state's private-school voucher program. She has also expressed support for expanding Medicaid. Significant changes to either would require a bill to be passed by both the Texas House of Representatives and the Texas Senate.
5) Hinojosa has also proposed a one-time $1,500 refund for Texas households using money from the state's Economic Stabilization Fund, commonly known as the Rainy Day Fund. This proposal would also require legislative approval.
For Texas companies with substantial exposure to international trade, federal contracts, energy markets or national regulatory policy, changes in the direction of congressional debates over federal taxation, trade, energy policy, immigration and regulation could have significant implications.
The outcome also creates a different relationship between Texas's state leadership and the federal government, particularly on issues where the incoming administration may take positions that differ from the Trump administration.
Despite the historic political shift, Texas' fundamental economic advantages remain. Its large workforce, energy resources, industrial base, transportation infrastructure and central role in international trade will continue to make it an important destination for businesses and investment. But moving forward, policy predictability will be an important consideration for companies making long-term capital commitments.
Will this change in political leadership alter the state's approach to economic development, regulation and investment or will the incoming administration preserve much of the framework that helped establish Texas as one of the world's largest economies?
For Texas businesses, the immediate focus will be understanding which campaign proposals become legislative priorities.