SETEDF - Keys to the Community

News from the area’s economic engines continues to be encouraging. Economic indicators are not as encouraging – particularly sales tax and unemployment.

INDUSTRIAL UPDATE

Chenier presented its plan for a $6 billion expansion of its LNG facility in Southwest Louisiana to Port Arthur’s City Council. Chenier is seeking an agreement with Port Arthur to meet their water needs -
about 1.6 billion gallons of water a year. Port Arthur is the closest city to the LNG facility – just on the other side of the Sabine River. This could double the water sales for the city. The city’s water system currently brings in about $7.5 million per year. Port Arthur built a $32 million water plant for industrial purposes several years ago with extra capacity that has not been fully used yet. Southeast Texas construction workers could also benefit from jobs which should peak at 3000 during the three-year expansion.

Pandora Methanol reached financial closure with Eastman Chemical Company in May for the purchase of the methanol and ammonia facility near Beaumont. The plant, idle since 2004, has a production capacity of 270,000 tons of ammonia and 830,000 tons of methanol per year. New investment in the facility is estimated to be over $65 million by year end. Pandora will hire over 300 construction workers and over 50 full-time employees. Ammonia production is expected to commence in the fourth quarter of 2011 and methanol production is targeted to start in 2012. The company is also studying the possibility of increasing both production and storage tank capacity in the future.

Praxair is installing a new 135 million cubic foot per day hydrogen plant at Valero’s Port Arthur refinery. Plant start-up is scheduled for the first quarter of 2013. Under the new contracts, Praxair will supply 150 million cubic feet per day of hydrogen and about 200,000 pounds per hour of steam to Valero’s 50,000 barrels per day hydrocracker. Hydrogen will be supplied from the new plant, along with Praxair’s 1 billion cubic feet per day pipeline and storage complex.

The Valero Port Arthur Hydrocracker project is roughly 60% complete overall with construction being
approximately 20% completed. Currently, approximately 700 construction workers are onsite. Project completion is targeted for third quarter of 2012.

CB&I began fabrication work on the $1.4 billion contract with Refineria de Cartagena which was announced in November of 2009. This will mean employment opportunities for up to 500 craft workers - mainly welders and pipe fitters - at Island Park in Beaumont into 2012. Modular units are being built for a new refinery in Cartagena, Colombia.

Construction is expected to be completed in Q1 of 2012 on MPW’s new facility in the Port Arthur Business Park. MPW is a leading service provider of integrated technology-based industrial cleaning, facility management, water purification and container management. The facility will add 35 permanent jobs.

The Dallas Federal Reserve Bank reports a good outlook for the refiners and petrochemical companies along the Gulf Coast (and in our service area) in their Houston Economic Outlook for July 2011.

“Despite softening economic data, the margins of refiners and petrochemical companies continue to be strong, due in part to a series of unplanned outages that kept prices above equilibrium. Gasoline consumption climbed in June, a result of both seasonal factors and some easing of the price. A growing middle class in developing countries is keeping demand for consumer plastics strong, and the need for infrastructure to serve them has picked up the slack from a weak domestic market for construction-grade plastics. Capacity utilization for plastics
and resins returned to pre-recession levels in the second half of 2009, and all chemicals utilization is now above its long-run average.”

OTHER DEVELOPMENTS

Construction began on Orange County’s $10.5 million “shelter of last resort and emergency operations center.” The facility, located about a mile south of Interstate 10 on FM 1442, is design to tornado
standards so as to withstand 200 mph winds. It will stand 24 feet above sea level to avoid storm surge inundation. Funding for the facility is being provided through a grant, insurance money and private
donations.

Downtown development in both Orange and Beaumont continues. The City of Orange recently awarded a $1.3 million contract for the construction of a new 8,900 sq. ft. Senior Center / Meals on
Wheels facility. Construction is schedule to begin at the end of July or early August and the bid process has begun for the proposed $7.2 million downtown revitalization projects, which include a riverfront stabilization and boardwalk, performance pavilion, and entry plaza with interactive fountains. Good progress is being made on Beaumont’s lake and event center in downtown. The city is now accepting November bookings for the center.

Texas Youth Commission (TYC) announced the closing of the Al Price State Juvenile Correctional Facility this summer. The less than 20-year old facility is located between Beaumont and Port Arthur.
Employees will be offered positions at other units across the state; however, many of the 270 employees at the unit will be looking for jobs. In the face of a $116 million budget shortfall, TYC
chose to close Beaumont’s Al Price unit and two others in the state among the ten TYC facilities statewide. The 130 youth offenders will be housed elsewhere in the state. Other uses for the facility will be considered by the General Land Office.

CONSUMER CONFIDENCE

From a national perspective, the consumer confidence index decreased from 61.7 in May to 58.5 in June. On the positive side, inflation fears eased considerably in June. From a regional perspective, West South Central which includes Texas, Louisiana, and Arkansas, showed a 15.6 % increase in the consumer confidence index from its level one year ago.(Source: The Conference Board and Texas
Comptroller’s Office)

REAL ESTATE

The $8000 tax deduction incentive for first time home buyers was in effect last May (2010) and is not in effect this year. Therefore, the number of homes sold was down with Beaumont carrying the largest burden of a 29.2% decrease. Port Arthur’s median price is 15% higher than a year ago. The number of construction permits in Jefferson County jumped from 25 in April to 53 in May.

SALES TAX

Sales tax collections for the 12 cities tallied in the region showed a total decrease of 4.2% for May 2011 sales over May 2010. (Note: Payments received by taxing entities in July reflected sales in May.)

UNEMPLOYMENT CLAIMS

In the Beaumont/Port Arthur area, June’s initial claims were down slightly from a year ago. Continued claims were down 15% from a year ago.

EMPLOYMENT

For the Beaumont/Port Arthur MSA, the unemployment rate increased from 11.0% in May to 11.7% in June. The unemployment rate in June of 2010 was 10.9%. It’s interesting though that the number of employed people increased by 1700 from June 2010 to June 2011.

State of Texas

Economic development fared well in the legislative session. While no new funds were allocated for incentive plans, the money remaining in the funds is still available for economic development going
forward. Legislation passed in the regular session increased the difficulty for cities, counties, or the state to impose eminent domain. In special session, the Texas legislature addressed two important issues – tort reform and Texas Windstorm Insurance Association (TWIA) reform. Both of these issues are important to businesses in
the area.

Supporters contend that passage of the tort-reform measure (called “Losers Pay”) will reduce the number of frivolous lawsuits by levying some fees on plaintiffs and allowing such frivolous suits to be
dismissed early in the process. Some plaintiffs who sue and lose will be required to pay court costs and attorney fees of those they are suing. The law also allows for expediting cases less than $100,000.
Supporters of the bill say the state's business climate will improve because the reforms will make Texas more attractive to employers looking to expand or relocate.

The windstorm insurance bill provides reforms related to the state agency known as TWIA, which provides property and business coverage in 14 coastal counties and part of Harris County. (Note: Jefferson, Orange and Chambers counties as well as the Bolivar Peninsula are included.) Insurance companies have virtually ceased providing windstorms insurance for residential and commercial properties in the counties. The bill allows policy holders to sue for claims and collect double damages, but only if they meet strict new standards to prove that TWIA intentionally denied a legitimate claim. The bill streamlines the dispute resolution process and requires that any claims be filed within one year. The bill addresses liquidity for TWIA by providing for pre-event bonding instead of depending on
more expensive post-event debt funding.

At the time the bill was being negotiated in the legislature, TWIA’s board of directors voted for a 5% rate increase in premiums. This fits with their long-term strategy adopted last year of implementing 5% increases annually until rates are adequate to cover potential claims.

Most of the information in this report was prepared from publicly available sources.
Prepared by Karen Bourdier – Entergy Texas economic development group