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Monday, February 7, 2011

How far apart are Texas and California anyway?

K. McCaffrey - Whenever someone, particularly one with my political sympathies, asks me about my favorite states in the country, I usually say Florida, because of their lack of state income tax, and Texas, because it has a business friendly climate and some semblance of political sanity. So, I was quite saddened to see a recent headline that puts my confidence in Texas in jeopardy:
"Texas Gov. Rick Perry delights in telling tales of his California "hunting trips" — hunting for businesses ready to flee the Golden State.

But the latest budget projections out of Texas have sharply changed the discussion: The Lone Star State is facing a budget gap of about $27 billion, putting it in the same league as California among states facing financial meltdowns. The gap amounts to roughly one-third of the state's budget."
The rest of the article has some fascinating details as to where a lot of the budget is going, and the fiscal makeup of Texas. One figure I found particularly pertinent was that Texas lags behind sixteen states in terms of "major research universities, patents produced, high-tech infrastructure and venture capital investment."
"Even Perry's claims of companies that have decamped from California to lay down roots in Texas appear to be overblown. When the Austin American-Statesman looked into the Texas governor's boast that there were 153 such companies in 2010, reporters found the claim included California firms that stayed put but maybe opened a Texas branch. The newspaper concluded that Perry's figure was grossly inflated."
I'm embarrassed to say that I didn't know these details before. I still think that Texas is, generally, in the right direction and I believe doing things like encouraging more private businesses will, ultimately, lead to the success and growth they may have been inflating over the past few years. (In any case, that scenario seems more likely in Texas - whereas California's pension system alone looks like certain doom.)

While Texas is apparently not immune to budget gaps, at least the government spending in Texas in '08 was actually a smaller percentage of the economy than spending in '87. California, on the contrary, had spending grow by 34% in the same period. I'm also quite glad to know that these details are coming to light, now the Governor and legislation can be held accountable for all the rhetoric they have been spewing about Texas as a maverick state without the same baggage of other big states like New York and California.

Clarification: In no way, shape, or form would I dare say Texas is ill-governed or in peril. Rather, I just found it surprising that they had policies like the 22 child per classroom rule, and that the decamping claim was overblown. It makes me a bit disappointed that they had mismanaged some facets, but I'm sure that they will manage.

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  1. That "$27 billion shortfall" is a bit of semantics. The money exists in Texas' "rainy day fund" but nobody wants to touch that money unless they just HAVE to. Secondly the last legislature was very nearly 50/50 politically and much of the spending came from liberals in the legislature. this incoming legislature is much more conservative so the projected shortfall will be much smaller as spending cuts are implemented (the $27 billion is projected assuming no cuts are made AND that the economy does not improve. neither of those scenarios are likely.)

  2. I remember this story!

    It's not quite what they're saying-- Texas has a two year budget, they haven't STARTED cutting their spending yet (Cali sliced theirs by, what, 1/4th last year?) and they've got a rainy day fund if the projected shortfall is what it's estimated to be. (Of course, that fund is from oil and natural gas...which is going to be hurting, unless that being held in contempt thing actually works.)

  3. I have pointed out several times here and elsewhere about how California's woes are the most cited only because the state is such a big part of the US economy. But it's budget woes, as bad as they are, are far from being the worst in the country in terms of debt per resident and debt as a percentage of total state spending.

    And as with corporate taxation by the US compared to foreign companies... it depends. There are lots and lots of special deals between companies and the state and local governments out here so you can't make too broad a statement about business climate. It's bad but not the worst. NJ, IL, RI, MA, MI, CN are much worse.

  4. Following Katrina, Texas took most of the people out of New Orleans. As I live in Louisiana and have relations in Texas, I know that the ultimate result was a huge blow to the state. Their school systems have had considerable difficulty and the overall expense has been considerable. I am wondering if this is adding to their budget woes. In Louisiana, we have had the exact opposite effects.

  5. I think you've succumbed to a bit of the media slander against Texas.
    12 billion of the projected deficit was projected increases in spending for current programs. This is the left's old trick of making a baseline that increases at a wild rate, then calling that the start point for spending reductions.
    Further, the Texas legislature is handling this by cutting spending, not raising taxes as Governor Moonbeam II wants to do here in California.
    Not only that, they have a 9 billion rainy day fund, something California only dreams about.
    List me as one Californian with a strong Texas envy.

  6. This will make you feel better about Texas: http://www.willisms.com/archives/2011/01/trivia_tidbit_o_919.html

  7. Well, don't get too bent out of shape. We will cut spending, raise sales tax a little, maybe increase the franchise tax a smidgen. And if all else fails we have a $9.4B emergency fund. We'll still be creating more jobs than any other state next year.

  8. Ah! Thank you, Dave-- that explains why all the places talked about Texas having a "projected" problem, but only said stuff about official projections for Cali.

  9. If one has ever needed proof that Journolist still lives, the coordinated propaganda assault on Texas by left-leaning media talking heads is proof positive. The LA Times article to which you linked is just the latest in a long string of stories written to support the narrative.

    As numerous posters here and in the comments section have posted, the narrative is not correct. Yes, Texas will have to tighten its belt, but it is a long way from being broke.

    California, by contrast, is insolvent--kept alive only by transfers and guarantees from the Feds. With some luck the end of the BABs program will force fiscal discipline on CA.

  10. About 745 miles by car from state line to state line and 1762 between Austin and Sacramento.

  11. Austin-American Statesmen is a very liberal publication that salivates at the thought of a hurting Texas economy. As others have pointed out, they didn't tell the whole story here.

  12. The fiscal health of the government has no bearing whatsoever on my opinion on a state. The fiscal health of the private economy is much more of an issue. If a state had low taxation and low regulations and a business and entrepreneurial-friendly climate, that it would rank high with me, regardless of how dismal the government there is.

    I've always wondered why, if push comes to shove, some people are willing to sacrifice the heath of the 'private sector' (read increase taxation) for the benefit of the state.

  13. Texas has become a talking point amongst the left to try to debunk fiscal conservatism. Don't fall for it! Krugman has tried, now the LA Times is trying it, others have and will try it. Here is one article that presents another point-of-view already alluded to in the comments above:


    Don't fall for it!

  14. Professor, don't fall for the spin that comes from either the LA Slimes or the Austin-American Statesman. Both are to the left of Pravda.

    Texas has provided the bulk of jobs that have been created in the last couple of years, inspite of the fact that we have 2 million illegals to deal with that put a drain on our education, law enforcement and judicial systems not to mention the health care systems that are required by law to treat illegals.

    What put a crimp in our budget was Katrina. The State of Texas was promised by Homeland Security that we would be reimbursed for the costs of cleanup, so we used our "rainy" day fund to initiate that. Perry was later told by Janet Napolitano that no funds were going to be forthcoming since other states needed the money more (Louisiana) and we were basically left holding the bag.

    We have a balanced budget amendment that means we cannot spend more than we take in (Katrina being the exception since people were huring) and you can bet that our newly Republican controlled Congress will find those budget cuts needed. Also, we have a system where state agencies are audited, and they prove to not be worth their money, they are eliminated.

    I have spoken with my state Congressman and I can assure you that our budget shortfall is NOT the $27 billion, as is being reported. I can also assure you that Texas will continue to do the things that will allow it to stay solvent, unlike California which has become a failed state where it now requires federal funds on a daily basis just to make its unemployment insurance payments.

    So pay no mind to thosw two publications. Governor Perry is NOT one of their favorite people as he is a strong 10th Amendment guy and doesn't mind pointing out his differences with Barack Obama.

    Remember this: when the EPA decided to usurp the 10th Amendment and impose regulations on a number of states to take over what is a state responsibility (clean air control), every state but Texas folded under the weight of the federal government. We sued them.

  15. A few other things, Professor:

    our roads and highways are second to none. The University of Texas has the M.D. Anderson Cancer Research Center and M.D. Anderson Hospital in Houston is the benchmark for cancer treatment, beating out Sloan-Kettering. We have produced such doctors as Denton Cooley and others who have lead the field in heart surgery.

    We have no state income tax, our ad valorum taxes are within reason (although a big high), sales tax is @ 6.25% state wide, licence plates for my F-250 are at $80/yr, no "personal" property taxes, food costs are lower than in the East and we export more than any state in the Union.

  16. Austin-American Statesmans' motto: "If it happens in Austin it's news to us." The above commentors have done a good job of describing Texas' economic condition.

  17. http://washingtonexaminer.com/opinion/columnists/2011/02/texas-booms-while-california-busts

  18. You stepped into a political minefield with this one, where liars figure and figures lie. I hope you don't take articles about budget deficits in Texas in the LA Times at face value, that would be naive. This Texas budget debate has been kicking around the internet now for a while.

    Liberals want to spin Texas as just another state in trouble like California or Illinois because Texas has been held up as an example of a low tax well run conservative state, in other words something to be destroyed. Add to that the conflict in Texas politics has come to resemble what was going on nationally in this country in the 1850s. Then throw in a dollop of potential presidential politics because of Gov. Perry and you have a volatile brew.

    The fight right this moment is about budget cuts which will effect Texas state workers, programs and other rent seeking interests. The tax and spend crew wants to break into the $9 billion Texas rainy day fund rather than cut spending to keep the river of Texas tax money flowing downhill.

    More Money Not the Answer to the State’s Budget Woes
    February 07, 2011
    By The Honorable Talmadge Heflin

    "Austin insiders say that additional revenue is needed to close the state’s projected multi-billion dollar budget shortfall. Without the extra income, they claim, lawmakers risk the state’s future fiscal health and prosperity.

    But is that really the case? Is more money the only viable solution?

    Of course not. Just as anyone managing a household budget knows, when a family’s expenses grow beyond its income, the solution is not to instantly drain your savings and demand a raise from your boss. The proper response is to cut back on household expenses—particularly if your family’s spending habits resemble anything close to the state’s.

    According to the Legislative Budget Board, state government spending increased by nearly 300 percent between fiscal years 1990 and 2010, or 139 percent after adjusting for inflation. During the same period, Texas’ population grew by only 49 percent."

    "ObamaCare adds 3.1 million people to Texas’ Medicaid rolls by 2014 and Texas will need an additional $10 billion in the next budget to meet those costs."

    Texas Public Policy Foundation

    The Big Squeeze
    by The Honorable Arlene Wohlgemuth
    & Spencer Harris

    Texas Public Policy Foundation

  19. Texas booms while California busts
    First of a five-part series
    By: Mark Hemingway

    "Among the states, it has become clear there are two competing visions of political economy in America, embodied by California and Texas. One vision involves the economic devastation that comes of an overregulated economy. The other reveals the prosperity unleashed by smaller government."

    "California is facing budget shortfalls in excess of $20 billion each year for the next five years, and acquires $25 million in new debt each day. “We’ve been living in fantasy land. It is much worse than I thought. I’m shocked,” then California Gov.-elect Jerry Brown, D, told the Los Angeles Times.

    By contrast, when Gov. Rick Perry, R-Texas, campaigned successfully for a third term this year, he ran ads touting the fact that his state has billions in surplus. In fact, Texas was one of only six states that did not run a budget deficit in 2009. Perry, with characteristic Texas humility, has taken to taunting California on his Facebook page.
    Texas is expected to run a two-year, $15 billion deficit going forward. But this still doesn’t have observers worried. Texas legislators closed a $10 billion deficit in 2003 without raising taxes"

    Washington Examiner

  20. I'm sorry to have to tell you this, but in case you weren't aware, Rick Perry doesn't give a rat's a$$ about the people of Texas, and has sold them out time and time again to his New World Order buddies! He's a Bilderberger, and he's a NWO crony who believes in the screw the people for money doctrine...and he's getting allot of money from "special interests" for doing so (if "special interests" is the politically correct term you really must use). He's a total slimy scoundrel, and I have no reason to lie, I don't even live in Texas!

  21. I live in Texas and our congress meets every two years. The budget is set based on what money is available and it is less 27 billion than it was two years ago. So congress will reduce spending by this amount for the next two years. We do not have a shortfall of 27 billion since we will adjust the budget account for it. I think the media is willfully neglecting this.

  22. While it is true that the Texas legislature has in the past few years become more profligate (we now offer food stamps to able bodied working adults, school spending is way out of control, property taxes are horrific for those of us who just own the home we live in, and legislators managed to sell the populous on a massive funding for "cancer research" in the last Constitutional update), the above commenters are correct. There ARE shortfalls in every budget in the land these days, but Texas, Oklahoma, Louisiana, and other determined independent states will pull through.

    My worry about the relative success Texas has enjoyed is that it will just further the influx of West Coast "Wanters" that has already led to such mess as the parenthetical items above. This influx has bulldozed & clear-cut the hills surrounding Austin (ref Bee Caves) - we need to use care the same doesn't happen to our traditional state governing principles.

  23. Why in the world do you have moderated comments if you are going to allow paranoid conspiracy theorists to comment?

  24. VidTruth; OMG, Perry attended the Bildenburg meeting. Everyone should be shaking in his boots. Right?

    Wonder if he compared notes with those Clinton hacks that attended in 1997 like:

    Sandy Berger (wonder if they taught Berger how to stuff his socks at that meeting?)

    Jon Corzine (there's a steadfast Republican)

    George Stephanopoulos (another steadfast Republican, right?)

    and let's not forget Richard Bernstein of the New York Times.

    Perry is getting a lot of money from "special interests"? Seems you are big on slander but short on proof. Shall I tell you how much "special interest" money Obama took? Would you like the figures from just AIG?

    Why don't you tell us what wonderful, successful state you hail from so we can make a few comparisons?

    Let's face it, you are long on claims, short on proof and seem to suffer from Texas envy.

  25. Paranoid and psycho are OK; spam and pr0n, not so much.