Rick Perry and the Myth of the ‘Texas Miracle’
Policy + Politics

Rick Perry and the Myth of the ‘Texas Miracle’

AP Photo/San Antonio Express-News, Lisa Krantz

Texas Gov. Rick Perry, who ends his shadow run for the White House this weekend by announcing his bid for the GOP presidential nomination, has been touting the success of the Lone Star State’s economy, which, he says has done significantly better than the rest of the country through the Great Recession. Perry’s announcement comes exactly in time for this weekend’s Iowa Straw Poll.

“We keep adding jobs while others are losing them left and right,” he told the Republican Leadership Conference during its mid-June meeting in New Orleans. Some analysts say that Perry will enjoy a strong advantage over others in the crowded Republican field because of his state’s near-miraculous record of job creation throughout one of  the worst economic periods in U.S. history.

There’s just one problem with that portrayal. While Texas has created more jobs than any other state in the past two years, the increase is far less than advertised. The rate of increase is not much higher than a number of other states, including former rustbelt centers like Pennsylvania or liberal sanctuaries like Vermont.

Moreover, its recent performance is a classic case of “all hat, no cattle.” Texas lost 34,000 jobs in June, causing its unemployment rate to jump to 8.2 percent, which ranks it 25th among states and leaving it worse off than its immediate neighbors. Even as Texas’ unemployment rate rose along the lines of the entire country, the neighboring states of Louisiana and New Mexico saw their unemployment rates fall to 7.8 percent and 6.8 percent, respectively.

Moreover, to the extent Texas has succeeded in adding jobs over the past two years, most of its good fortune rests on conditions that are not replicable elsewhere. Soaring oil prices have provided a substantial number of new jobs and tax revenue since it is the nation’s leading oil- producing state, even as those $4-a-gallon gas prices drained consumers nationwide and put pressure on other states’ budgets. An influx of new government defense spending has also pumped up revenue, while the state has used oil revenue to postpone a sharp cutback in state and local government employment, which is about to hit in full force.

Two other factors that may not play well with Republican Party primary voters also contributed to the Texas   economic performance over the last decade and through the Great Recession. According to a recent analysis in the Ft. Worth Star-Telegram, state debt grew by 282 percent over the last decade, a slightly faster rate of increase than the ostensibly more profligate federal government. Local government debt in Texas grew by a heady 220 percent over the same period.

Texas also benefited during the downturn by having tighter housing finance rules – a stark contrast to the business-friendly regulatory environment Perry likes to tout. After the savings and loan crisis of the early 1990s, which hit Texas hard, the state legislature prohibited “cash out” mortgages. The state’s tough mortgage rules kept housing prices in check and saved it from the huge price declines and foreclosures that devastated many other areas of the country. Still, construction employment fell by 95,000 jobs during the recession and remains 14 percent below its pre-recession peak.

“Anyone who thinks the relatively strong performance in Texas has much to do with state government policy is wrong, except when it comes to housing, where regulation helped the state,” said Howard Wial, an economist and fellow at the Brookings Institution’s Metropolitan Policy Program. “In Texas, the worst is yet to come.”

After assuming the seat held by George W. Bush in 2000, Perry, 61, has been elected to three full terms as Texas Governor, making him the longest serving chief executive in state history. Married with two grown children, he has won plaudits from social and economic conservatives alike for his strong anti-abortion, anti-tax and anti-regulation stands. He also takes pride in his willingness to lure businesses from other states by offering special tax breaks. Asked by a television interviewer why some companies had relocated to Texas from California, he replied, “They like the smell of freedom – freedom from taxation.”

The recession officially ended in June 2009, but job declines continued across the country for most of the next six months, including in Texas. But after oil prices soared to nearly $150 a barrel in 2008 and remained high for most of the past two years, the Texas oil patch and the global oil services industry centered in Houston staged a strong recovery.

The state added 45,000 natural resource extraction jobs since the jobs trough of the recession. That was 15 percent of all the new jobs added in the state. The oil price bubble has also created tens of thousands of new business service jobs, which are counted separately.

“We have a huge oil and gas service industry; we’re the world’s center,” said Mine Yucel, a senior regional economist at the Federal Reserve Board of Dallas. “If oil and gas prices are high, that benefits us because of demand for our services, not just from Texas, but from the entire world.”

It also benefited the Texas state government treasury, which was able to replenish its rainy day fund with $6 billion after using $3 billion in unanticipated severance taxes to make up for the recession-driven shortfall in the last biennial budget. “Luckily, Texas has underneath it a great deal of oil and gas,” said Dick Lavine, the senior fiscal analyst for the Center for Public Policy Priorities, an Austin-based think tank. “There’s nothing like the proceeds from $100 barrel oil flowing straight into the budget.”

The result is that while state and local governments nationwide have eliminated over 400,000 jobs in the past year, government employment in Texas actually grew. There are now 1.66 million state and local government employees in Texas, an increase of 66,000 in the past two-and-a-half years.

There Will Be Cuts
But that’s about to change. While the state used its oil surpluses to recreate its rainy day fund, Perry and the Republican legislature slashed over $5 billion from state education budgets in order to avoid raising other taxes. The result has been a wave of announced teacher and other school employee layoffs for the fall.

A spokesman for the Texas State Teachers Association said as many as 50,000 out of 333,000 teacher jobs could be eliminated in the next two years. “The Texas Workforce Commission has started a website to help relocate teachers into new jobs,” said Dax Gonzalez, a spokesman for the Texas Association of School Boards, who added the state expects to add 80,000 new students to its 4.8 million pupil population next year.

The coming education cutbacks have alarmed some regional leaders, including Richard W. Fisher, president of the Dallas Federal Reserve Board. He noted in the board’s quarterly publication Southwest Economy that a recent study ranked Texas “dead last in the percent of the population age 25 and older that graduated from high school, 37th in percent of population enrolled in degree-granting institutions, 35th in academic research and development, and 41st in science and engineering degrees awarded. We can’t be happy that we are lagging behind in education,” he wrote. 

The Texas way has its boosters, of course. “We are connected in a healthy way to the expanding global economy,” said Donald Hicks, a professor of political economy at the University of Texas-Dallas. He cited the state’s strong advanced technology sectors, including semiconductors centered in Austin and aeronautics centered in Dallas. “We’re cheaper than Silicon Valley for advanced technology because a professional’s salary goes a lot further in a state without a state income tax,” he said.

Yet that didn’t help Texas avoid losing 132,000 manufacturing jobs or 14 percent of the total between the onset of the recession and December 2009. Since the recovery began, the state has regained only 11,000 of those jobs. The information technology sector also remains well below its pre-recession peaks.

“Compared to the rest of the country, we did better,” said the Fed’s Yucel. “But we’re not immune. The oil and gas has offset the losses in those other sectors.”

Continued strong military spending at the federal level also benefits Texas, especially its El Paso and San Antonio metropolitan areas. The Army over the past three years has relocated about 14,000 troops to Fort Bliss, which is outside El Paso, and plans to permanently relocate an additional 6,000 troops there in the next two years.

“When you have all those people coming in with their families and children, that increases demand for housing, education and all kinds of services,” Yucel said. 

An earlier version of this article appeared in The Fiscal Times on July 8, 2011.