CALIFORNIA FOCUS
FOR RELEASE: FRIDAY, MARCH 11, 2011, OR THEREAFTER

BY THOMAS D. ELIAS
“DEFICIT-RIDDEN TEXAS NO LONGER LAUGHING AT CALIFORNIA”

That sound you hear coming from Texas officials when the subject of California comes up is no longer chortling. It’s more like choking.

For no one has been more gleeful about California’s plight as it sank deeper and deeper into deficit than the leading officials of Texas. They even used tax dollars to pay for studies on how to take business away from California. Not from other states, just California.

Leading Texans starting with Republican Gov. Rick Perry made frequent forays into California over the last few years trying to convince California business owners to move operations and headquarters to the Lone Star state, and even convinced a few to go. Some California politicians, mostly notably Republican Meg Whitman while she ran for governor last year, called for emulating the low-taxes and weak regulations of Texas and even brought Perry in for advice. But hardly anyone seeks his counsel any more.

For the buccaneer-like approach used by Texas government and Texas businesses in their relations with California have been muted. Some of the Texas companies that tried to exploit Californians illegally during the energy crisis of the early 2000s are extinct, starting with the biggest pirate of them all, Enron. And after hiding the truth for more than a year, Texas state government now admits to a two-year budget deficit of $25.5 billion, similar to California’s shortfall on a per capita basis.

The Texas budget gap comes to about 30 percent of the state budget; California’s to less than one-fourth of recent yearly spending. Things are so tough that ever-lax Texas has begun cracking down on Internet retailers, demanding they pay sales tax if they have a physical presence in the state. This caused Amazon.com to close its lone Texas warehouse, the retail giant griping about an “unfavorable business climate” – the same words Texans use while trying to lure California businesses.

The Texas troubles are largely driven by the “supply side” economic beliefs of Perry and other Republican leaders in that solidly “red” state, who have long been convinced their government could survive and thrive with the third-lowest tax rates in the nation, when levies on income, sales and property are combined. Lower taxes, they’ve argued, would lead to more business growth and more jobs, producing more actual tax dollars for the state budget than would higher rates.

Wrong, wrong and wrong. Yes, unemployment in Texas is lower than in California just now, about 8.3 percent and rising in January, while California unemployment has held steady about four percentage points higher for a year. But Texas, with real estate values far below California’s, had virtually no price bubble to burst and was therefore not afflicted with as great a foreclosure crisis or as much of a dropoff in housing construction jobs. Take away housing factors and Texas unemployment is about the same as California’s.

Meanwhile, Texas business growth has been slowing since mid-2010, reported an Austin business newspaper.

While California Gov. Jerry Brown is trying to exempt public education from most upcoming deficit-driven budget cuts, top Texas officials appear to have no compunctions about slashing public schools and colleges.

“A lot of things we (state government) are doing arguably aren’t priorities for the people of Texas,” Republican Lt. Gov. David Dewhurst told a reporter. “People could stake me and Gov. Perry on the ground and torture us, and we still would not raise taxes.”

Those “low-priority” items include Medicaid, about to be cut by about one-third in Texas, far more than California's looming reductions. Only time will tell if that leads to epidemics or higher health care costs when poor Texans switch from doctors’ offices to emergency rooms for many problems. Per-student public school spending – already about $1,000 a year below California’s – figures to be cut about $1,200 yearly to about $7,800, while California’s level will not sink below $9,000 even if Brown fails to secure the tax extensions he says are needed. Caps on class sizes in Texas will also disappear.

At the same time, one in every three Texas families that include at least one wage-earner remains below the federal poverty level of $22,300 per year income for a family of four. This more than doubles California’s 15.3 percent 2010 rate.

The difference in poverty numbers indicates that Texas features many more low-paying jobs than California, another factor depleting meaning from the difference in unemployment rates.

So Texas has very little to chortle about these days and the upcoming education cuts will harm its prospects for future growth, since businesses tend to like places with well-educated work forces.

There’s certainly no cause for Californians to gloat over the newly-acknowledged woes of Texas the way leading Texans did while California appeared worse off. But there’s also no longer any way to claim, as many have over the last two years, that lower taxes and fewer government regulations assure economic success for Texas while dooming California to decline.

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Email Thomas Elias at tdelias@aol.com. His book, "The Burzynski Breakthrough," is now available in a soft cover fourth edition. For more Elias columns, visit www.californiafocus.net