illustration by John Ueland

The Secret Behind The Texas Miracle

Rick Perry’s state has grown largely due to government spending and public borrowing.

Rick Perry wants Washington, the symbol of big government, to be as inconsequential as possible. Fortunately for Texas, that hasn’t happened during his 11 years as governor.

The state’s jobs growth (dubbed the “Texas Miracle”) catapulting Perry’s run for the White House owes much to government spending and its fiscal sibling, public borrowing. Cities and school districts have been the big drivers, and that’s simpatico with the Texas ethos of a weak, decentralized government. But don’t discount the feds, whose defense buildup alone has tripled the billions of dollars in contracts flowing to the state.

How many realize that Texas has a greater share of government workers than the rest of America? Or that under Perry, state debt grew faster than national debt? And that Texas was willing to spend and borrow for unemployment benefits—not once, but twice, under Perry’s watch?

The idea that Texas is a small-government, pay-as-you-go, free-market haven is about as authentic as the daily cattle drive through the Fort Worth Stockyards. It may have happened in the past, but it’s all for show today.

This is nothing to apologize for; it’s simply more nuanced than the shorthand, sound-bite version that less government and less debt trumps all.

The reality is that Texas is one of the country’s biggest states, and it’s growing twice as fast as the nation. It needs more teachers, policemen, and firefighters, as well as city managers and planners. Those are good jobs, too, with health insurance and retirement plans.

The state also needs more investment in schools, highways, bridges, and prisons. With higher taxes off the table, the natural alternative is to borrow for these necessities. That’s not a bad strategy, with interest rates near record lows and Texas holding a top investment-grade rating.

If Texas were a company, it would score points for how it’s managing debt and getting its share of the public bounty. Only the politics, not the results, make some people uncomfortable.

From December 2000, when Perry took over for George W. Bush, through mid-2011, Texas added more than 1 million jobs, according to data from the Bureau of Labor Statistics. That’s an 11 percent increase in a little more than a decade. But government jobs swelled 19 percent during the same time period, adding nearly 300,000 workers statewide. Only one jobs category—health care—added more.

Texas and Perry won kudos last summer after the Federal Reserve Bank of Dallas reported that the state accounted for almost half the net new jobs created nationwide since the recovery. One reason is that the nation lost half a million government jobs from June 2009 through June 2011, while Texas was adding 40,500 government workers.

In Fort Worth-Arlington, government employment grew more than twice the rate of the private sector during that window. The numbers may decline soon, after state budget cuts hit home, but the sector has already provided a valuable lift.

On the debt front, Texas is no longer more conservative than most. In 2000, it had $4,783 in debt per person, 7 percent less than the average for all states. By 2008, the debt load was $8,932 per person—and 6 percent higher than the all-states average.

In the late 1990s, Texas typically issued about $1 billion in new bonds annually. Under Perry, new borrowing topped $3.5 billion in 2002, fell back and then resumed its climb. New bonds totaled at least $4 billion a year from 2007 through 2010.

State debt, restricted by a constitutional amendment, grew from $13.5 billion in 2001 to $37.8 billion in 2010. That’s a faster growth rate (180 percent) than the national debt (135 percent), not including the local borrowing that accounts for the vast majority of Texas’ debt.

Of course, no state has a debt problem on the scale of the federal government. In 2010, the national debt was 93 percent of gross domestic product, while Texas’ state and local debt was estimated to be nearly 20 percent of gross state product. When Perry became governor, Texas’ debt was 13.7 percent of GSP.

This is not to suggest that Texas has become a great socialist state. Taxes remain low, regulations are relatively light, and tort reform makes it a beacon for business—all strengths that Perry has championed religiously. In 2011, CNBC ranked Texas as the second-best business destination in the country, after placing No. 1 the year before.

Yet for many, Texas remains a difficult place, with lower spending on education and health care, and a weak safety net. To get an idea of how tough Texas can be, consider that just 21 percent of laid-off workers managed to get unemployment benefits in the past year—one of
the lowest ratios in the country.

In 2009, Perry rejected $555 million in federal stimulus funds for unemployment insurance, because he wouldn’t accept requirements to modernize the system. Even with low payout rates, Texas didn’t collect enough to pay the rising claims from the recession.

To cover the shortfall, the state raised $2 billion by selling bonds in late 2010, repeating the same move it made in 2003. Ultimately, businesses will pay the tab, but Perry usually mocks such spending and borrowing.

And what to make of the governor’s much-ballyhooed enterprise funds? He taps those two pools of taxpayer money to induce companies to expand or relocate to Texas. The cash drives home the message that Texas is serious about business. But beyond the PR value, it’s just another way to redistribute wealth.

Perry would argue that it’s money well spent on creating jobs. Others would say the public funds would have a bigger impact on education and health care.

That’s a legitimate debate. But the telling point is that government is central to both schemes, just as it’s central to Texas at large.

Mitchell Schnurman is an award-winning business columnist for the Fort Worth Star-Telegram.