Volume 31, Number 9 of The Neal Spelce Austin Letter
http://www.austinletter.com/ When the Texas Legislature adjourns next week, this is certain: Texas will have a balanced budget with no tax increases and there will a big increase in its Rainy Day Fund "savings account." Look around you. No other major state can make those claims.
Members of the Texas House and Senate will leave Austin next week after adjourning sine die 6/1/09. They will not re-convene in Austin in regular session until January 2011. Many of them will watch other states raise taxes, cut their budgets and plea with Washington for help.
Texas' competitor California is really struggling. Just how bad is it?
Governor Arnold Schwarzenegger has just proposed borrowing $2 billion from California cities and counties. The cities and counties squawked to high heaven because they, too, are cash-strapped. The Governator made this proposal after voters last week overwhelmingly rejected a series of measures to help keep the state solvent.
While Texas has billions of dollars in its Rainy Day fund, California is facing a $21 billion shortfall. And, in addition to raising taxes, officials there are talking about more and more cuts, including cutting about $600 million from colleges and universities. Let this sink in.
When we say California is a "competitor" state, consider that California has an impressive higher education system. One of the best in the nation. And, even as we speak, you can bet UT Austin is ramping up recruiting efforts to siphon top flight professors from California.
California might look to Minnesota for a road map. Minnesota was facing a multi-billion dollar shortfall. But Governor Tim Pawlenty outmaneuvered his legislature after it sent him an outsized spending bill and a long list of tax hikes. Minnesota already has one of the highest tax burdens in the nation, so Pawlenty said "we shouldn't raise taxes in the worst recession in 60 years" and said he will veto the tax hikes and, furthermore, taking advantage of a little-used provision in Minnesota law, he says he will cut $2.7 billion from the state spending bill to balance the state's budget. He did this after the legislature adjourned last week.
Other states may not fare as well as Minnesota. Let's look at how higher and higher state taxes are impacting many states - and, ultimately may benefit Texas - in the next item.
Americans know how to use the moving van to escape high taxes. People, investment capital and businesses can leave tax-unfriendly states and move to tax-friendly states. And they are doing that.
Other states are making their comparative situation with Texas even worse during these difficult economic times. Arthur Laffer and Stephen Moore, writing in a new study for the American Legislative Exchange Council, pointed out the difficulties high tax states were having long before this current economic crisis.
The study, titled "Rich States, Poor States," found that from 1998 to 2007 more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Texas, Florida, Nevada and New Hampshire.
"Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair," they ask. "No. Dozens of academic studies - old and new - have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses."
And now look what's happening. Lawmakers in California, Connecticut, Delaware, Illinois, New Jersey, New York and Oregon want to raise income tax rates on the top 1% or 2% or 5% of their citizens. In fact, the new governor of Illinois has proposed a 50% increase in the income tax rate on the "wealthy."
Or take New Jersey. (Please!) In the early 1960s, the state had no state income tax and no state sales tax. It was a rapidly growing state attracting people from everywhere and running budget surpluses. "Today its income and sales taxes are among the highest in the nation yet it suffers from perpetual deficits and its schools rank among the worst in the nation. People are fleeing the state in droves," Laffer and Moore report.
Texas was singled out by the authors for its fiscal soundness. And, as we noted previously, the Texas tax situation will keep its envied status for at least two more years, while other states are turning to even higher taxes to solve their fiscal instability. "The Texas economic model makes a whole lot more sense than the New Jersey model, and we hope the politicians in California, Delaware, Illinois, Minnesota and New York realize this before it's too late," they noted. At least Minnesota's governor took this advice last week. But the other states have not followed suit.
And this is where Texas benefits economically. Jobs will continue to flee these high-tax states for the foreseeable future. And many of them will be created here - providing income and a decent living for those who live in Texas.
Much has been made of the fact that Austin is the only major metro in the nation to gain jobs during this downturn - and rightly so. But where are those jobs being created?
Admittedly the increase in jobs in the Austin metro is small and the number of unemployed is higher than a year ago. But, hey, it's the best job situation in the nation. Given this, an examination of how this has occurred is timely.
The release last Friday of the April 2009 workforce numbers show that Austin's net job gain was 0.4% over April 2008, while Texas job totals are down 1.6% and nationally, the comparative numbers show a 3.8% loss.
In pure numbers, the Austin metro gained 3,400 jobs.
An analysis by Beverly Kerr, VP/Research for the Austin Chamber, shows that Austin's April-over-April net gain in jobs is due to a 3,900 gain in the government sector that compensated for 500 jobs lost in private industry.
Which Austin private sector segments are losing the most jobs? Kerr said the highest rate of losses occurred in these three categories: natural resources and construction, manufacturing and wholesale trade.
As we have reported previously, government jobs are becoming more and more attractive in these uncertain times. After all, most government jobs in Austin offer a high degree of security, an attractive health benefits program and solid retirement packages. Other states may be cutting government jobs.
Here, they are among the most sought-after.
