Big Trouble in the Lone Star State

"You can all go to hell, I'm going to Texas" got a little harder for fiscal conservatives and no-new-taxers to say yesterday, as it turned out longtime Gov. Rick Perry has been sitting on a pretty substantial budget deficit.

According to Texas Comptroller Susan Combs, the state that seemed miraculously to have escaped the state fiscal crisis has, not so miraculously, not escaped. From Combs' biennial review estimate [pdf]:

Offsetting the anticipated revenue collections of $77.3 billion for 2012-13 is the ending 2010-11 General Revenue-related balance, projected to be a negative $4.3 billion. This projected ending balance is a reflection of worse-than-expected revenue collections due to the recession – notably, the all-important sales tax which was battered by rapidly rising unemployment and contracting state and national economies.

The Lone Star State's current tax haul is coming in at 2.9 percent below expectations.

Texas has long been a model [pdf] for budget hawks who argue that spending, not revenue, is the word of the states' undoing. The news that the recession has hit Austin's revenues is being cheered by supporters of big and growing government, who are not just gloating over the shortfall but gleefully exaggerating it. From ThinkProgress:

Not only did Perry severely underestimate the depth of his state's budget woes, but he has also spent the last few years lecturing Washington D.C. on its supposed fiscal improprieties, giving speech after speech in which he held up Texas as the economic model for the nation to follow. Just last week, he said that Congress needs to propose a balanced budget amendment to the Constitution, or else "the hard work that Texas and states like ours have done to make prudent fiscal decisions will be washed away by Washington's growing avalanche of excess"…

In his column from Los Tiempos de Neuva York, Nobel laureate Paul Krugman, the doctor, makes some legitimate criticisms of Perry's vague budgeting habits before engaging in his newspaper's long and honored tradition of making up facts:

But reality has now intruded, in the form of a deficit expected to run as high as $25 billion over the next two years.

And that reality has implications for the nation as a whole. For Texas is where the modern conservative theory of budgeting — the belief that you should never raise taxes under any circumstances, that you can always balance the budget by cutting wasteful spending — has been implemented most completely. If the theory can't make it there, it can't make it anywhere.

How bad is the Texas deficit? Comparing budget crises among states is tricky, for technical reasons. Still, data from the Center on Budget and Policy Priorities suggest that the Texas budget gap is worse than New York's, about as bad as California's, but not quite up to New Jersey levels.

"About as bad as California's"? Not quite. California's projected deficit over the next two years is a whopping 29 percent of revenues. The worst-case interpretation of Combs' figures has Texas with a 17 percent deficit, and the actual current deficit is a mere 5 percent. As Combs points out, the Lone Star State would still be ahead even under the worst circumstances because, unlike California, Texas has a real "rainy day fund" and has kept it funded. If Krugman's $25-billion guesstimate (which is not to be found anywhere in Combs' review) were to come true, Austin would still be able to reduce it by $9 billion by drawing on emergency funds.

The contrast is even more striking if you believe there is more to the health of a region than the government's fiscal condition. The worst part of Texas' job loss appears to be in the past, and unemployment is gradually decreasing. In California it is still increasing. The state's business community and population continue to grow. They continue to shrivel in the heavy tax states. The problem for the Empire, Golden and Garden States isn't just that they face present deficits but that their tax bases are not growing. Every year they have fewer and smaller pockets to pick.

That you'll get different outcomes with different tax policies is an idea Krugman would have understood when he was still doing economics rather than demagoguery. It's true Texans' overall tax burden is more than 2 percent lower than Californians' but the most important differences are in how revenues get collected. In Texas, where property taxes are higher and zoning is looser than in California, land values didn't zoom as much during the boom, and they haven't tanked as badly during the bust. By the same token, lack of an income tax makes job and business creation easier. That's not fiscal-con cant; it's basic economics. Rick Perry deserves criticism for concealing Texas' fiscal troubles, but it won't be time to gloat until people stop voting, with their feet, in favor of his state.