The Economy And The 81st Legislature

A story in the Fort Worth Star-Telegram this morning notes that Texas isn’t yet feeling the full brunt of the economic slowdown seen so many places in America. Of course, you could have fooled us, but the story points out several things of interest:

Texas, meanwhile, keeps purring along. The economy is slowing, to be sure, and corporate layoffs are rising, but the state remains in positive territory by most measures. Even construction employment, down 5.2 percent nationwide in the past year, was up 3.6 percent here.

“We’re feeling an impact from the slowdown, but in economics, everything is relative,” says Cheryl Abbot, regional economist with the Dallas office of the Bureau of Labor Statistics.

The state is holding up especially well compared with the country at large, and so far, North Texas is looking good, too. The Fort Worth-Arlington area added jobs in every category in the past 12 months, even an additional 200 in manufacturing — one sector that’s generally declined everywhere.

Credit three factors for Texas’ (relatively) good fortune:

The housing market has held up better than in much of the country, and as a result, consumer confidence hasn’t crashed to the same depths. That’s one explanation for why retail sales rose 5.6 percent in Texas in the past year, at least three times higher than nationwide.

The energy industry is booming, riding the wave of sky-high oil and gas prices. That’s producing scores of new jobs in Texas and abroad, and bonus checks for landowners in the Barnett Shale and elsewhere. The Texas rig count reached 931 in June, the highest level since 1984, reports the Federal Reserve Bank of Dallas.

Texas exports are on a tear, helped by the falling dollar and strong demand for chemicals. The currency drop has helped boost exports nationwide, but Texas exports grew 7.2 percent in April, compared with a 3.3 percent increase for the nation, the Dallas Fed reports.

These trends spill over to the broader economy, insulating Texas workers from some of the forces now squeezing employers. In professional and business services, for example, the nation barely added any jobs in the past year. But Texas companies added 64,500 employees in that category, a 5 percent increase.

Even the financial services business is doing OK here. Those firms have been in a tailspin, after the meltdown in subprime loans and a sharp drop in home sales. The sector accounted for more than 85,000 announced layoffs so far this year, the most in the monthly survey by Challenger, Gray & Christmas, a Chicago placement firm.

But Texas added 5,900 jobs in financial activities in the past 12 months, with 4,100 added in Dallas-Fort Worth alone.

Of course, the outlook for the future isn’t rosy in spite of the Texas economy not being totally in the dumps at this moment:

“Texas is going to feel the effects of the downturn, just like other states,” says John Challenger, CEO of Challenger, Gray & Christmas. “But when people lose jobs, they’ll be able to find something else a lot easier — and maybe without having to move and sell their house.”

I dispute that it will be easier for Texans to find jobs when the economy in Texas finally does its own spectacular meltdown (admittedly, the spectacular meltdown could be avoided with a Democratic president in the White House and new economic policies, but we’ll see), but that’s not the issue that has my curiosity piqued at the moment.

I wonder what impact the economic difficulties will have on the state’s fiscal standing when the 81st Texas Legislature convenes next January.

While higher petrochemical prices only add to the state’s bottom line, unemployment and business closings take away from the bottom line and actually create a greater fiscal burden for the state.

Business closings, obviously, will result in less taxes paid to the state (franchise taxes, etc.). In addition, it will result in less sales tax revenue. Sales tax revenue, of course, funds a pretty significant chunk of the state’s budget.

Higher unemployment, of course, will have a myriad of effects on the state. First, it means less sales tax revenue for the state because the unemployed have less to spend their money on. It could mean less property tax revenue for local governments as the unemployed may not be able to meet their property tax payments. Too, it will mean more state expenditures as families that once had insurance through their jobs find themselves on the wrong side of the economy and end up needing more state services such as food stamps, CHIP, and other health and human services provided by the state.

Of course, it depends upon exactly how bad the economy gets exactly how bad things will be for the 81st Texas Legislature when it comes time to pass a budget. Will social services been in need of a significant influx of new funding as a result of a lot of unemployed, newly impoverished Texans–and will the state have the money to pay for it?

The weak economy and the problems it could pose for the 81st Legislature is yet another reason we need a strong Democratic majority in the Texas House of Representatives. We all saw what happened in 2003 when the state–facing a decicit–balanced the budget on the backs of poor and middle class Texans. We could see a repeat of that (although you’d think Republicans would be smarter than that by now) if Republicans continue to hold on to the Texas Legislature. Or, if Democrats are in office, we may see more sound fiscal policy that doesn’t balance the budget on the backs of poor Texans.

Only time will tell.

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