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Texas vs. California

It’s a story of makers vs. takers.
Commentary

Note: This article originally appeared in The California Financial Times.

California and Texas are home to 20 percent of America. These two states have a lot in common: long coasts, sunny climates, diverse populations, plenty of oil in the ground, and Mexico to the south. Where they diverge is in their governance.

For six years ending in 2010, I represented almost 500,000 people in California’s legislature. I was vice chairman of the Assembly Committee on Revenue and Taxation and served on the Budget Committee. I was even a lieutenant colonel in the state’s National Guard. Before serving in Sacramento, I worked as an executive in California’s aerospace industry.

I moved to Texas late last year, joining the millions Californians of who have packed up for greener pastures in the past ten years, with Texas the most common destination.

In his State-of-the-State address last January, Governor Jerry Brown said, “Contrary to those declinists who sing of Texas and bemoan our woes, California is still the land of dreams. . .” California may be dreaming, but Texas is working.

According to the U.S. Census Bureau, from 2000 to 2010, California lost a net of 519,600 jobs while Texas gained 1,093,600 jobs. This fueled a net domestic outmigration of middle class families from California, with almost two million more Americans moving out of California than moving in. Meanwhile, Texas saw a net gain of 781,542 from domestic migration, with about 1,000 people per day moving into the state in 2009.

Texas added 27,900 jobs in March. The official unemployment rate in Texas is 7.1% compared to 8.3% nationally. California added 4,000 jobs and has an official unemployment rate of 10.9%.

California’s model of government-led prosperity, aided by the nation’s best weather, appears in serious jeopardy of collapse. While Texas’ model of freeing jobs creators to do what they do best through low taxes, less regulation, and a better lawsuit climate is looking stronger by the month.

As a former lawmaker, it is interesting to ask why the states are governed so differently. One key distinction may be found in the lawmakers themselves and how they paid the bills before entering the legislature, in the case of California, or the work they do while not in session, in the case of Texas with its part-time legislature.

Some 18 percent of the Democrats who control both houses of California’s full-time legislature worked in business or medicine before being elected. The remainder drew paychecks from government, worked as community organizers, or were attorneys. Texas Democrats are more than twice as likely as their California counterparts to claim private-sector experience outside the field of law.

In Texas, 75 percent of the Republicans who control both houses earn a living in business, farming, or medicine, with 19 percent being attorneys in private practice. Of the remaining four Republicans one is a retired Army officer, one, a teacher, one, a professor, and one, a former staffer for elected officials.

That Texas’s legislature is run by makers and California’s by takers is glaringly obvious from the two states’ respective balance sheets.

California’s elected officials are particularly adept at dreaming up ways to spend other people’s money. While the state struggles with interminable deficits caused by years of reckless spending, the argument in Sacramento isn’t over how to reduce government; rather, it’s over how much to raise taxes and on whom. Governor Brown is pushing for a tax increase of $6.9 billion per year, to appear on this November’s ballot. A competing tax-hike plan is being offered by Molly Munger, a wealthy civil rights attorney (wealthy by dint of being the daughter of Warren Buffett’s business partner). The silver lining may be that having two tax hikes on the ballot will turn voters off to both of them.

Meanwhile, lawmakers in Texas are grappling with a fiscal question of an entirely different sort: whether or not to spend some of the $6 billion set aside in the state’s rainy-day fund.

California’s government-employee unions routinely spend tens of millions of dollars at election time to maintain their hold on power. In Texas, the government unions are weak and don’t have collective bargaining, leaving trial attorneys as the main source of funding for Lone Star Democrats.

California’s habit of raising taxes to fund a burgeoning regulatory state isn’t without impact on its economy. Californians fork over about 10.6 percent of their income to state and local governments, above the U.S. average of 9.8 percent. Texans pay 7.9 percent. This affects the bottom line of both consumers and businesses.

With that money, Californians pay for more government. The number of non-education bureaucrats in California is close to the national average, at 252 per 10,000 people. Texas gets by with a bureaucracy 22 percent smaller: 196 per 10,000.

Of course, having more government employees means making more government rules. According to a 2009 study commissioned by the California legislature, state regulations cost almost $500 billion per year, or five times the state’s general-fund budget. These regulations ding the average small business for some $134,122 a year in compliance and opportunity costs.

While California has more bureaucrats, Texas has 17 percent more teachers, with 295 education employees per 10,000 people, compared to California’s 252.

The two states’ educational outcomes reflect this disparity. If we compare national test scores in math, science, and reading for the fourth and eighth grades among four basic ethnic and racial categories—all students, whites, Hispanics, and African-Americans—Texas beats California in every category, and by a substantial margin. In fact, Texas schools perform consistently above the national average across categories of age, race, and subject matter, while California schools perform well below the national average.

Apologists for the Golden State frequently point to Texas’s flourishing oil and gas industry as the reason for its success. Texas does lead the nation in proven oil reserves, but California ranks third. The real difference isn’t in geology but in public policy: Californians have decided to make it difficult to extract the oil under their feet.

Further, contrary to popular opinion, California’s refineries routinely produce a greater value of product than do refineries in Texas, mainly because the special gasoline blends that California requires are more costly.

A great example of legislative priorities as seen through the lens of money is whether or not a state funds its National Guard members to attend state-run colleges and universities. For decades,California remained the sole state without this benefit, reluctantly granting $3 million for the program last year. The State of Texas, on the other hand, pays 100% of college costs up to 12 credit hours per semester for uniformed members of its National Guard. Conversely, California shells out about $150 million per year to provide in-state tuition for illegal immigrants and just widened the taxpayer assistance to provide cash grants for college to people who can’t legally work in the U.S.

At the macro level, the differences in spending priorities between the largest and second-largest states become startling. Numbers say everything about a government and its values. Follow the money and you can figure out whether elected officials view themselves and government as the center of a Ptolemaic universe, “policentric” if you will, or whether they see liberty as the central object to the served.

Because states vary in their per capita output and cost of living, simply comparing dollars to dollars can be misleading. By this yardstick, the average state spent $9,412 of its citizens’ money for state and local government operations in 2008, according to the U.S. Census Bureau. California spent $11,302 per person that year, or 120% of the national average. Meanwhile, Texas spent $7,756 per capita, or 82% of the national average.

But, Californians on average make more money than Texans – though Texas did see per capita income growth jump 37% from 2000 to 2010, compared to 31% in California. Further, the cost of living in California is 42% higher than in Texas, with more than $14 needed in California to pay for housing, food, transportation, health care and clothing what $10 can buy in Texas.

So, a better way to compare state spending would be to examine the share of the gross state product spent on government. Looking at what portion of the state’s economy is spent on state and local government is instructive; seeing how that money is spent is positively illuminating.

Across America, the state spending made up 19.8% of a state’s economy in 2008. California spent 22.5%, or 114% of the national average, compared to Texas’ 15.4% or 78% of the national average.

Simply put, Californians spend 46% more on their government than do Texans.

Comparing major categories of spending really brings home the difference.

Education spending as a share of the state economy averages 5.7%. California spends 5.6% on education, Texas, 5.4%. And, while spending is one factor among many that can affect education outcomes, it is instructive to note that Texas employs more 17% educators per capita than does California, with its strong teachers’ unions and highly-paid teachers.

Welfare spending shows a shocking contrast, with California spending 5% of its economy on wealth-transfer programs compared to the national average of 4.6% and Texas’ 3.1%. California spends 62% more on welfare as a share of its economy than does Texas. Perhaps this explains the Obama administration’s non-stop antipathy towards Texas.

Mass transit and other state and locally-run utilities comprise 1.4% of the average state’s economy. California spends 1.9% here, Texas, 1.2%. California spends 66.2% more of its economy on buses and light rail systems than does Texas. California’s proposed $100 billion high speed rail system will significantly grow this outlay.

California spends more than Texas on law enforcement and prisons as well as parks and recreation, with those two categories making up a combined 1% larger share of the economy in California.

Texas manages to spend more in one category than does California: roads. In spite of recent chronic underfunding in Texas via diverting as much as $1.2 billion from its State Highway Fund, Texas still manages to spend 1.2% of its economy on highways vs. California’s outlay of 0.9%. The national average is 1.1%.

The spending category showing the largest divergence between California and Texas should come as no surprise to anyone following the impending bankruptcy of Stockton, California’s 13th-largest city: spending for government employee benefits. Nationwide, states spend an average of 1.6% of their economy providing for their former workers. California spends 2.2% of its economy, $1,105 for every person in the state, to keep their powerful government union employees comfortable in their golden years. Texas spends 0.9% of its economy for this purpose – some $467 per man, woman, and child in the state. California spends 136.8% more of its economy than does Texas on health and pension costs for its employees. While most Texas civil servants don’t have collective bargaining rights, they leave government service at about one-third of the rate which employees in the private sector do, showing that the State of Texas is seen as a good employer.

While California seeks more ways to tax success, it excels at subsidizing poverty. The percentage of households receiving public assistance in California was 3.7 percent in 2009, double Texas’s rate of 1.8 percent. Almost one-third of all Americans on welfare reside in California.

Another advantage that Texas enjoys over California is in its civil-justice system. In 2002, the U.S. Chamber of Commerce ranked Texas’s legal system 46th in the nation, just behind California’s, which was 45th. Texas went to work improving its lawsuit environment, enacting major medical-malpractice reforms in 2003. Texas’s ranking consequently jumped ten places in eight years, while California’s dropped to 46th. In the last legislative session, Texas lawmakers passed a landmark loser-pays provision, which should further curtail frivolous lawsuits.

California is often a trendsetter. In this case, California’s governance presages President Obama’s ideal vision of America by five to ten years.

Texas, on the other hand, might light the path to a once and future America – a nation with vastly different priorities than what we see today coming from Sacramento and Washington, D.C.

Chuck DeVore served in the California State Assembly from 2004 to 2010 and is a Senior Fellow for Fiscal Policy at the Texas Public Policy Foundation.