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Krugman on the Texas budget deficit

By now, you’ve probably seen Paul Krugman’s column about the Texas budget deficit. He uses it to make some great points about the failure of the conservative slash-and-burn approach, but he missed a couple of facts that make it all the more damning.

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.

[…]

So what happened to the “Texas miracle” many people were talking about even a few months ago?

Part of the answer is that reports of a recession-proof state were greatly exaggerated. It’s true that Texas job losses haven’t been as severe as those in the nation as a whole since the recession began in 2007. But Texas has a rapidly growing population — largely, suggests Harvard’s Edward Glaeser, because its liberal land-use and zoning policies have kept housing cheap. There’s nothing wrong with that; but given that rising population, Texas needs to create jobs more rapidly than the rest of the country just to keep up with a growing work force.

And when you look at unemployment, Texas doesn’t seem particularly special: its unemployment rate is below the national average, thanks in part to high oil prices, but it’s about the same as the unemployment rate in New York or Massachusetts.

What about the budget? The truth is that the Texas state government has relied for years on smoke and mirrors to create the illusion of sound finances in the face of a serious “structural” budget deficit — that is, a deficit that persists even when the economy is doing well. When the recession struck, hitting revenue in Texas just as it did everywhere else, that illusion was bound to collapse.

The only thing that let Gov. Rick Perry get away, temporarily, with claims of a surplus was the fact that Texas enacts budgets only once every two years, and the last budget was put in place before the depth of the economic downturn was clear. Now the next budget must be passed — and Texas may have a $25 billion hole to fill. Now what?

Krugman is correct that we have a structural deficit, but that’s primarily the result of the 2006 property tax cut, which he didn’t mention. He also didn’t note that the budget was only balanced in 2009 because of the federal stimulus that Perry loudly hates at every opportunity. Depending on how you looked at it – and I confess, as I go through my archives, I’m a little confused about which numbers are referring to what – you’ll see figures like a revenue shortfall of $3.7 billion and budget shortfall of $9.1 billion cited. The rainy day fund could have covered either of those, but in the case of the larger number it would have mostly wiped it out, leaving nothing for this biennium. Point being, the big bad federal government and all those evil Democrats gave us a two year grace period. Not that you’ll ever hear that from the ruling party.

Anyway. For those who like visual aids, Open Left has you covered. Forrest Wilder deals with the factually-challenged response to Krugman that Perry is pushing. Finally, Kevin Drum notes the revenue problem that all states have been facing.

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2 Comments

  1. Grant says:

    I find it very refreshing others are out there that don’t just march lock-step with Perry in Texas. Being in Houston, I wanted Bill White to get a turn. Unfortunately, my fellow Texans didn’t allow that to happen.

    Huge fan of Krugman, and I think he’d probably would have added more to his article but was restricted by a maximum word count. Brilliant guy nonetheless!

  2. Ed says:

    Since 2003, Texas has received BILLIONS of dollars more in federal payments than Texas residents and businesses have paid in federal taxes. After 8 years “on federal welfare,” we still can’t balance the budget! What’s our problem?

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