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Magazine / Politics

Rick Perry and The Texas Way

The governor and possible GOP presidential contender boasts that he’s a true conservative who can also show real results. The truth is messier.

The trade-off: Texas offers businesses low tax rates, light regulation, and not much of a safety net for the poor. Has it worked?(Ben Sklar/Getty Images)

photo of Alex  Roarty
August 4, 2011

EDITOR'S NOTE: This story appeared in the August 6, 2011 edition of National Journal. Rick Perry is set to announce his presidential bid on Saturday.

Everything is bigger in Texas. And possibly for the next 16 months, so too will the focus be on its decadelong governor, Rick Perry.

The man who succeeded George W. Bush in 2000 has evolved from a nonfactor in the Republican presidential race to a potential front-runner who, if he chooses to run, would be Mitt Romney’s toughest rival for the nomination. Perry still hasn’t decided to jump in, but every speech he gives and every high-level donor meeting he holds suggests that he will become an official White House aspirant.

 

Friends and foes alike are scrambling to assess Perry’s record as Texas’s chief executive, and there is plenty to review. As the nation’s longest-serving governor, he took office as the dot-com bubble was bursting and a year before the 9/11 terrorist attacks. By the end of the decade, he was overseeing the state during the worst economic crisis in a generation.

Early reviews for Perry, especially among conservative opinion leaders, have been glowing. Columnist George Will was so impressed by the number of jobs created in the state that he coined a new term: “Texas Exceptionalism.” Some national polls of Republicans already show the Texan running second to establishment candidate Romney, the former Massachusetts governor, and he is also popular among tea party activists.

Perry’s record should, in fact, send chills down the spines of his GOP rivals. The governor can boast not only of unparalleled job creation but of a distinctly conservative record, including several high-profile fights to ward off tax increases. In other words, he can argue that he is both a true believer in conservative principles and that he has gotten results. But his tenure also carries blemishes—among them deep inequality in income and some of the poorest educational results in the country—that call his record into question and could sink his chances in a general election.

J-O-B-S

Texas’s economic success can be summed up in one word: jobs. The Lone Star State has had a solid job-creation record during the past decade, certainly in comparison with the anemic growth in most other parts of the country. It weathered the recession far better than the country as a whole and emerged from the economic downturn as the country’s most vibrant employment hub.

Prerecession, jobs in Texas grew at an exceptional clip. From December 2000 through December 2007, according to the Bureau of Labor Statistics, employment in Texas increased by 10.4 percent, or almost 1 million jobs. That was more than double the nationwide increase of 4.1 percent over the same period.

When the financial crisis hit in 2008 and devastated markets across the United States, Texas held its own. From December 2007 through June 2011, the state actually added about 60,000 jobs, an increase of 0.6 percent. That stability contrasted starkly with what happened in the rest of the country: Those three-and-a-half years saw nearly 7 million positions eliminated nationwide, a 5.3 percent decrease. Other states similar in size to Texas, which has more than 25 million residents, fared worse. California lost over a million jobs, a decline of 7.4 percent. And since the recession officially ended in June 2009, Texas has produced more new jobs than any other state by a wide margin.

For conservatives, there’s a straightforward explanation for the Lone Star State’s surge: low taxes. Mostly because Texas doesn’t levy a state income tax, its tax burden is the fifth-lowest in the country, according to the Washington-based Tax Foundation. And the tax bill for business is much lower in Texas than in the most other states, especially in the large, liberal-leaning states like California and New York.

“When you look at states with major populations as well as geographic size, I think Texas is at the top of the list as far as conservative governance,” said Talmadge Heflin, director of the Center for Fiscal Policy at the conservative Texas Public Policy Foundation in Austin. “People have been able to make investments without fearing the Legislature coming down three years down the road and yanking the rug out from under them.”

Perry routinely crows about luring jobs away from comparatively high-tax states such as California, as he did in July when EA Sports, producer of the top-selling video games Madden NFL and NBA Elite, announced that it would be locating 300 new jobs in Austin. “This isn’t rocket science,” he said. “You keep taxes relatively low. You have a regulatory climate that’s fair and predictable, a legal system that doesn’t allow for over-suing, and you have institutions of higher learning … who allow for these innovative programs to be developed because of the curriculum that they put in the schools.”

Whether Perry has a right to brag or should simply be thankful for his luck is another matter. Texas is rich in oil and natural gas, and his tenure as governor has coincided with a decadelong surge in energy prices. Employment in natural resources in Texas has increased by 63 percent since 2000, the fastest growth of any sector, according to BLS data. It’s also worth noting that the three states with even faster job growth over the past decade—Alaska, North Dakota, and Wyoming—are also big oil-and-gas producers. “Even though Texas is not as dependent on oil and gas as it was say in the 1980s, that is still one of the major drivers of the economy,” said Mine Yucel, a senior economist at the Federal Reserve Bank of Dallas. “That helped keep us afloat.”

But the jobs picture isn’t perfect. Even as its total number of jobs rose, the state’s population climbed even faster. As a result, the unemployment rate in Texas remains at 8.2 percent as of June—below the national level of 9.2 percent but higher than in 24 other states.

Texas was also lucky in avoiding the worst of the real-estate collapse. The housing bubble never grew there during the first part of the last decade and, consequently, didn’t burst as it did elsewhere around the country. “In terms of land use, it is easier to build here,” Yucel said. “Texas is a wide-open place, so when you have demand for housing,  instead of demand going up, supply just goes up. It put a lid on house prices.”

The resiliency of the state’s housing market and its reliance on natural resources lead critics to say its economic growth has little connection to its conservative government. James Galbraith, a professor of government at the University of Texas who is skeptical of the influence of tax rates, said that other states don’t need to copy Texas to enjoy similar success. They just need to, in his words, travel back millions of years in time and start the process of developing oil. “The whole country should have a lot of high-priced oil and natural gas,” Galbraith said. “It’s a great advantage—I recommend it for everybody.”

EDUCATION, INSURANCE LAG

Although Texas has demonstrated strong job growth, prosperity hasn’t benefited everybody. If its low-tax system has helped spur job creation, its relatively meager spending compared with most other states may have also widened disparities among its residents.

The most glaring example of the state’s inequality is the percentage of residents without health insurance. According to the Census Bureau, 23.8 percent of Texans did not have health insurance in 2009—by far the highest percentage in the country. That was significantly higher than the national average of 15.1 percent. It also was higher than the rates in chronically poor states such as Alabama, West Virginia (both at 14 percent), and Mississippi (18 percent). Texas also had the second-highest percentage of children without health insurance—16.3 percent. That was twice the nationwide average and exceeded only by Nevada.

The Lone Star State also lags the rest of the nation badly in high school graduation rates. Among people older than 25, only 79.9 percent of Texans have a high school degree—the lowest rate in the country, according to the Census Bureau’s 2009 American Community Survey. California doesn’t fare much better at 80.6 percent, but other large states do: New York’s graduation rate stands at 84.7 percent, and Florida’s is 85.3 percent.

Texas suffers from one of the highest poverty rates in the country. Seventeen percent of its residents lived below the federal poverty level in 2009, according to the Census Bureau. That was the eighth-highest rate in the country. Texas has the sixth-highest poverty rate for children at 24 percent; the national average is 20 percent.

Critics of Perry and the state’s conservative Legislature argue that the widespread poverty, large number of uninsured people, and low high school graduation rate tell the real story of economic growth in Texas. It stems, they say, mainly from cheap and unskilled labor rather than from the kind of investment and innovation that improve long-term competitiveness. “We are a state that wants to have a workforce that looks more like Canada’s, but every year, it’s looking more like Mexico’s,” said state Rep. Mike Villarreal, a Democratic lawmaker from San Antonio. “It’s becoming less educated, and income equality is rising.”

Even some moderate Republicans warn that the state isn’t paying enough attention to the widening disparities. “I think the plight of the working poor is not adequately recognized,” said Bill Ratliff, a onetime Republican state senator and former lieutenant governor under Perry. “Kids on Medicaid have access to health care … but the working poor, the only way they get service is in the emergency room.”

Ratliff, a former chairman of the Texas Senate’s Education Committee, said it was a “crime” that the Legislature cut $4 billion from education programs rather than raise any taxes or tap the state’s reserve fund to close a $27 billion two-year budget deficit. “Our children are going to suffer for it for a generation,” he said. Although spending per pupil increased over the past decade, it barely kept up with inflation and didn’t keep up with other states. Between 2001 and 2008, Texas saw its state rank in per-pupil spending fall from 34th to 42nd, according to the National Center for Education Statistics.

Ratliff and others argue the state’s poor education record is an ominous sign for its future economic growth. In 2009, a committee commissioned by Perry and other leaders to assess global competiveness delivered a blistering report. “Texas is not globally competitive,” it said. “The state faces a downward spiral both in terms of quality of life and economic competitiveness if it fails to educate more of its growing population (both young and adult) to higher levels of attainment, knowledge, and skills. The rate at which educational capacity is currently being developed is woefully inadequate.”

But just as Texas’s job growth can’t be attributed solely to Perry’s policies, neither can its inequities. The state’s border with Mexico has long made it an immigration hub. That population growth helps fuel job creation, but the poverty of those new residents poses its own challenges. Border states to the west of Texas—Arizona, California, and New Mexico—also have some of the highest rates of uninsured people in the nation. And child-poverty rates in Arizona and New Mexico are higher than in Texas. “There is an immigrant population that is growing fast,” said Bill Miller, a longtime GOP lobbyist in the state. “The problem that Texas has is keeping up with the growth. It’s expensive, and it’s hard to do. It’s hard culturally, let alone politically.”

“Our children are going to suffer … for a generation.” —Ex-Lt. Gov. Bill Ratliff

Immigration isn’t the whole story, though. California has similar problems with immigration but lower rates of inequality. According to the Kaiser Family Foundation, in 2009 the Golden State spent nearly twice as much as Texas on Medicaid, $41.6 billion to $23.7 billion, despite having a population that is less than 50 percent bigger. Consequently, California has an 18 percent uninsured rate—6 points lower than Texas. Texans love to brag about taking jobs from California. But even as California deals with much worse budget problems without the benefit of a booming oil and gas industry, it does a better job of providing assistance to its neediest citizens.

It’s a trade-off, and many Texas conservatives are happy to make it. They hark back to a philosophy of individual responsibility. “I think that historically, the Texas philosophy is [that] if you’re able to make a good living, then you’ll assimilate quite well,” Miller said. “If you can’t, then you’re not going to be happy wherever you are. That’s kind of the M.O. here. That’s the mind-set in Texas—not a lot of ‘Woe-is-me’ here. There’s more of a [feeling of] ‘Why the hell aren’t you working?’ ”

But it’s a destructive philosophy, according to Ratliff, Perry’s former lieutenant governor.

“Unfortunately, Texas is always sort of frontier in mentality,” said Ratliff. “If you don’t have a job, you ought to go get one and pull yourself up by your bootstraps—don’t whine. It only becomes a serious problem when it happens to you. Otherwise, it’s something like, ‘Don’t bother me with your problems.’ ”

PERRY'S ROLE?

Texas had a conservative government before Perry, and it will have one after he leaves. The question is, how much credit—and blame—does the governor deserve for Texas’ record during his 10 years in office? The Lone Star State has traditionally had a weak chief executive, although most analysts say that Perry’s long tenure and unbeaten string of political successes (his triumph over Sen. Kay Bailey Hutchison in last year’s GOP  gubernatorial primary being the most recent) have made him a force in state politics. His influence was never bigger, perhaps, than in the last round of budget negotiations, when the state, which approves budgets biannually, faced the aforementioned $27 billion deficit.

Buoyed by a wave of new, tea party-inspired legislators, Perry not only didn’t raise taxes but left billions of dollars in the state’s rainy-day fund, too. He also helped cut more than 5,000 state-government jobs. All in all, he was able to gouge government spending the way many Republicans in Washington can only dream of. Perry’s bulldog approach has been the highlight of his tenure, said Heflin: “That’s been his trademark—to provide leadership to say, ‘Certain bills that reach my desk are going to be vetoed if they get beyond our ability to pay.’ ” Others have more doubts about Perry’s impact, even if they don’t doubt that he’ll be able to take credit for Texas’s success. Miller compared him to the manager of a talented baseball team. “Texas has done well under him, and he can claim some sign gains vis-à-vis the rest of nation,” the GOP lobbyist said. “But he’s still managing the New York Yankees. He took over an economic engine that’s historically quite strong.”

Even if the real story is more complicated, Perry argues that his record validates the GOP argument that  less government spending spurs job creation—a belief that has dominated conservative economic thinking since the recession. That’s a potent message in a Republican primary where voters are hungry for a business-savvy candidate who can revitalize the economy. His state’s bottom-line job numbers may also encourage moderate Republicans, while his limited-government philosophy will appeal to tea partiers and other activists on the GOP’s right flank.

One in four Texas children live below the poverty line.

Perry might also present the clearest contrast with President Obama. Unlike Romney, Perry didn’t pass a health care bill that included an individual mandate and that was designed in part (along with cost reduction) to reduce the ranks of uninsured residents. Unlike two other credible challengers for the GOP nomination, former Govs. Tim Pawlenty of Minnesota and Jon Huntsman of Utah, Perry didn’t support legislation to curb climate change. (Pawlenty has openly called his past support of reducing greenhouse-gas emissions a “clunker.”) Conservatives who demand purity in their GOP candidates might have their man in Perry. And unlike other conservative favorites, such as Rep. Michele Bachmann, R-Minn., or Alaska ex-Gov. Sarah Palin, Perry can point to actual results.

The real danger for Romney isn’t just Perry’s economic record—it’s that he can pair it with a pitch to social conservatives. The Texas governor, an evangelical, has already spoken openly about the importance of religion in his life and in government, calling for governors from the other 49 states to join him in Houston to pray for the country. It’s a message that might turn off some moderates, but Perry’s economic chops could put the minds of some others at ease.

Questions about income inequality, the uninsured, and high school graduation rates aren’t likely to pose many problems for Perry in a Republican primary. They could pose headaches in a general election, but that’s a problem he wouldn’t have to worry about until later.

Scott Bland contributed

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