AUSTIN, Texas–An article entitled, “He’ll mess with Texas: Recruiting expert says state ‘has to buy jobs,'” appeared in the Austin Business Journal on July 9 and appeared across the nation in the BizJournals.com family. The piece managed to insult both Texas and the facts by quoting a Mr. Michael Gallis of Charlotte, North Carolina, an “expert” in urban planning and transportation matters.
The gist of the criticism leveled by Mr. Gallis is contained in these two paragraphs:
“In some business magazines, they rate Texas as a great state for business and in a ludicrous way they rate California at the bottom,” Gallis said. “California has created more wealth in the hundreds of billions of dollars. How can the state that produced more wealth than any other state in the United States be called a bad state for business? Because they’re looking at business taxes and regulatory environment. And they go, ‘Texas has no taxes and it’s got a low regulatory environment.’ How many IPOs are coming out of Texas? How many billions of dollars of new wealth are coming out of Texas? What is Texas’ educational system able to produce? That’s why Texas has to buy jobs.”
He went on to say, “Texas benefits from having an energy economy, which is just an accident of history that is no different than Saudi Arabia having large reserves of oil. Texas touts itself as this (great place for creating jobs) but it’s got one little island in Austin of an innovation economy. Other than that, it’s got one of the worst educational systems in the whole country. Where does it go in the long run? If America followed the Texas model of cutting our education, we’d end up as one of the dumbest countries in the world with no entrepreneurial class and we would end up with no military because we’d have no taxes to support it.”
Let’s break it down and examine his charges:
“In some business magazines, they rate Texas as a great state for business and in a ludicrous way they rate California at the bottom,” Gallis said. “California has created more wealth in the hundreds of billions of dollars. How can the state that produced more wealth than any other state in the United States be called a bad state for business?…”
Having served as a California State Assemblyman from 2004 to 2010, I know a bit about California’s strengths and weaknesses.
California has a population of 38 million people (as of 2012) compared to Texas’ 26 million, meaning California’s population is 46% larger–one would hope they produce more wealth by sheer numbers of people alone.
The fact is, however, that Texas exports more than does California and exports more high tech goods as well. Further, Texas’ real personal income (in 2008 dollars) was $41,733 in 2012, according to the U.S. Bureau of Economic Analysis. This compares to $38,888 in California and $39,103 in North Carolina.
Next, Gallis says, “…Because they’re looking at business taxes and regulatory environment. And they go, ‘Texas has no taxes and it’s got a low regulatory environment.’ How many IPOs are coming out of Texas? How many billions of dollars of new wealth are coming out of Texas?”
Of course, IPOs, venture capital, and the like, are a tiny fraction of the overall economy and even a small fraction of basic business lending by banks. The high profile IPOs in California do help boost tax revenue because of the Golden State’s highly progressive income tax, but Silicon Valley is only about 9% of the California economy–not everyone can work for Google or Facebook. That’s why many California cities are struggling, such as Stockton and San Bernardino. The bottom line is, even with California’s advantage in IPOs, the average real income in Texas is higher than in California by more than $2,600 or 7.3%–and that’s real income before taxes. Other studies that take into account real consumer spending suggest a far greater disparity in favor of Texas with California’s cost of living about 37% than Texas’ in the first quarter of 2014. Texans’ real income is 6.7% higher than the income North Carolinians enjoy.
Then, Gallis claims, “What is Texas’ educational system able to produce? That’s why Texas has to buy jobs.”
The educational system canard is one of the longest-lasting myths against Texas. The claim is usually anchored on the statistic that Texas has the lowest number of adults with a high school degree or better, 79.9% vs. Mississippi at 80.4% and California at 80.6%, the second- and third-lowest states, respectively. But this statistic is entirely driven by immigration. According to the U.S. Department of Education’s National Center for Education Statistics, “Public High School Four-Year On-Time Graduation Rates and Event Dropout Rates: School Years 2010-11 and 2011-12, First Look” (April 2014), Texas’ high school graduation rate in the 2011-12 school year was 88%, tied with Nebraska, Vermont and Wisconsin for the second-best in the nation behind Iowa at 89%. The national average graduation rate was 80% that year. California’s rate was 78%. North Carolina matched the national average at 80%.
Further, looking at national graduation rates for race and ethnicity and economically challenged students, the numbers breakdown as follows:
U.S. graduation rates in 2011-12
72% Economically Disadvantaged
California graduation rates in 2011-12
73% Economically Disadvantaged
North Carolina graduation rates in 2011-12
75% Economically Disadvantaged
Texas graduation rates in 2011-12
85% Economically Disadvantaged
Taking into account these factors, Texas graduates a higher percentage of students from high school by race, ethnicity and economic circumstance than does California, North Carolina, or the U.S. as a whole.
What about standardized test scores? For a variety of reasons, the SAT is an imperfect measure, as participation rates vary tremendously around the nation, from 100% in Delaware to 3% in South Dakota. Furthermore, the SAT doesn’t break out its scores by race and ethnicity.
Fortunately, the U.S. Department of Education compiles data from one national standardized test, the National Assessment of Educational Progress or NAEP. The latest NAEP scores (2013) for Texas and North Carolina for 4th and 8th Grade math and reading by race and ethnicity show a different picture than North Carolina’s Mr. Gallis paints, with 12 matchups between the states for the two grades in the two subjects among white students, Hispanic students and black students, Texas children outperform North Carolina’s children by 7 to 5.
Gallis then comments on Texas’ economy: “Texas benefits from having an energy economy, which is just an accident of history that is no different than Saudi Arabia having large reserves of oil.”
Almost half of Saudi Arabia’s economy is dependent on oil, some 45% of GDP. By comparison, according to the latest data from the U.S. Bureau of Economic Analysis (2012), 14.9% of Texas’ economy is generated from oil and gas extraction and refining, about one-third of Saudi Arabia’s economic dependence on oil. Mr. Gallis’ claim is, to put it charitably, a stretch. Further, while only 2.3% of California’s economy was from oil and gas in 2012, it’s not for lack of oil reserves–it’s due to the fact that California state policies make it increasingly difficult to pull their oil resources to the surface and refine it, making the state increasingly reliant on foreign imported oil and refined products.
Gallis begins to wind up his attack on Texas by noting that, “Other than that, it’s (Texas) got one of the worst educational systems in the whole country. Where does it go in the long run? If America followed the Texas model of cutting our education, we’d end up as one of the dumbest countries in the world with no entrepreneurial class…”
The myth of Texas’ poor educational system has already been debunked (though the system can be improved with reforms, such as more high quality education choices for parents and students), but let’s revisit the subject and take a look at the National Education Association (NEA) teachers’ union statistical yearbook. It shows that, for every teacher, Texas had 14.3 students in average daily attendance in grades K-12 in 2012-13. North Carolina had a shade more teachers with a ratio of 14.2. Both states are far better than the national average, 15.4. California has the most students per teacher with a ratio of 25 students in average daily attendance for every teacher. By the way, according to the NEA, North Carolina paid its teachers an average of $45,933 in 2011-12 while Texas paid far more: $48,373.
As for entrepreneurs, the Tax Foundation rates Texas as having the 11th-best business tax climate in 2014. North Carolina came in at 44th, California, 48th. Perhaps that’s why data from the U.S. Small Business Administration shows that from just before the recession in 2007 to 2011, the latest year for which data is available, North Carolina lost 12,793 business establishments and saw a reduction of $329 million in payroll, a loss of 0.3%. By comparison, Texas gained 4,012 establishments and saw its payroll swell by $41.1 billion or 9.9% over 2007. California lost 42,681 establishments but payroll grew by $9.7 billion or 1.5% over 2007, far less than the rate of inflation.
Gallis finishes his series of slanders against the Lone Star State by claiming, “…and we would end up with no military because we’d have no taxes to support it.”
Gallis makes an interesting claim, given that, not only to Texans earn more real income than do North Carolinians or Californians, they also produce more goods and services per capita than do North Carolinians, $52,465 in 2013 (chained 2009 dollars) vs. $44,646, meaning each Texan produced a whopping $7,819 more in goods and services than the average North Carolinian last year, or 17.5% more. More goods and services equal a larger tax base from which to support the military.
Let’s look at one last factor regarding Gallis’ outrageous claim about the military: state military enlistment rates. As a lieutenant colonel in the U.S. Army (retired) Reserve, I know that the military has high standards for enlistment, requiring at least a high school diploma or GED, being physically fit, and screening out most applicants with a criminal record. As a percentage of its youth, Texas is heavily overrepresented in the military, with proportionately 31% more of its young men and women serving than the national average, the 9th-highest rate of volunteering in the nation (2007 data). North Carolina is moderately overrepresented at 13%, falling 20th on the list of states contributing to our military defense.
If Mr. Gallis is to attack Texas he needs a better stable of facts.
The Hon. Chuck DeVore is the Vice President of Policy at the Texas Public Policy Foundation. Follow him on Twitter @chuckdevore.