From Watchdog.org: Rising debt, taxes dim economic outlook in Texas

The group highlights a study by an influential interest group that is not bullish on Texas' economic prospects./

- Click here for the article.

Texas lawmakers have their work cut out for them if the Lone Star State is to stop its slide in a national economic rating.

The American Legislative Exchange Councildowngraded Texas to No. 12 in its 50-state economic outlook released Tuesday. The state was 11th last year and has never cracked the top 10.

Four states leapfrogged over Texas: Florida, Oklahoma, Tennessee and Wisconsin.
“With so many states now cutting taxes, Texas faces more competition than ever,” said Jonathan Williams, co-author of the report and vice president of the market-oriented ALEC Center for State Fiscal Reform.

ALEC’s “Rich States, Poor States” study examined the latest trend lines in economic health. The outlook model scored states using 15 equally weighted policy variables, including various tax rates, regulatory burdens and labor policies.

Williams cited three key areas where Florida, a rival Sunbelt mega-state with no income tax, bested Texas:

- Property tax burden: Florida ranks 27th; Texas is 10 points heavier at 37th.

- Debt service: Texas is the second worst in the country at 49th; Florida places 36th.

- Public employees per 10,000 population: Texas is a middling 30th; Florida boasts the third lowest rate in the nation.

Overall, Florida jumped seven spots in the outlook standings to place eighth in the nation. Tennessee, another state with no income tax, posted the biggest gain — climbing 10 spots to seventh place.

“Rich States, Poor States” ranked Texas No. 1 on economic performance. ALEC calls that index “a backward-looking measure” of gross domestic product gains, population growth and non-farm employment.

Are Texas’ best days in the rearview mirror?

- Click here for the study.
- Click here for the wikipedia entry on the American Legislative Exchange Council.

From the Houston Chronicle: Texas needs to dump its franchise tax and come up with something better

Texas still doesn't know how best to tax its businesses.

- Click here for the article.

The franchise tax dates to 1907 and was premised on the idea that companies should pay something for the privilege of doing business in Texas. Over the years, it evolved into a payment made by some companies in return for state laws that limited their legal liabilities. These fees and costs were generally low and spread out across the business community.

That changed in 2006 when the Texas Supreme Court declared that because the Legislature limited what local authorities could charge in property tax rates - forcing almost all of them to charge the maximum rate - the Legislature had created a de facto state property tax. Since the Texas Constitution forbids such a thing, the court ordered the Legislature to find new ways to pay for things like schools.

The solution was a franchise tax based on margins of revenues, not on income. There are four methods of calculating the taxable margins on gross receipts in Texas, and companies are allowed to pick the one that is best for them. Unfortunately, that requires many companies to make all four calculations using an accountant with specialized training.

Compliance is therefore expensive, but the good news is that with a $1 million exemption, 94 percent of Texas companies will not have to pay any tax.

That doesn't make Texas a low-tax state for businesses, though. Businesses pay 64 percent of the taxes collected in Texas, compared with the 45 percent national average. Texas' effective tax rate on business is 5 percent, higher than the national average of 4.7 percent.

The business community let out a cheer last year when the Legislature came close to eliminating the franchise tax, but Republican Lt. Gov. Dan Patrick insisted on raising the homestead exemption on personal property taxes. Instead, lawmakers only cut the franchise tax rate by 25 percent with a promise to ultimately phase out the tax.

That was 2015, though, when 1,600 oil and gas rigs were drilling in Texas, sales tax collections were jumping and appraisal districts were raising property values at a breakneck pace. Lawmakers know 2017 will be different.

Texas to challenge the EPA - some more ....

In 2306 we've been discussing federalism and the conflict that can exist between the states and the national government in areas like environmental protection. The recent chemical spill in West Virginia has highlighted attention to the tension that exists in the state - with the national government wanting to increase regulations and the state government wanting to decrease it.

This tension is common in Texas as well.

The Tribune catches us up with the current status of the tension, click here for the story:

Rarely a fan of Washington's oversight, Texas appears destined for another clash with the U.S. Environmental Protection Agency over greenhouse gas limits — this time, for existing power plants.

The rules, which President Obama has instructed the EPA to propose by June 2015, have only been suggested, but Texas regulators have already weighed in. Their opinion? The idea, though still scant on details, is no good.

That’s according to a letter written by the Texas Commission on Environmental Quality and the Public Utility Commission of Texas. The letter, sent to EPA administrators after the agency asked for feedback, outlines several concerns, including those about the federal rule-making process, but it also touches on a hot-button issue in Austin: electric reliability.

Texas regulators say they fear that new regulations would make coal production less economical, speeding up plant retirements and straining the grid.

“Generators should not be penalized for increased [greenhouse gas emissions] needed to maintain system reliability,” the letter said. “The PUC and TCEQ urge the EPA to consider all aspects of grid reliability in developing [a greenhouse gas] rule for existing power plants.”

So a good way to think of the dispute - to put it in context - is to look at it as a conflict between the Environmental Protection Agency and the forces that control it, and the Texas Commission on Environmental Quality, along with the Public Utility Commission of Texas and the forces that control those two.

The former is responsive to national pressures, while the latter two are responsive to those in Texas. These are hardly the same. The interests of the energy sector are far stronger state wide than they are on the national level. Conversely, the interests of environmentalists are far stronger on the national level than within Texas. This reflects differences in the political culture of each level of government.

These disputes tend to wind up in the courts. The Texas government (through the attorney general's office) - along with Texas industry - commonly sues the EPA by arguing that the rules it issues violate the U.S. Constitution.

The simple question is whether the Constitution - as well as the Clean Air Act - give the EPA the authority to regulate air pollution - specifically - the production of greenhouse gases that also occur naturally.

Here's a bit from a related Texas Tribune story from October 2013:

At issue is whether the EPA can use the Clean Air Act, which gives it the authority to regulate emissions of toxic air pollutants and to limit emissions of greenhouse gases as well. In 2007, the court had ruled in the landmark case Massachusetts v. EPA that the EPA could do so for motor vehicles, which has led to stringent fuel-efficiency requirements for cars.

But Texas, joined by states like Mississippi, Alabama and South Carolina, and industry coalitions including the American Petroleum Institute, is arguing that the Clean Air Act was never meant to apply to anything other than air pollutants, because greenhouse gases like carbon dioxide and methane "[do] not deteriorate the quality of the air that people breathe." Attorneys representing the groups added that "carbon dioxide is virtually everywhere and in everything," and called the EPA's proposed regulations of greenhouse gases "absurd."

Of the nine petitions the group of states and industry leaders had filed to the Supreme Court regarding its challenge of climate change rules, the justices agreed to hear six, but only want to consider one question: "Whether EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases."

Opportunity in Texas: #1 for business, #38 for people

Two studies which purport top measure opportunity across each state have different things to say about Texas.

CNBC has had Texas #1 in recent surveys for business opportunity, but the measures used as part of the Opportunity Index - which focus on the factors that impact people, not businesses - place Texas far lower among the states.

This illustrates a few things we cover in 2306, namely the types of public policy priorities in the state and the impact of the state's individualistic political culture on state priorities.

From the Washington Monthly:

The Opportunity Index ranks states based on sixteen indicators that Measure of America codirector Kristen Lewis says are essential to the “infrastructure of opportunity” for individuals. These indicators include not just the basics—the availability of jobs, affordable housing, and quality education—but also what a growing body of research shows is critical to upward mobility: social capital and civic life. These factors make up, at the individual level, the equivalent of the “business-friendly” environment that company-focused rankings measure.

The outcomes under the Opportunity Index approach, needless to say, are radically different from those of CNBC. Under the 2013 Opportunity Index, Texas—top ranked in opportunities for business by CNBC—ranks thirty-eighth in opportunities for people. Meanwhile, Vermont, which invests nearly double what Texas does per pupil in K-12 education ($15,096 versus $8,562), ranks first on the Opportunity Index and thirty-second by CNBC.

. . . While some structural differences—such as the level of church membership—are less susceptible to public policy, federal, state, and local policy choices can have profound impacts on whether people have access to the building blocks of upward mobility: decent schools, safe streets, and even access to grocery stores with affordable healthy food. In some neighborhoods of Houston, says a report by Children at Risk, “areas as large as 10 miles have been identified as containing a single food source—gas stations that sell tobacco, alcohol and fatty snacks.” As a tragic—but unsurprising—consequence, as many as 47 percent of Harris County children are obese or overweight.

In the same way that the rankings of the U.S. News & World Report have influenced—for better or for worse—the investments and choices that colleges have made to improve their standings, it’s likely that the multiplicity of business-focused rankings have skewed the policy choices of states eager to attract companies within their borders. Texas, for example, spends $19 billion a year on tax incentives to woo companies to the state, according to the New York Times—at the same time, it cut education spending by $5.4 billion last year. In the last legislative session, Texas lawmakers passed yet more tax cuts, exempting small businesses from franchise taxes, lowering franchise tax rates, and creating a special tax break for data centers doing business in the state. Texas was also among the first states to develop a so-called war chest—the Texas Enterprise Fund—aimed at offering companies incentives to move to the state, along with a smorgasbord of other goodies, including grants and low-cost loans to businesses.

Is the TCEQ a captured agency?

Something to chew on.

The Texas Commission on Environmental Quality is supposed to be Texas' version of the national Environmental Protection Agency, but since the governor appoints the TCEQ's commissioners, and he is staunchly pro-business, there are concerns that they protect the interests of business rather than the general public.

Some related stories:

- Agency of Destruction.
- TCEQ: Captured and Corrupted.
- Polluters and Penalties.

The Texas Legislature seems intent on limiting its jurisdiction:

- Texas House Strips TCEQ of Greenhouse Gas Authority.
- Bill Filed to protect buyers of facilities regulated by TCEQ.
- Greenhouse Gas Permits?

Was the fertilizer plant explosion in West, Texas due to lax regulations?

That question is making the rounds.

The Waco Tribune has a comprehensive look at the investigation thus far, and includes this:

Meanwhile, a hazy picture emerged Thursday of the fertilizer plant’s past regulatory issues. Because of the plant’s age, it was “grandfathered” and exempted from a TCEQ air permit until 2004. But it continued without the required permit until 2006, when the TCEQ received a complaint about strong ammonia smells in the neighborhood and served the company with a notice of violation.

That same year, the U.S. Environmental Protection Agency fined the facility $2,300, citing several deficiencies in its risk management plan. The plant got its TCEQ permit in late 2006 for the anhydrous ammonia storage, promising to mitigate any accidental releases of the substance offsite. Another permit for loading and storing dry fertilizer was granted in March 2007. The TCEQ had no records of inspections after January 2007.

The Dallas Morning News reports that Texas regulators did not consider the plant to pose a significant risk to the surrounding area.

The explosion came after years in which state and federal agencies overlooked the potential for what some say was a preventable catastrophe. “Last night’s tragic explosion points to the need for stricter regulations of plants that store and use large quantities of hazardous chemicals,” said Tom O’Connor, executive director of the National Council on Occupational Safety and Health, a union-affiliated nonprofit group.

Neil Carman, a Ph.D. chemist with the Sierra Club in Texas and a former state environmental inspector, said lax controls are putting people in danger in scores of Texas communities “A basic concern here is that the chemical ammonia, NH3, is very weakly regulated at the federal and state level, or else this accident would not have likely occurred,” Carman said.

Officials at the Environmental Protection Agency and the Texas Commission on Environmental Quality did not respond to questions about why they repeatedly approved the companies’ operations without addressing the risk of explosions.

The Huffington Post comments that one culprit is the reduced funds given to regulatory agencies to actually do their jobs:

According to the 2011 budget submitted to congress by OSHA, which provides most of the federal oversight for that industry, there are 7.5 million workplaces in the U.S. and only 2,218 inspectors to check them for safety violations. The number of employed nationally means that there is one inspector for every 57,984 workers. One analyst reported that means OSHA has the capacity to inspect a business work place once every 129 years. Fortunately, state level OSHA workers aren't as pressed and they can get to a facility every 67 years.

The Washington Post surveys a variety of issues related to fertilizer plants, including commentary on regulatory oversight:

. . . the operators of the West Texas facility thought an explosion was impossible. The Dallas Morning News obtained a copy of the facility’s internal safety review for fire or explosive risks. “The worst possible scenario, the report said, would be a 10-minute release of ammonia gas that would kill or injure no one.”

As for other oversight: The Occupational Safety and Health Administration tends to be understaffed and inspections are relatively infrequent. The Texas fertilizer industry has only seen six inspections in the past five years — and the West Texas Fertilizer Co. facility was not one of them.

From the Texas Tribune: Getting Serious About a Texas-Size Drought

Texas might even take conservation seriously. For our look at agenda setting:

The drought that has gripped much of Texas since the fall of 2010 shows few signs of abating soon. The latest forecasts say that parched West and South Texas will remain dry, and that the state is likely to see above-average temperatures this spring, increasing evaporation from already strained reservoirs. The conditions could lead to severe water restrictions in some parts of the state.

The implications have finally sunk in among lawmakers and business leaders here, who like to boast about the economic appeal of Texas’ low taxes and relaxed regulatory environment: No water equals no business.

Notice that its being tied into business. Conservation - on its own - goes nowhere in the state, but if it is essential for business interests, then the state starts taking it seriously:

Officials from Gov. Rick Perry on down are focused on expanding water supplies. Doing nothing could create “a reputation that Texas is not a business-friendly state,” state Rep. Lyle Larson, R-San Antonio, warned fellow lawmakers last month. Bill Hammond, president of the Texas Association of Business, agrees. “Clearly, not having an adequate water supply will harm us in terms of bringing jobs to Texas and is doing so now, already,” he said recently.

Cargill, the giant food producer, idled a beef-processing plant in Plainview in the Panhandle this year after ranchers thinned their herds because of dry pastures and soaring hay prices. Some 2,000 people lost their jobs in the town of 22,000. Power plants and other industrial operations that depend on water are also worried. One community close to Austin nearly ran out of water last year and had to truck in supplies. That’s a public relations disaster for a state that brags that it does things better than other places.

. . . Wes Perry, an oilman who doubles as Midland’s mayor, put it this way recently: As valuable as oil and gas are, he said, “we are worthless without water.”

From the Texas Tribune: Business Association Launches Criminal Justice Agenda

The Texas Business Association- the largest business lobby in Texas - for the first time has presented a criminal justice agenda to the legislature. The Tribune reports that they are not supporting specific pieces of legislation, but are attempting to become involved in a variety of reform efforts aimed at reducing the costs among other items. 

Their general goals include:

- reducing recidivism
- increasing probation programs.
- increase work force opportunities for ex-felons.
- expanding drug treatment
- reducing barriers to employment
- removing restrictions on commercial driving licenses and on occupational licenses

$19 billion a year in tax incentives used to lure businesses to Texas

The NYT takes a look at the means used to lure businesses to Texas and who benefits from them:

Under Mr. Perry, Texas gives out more of the incentives than any other state, around $19 billion a year, an examination by The New York Times has found. Texas justifies its largess by pointing out that it is home to half of all the private sector jobs created over the last decade nationwide. As the invitation to the fund-raiser boasted: “Texas leads the nation in job creation.”


Yet the raw numbers mask a more complicated reality behind the flood of incentives, the examination shows, and raise questions about who benefits more, the businesses or the people of Texas.

Along with the huge job growth, the state has the third-highest proportion of hourly jobs paying at or below minimum wage. And despite its low level of unemployment, Texas has the 11th-highest poverty rate among states.

“While economic development is the mantra of most officials, there’s a question of when does economic development end and corporate welfare begin,” said Dale Craymer, the president of the Texas Taxpayers and Research Association, a group supported by business that favors incentives programs.

Texas: tops in business growth and poverty

It's a peculiar mix.

But the Fort Worth Star-Telegram thinks there's little reason to expect the legislature to focus much on poverty this session.

State leaders like to brag about Texas' fast-growing economy and low unemployment, but rarely do they mention the high poverty rate and so far they don't appear inclined to pass any new laws to deal with it.


The unemployment rate and the creation of jobs are the statistics most often cited by Gov. Rick Perry to brag on Texas, and unemployment is among the lowest in the country at 6.2 percent. That's well below the national average of 7.7 percent.

Perry also uses the Texas Enterprise Fund and the Emerging Technology Funds to encourage employers to relocate to Texas and create jobs in the state, adding hundreds of jobs every year.

Employment, though, is not the only measure of economic prosperity. There is the question of quality of life.

The number of Texans living in poverty rose for a third consecutive year in 2011, adding more than 214,000 people to total 4.6 million. That's 18.5 percent of the population, 3 percent higher than the nation as a whole, according to the U.S. Census Bureau. By comparison, New Hampshire had the lowest proportion of people living in poverty, with 8.8 percent, and Mississippi the highest, 22.6 percent. 
If anything, Governor Perry wants to make it harder for the poor to collect benefits. He's supporting legislation that requires drug testing for welfare recipients and intends to retain the cuts in education spending enacted in the 82nd session of the legislature.