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Texas job boom — leadership or luck?

Texas Gov. Rick Perry cites job creation in his state as an example of his strong economic leadership. But critics say he is just riding a wave created by the oil industry.
/ Source: The New York Times

Texas is home to at least one-third of the jobs created nationwide since the recession ended. The state’s economy is growing about twice as fast as the national rate. Home prices have remained stable even as much of the country has seen sharp declines.

Is Texas lucky, or has the state benefited from exceptional leadership? As Gov. Rick Perry campaigned Monday in Iowa for the Republican presidential nomination — with the economy dominating the national political landscape — the answer to that question is central to his candidacy.

Even before he formally entered the race over the weekend, Mr. Perry and his allies set out to dictate an economic narrative on his terms. A radio spot last week in Iowa told voters that the governor “has a proven record of controlling spending and creating jobs” and suggested that he could replicate the success of Texas on a national scale. In a budget speech a few months ago, Mr. Perry, who declined through a spokesman to be interviewed for this article, boasted that Texas stood “in stark contrast to states that choose to burden their residents with higher taxes and onerous regulatory mandates.”

But some economists as well as Perry skeptics suggest that Mr. Perry stumbled into the Texas miracle. They say that the governor has essentially put Texas on autopilot for 11 years, and it was the state’s oil and gas boom — not his political leadership — that kept the state afloat. They also doubt that the Texas model, regardless of Mr. Perry’s role in shaping it, could be effectively applied to the nation’s far more complex economic problems.

“Because the Texas economy has been prosperous during his tenure as governor, he has not had to make the draconian choices that one would have to make in the White House,” said Bryan W. Brown, chairman of the Rice University economics department and a critic of Mr. Perry’s economic record.

The Texas model
And if Mr. Perry were to win the nomination, he would face critics, among them Democrats, who have long complained that the state’s economic health came at a steep price: a long-term hollowing out of its prospects because of deep cuts to education spending, low rates of investment in research and development, and a disparity in the job market that confines many blacks and Hispanics to minimum-wage jobs without health insurance.

“The Texas model can’t be the blueprint for the United States to successfully compete in the 21st-century economy, where you need a well-educated work force,” said Dick Lavine, senior fiscal analyst at the Center for Public Policy Priorities, an Austin-based liberal research group.

On the campaign trail, Mr. Perry is hearing none of it. In announcing his candidacy in South Carolina on Saturday, he pointed to his policies of low taxes, reduced government spending and regulatory easing as “a recipe to produce the strongest economy in the nation” and one that Washington would do well to duplicate.

Since Mr. Perry succeeded George W. Bush as governor in 2000, he has viewed his role as mostly staying out of the way of the private sector. When he has stepped in, he has tweaked the system, not remade it. For example, he pushed through tort reform to limit lawsuits against doctors, which encouraged the continued expansion of major medical centers. He also set up an enterprise fund that gave businesses nearly a half a billion dollars in grants and financial incentives over the last eight years to encourage their expansion.

For homeowners, he cut real estate taxes to make the state’s already cheap housing a bit more affordable. And a few months ago, with the state facing a $27 billion deficit in its two-year budget, Mr. Perry called lawmakers into a special session and insisted they not raise taxes. The Republican-dominated Legislature complied, slashing billions of dollars in aid to public schools.

“He’s been a promoter of stability in regulatory policy and stability in spending,” said Talmadge Heflin, director of the Texas Public Policy Foundation’s Center for Fiscal Policy and a former Republican state representative. “That gives him something to show for whatever he runs for.”

Perry vs. Romney
As the Republican race pits the Texas governor against a former Massachusetts governor, Mitt Romney, the economies of the two states are bound to be contrasted. Texas has far outstripped Massachusetts in the number of jobs created over the last two years. But by other measures, the Massachusetts economy has been stronger, with a lower unemployment rate in June and economic growth of 4.2 percent last year, compared with 2.8 percent in Texas.

Few debate that Mr. Perry, 61, has been true to a “less government is better government” philosophy in one of the few states without an income tax. The question his detractors raise, however, is whether Mr. Perry has gotten a free ride — and has gone untested — because of the state’s natural resources.

When Mr. Perry succeeded Mr. Bush, a barrel of oil was $25. Experts warned that Texas’s natural gas and oil fields, which directly and indirectly support about one-third of its jobs, were in steep decline. But during his first term, global market forces began driving oil prices up. They peaked at $147 a barrel in 2008 and have largely remained above $80 over the last two years.

At the same time, a technological revolution in drilling — the combination of hydraulic fracturing and horizontal drilling of shale rock — has opened up new gas and oil fields throughout the state. In North Texas, companies are drilling under schools, airports and parks. Tens of thousands of rig jobs have been created and many residents have received thousands of dollars in lease sales and royalties.

The oil and gas industry now delivers roughly $325 billion a year to the state, directly and indirectly. It brings in $13 billion in state tax receipts, or roughly 40 percent of the total, financing up to 20 percent of the state budget.

“He’s been lucky,” said Bernard L. Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University in Dallas. “Obviously, neither the governor nor public policy in Texas has pushed oil prices up, and clearly the technological innovation has created a whole new industry in Texas.”

Other external factors have also helped.

Mexico trade, federal spending
Trade between the United States and Mexico has grown by 60 percent since Mr. Perry’s inauguration, and last year alone more than $100 billion worth of goods passed through Texas border crossings and ports.

El Paso, the state’s largest border city, is straining to keep up. Manufacturers have been running extra shifts to make parts for automobile and electronics plants in nearby Juárez, Mexico.

The federal government has also helped support Texas. Federal spending in the state, home of NASA and large Army bases, more than doubled over the last decade to over $200 billion a year.

And well before Mr. Perry’s arrival in the Statehouse, Texas had digested the lessons of the recession in the late 1980s, when oil prices plummeted, real estate prices crashed, and savings and loan institutions failed and required a federal bailout.

Afterward, a succession of governors and mayors worked with business leaders to diversify the economy, and the Legislature enacted tight restrictions on mortgage lending, which helped Texas avoid the kind of real estate bubble that devastated states like Florida and Arizona.

This time around, the state has not escaped the downturn. The unemployment rate is 8.2 percent, a full percentage point below the national rate but still higher than other boom states like North Dakota and Wyoming, and Texas has one of the highest percentages of workers who are paid the minimum wage and receive no medical benefits.

And Mr. Perry could still be tested before next year’s election. Oil prices have fallen almost 30 percent since April, and a broad economic slowdown could depress prices further. Texas will also feel the pain as Washington cuts spending on the military and space exploration, and the state trims spending.

Still, over all, Texas remains in an enviable position. The state has created more than 260,000 jobs since June 2009, according to the Federal Reserve Bank of Dallas, and the state’s economy is growing at an estimated annual rate of about 3 percent, compared with the national growth rate in the last quarter of 1.3 percent.

At a recent ceremony celebrating the expansion of a video game company, Electronic Arts, that will bring 300 new jobs to Austin, Mr. Perry claimed credit.

“Thanks to our low taxes, reasonable and predictable regulatory climate, fair legal system and skilled work force, we continue to attract companies from around the nation,” he said.

This story, "," originally appeared in The New York Times.