Texas’ job-development strategy based on poaching

Opinion: February 18, 2013 at 12:00a.m.

By Michael Hiltzik

Los Angeles Times

Gov. Jerry Brown ought to cut his Texas brother, Rick Perry, a little slack.

Texas Gov. Perry arrived in the Golden State this week trolling for California businesses he could poach and carry home with him in his saddlebags. His trip here comes on the heels of a Texas radio come-on, which aired statewide, and which Brown memorably dismissed as “barely a fart.”

But there are reasons Perry’s efforts deserve more serious scrutiny.

One is that the campaign exposes an important shortcoming of Texas’ job-development program: It focuses on using incentives to steal jobs from other states because it’s not so hot at creating jobs from scratch. Some of the jobs it has managed to attract are low-skilled manufacturing, call centers, etc., which can just as easily leave when another state decides to offer a better incentive than Texas. Sooner or later, one will.

Many of Texas’ most highly touted victories, moreover, involve companies that may well have located some employees in Texas even without incentives, which means that Texas wasted its money. For example, Apple made a deal last year to employ 3,600 workers in Austin, the location of the University of Texas and the closest thing to a high-tech hub in the state. The median pay of those workers will be $40,000, according to state officials, who will fork over $13.6 million to Apple for the score.

Cause for shame

Still, Brown should be more circumspect. Perry’s foray into California should cause shame, not gloating, in Sacramento. Texas would find it much harder to poach in California if this state did even a tiny bit to serve its small manufacturers, who are — Texas is right! — beset with high costs and regulatory constraints.

As we’ve documented in recent weeks, California’s job preservation strategy lacks rapid-response teams with the knowledge and authority to mediate regulatory conflicts, not to mention outreach to see that business owners know what assistance programs even exist.

California has no strategy governing how it hands out tax breaks to industry, so it spends hundreds of millions to protect Hollywood jobs and create stem cell research institutions, while leaving basic manufacturing and the University of California to go fish. Does it get the best bang for its bucks? Who knows? No one in the capital even bothers to ask the question.

That’s not the only field in which California’s lack of strategic thinking hurts. As Milken Institute economist Kevin Klowden observed recently, the state’s failure to craft an industrial export policy has dropped it over the last decade from first to fifth place in the value of its manufacturing exports, behind Alabama, Florida, Pennsylvania and, yes, Texas.

And California has failed to push back against Texas’ inflated pitch.

The two states are a lot more similar than either Brown or Perry might like to admit. Both struggle with the costs of cultural and economic diversity, which show up in statistics such as educational attainment. Texas children score somewhat better on standardized tests in grade school, but California runs ahead in measures that factor in higher education.

Both states are engines of job growth. The Bureau of Labor Statistics placed them in first and second place for net new nonfarm jobs in 2012. Texas gained 260,800, California 225,900, though Texas did so with a gain of 3,400 government jobs, and California scored despite losing 31,000 government jobs.

But California’s jobs are overwhelmingly home-grown, a product partially of its commanding lead in venture investments — in 2012, these came to $14 billion, which was 53 percent of all such investments nationwide. Texas ranked fifth, with less than $1 billion.

Tax burdens

And here’s the similarity that one can bet Rick Perry won’t be mentioning: Their overall state and local tax burdens on business, as a share of all business activity, are almost identical. California, at 5.3 percent, ranks 16th among all states, and Texas is the next notch down at 5.1 percent, according to an Ernst & Young study last year for the Council on State Taxation, a pro-business lobbying group.

Texas, however, is much better at concealing its tax burden by sticking out-of-state companies with the bill and protecting CEOs from the tax man.

It does so by charging no corporate or personal income tax and larding up its tax structure with items like a severance tax, which hits companies that extract oil and gas from Texas lands, wherever the firms are headquartered; unique among major oil-producing states, California doesn’t have a severance tax.

The lack of an income tax is Texas’ big draw for the top dogs who would pay most of it, of course, since California’s income taxes account for nearly 18 percent of state and local revenue. The slack is taken up by property taxes, which account for 44 percent of Texas business taxes and only 33 percent of California’s, and sales taxes, which make up a larger share of Texas’ revenue (nearly 25 percent, vs. California’s 19.7 percent).

Here’s another metric in which Texas and California diverge: Texas is much more dependent on federal money to balance its budget — the nearly 40 percent of its budget that’s covered by federal aid places it 11th among the states, behind such other states’-rights paragons as Mississippi and Louisiana. California’s ratio is just over 32 percent, placing it 37th. The next time you year Perry crow about the Texas miracle, remember that it’s happened on your dime.

Michael Hiltzik is a columnist for the Los Angeles Times. Distributed by McClatchy-Tribune Information Services.