The Economist did a Special Report this week on Texas and California and because there is always a thread comparing the states on page 1 at any given time, I immediately thought of OB. Thought I'd drop the articles in here in case anyone didn't have a sub and wanted the read.
Texafornia dreaming
America’s future will be written in the two mega-states
Print edition | Leaders
Jun 20th 2019
Special report in this issue). For the past few decades they have been heading in opposite directions, creating an experiment that reveals whether America works better as a low-tax, low-regulation place in which government makes little provision for its citizens (Texas), or as a high-tax, highly regulated one in which it is the government’s role to tackle problems, such as climate change, that might ordinarily be considered the job of the federal government (California). Given the long-running political dysfunction in Washington, the results will determine what sort of country America becomes almost as much as the victor of the next presidential election will.
That is partly a function of size. One in five Americans calls Texas or California home. By 2050 one in four will. Over the past 20 years the two states have created a third of new jobs in America. Their economic heft rivals whole countries’. Were they nations, Texas would be the tenth-largest, ahead of Canada by gdp. California would be fifth, right behind Germany.
Texas and California are also already living America’s demographic future. Hispanics are around 40% of the two states’ populations, double the national average. Both states were early to become majority-minority. In California non-whites have outnumbered whites since 2000, and in Texas since 2005. The rest of the country is not expected to reach this threshold until the middle of the century. California and Texas educate nearly a quarter of American children, many of them poor and non-native English-speakers. Their proximity to Mexico, a country that both used to be a part of, means that as Washington procrastinates on updating America’s immigration laws they must live with the consequences.
At first glance the two states seem as different as a quinoa burger and beef brisket. California is a one-party state in which elected Republicans may soon need the kind of protection afforded to the bighorn sheep. In Texas Republicans dominate the state legislature and all the statewide executive offices: no Democrat has won a statewide race there for more than 20 years. The last Democratic presidential candidate to do so was elected over 40 years ago. Texas has no state income tax. California’s state income tax has a top rate of 13%, the highest in the union. Texas has loose environmental regulations. California is trying to use its economic might to force the rest of the country to adopt more stringent standards on carbon-dioxide emissions. Texas lets its cities sprawl; California has restrictive planning laws.
Take a closer look, though, and Texas looks more like a teenage California. The population of Texas has only recently reached the level California was at in the late 1980s. The Golden State was once a pro-sprawl, low-tax, Republican state, too. Republicans in Austin, who are feeling the first signs of political competition from Democrats in decades, have begun to focus their attention on the state’s shortcomings such as education.
That matters because Texas’s schools, like California’s, perform poorly and its universities are nowhere near as good. In the Texas legislative session which ended last month, politicians focused less on abortion and bathrooms for transgender people, and instead increased funding for public schools. If more Texans managed to vote, they might encourage politicians to do something about the state’s skimpy health-care provision, too.
This might suggest that, as Texas grows up, it will become more Californian. But, ideally, only to a degree—because California has not aged gracefully. It loses Americans each year while Texas gains them. Though the state government has made huge strides—a decade ago it was broke, now it has a healthy surplus and an overflowing rainy-day fund—the state has daunting social problems. Homelessness is just the most visible of them. Unemployment is persistently higher and incomes are more unequal in California than in the land of the ten-gallon hat.
California thinks of itself as a progressive bastion, but it has the highest poverty rate of any state in America. That is partly because regulation makes it so hard to build new homes, pushing housing costs up. It will take more than Google investing $1bn in Bay Area housing to fix that. Texas, meanwhile, lets its cities march outwards as far as they wish. In this limited respect at least, Texas is the more liberal state and California the more conservative one. Americans wanting to move to where housing is cheap, taxes low and work plentiful are voting with their U-Haul trucks and heading to Texas. Just now, Texas has more room than California to innovate and to strike a balance between small government and social support.
In America’s federal system no single state is a national template, and yet each holds lessons for all the others. As America’s largest oil producer, Texas is exceptional. By contrast, despite its faults, California remains a magnet for highly educated migrants and a formidable factory of talent and ideas—which is why it has produced Google, Facebook, Tesla, Uber and Netflix and why, despite grumblings about creeping socialism, the big venture-capital firms and Hollywood studios stay.
America can learn from both of them. That is especially true when the federal government cannot legislate—which today means most of the time—because the ability of states to decide their own fate becomes correspondingly more important.
It is possible to imagine a mash-up of the two mega-states that takes the best of both: a freedom-loving wish to keep government out of people’s private lives, a place that is friendly to business and provides opportunities for people, while also protecting the environment and funding education. California could steal Texas’s expansive approach to housebuilding; Texas could imitate California’s investment in outstanding universities. Americans elsewhere might be less alarmed by demographic change if they visited great cities like Houston, la and Dallas. Call this imagined place Texafornia.
America’s future will be written in the two mega-states
Print edition | Leaders
Jun 20th 2019
Special report in this issue). For the past few decades they have been heading in opposite directions, creating an experiment that reveals whether America works better as a low-tax, low-regulation place in which government makes little provision for its citizens (Texas), or as a high-tax, highly regulated one in which it is the government’s role to tackle problems, such as climate change, that might ordinarily be considered the job of the federal government (California). Given the long-running political dysfunction in Washington, the results will determine what sort of country America becomes almost as much as the victor of the next presidential election will.
That is partly a function of size. One in five Americans calls Texas or California home. By 2050 one in four will. Over the past 20 years the two states have created a third of new jobs in America. Their economic heft rivals whole countries’. Were they nations, Texas would be the tenth-largest, ahead of Canada by gdp. California would be fifth, right behind Germany.
Texas and California are also already living America’s demographic future. Hispanics are around 40% of the two states’ populations, double the national average. Both states were early to become majority-minority. In California non-whites have outnumbered whites since 2000, and in Texas since 2005. The rest of the country is not expected to reach this threshold until the middle of the century. California and Texas educate nearly a quarter of American children, many of them poor and non-native English-speakers. Their proximity to Mexico, a country that both used to be a part of, means that as Washington procrastinates on updating America’s immigration laws they must live with the consequences.
At first glance the two states seem as different as a quinoa burger and beef brisket. California is a one-party state in which elected Republicans may soon need the kind of protection afforded to the bighorn sheep. In Texas Republicans dominate the state legislature and all the statewide executive offices: no Democrat has won a statewide race there for more than 20 years. The last Democratic presidential candidate to do so was elected over 40 years ago. Texas has no state income tax. California’s state income tax has a top rate of 13%, the highest in the union. Texas has loose environmental regulations. California is trying to use its economic might to force the rest of the country to adopt more stringent standards on carbon-dioxide emissions. Texas lets its cities sprawl; California has restrictive planning laws.
Take a closer look, though, and Texas looks more like a teenage California. The population of Texas has only recently reached the level California was at in the late 1980s. The Golden State was once a pro-sprawl, low-tax, Republican state, too. Republicans in Austin, who are feeling the first signs of political competition from Democrats in decades, have begun to focus their attention on the state’s shortcomings such as education.
That matters because Texas’s schools, like California’s, perform poorly and its universities are nowhere near as good. In the Texas legislative session which ended last month, politicians focused less on abortion and bathrooms for transgender people, and instead increased funding for public schools. If more Texans managed to vote, they might encourage politicians to do something about the state’s skimpy health-care provision, too.
This might suggest that, as Texas grows up, it will become more Californian. But, ideally, only to a degree—because California has not aged gracefully. It loses Americans each year while Texas gains them. Though the state government has made huge strides—a decade ago it was broke, now it has a healthy surplus and an overflowing rainy-day fund—the state has daunting social problems. Homelessness is just the most visible of them. Unemployment is persistently higher and incomes are more unequal in California than in the land of the ten-gallon hat.
California thinks of itself as a progressive bastion, but it has the highest poverty rate of any state in America. That is partly because regulation makes it so hard to build new homes, pushing housing costs up. It will take more than Google investing $1bn in Bay Area housing to fix that. Texas, meanwhile, lets its cities march outwards as far as they wish. In this limited respect at least, Texas is the more liberal state and California the more conservative one. Americans wanting to move to where housing is cheap, taxes low and work plentiful are voting with their U-Haul trucks and heading to Texas. Just now, Texas has more room than California to innovate and to strike a balance between small government and social support.
In America’s federal system no single state is a national template, and yet each holds lessons for all the others. As America’s largest oil producer, Texas is exceptional. By contrast, despite its faults, California remains a magnet for highly educated migrants and a formidable factory of talent and ideas—which is why it has produced Google, Facebook, Tesla, Uber and Netflix and why, despite grumblings about creeping socialism, the big venture-capital firms and Hollywood studios stay.
America can learn from both of them. That is especially true when the federal government cannot legislate—which today means most of the time—because the ability of states to decide their own fate becomes correspondingly more important.
It is possible to imagine a mash-up of the two mega-states that takes the best of both: a freedom-loving wish to keep government out of people’s private lives, a place that is friendly to business and provides opportunities for people, while also protecting the environment and funding education. California could steal Texas’s expansive approach to housebuilding; Texas could imitate California’s investment in outstanding universities. Americans elsewhere might be less alarmed by demographic change if they visited great cities like Houston, la and Dallas. Call this imagined place Texafornia.
California and Texas have different visions for America’s future
Alexandra Suich Bass asks which works better
Print edition | Special report
Jun 22nd 2019
inRead invented by Teads
Texas is the country’s largest exporter, and California claims the number-two spot. In the past 20 years nearly a third of American jobs were generated in just these two states. Combined, they account for around a quarter of American gdp. They educate nearly a quarter of American children, so their investments in, and approach to, public education directly affects national competitiveness. Both states are booming, too. Between 2010 and 2018 two of the three fastest-growing metro areas in America were in Texas: greater Dallas and Houston each gained more than 1m people. The state has a robust oil and gas industry and has succeeded in diversifying its economy. California enjoys the many fruits of the technology boom, a rising stockmarket and some of America’s best universities.
A nation divided
But the two states matter just as much because of the opposing visions and models of government for which they stand. Indeed their rivalry is often an expression of these differences. California is the standard-bearer for progressive experimentation nationally, spearheading policies to deal with climate change, gay rights, the decriminalisation of drugs, paid family leave, inclusive immigration and more. Since Donald Trump assumed office, California has become a state of resistance, suing the federal government around 50 times. It is the country’s largest blue state, where the share of registered Republicans is at a historic low and Democrats control all three branches of government. Its model can be summed up as high taxes, high services and high regulation. California sees a strong role for government and leans heavily on its affluent residents to fund a social-safety net.
Texas, by contrast, has been socially conservative for decades. Although Democrats made gains in the state legislature in 2018, no Democrat has been elected to statewide office for more than 25 years. Its model is low taxes, low services and low regulation. “Govern wisely and as little as possible,” is how Sam Houston, who served as the first president of the Republic of Texas in 1836, described the state’s light-touch philosophy. Serious about avoiding government overreach, the legislature meets only every other year. In 2017 Texas ranked 49th out of 50 in spending per person, shelling out around $3,925 per citizen, 52% less than the national average and 68% less than California.
Demographically, both states are already living America’s future. Their non-white populations started to outnumber their white ones long ago; California became a “majority-minority” state in 2000, Texas in 2005. Today they are both around 40% Hispanic, more than double the national share. With fast-growing, young and ethnically diverse populations, what California and Texas look like today is what the country will look like in 2050. According to Stephen Klineberg, a professor at Rice University in Houston, “states like California and Texas are where the American future is going to be worked out.”
Both states have vulnerabilities. “The key question for California is how much a state can take on, and with Texas it is about how little a government can continue to take on,” says Ken Miller of Claremont McKenna College. Their differences can be seen in dramatic and subtle ways. To fund its operations, California levies one of the highest income taxes in America. By contrast, Texas’s constitution forbids a state income tax. Unions are a mighty force in Californian politics and workplaces, but Texas is what is known as a “right-to-work” state, meaning that employees do not need to belong to a union, so such infrastructure is weak.
Big-state big state
California probably has the strongest environmental regulations in the country, whereas Texas nurtures its oil and gas industry and regards nature as something to be subdued. It puts minimal restrictions on keeping exotic animals as pets, which is why there are believed to be more tigers in captivity in Texas than in the wild in India.
Their leaders embody the two states’ divergent philosophies. California’s governor, Gavin Newsom, who took office in January, is a former mayor of San Francisco, best known for legalising gay marriage in 2004 and sparking a national social movement. The governor of Texas, Greg Abbott, is a staunch social conservative who formerly served as the state’s attorney-general and is proud to have sued Barack Obama’s administration 31 times over policies including health care and environmental regulations.
Earlier this year Mr Newsom ordered a moratorium on the death penalty, around the same time that politicians in the Texas legislature were debating whether to start providing air-conditioning in prisons during the sweltering summer—an expensive creature comfort, in the eyes of some. Since 1976 Texas has executed more prisoners than any other American state and around five times more than second-placed Virginia.
Their independent natures can be partly explained by history. Tellingly, Texans celebrate 1836 as their founding year, when the state became independent from Mexico after an armed insurrection, not 1845, when Texas officially became an American state. At the time slaveholding Texas received an ambivalent welcome into the nation, which was worried about the balance between states that permitted slavery and those that did not. California, which had also been a part of Mexico before it joined America in 1850, never allowed slavery, which meant it was more warmly welcomed. This experience shaped its political attitudes. Its distance from Washington, dc, fuelled its ability to experiment.
Both states used to be supportive of the other political party. Republicans won California in nearly every presidential election between 1952 and 1988, and Ronald Reagan served as governor there before he became president. The state’s politics swerved in response to its growing population of immigrants, who were troubled by Republicans’ intolerant rhetoric and policies. Texas used to be strongly Democratic and produced Lyndon B. Johnson, who became president after John F. Kennedy was assassinated in Dallas. Mr Johnson’s legacy includes launching many of the programmes that Texan politicians today scorn, including the war on poverty and federally funded health care for the poor and elderly. His commitment to social services and civil rights helped hand his state and the south to Republicans.
Americans and immigrants have for decades travelled to both states to build their future unencumbered by tradition. The “Texas Triangle”, formed by the four large cities of Austin, Dallas, Houston and San Antonio, accounts for three-quarters of the state’s population, has been responsible for three-quarters of its population growth since 2010, and produces 82% of its gdp.
Small-state big state
The threat of Texas becoming California, as the Lone Star State’s leadership fears, is exaggerated. However, it raises the question of which pole America will turn towards—the progressive left represented by California or the right represented by Texas. “The fact that America can contain two such assertive, contrary forces as Texas and California is a testament to our political dynamism, but more and more I feel that America is being compelled to make a choice between the models these states embody,” writes Lawrence Wright in his book “God Save Texas”. “Under the Trump administration, Texas is clearly the winning archetype.”
That may not hold for ever. Texas is already changing. “Outsiders think Austin is a blue bubble and the rest of Texas is tumbleweeds,” says Ann Beeson of the Centre for Public Policy Priorities, a left-leaning think-tank. “People have a huge misunderstanding of how giant, progressive and diverse our cities are.”
Nor should California, which frequently creates political winds that then sweep across the country, be discounted. It experienced an anti-tax backlash in the 1970s and an anti-immigrant push in the 1990s, both of which spread nationally. It legalised abortion six years before Roe v Wade, the historic Supreme Court decision, in a bill signed by Reagan, then governor. “So much of what we aspire to as a country resides in California,” says Austin Beutner, a former businessman who is superintendent of Los Angeles Unified School District. “Laws go east to west. Values go west to east.”
Much of America’s future rides on California’s and Texas’s success. This special report will look in detail at how the states are approaching business, taxation, public education, social welfare, the environment, and policies toward immigrants. It will ask which state’s model is likely to prove more fruitful in the long term. “There are 50 labs in the United States, and you can watch the California and Texas experiment,” says Ross Perot junior, a successful Texan businessman. “That’s the American way.”
Alexandra Suich Bass asks which works better
Print edition | Special report
Jun 22nd 2019
inRead invented by Teads
Texas is the country’s largest exporter, and California claims the number-two spot. In the past 20 years nearly a third of American jobs were generated in just these two states. Combined, they account for around a quarter of American gdp. They educate nearly a quarter of American children, so their investments in, and approach to, public education directly affects national competitiveness. Both states are booming, too. Between 2010 and 2018 two of the three fastest-growing metro areas in America were in Texas: greater Dallas and Houston each gained more than 1m people. The state has a robust oil and gas industry and has succeeded in diversifying its economy. California enjoys the many fruits of the technology boom, a rising stockmarket and some of America’s best universities.
A nation divided
But the two states matter just as much because of the opposing visions and models of government for which they stand. Indeed their rivalry is often an expression of these differences. California is the standard-bearer for progressive experimentation nationally, spearheading policies to deal with climate change, gay rights, the decriminalisation of drugs, paid family leave, inclusive immigration and more. Since Donald Trump assumed office, California has become a state of resistance, suing the federal government around 50 times. It is the country’s largest blue state, where the share of registered Republicans is at a historic low and Democrats control all three branches of government. Its model can be summed up as high taxes, high services and high regulation. California sees a strong role for government and leans heavily on its affluent residents to fund a social-safety net.
Texas, by contrast, has been socially conservative for decades. Although Democrats made gains in the state legislature in 2018, no Democrat has been elected to statewide office for more than 25 years. Its model is low taxes, low services and low regulation. “Govern wisely and as little as possible,” is how Sam Houston, who served as the first president of the Republic of Texas in 1836, described the state’s light-touch philosophy. Serious about avoiding government overreach, the legislature meets only every other year. In 2017 Texas ranked 49th out of 50 in spending per person, shelling out around $3,925 per citizen, 52% less than the national average and 68% less than California.
Demographically, both states are already living America’s future. Their non-white populations started to outnumber their white ones long ago; California became a “majority-minority” state in 2000, Texas in 2005. Today they are both around 40% Hispanic, more than double the national share. With fast-growing, young and ethnically diverse populations, what California and Texas look like today is what the country will look like in 2050. According to Stephen Klineberg, a professor at Rice University in Houston, “states like California and Texas are where the American future is going to be worked out.”
Both states have vulnerabilities. “The key question for California is how much a state can take on, and with Texas it is about how little a government can continue to take on,” says Ken Miller of Claremont McKenna College. Their differences can be seen in dramatic and subtle ways. To fund its operations, California levies one of the highest income taxes in America. By contrast, Texas’s constitution forbids a state income tax. Unions are a mighty force in Californian politics and workplaces, but Texas is what is known as a “right-to-work” state, meaning that employees do not need to belong to a union, so such infrastructure is weak.
Big-state big state
California probably has the strongest environmental regulations in the country, whereas Texas nurtures its oil and gas industry and regards nature as something to be subdued. It puts minimal restrictions on keeping exotic animals as pets, which is why there are believed to be more tigers in captivity in Texas than in the wild in India.
Their leaders embody the two states’ divergent philosophies. California’s governor, Gavin Newsom, who took office in January, is a former mayor of San Francisco, best known for legalising gay marriage in 2004 and sparking a national social movement. The governor of Texas, Greg Abbott, is a staunch social conservative who formerly served as the state’s attorney-general and is proud to have sued Barack Obama’s administration 31 times over policies including health care and environmental regulations.
Earlier this year Mr Newsom ordered a moratorium on the death penalty, around the same time that politicians in the Texas legislature were debating whether to start providing air-conditioning in prisons during the sweltering summer—an expensive creature comfort, in the eyes of some. Since 1976 Texas has executed more prisoners than any other American state and around five times more than second-placed Virginia.
Their independent natures can be partly explained by history. Tellingly, Texans celebrate 1836 as their founding year, when the state became independent from Mexico after an armed insurrection, not 1845, when Texas officially became an American state. At the time slaveholding Texas received an ambivalent welcome into the nation, which was worried about the balance between states that permitted slavery and those that did not. California, which had also been a part of Mexico before it joined America in 1850, never allowed slavery, which meant it was more warmly welcomed. This experience shaped its political attitudes. Its distance from Washington, dc, fuelled its ability to experiment.
Both states used to be supportive of the other political party. Republicans won California in nearly every presidential election between 1952 and 1988, and Ronald Reagan served as governor there before he became president. The state’s politics swerved in response to its growing population of immigrants, who were troubled by Republicans’ intolerant rhetoric and policies. Texas used to be strongly Democratic and produced Lyndon B. Johnson, who became president after John F. Kennedy was assassinated in Dallas. Mr Johnson’s legacy includes launching many of the programmes that Texan politicians today scorn, including the war on poverty and federally funded health care for the poor and elderly. His commitment to social services and civil rights helped hand his state and the south to Republicans.
Americans and immigrants have for decades travelled to both states to build their future unencumbered by tradition. The “Texas Triangle”, formed by the four large cities of Austin, Dallas, Houston and San Antonio, accounts for three-quarters of the state’s population, has been responsible for three-quarters of its population growth since 2010, and produces 82% of its gdp.
Small-state big state
The threat of Texas becoming California, as the Lone Star State’s leadership fears, is exaggerated. However, it raises the question of which pole America will turn towards—the progressive left represented by California or the right represented by Texas. “The fact that America can contain two such assertive, contrary forces as Texas and California is a testament to our political dynamism, but more and more I feel that America is being compelled to make a choice between the models these states embody,” writes Lawrence Wright in his book “God Save Texas”. “Under the Trump administration, Texas is clearly the winning archetype.”
That may not hold for ever. Texas is already changing. “Outsiders think Austin is a blue bubble and the rest of Texas is tumbleweeds,” says Ann Beeson of the Centre for Public Policy Priorities, a left-leaning think-tank. “People have a huge misunderstanding of how giant, progressive and diverse our cities are.”
Nor should California, which frequently creates political winds that then sweep across the country, be discounted. It experienced an anti-tax backlash in the 1970s and an anti-immigrant push in the 1990s, both of which spread nationally. It legalised abortion six years before Roe v Wade, the historic Supreme Court decision, in a bill signed by Reagan, then governor. “So much of what we aspire to as a country resides in California,” says Austin Beutner, a former businessman who is superintendent of Los Angeles Unified School District. “Laws go east to west. Values go west to east.”
Much of America’s future rides on California’s and Texas’s success. This special report will look in detail at how the states are approaching business, taxation, public education, social welfare, the environment, and policies toward immigrants. It will ask which state’s model is likely to prove more fruitful in the long term. “There are 50 labs in the United States, and you can watch the California and Texas experiment,” says Ross Perot junior, a successful Texan businessman. “That’s the American way.”
Many people are moving from California to Texas
The cost of living, as well as high taxes and red tape, are precipitating the push
Print edition | Special report
Jun 20th 2019
“Everyone is from California. Are they kicking y’all out?” asks a curious bureaucrat at the Department of Public Safety in Plano, a city near Dallas. In the previous week she had helped 20 people from California apply for a Texas driving licence. Those keeping score in the contest between the two states do not have to look far to notch up points for Texas. On the way to the state Capitol building in Austin to interview Greg Abbott, the governor, your correspondent discovered that her driver had recently relocated from southern California to start a family in a more affordable city.
Between 2007 and 2016 a net 1m American residents, or 2.5% of the state’s population, left California for another state. Texas was the most popular destination, attracting more than a quarter of them. More Americans have left California than moved there every year since 1990, though immigrants still arrive from abroad.
Companies are also moving. Last year McKesson, a medical-supplies company, and Core-Mark, a supplier to convenience stores, shifted their headquarters from California to Texas, as did Jamba Juice, a smoothie company. Many Californian firms are also adding jobs outside the Golden State. Charles Schwab, a financial-brokerage firm based in San Francisco, received more than $6m in incentives from Texas, and by the end of this year will have more employees there than in California.
What explains the one-way traffic? There are four reasons for California’s weaker position. First, it has become very expensive, especially for housing. “If there’s one risk factor in this state, it’s affordability,” says Gavin Newsom, California’s governor. “The thing we most pride ourselves on—the California dream, a notion of social mobility that we export around the world—is in peril.” A third of Californians are thinking of moving out of state because of the high cost of housing, according to a recent survey by the Public Policy Institute of California, a non-profit research firm. Most of those leaving California for Texas earn less than $50,000 a year and have only a high-school education (see chart).
The feudal few
The middle class is also struggling. In California home-ownership rates are at their lowest level since the 1940s and among the lowest in America, with black and Hispanic families particularly hard hit. In the past ten years around 75,000 new housing units received permits annually, only 40% of the projected need. “From the perspective of a young, upwardly mobile family, California is nearly impossible, unless you have rich parents, rob a bank, or get money from your firm going public,” says Joel Kotkin, a professor at Chapman University, who believes that the state is experiencing a new kind of “feudalism”, where the ultra-rich thrive and others suffer.
As a symbol of how out-of-reach the once accessible state has become, last year the small house that was the setting for “The Brady Bunch”, a television show in the 1970s about a middle-class Californian family, sold for a whopping $3.5m, nearly double its asking price. Companies expanding elsewhere find that many employees are happy to give it a go in a state where they can afford to buy a house and raise a family.
The states also have wildly different tax regimes, which is a second reason for Texas gaining favour as a destination. With a top rate of 13.3%, California has the highest state income-tax rate for top earners. Texas does not charge residents a state income tax. Instead, they pay higher property taxes to local governments, and the state gets most of its money from a sales tax. Because of recent changes to the tax code, residents of California and other high-tax states will no longer be able to deduct all of their state and local taxes from federal payments, which could further dampen people’s willingness to remain in the state.
Deep in the heart of taxes
Taxes on businesses are increasing, too. In the past six elections California voters have approved more than 800 local taxes on businesses and residents, according to Larry Kosmont of Kosmont Companies, an economic advisory firm. (This does not include voters’ decision to raise the income-tax rate on the state’s highest earners.) For example, last year voters in San Francisco approved the controversial Proposition c, which taxes businesses with more than $50m in gross revenues to fund services for the homeless. Companies with fat profit margins can afford higher taxes, but lower-margin businesses cannot, and these are the ones most likely to consider an alternative location.
Third, Texas has pursued a concerted strategy of wooing and cultivating businesses, whereas California has not. This began with Rick Perry, who served as Texas’s governor from 2000 to 2015. He travelled to California and other states on “hunting trips” to poach businesses, ran ads on radio encouraging people and companies to move, and offered large incentives to create jobs in Texas. Mr Abbott has continued with these pro-business policies and still operates a “deal-closing fund” to incentivise businesses to come. He is a cheerleader for his state’s advantages, including low costs, a central location with good airports and a convenient time zone for doing business with both coasts. He describes Texas as “the quintessential free-enterprise state”.
California has not done enough to pursue an economic strategy of its own. “I think we rested on our laurels a bit. We put up our feet and talked about the old days,” admits Mr Newsom. Yet when governors from other states come to California to pitch a relocation, the state still does not intervene to retain companies, which sends the message that it is indifferent, says Barry Broome of the Greater Sacramento Economic Council.
The reality of doing business in California, with heavy regulation across most industries, is a fourth disadvantage. For example, the state has some of the most burdensome occupational licensing requirements in America, even for low- and moderate-income jobs, such as tree-trimming. “It’s easier to do business in Cuba than San Francisco,” says the boss of one of the Bay Area’s most prominent tech firms, which operates in both places. cnbc, a news company that rates America’s states for business, has ranked Texas as first and California as 25th. California has a more educated workforce and stronger innovation, but when it comes to commercial “friendliness” and the cost of doing business, it is in last place and third-to-last place respectively.
The heavy cost of regulation is evident in property and contributes to higher prices for homes. You can get a building permit within a few months in Texas, but it can take years in California, where the environmental-review process can be lengthy and lead to expensive lawsuits. “I’m an environmentalist, but it’s completely crazy what happens here. The planning commissions slow-walk everything,” says the boss of one of America’s largest technology companies, based in Silicon Valley.
Red tape takes a toll on small firms, too. “If you have the balance-sheet to fight through it, you can make money, but you have to be big and well-capitalised to do business in California,” says Mr Perot. “A little guy can’t survive. That’s the irony of the politics.” Property projects that use public funds or subsidies, including below-market-value land for affordable housing, must pay “prevailing” wages for workers, which can add 15-25% to the total cost, says Mr Kosmont. This does not happen in Texas.
The tech boom has created huge wealth disparities. Local anger and insistence on business contributing more to society could result in extra taxes and red tape. Already San Francisco is one of the few cities in America where “civic leaders openly flay their most successful progeny and throw so many roadblocks in front of young companies,” says Michael Moritz of Sequoia, a leading venture-capital firm. “It makes states and countries that roll out the carpet and offer a welcome to businesses exceedingly attractive.” Tools that Silicon Valley has produced, such as email, video conferencing and messaging, make it possible to work remotely, which will help more companies expand in less expensive states.
So far the wealthy have accepted California’s tax increases without moving en masse. The state boasts many assets, including a long coastline, a global and educated elite, top-tier universities and a concentration of tech expertise. However, its long-term fiscal health is precariously balanced, because it relies on a small number of people to pay for an extensive system of benefits. The top 1% of taxpayers account for 46% of all personal-income tax and 35% of California’s general-fund revenues, according to Gabe Petek of the Legislative Analyst’s Office, an independent fiscal monitor.
Because personal-income tax is the main source of revenue, California’s fortunes ride on the stockmarket’s performance. The state has the fifth most volatile tax system of any American state, according to the Pew Charitable Trusts (Texas ranks 21st). Facebook’s initial public offering in 2012, for example, alone contributed $1.9bn in tax to California’s coffers. In 2016 the state collected $1bn from a single zip code in Palo Alto. Such concentrated bounty can be welcome when times are good, but it leaves the state more vulnerable when the market falls. Today the state has around $20bn in reserves to withstand a slowdown, but even a mild recession would wipe that out within a single year, says Mr Petek.
Texas must also cope with economic volatility. Its strong reliance on energy, which accounted for around 16% of its gdp over the past ten years, means global energy prices can drive the state’s prosperity. As its constitution bars income tax, Texas has few ways to stabilise revenues in bad times. “You have two legs of a stool—sales tax and property tax—and if you only have two legs, there’s a lot of teetering,” says Michael Hinojosa, superintendent of Dallas’s school district, which faced big cuts during the last downturn.
Baywatch
In order to continue to thrive, California must make changes, like increasing affordable housing, generating more tax revenue from diverse sources and creating well-paid jobs. The state appears to be booming, but the gains are concentrated. Between 2007 and 2017 the Bay Area accounted for a third of new jobs and enjoyed 17% employment growth, against 7% for the rest of the state.
“If California were divided into states, we’d have the richest state in Silicon Valley and the poorest state in the centre,” says Lenny Mendonca, director of California’s Office of Business and Economic Development. Regions like the Central Valley, east of San Francisco, are ailing. “We can’t be a great state if we’re two states,” says Michael Tubbs, the mayor of Stockton, a poor city in that area. In 2008 the city was America’s foreclosure capital. Today it has the dubious distinction of having the largest number of “super-commuters”. Around 30,000 people commute more than 90 minutes each way to work.
According to Mr Broome, the state needs to develop a strategic plan and invest in a more robust economic-development agency to persuade companies to stay. In other words, California needs to adopt a pro-business attitude and strategy more like that of Texas. “We’re incorporating a lot of ideas from Texas, and we’re not just going to roll over any longer,” says Mr Newsom. In the future his administration will try to encourage businesses to relocate or expand to more affordable areas within the state. But it is not obvious that such a pitch will succeed. Costs are lower in places like the Central Valley, but they are even lower in other states.
Mr Newsom has also asked his team to examine the licensing requirements for various occupations, so that California can reduce bureaucratic red tape. But more dramatic changes are required. “I don’t know that a week goes by where we’re not engaged in tax-reform discussions,” declares Mr Newsom. However, a major tax overhaul may not be politically feasible. Proposition 13, which caps the rate at which property taxes can rise, is why the state is so heavily reliant on personal-income tax. In 2020 voters will decide whether to exempt some commercial properties, which could lead to billions of dollars in extra tax revenue. But that alone is unlikely to solve the state’s precarious fiscal balance.
Today Texas is better placed to grow than California, but that could change. Some firms worry that the state is not investing enough to retain its competitive edge. Texas has thrived by importing skilled Americans, but it needs to cultivate its home-grown workforce, too. “The private sector creates jobs but the public sector must provide the infrastructure to enable growth to occur,” says Tom Luce, a lawyer, who says he is “concerned about how Texas will deal with its future” and whether it can produce enough educated workers to fill the jobs that companies will create.
The cost of living, as well as high taxes and red tape, are precipitating the push
Print edition | Special report
Jun 20th 2019
“Everyone is from California. Are they kicking y’all out?” asks a curious bureaucrat at the Department of Public Safety in Plano, a city near Dallas. In the previous week she had helped 20 people from California apply for a Texas driving licence. Those keeping score in the contest between the two states do not have to look far to notch up points for Texas. On the way to the state Capitol building in Austin to interview Greg Abbott, the governor, your correspondent discovered that her driver had recently relocated from southern California to start a family in a more affordable city.
Between 2007 and 2016 a net 1m American residents, or 2.5% of the state’s population, left California for another state. Texas was the most popular destination, attracting more than a quarter of them. More Americans have left California than moved there every year since 1990, though immigrants still arrive from abroad.
Companies are also moving. Last year McKesson, a medical-supplies company, and Core-Mark, a supplier to convenience stores, shifted their headquarters from California to Texas, as did Jamba Juice, a smoothie company. Many Californian firms are also adding jobs outside the Golden State. Charles Schwab, a financial-brokerage firm based in San Francisco, received more than $6m in incentives from Texas, and by the end of this year will have more employees there than in California.
What explains the one-way traffic? There are four reasons for California’s weaker position. First, it has become very expensive, especially for housing. “If there’s one risk factor in this state, it’s affordability,” says Gavin Newsom, California’s governor. “The thing we most pride ourselves on—the California dream, a notion of social mobility that we export around the world—is in peril.” A third of Californians are thinking of moving out of state because of the high cost of housing, according to a recent survey by the Public Policy Institute of California, a non-profit research firm. Most of those leaving California for Texas earn less than $50,000 a year and have only a high-school education (see chart).
The feudal few
The middle class is also struggling. In California home-ownership rates are at their lowest level since the 1940s and among the lowest in America, with black and Hispanic families particularly hard hit. In the past ten years around 75,000 new housing units received permits annually, only 40% of the projected need. “From the perspective of a young, upwardly mobile family, California is nearly impossible, unless you have rich parents, rob a bank, or get money from your firm going public,” says Joel Kotkin, a professor at Chapman University, who believes that the state is experiencing a new kind of “feudalism”, where the ultra-rich thrive and others suffer.
As a symbol of how out-of-reach the once accessible state has become, last year the small house that was the setting for “The Brady Bunch”, a television show in the 1970s about a middle-class Californian family, sold for a whopping $3.5m, nearly double its asking price. Companies expanding elsewhere find that many employees are happy to give it a go in a state where they can afford to buy a house and raise a family.
The states also have wildly different tax regimes, which is a second reason for Texas gaining favour as a destination. With a top rate of 13.3%, California has the highest state income-tax rate for top earners. Texas does not charge residents a state income tax. Instead, they pay higher property taxes to local governments, and the state gets most of its money from a sales tax. Because of recent changes to the tax code, residents of California and other high-tax states will no longer be able to deduct all of their state and local taxes from federal payments, which could further dampen people’s willingness to remain in the state.
Deep in the heart of taxes
Taxes on businesses are increasing, too. In the past six elections California voters have approved more than 800 local taxes on businesses and residents, according to Larry Kosmont of Kosmont Companies, an economic advisory firm. (This does not include voters’ decision to raise the income-tax rate on the state’s highest earners.) For example, last year voters in San Francisco approved the controversial Proposition c, which taxes businesses with more than $50m in gross revenues to fund services for the homeless. Companies with fat profit margins can afford higher taxes, but lower-margin businesses cannot, and these are the ones most likely to consider an alternative location.
Third, Texas has pursued a concerted strategy of wooing and cultivating businesses, whereas California has not. This began with Rick Perry, who served as Texas’s governor from 2000 to 2015. He travelled to California and other states on “hunting trips” to poach businesses, ran ads on radio encouraging people and companies to move, and offered large incentives to create jobs in Texas. Mr Abbott has continued with these pro-business policies and still operates a “deal-closing fund” to incentivise businesses to come. He is a cheerleader for his state’s advantages, including low costs, a central location with good airports and a convenient time zone for doing business with both coasts. He describes Texas as “the quintessential free-enterprise state”.
California has not done enough to pursue an economic strategy of its own. “I think we rested on our laurels a bit. We put up our feet and talked about the old days,” admits Mr Newsom. Yet when governors from other states come to California to pitch a relocation, the state still does not intervene to retain companies, which sends the message that it is indifferent, says Barry Broome of the Greater Sacramento Economic Council.
The reality of doing business in California, with heavy regulation across most industries, is a fourth disadvantage. For example, the state has some of the most burdensome occupational licensing requirements in America, even for low- and moderate-income jobs, such as tree-trimming. “It’s easier to do business in Cuba than San Francisco,” says the boss of one of the Bay Area’s most prominent tech firms, which operates in both places. cnbc, a news company that rates America’s states for business, has ranked Texas as first and California as 25th. California has a more educated workforce and stronger innovation, but when it comes to commercial “friendliness” and the cost of doing business, it is in last place and third-to-last place respectively.
The heavy cost of regulation is evident in property and contributes to higher prices for homes. You can get a building permit within a few months in Texas, but it can take years in California, where the environmental-review process can be lengthy and lead to expensive lawsuits. “I’m an environmentalist, but it’s completely crazy what happens here. The planning commissions slow-walk everything,” says the boss of one of America’s largest technology companies, based in Silicon Valley.
Red tape takes a toll on small firms, too. “If you have the balance-sheet to fight through it, you can make money, but you have to be big and well-capitalised to do business in California,” says Mr Perot. “A little guy can’t survive. That’s the irony of the politics.” Property projects that use public funds or subsidies, including below-market-value land for affordable housing, must pay “prevailing” wages for workers, which can add 15-25% to the total cost, says Mr Kosmont. This does not happen in Texas.
The tech boom has created huge wealth disparities. Local anger and insistence on business contributing more to society could result in extra taxes and red tape. Already San Francisco is one of the few cities in America where “civic leaders openly flay their most successful progeny and throw so many roadblocks in front of young companies,” says Michael Moritz of Sequoia, a leading venture-capital firm. “It makes states and countries that roll out the carpet and offer a welcome to businesses exceedingly attractive.” Tools that Silicon Valley has produced, such as email, video conferencing and messaging, make it possible to work remotely, which will help more companies expand in less expensive states.
So far the wealthy have accepted California’s tax increases without moving en masse. The state boasts many assets, including a long coastline, a global and educated elite, top-tier universities and a concentration of tech expertise. However, its long-term fiscal health is precariously balanced, because it relies on a small number of people to pay for an extensive system of benefits. The top 1% of taxpayers account for 46% of all personal-income tax and 35% of California’s general-fund revenues, according to Gabe Petek of the Legislative Analyst’s Office, an independent fiscal monitor.
Because personal-income tax is the main source of revenue, California’s fortunes ride on the stockmarket’s performance. The state has the fifth most volatile tax system of any American state, according to the Pew Charitable Trusts (Texas ranks 21st). Facebook’s initial public offering in 2012, for example, alone contributed $1.9bn in tax to California’s coffers. In 2016 the state collected $1bn from a single zip code in Palo Alto. Such concentrated bounty can be welcome when times are good, but it leaves the state more vulnerable when the market falls. Today the state has around $20bn in reserves to withstand a slowdown, but even a mild recession would wipe that out within a single year, says Mr Petek.
Texas must also cope with economic volatility. Its strong reliance on energy, which accounted for around 16% of its gdp over the past ten years, means global energy prices can drive the state’s prosperity. As its constitution bars income tax, Texas has few ways to stabilise revenues in bad times. “You have two legs of a stool—sales tax and property tax—and if you only have two legs, there’s a lot of teetering,” says Michael Hinojosa, superintendent of Dallas’s school district, which faced big cuts during the last downturn.
Baywatch
In order to continue to thrive, California must make changes, like increasing affordable housing, generating more tax revenue from diverse sources and creating well-paid jobs. The state appears to be booming, but the gains are concentrated. Between 2007 and 2017 the Bay Area accounted for a third of new jobs and enjoyed 17% employment growth, against 7% for the rest of the state.
“If California were divided into states, we’d have the richest state in Silicon Valley and the poorest state in the centre,” says Lenny Mendonca, director of California’s Office of Business and Economic Development. Regions like the Central Valley, east of San Francisco, are ailing. “We can’t be a great state if we’re two states,” says Michael Tubbs, the mayor of Stockton, a poor city in that area. In 2008 the city was America’s foreclosure capital. Today it has the dubious distinction of having the largest number of “super-commuters”. Around 30,000 people commute more than 90 minutes each way to work.
According to Mr Broome, the state needs to develop a strategic plan and invest in a more robust economic-development agency to persuade companies to stay. In other words, California needs to adopt a pro-business attitude and strategy more like that of Texas. “We’re incorporating a lot of ideas from Texas, and we’re not just going to roll over any longer,” says Mr Newsom. In the future his administration will try to encourage businesses to relocate or expand to more affordable areas within the state. But it is not obvious that such a pitch will succeed. Costs are lower in places like the Central Valley, but they are even lower in other states.
Mr Newsom has also asked his team to examine the licensing requirements for various occupations, so that California can reduce bureaucratic red tape. But more dramatic changes are required. “I don’t know that a week goes by where we’re not engaged in tax-reform discussions,” declares Mr Newsom. However, a major tax overhaul may not be politically feasible. Proposition 13, which caps the rate at which property taxes can rise, is why the state is so heavily reliant on personal-income tax. In 2020 voters will decide whether to exempt some commercial properties, which could lead to billions of dollars in extra tax revenue. But that alone is unlikely to solve the state’s precarious fiscal balance.
Today Texas is better placed to grow than California, but that could change. Some firms worry that the state is not investing enough to retain its competitive edge. Texas has thrived by importing skilled Americans, but it needs to cultivate its home-grown workforce, too. “The private sector creates jobs but the public sector must provide the infrastructure to enable growth to occur,” says Tom Luce, a lawyer, who says he is “concerned about how Texas will deal with its future” and whether it can produce enough educated workers to fill the jobs that companies will create.
Public education in both California and Texas is poor
Increased spending does not always bring better results
Print edition | Special report
Jun 20th 2019
Their task is to educate whole generations, but if California and Texas were to be graded for their achievements in the classroom, they would barely pass. They rank 36th and 41st, respectively, out of 51 states (including Washington, dc) for educational outcomes, according to Education Week, a news firm. Only 29% of fourth-graders (aged 9-10) in Texas and 31% of their counterparts in California are proficient in reading at their grade level, compared with 35% nationally, according to the National Assessment of Educational Progress, which measures student achievement (see charts on next page).
Since nearly a quarter of America’s public-school students are educated in California and Texas, the states’ performance matters profoundly for the country’s future. Yet less than 7% of economically disadvantaged kids are prepared for college, compared with 27% of children who are not economically disadvantaged. Those who enroll in community college or university in either state can spend months taking remedial courses before their coursework counts towards a degree, says Jim Lanich of Educational Results Partnership, an ngo. California’s students underperform Texas’s in several areas, including maths and science, and its Hispanic and African-American students do worse, too. But neither state has much to boast about.
Education is the biggest budget item in both states, costing $100bn per year in California and $50bn in Texas. But disenchantment is growing. “Education is the single largest enterprise in California. It has 6m student customers. And it sucks,” exclaims David Crane of Govern for California, a political outfit. A high-ranking education official in Texas compares his state’s poor performance to “being the thinnest fat dude. It’s not adequate for our kids.” Why, then, is performance so disappointing?
Both states have a difficult assignment. Around three-fifths of their students are economically disadvantaged and one-fifth are bilingual or still learning English, making their task especially challenging. But other factors are also at play. One is investment. In the fiscal year 2015-16 California spent $11,420 per pupil, 22% more than Texas but 4% less than the national average, according to the National Centre for Education Statistics, which tracks spending. Funding for education in California has risen by 60% since 2010 and is at a 30-year high, but given the needs and backgrounds of its students the state still underinvests.
California’s high costs help explain why increased spending has not produced better results. The average teacher’s salary in California is around $79,000, which is 50% more than in Texas, but that does not stretch far because of the extortionate cost of living. Many teachers struggle to buy their own house, says Eric Heins, who runs the California Teachers Association, a union.
The Golden State also maintains a more generous system of benefits for pensioners. With defined-benefit pensions and health-care subsidies, spending on benefits is eating up a growing share of the education budget. In 2012 Californian voters approved a 30% increase in income-tax rates, in part to fund public schools, but all that extra funding went to pensioners and their health care, rather than to pupils or teachers’ salaries, says Mr Crane. Politicians are loth to deal with the rising costs of benefits for fear of a backlash at the polls.
Teachers’ unions are a powerful political force in California, significantly more so than in Texas. Unions represent the interests of their members, not the students they teach, and they limit school districts’ ability to manoeuvre. When Californian districts run into hard times, they often retain teachers based on seniority.
The quality of teachers determines the performance of students, especially those from a low-income background. But in California firing underperforming teachers is more difficult than mastering advanced calculus. It is one of four states to offer lifetime tenure to teachers after only two years. In most states, including Texas, achieving tenure takes three or more years, and even after that it is easier to fire underperforming employees. School districts’ limited ability to manoeuvre shows up in California’s education code, which, at 2,590 pages, is more than twice as long as the Bible.
The financial crisis also hurt educational performance in both states. In Texas proficiency in maths among eighth-graders (aged 13-14) has fallen since 2011, when the legislature announced it would cut $5.4bn from education over two years. Legislators in Texas have been especially stingy. School districts have sued the state several times for underfunding and often prevailed. “More money won’t necessarily solve everything, but the absence of money can make things extraordinarily difficult,” says Todd Williams, a former Goldman Sachs executive who is now an education advocate in Dallas. There has also been a broader shift away from testing and accountability at state level, meaning that underperforming schools in the Lone Star State face fewer consequences, says Sandy Kress, a lawyer. (California has also pushed back against testing.)
But although there is less money to go around in Texas, there is more latitude to experiment. One example is a programme developed by the Dallas Independent School District, which eliminated seniority-based pay in order to reward its best-performing teachers, with some earning $80,000-90,000 a year. Those star teachers who agree to teach in a high-needs school get an extra salary lift of $8,000-10,000. The school district, with nearly 90% low-income students, has increased achievement across all grades and subjects by 13%. “The fact that I don’t have to deal with a union contract gives us a big advantage in being nimble and creative,” explains Michael Hinojosa, the district’s superintendent.
Texas wants 60% of its high-school graduates to receive a certificate, two- or four-year degree by 2030, but currently less than half that number are achieving that aim. California scores better in the quality of its universities, share of students enrolled and investment. It is widely believed to have the best public university system in the country, and between 2008 and 2018 increased higher-education funding per pupil by 3%, while Texas cut its by 23%.
It’s elementary
Both states are trying to up their game, for example by putting more money into early-childhood education. This can make a difference for low-income students, who are more likely to enter kindergarten already lagging their peers. The states should also invest more in “pre-college” courses so that high-school students can graduate with college or technical-school credits under their belt. Young people who start college work in high school are more likely to enroll in college and graduate with less debt, says Daniel King, superintendent of Pharr San Juan Alamo school district in Texas’s Rio Grande Valley. The effect of pre-college offerings is more profound on low-income students and minorities, for whom it “changes how they see themselves and what they can be”, he says.
A recent report on public-school finance commissioned by the Texas government highlights the economic rationale for investing more in students. It calculates that each high-school graduate who does not go on to earn a certificate from a vocational or technical school, or a two- or four-year degree from a community college or university, misses out on $1m in lifetime earnings. “This represents a significant forgone opportunity cost approximating $200bn in lifetime earnings with each and every graduating class,” the report says. Others point out that imprisoning people costs far more than schooling them does, and the probability of incarceration rises when someone drops out or underperforms in school.
Overall, Texas seems more likely to pull ahead of California for two reasons. First, business and civic leaders are concerned about inadequate investment in students, which reduces the pipeline of skilled workers for the jobs companies are creating. “We’re not going to have a workforce without doing a vast amount better with the students that are in poor and minority districts,” says Margaret Spellings, former secretary of education under President George W. Bush. Texan politicians eventually tend to follow what businesspeople want. In May the state legislature approved a $6.5bn public-education bill, providing funding for sensible policies, such as expanding merit-pay programmes for teachers and giving school districts with high-needs kids the option to extend the school year. But more funding is still needed.
Second, political self-interest will focus attention on public education. Texas is seeing greater political competition for the first time in decades. Some Republicans believe that, without more investment and improvement in public education, voters could bring in the Democrats. If poor test results do not cause them to change their approach, the mathematics of politics might.
Increased spending does not always bring better results
Print edition | Special report
Jun 20th 2019
Their task is to educate whole generations, but if California and Texas were to be graded for their achievements in the classroom, they would barely pass. They rank 36th and 41st, respectively, out of 51 states (including Washington, dc) for educational outcomes, according to Education Week, a news firm. Only 29% of fourth-graders (aged 9-10) in Texas and 31% of their counterparts in California are proficient in reading at their grade level, compared with 35% nationally, according to the National Assessment of Educational Progress, which measures student achievement (see charts on next page).
Since nearly a quarter of America’s public-school students are educated in California and Texas, the states’ performance matters profoundly for the country’s future. Yet less than 7% of economically disadvantaged kids are prepared for college, compared with 27% of children who are not economically disadvantaged. Those who enroll in community college or university in either state can spend months taking remedial courses before their coursework counts towards a degree, says Jim Lanich of Educational Results Partnership, an ngo. California’s students underperform Texas’s in several areas, including maths and science, and its Hispanic and African-American students do worse, too. But neither state has much to boast about.
Education is the biggest budget item in both states, costing $100bn per year in California and $50bn in Texas. But disenchantment is growing. “Education is the single largest enterprise in California. It has 6m student customers. And it sucks,” exclaims David Crane of Govern for California, a political outfit. A high-ranking education official in Texas compares his state’s poor performance to “being the thinnest fat dude. It’s not adequate for our kids.” Why, then, is performance so disappointing?
Both states have a difficult assignment. Around three-fifths of their students are economically disadvantaged and one-fifth are bilingual or still learning English, making their task especially challenging. But other factors are also at play. One is investment. In the fiscal year 2015-16 California spent $11,420 per pupil, 22% more than Texas but 4% less than the national average, according to the National Centre for Education Statistics, which tracks spending. Funding for education in California has risen by 60% since 2010 and is at a 30-year high, but given the needs and backgrounds of its students the state still underinvests.
California’s high costs help explain why increased spending has not produced better results. The average teacher’s salary in California is around $79,000, which is 50% more than in Texas, but that does not stretch far because of the extortionate cost of living. Many teachers struggle to buy their own house, says Eric Heins, who runs the California Teachers Association, a union.
The Golden State also maintains a more generous system of benefits for pensioners. With defined-benefit pensions and health-care subsidies, spending on benefits is eating up a growing share of the education budget. In 2012 Californian voters approved a 30% increase in income-tax rates, in part to fund public schools, but all that extra funding went to pensioners and their health care, rather than to pupils or teachers’ salaries, says Mr Crane. Politicians are loth to deal with the rising costs of benefits for fear of a backlash at the polls.
Teachers’ unions are a powerful political force in California, significantly more so than in Texas. Unions represent the interests of their members, not the students they teach, and they limit school districts’ ability to manoeuvre. When Californian districts run into hard times, they often retain teachers based on seniority.
The quality of teachers determines the performance of students, especially those from a low-income background. But in California firing underperforming teachers is more difficult than mastering advanced calculus. It is one of four states to offer lifetime tenure to teachers after only two years. In most states, including Texas, achieving tenure takes three or more years, and even after that it is easier to fire underperforming employees. School districts’ limited ability to manoeuvre shows up in California’s education code, which, at 2,590 pages, is more than twice as long as the Bible.
The financial crisis also hurt educational performance in both states. In Texas proficiency in maths among eighth-graders (aged 13-14) has fallen since 2011, when the legislature announced it would cut $5.4bn from education over two years. Legislators in Texas have been especially stingy. School districts have sued the state several times for underfunding and often prevailed. “More money won’t necessarily solve everything, but the absence of money can make things extraordinarily difficult,” says Todd Williams, a former Goldman Sachs executive who is now an education advocate in Dallas. There has also been a broader shift away from testing and accountability at state level, meaning that underperforming schools in the Lone Star State face fewer consequences, says Sandy Kress, a lawyer. (California has also pushed back against testing.)
But although there is less money to go around in Texas, there is more latitude to experiment. One example is a programme developed by the Dallas Independent School District, which eliminated seniority-based pay in order to reward its best-performing teachers, with some earning $80,000-90,000 a year. Those star teachers who agree to teach in a high-needs school get an extra salary lift of $8,000-10,000. The school district, with nearly 90% low-income students, has increased achievement across all grades and subjects by 13%. “The fact that I don’t have to deal with a union contract gives us a big advantage in being nimble and creative,” explains Michael Hinojosa, the district’s superintendent.
Texas wants 60% of its high-school graduates to receive a certificate, two- or four-year degree by 2030, but currently less than half that number are achieving that aim. California scores better in the quality of its universities, share of students enrolled and investment. It is widely believed to have the best public university system in the country, and between 2008 and 2018 increased higher-education funding per pupil by 3%, while Texas cut its by 23%.
It’s elementary
Both states are trying to up their game, for example by putting more money into early-childhood education. This can make a difference for low-income students, who are more likely to enter kindergarten already lagging their peers. The states should also invest more in “pre-college” courses so that high-school students can graduate with college or technical-school credits under their belt. Young people who start college work in high school are more likely to enroll in college and graduate with less debt, says Daniel King, superintendent of Pharr San Juan Alamo school district in Texas’s Rio Grande Valley. The effect of pre-college offerings is more profound on low-income students and minorities, for whom it “changes how they see themselves and what they can be”, he says.
A recent report on public-school finance commissioned by the Texas government highlights the economic rationale for investing more in students. It calculates that each high-school graduate who does not go on to earn a certificate from a vocational or technical school, or a two- or four-year degree from a community college or university, misses out on $1m in lifetime earnings. “This represents a significant forgone opportunity cost approximating $200bn in lifetime earnings with each and every graduating class,” the report says. Others point out that imprisoning people costs far more than schooling them does, and the probability of incarceration rises when someone drops out or underperforms in school.
Overall, Texas seems more likely to pull ahead of California for two reasons. First, business and civic leaders are concerned about inadequate investment in students, which reduces the pipeline of skilled workers for the jobs companies are creating. “We’re not going to have a workforce without doing a vast amount better with the students that are in poor and minority districts,” says Margaret Spellings, former secretary of education under President George W. Bush. Texan politicians eventually tend to follow what businesspeople want. In May the state legislature approved a $6.5bn public-education bill, providing funding for sensible policies, such as expanding merit-pay programmes for teachers and giving school districts with high-needs kids the option to extend the school year. But more funding is still needed.
Second, political self-interest will focus attention on public education. Texas is seeing greater political competition for the first time in decades. Some Republicans believe that, without more investment and improvement in public education, voters could bring in the Democrats. If poor test results do not cause them to change their approach, the mathematics of politics might.
California and Texas are both failing their neediest citizens
But they are doing so in different ways
Print edition | Special report
Jun 22nd 2019
inRead invented by Teads
California’s poverty rate is high despite heavy investment to counter it. It has 38% more people, but its spending on public welfare is 120% higher than Texas’s. However, the cost of living in California is 40% higher than the national average, whereas in Texas it is around 9% below the average. Housing is the primary culprit, responsible for around 80% of the higher cost of living in California. Around one in three Californian renters spends at least half their income on rent. “In California it’s harder to make it on your own, but there are supports,” explains Heather Hahn of the Urban Institute, a think-tank. “In Texas you may be better able to make it on your own because it is cheaper to live, but if you can’t, there’s less of a safety-net there for you.”
Both states accept federal funds for social-welfare programmes, including the Supplemental Nutrition Assistance Programme, which provides food stamps to the needy. “Texas is pragmatic,” explains Ken Miller of Claremont McKenna College. “It’s willing to accept a dollar if the federal government wants to give it a dollar, but it isn’t willing to follow a government mandate.” California goes further, supplementing many federal programmes with money of its own, whereas Texas mostly does not.
Nets and hammocks
The two states’ safety-nets differ in three significant ways. One concerns handouts. In Texas cash welfare is almost non-existent. That is because the Temporary Assistance for Needy Families (tanf) programme, which is mostly federally funded, gives latitude to states in their spending. After welfare reform in 1996 many states started putting more tanf money towards programmes other than cash welfare, but Texas has been particularly zealous, diverting most such funds to pre-kindergarten, child-welfare services, pregnancy-prevention efforts and more. In Texas only around 6% of tanf funding goes to cash welfare, which means that in 2016-17 only 4% of poor families with children in Texas received a cheque, compared with 23% nationally and 65% in California, according to cbpp. California, on the other hand, heavily supplements federal tanf funding with billions of dollars and spends around 40% on cash assistance.
A second way the states differ in their treatment of the poor is in their approach to redistribution through taxation and wages. California’s progressive tax regime, with a high personal-income tax on the wealthy, leans heavily on the rich. California also offers a state-level earned-income tax credit, which in 2018 gave around $400m to poor people who are working but fall below a certain threshold. It is one of the most effective poverty-alleviation tools available and encourages people to work. Texas does not offer it.
California also believes that paying people more will help them out of poverty and has pushed up the minimum wage, to $11 an hour this year and $15 by 2023. Texas follows the federal minimum wage, which is $7.25, and has fought cities’ attempts to raise it, as Austin and San Antonio have tried. This plays into a larger stand-off between liberal cities, which want progressive policies such as higher wages and paid sick leave, and the more conservative legislature, which has moved to limit cities’ freedom to craft their own policies. “Local control used to be a principle of state government. But we’ve gone from local control to controlling the locals,” says Evan Smith, head of Texas Tribune, a non-profit news organisation.
A third difference in state policies toward the poor is in access to health care. Under the Affordable Care Act, states can extend health-care coverage to a larger share of their poor, uninsured citizens, with the federal government picking up 90% of the bill. California did this and its uninsured rate dropped from 17% in 2013 to 7% in 2017. Texas sued the federal government and did not expand the share of those covered by Medicare through Obamacare. Today its uninsured rate is over 17%, the highest in the country. Texan politicians did not trust the federal government always to foot such a large share, says Mark Jones of Rice University. Whatever the rationale, its decision has hurt the poor, who could have had access to subsidised health care were they living in another state.
Which state’s approach better serves citizens? Neither is helping all the people who need it. Poverty anywhere can feel hopeless, but in Texas it can be especially bleak. In parts of the Rio Grande Valley in southern Texas, one of the country’s poorest regions, more than 40% of children live in poverty. “There are gaping holes in the social-safety net, with so many falling through them,” says Traci Wickett, president of the United Way of Southern Cameron County, a non-profit group that works in the Rio Grande Valley. Nearby are many colonias, unincorporated slum-like areas where the poor live, lacking running water and sewerage.
Without state intervention, California’s poverty would be even more acute. Around 35% of Californian children would have been poor without social-safety net programmes, compared with the actual rate of 21%, according to the Public Policy Institute of California. Children who grow up in homes that qualify for food stamps and health coverage for the poor under Medicaid are more likely to be healthy and achieve higher educational levels and higher incomes. Those whose households qualify for the earned-income tax credit are more likely to go to college and earn more themselves. These outcomes are not only good for families but also for taxpayers, because they translate into more taxes paid, says Heather Hoynes of the University of California at Berkeley.
The first term of Gavin Newsom, California’s governor, will test how much bigger and stronger California can weave its socialsafety net. He is expanding funding for many programmes, including subsidised child care, affordable housing and tax credits for the poor, and has expressed support for universal health insurance for all Californians. Such insurance would cost $400bn, about double the state budget, according to the Legislative Analyst’s Office, making it fiscally impossible. Mr Newsom must also grapple with homelessness, as around a quarter of the country’s homeless live in the state. The success of his governorship will be judged by how much he can relieve the primary reason for residents’ economic struggles, which is the cost of housing.
During economic booms like the one California has been enjoying, it is politically appealing to expand social services. For example, some in the state want to offer health care to poor immigrants of all ages, regardless of their immigration status, which would cost around $3bn a year. But doing this could “demolish” the discretionary spending that needs to go to the university system, courts, parks and other social services, points out David Crane of Govern for California, a non-partisan group. And demand for social services will increase when the economy falters, which is precisely the time when the state’s tax collections fall.
For Texas the main question is whether the state’s low-touch model will have to bend as people demand more of their government. Mr Abbott has made resisting the Affordable Care Act and other Obama-era policies a pillar of his political career. However, some pragmatic Republicans think it is in the state’s and their party’s interest to expand health-care coverage for the poor. Those without health insurance end up in hospital, leaving taxpayers to foot the bill. Ed Emmett, a Republican who served as county judge for Harris County, which includes Houston, supported Medicaid expansion, because a quarter of all local property taxes go to health-care costs. “Why should the property-taxpayers in Harris County pay for indigent health care when the federal government will pay for it?” he asks. Liberals and fiscally minded conservative voters may push Texas towards change. According to Mr Miller, health care could become a “political flashpoint”, where the “conservative model will have to yield”.
But they are doing so in different ways
Print edition | Special report
Jun 22nd 2019
inRead invented by Teads
California’s poverty rate is high despite heavy investment to counter it. It has 38% more people, but its spending on public welfare is 120% higher than Texas’s. However, the cost of living in California is 40% higher than the national average, whereas in Texas it is around 9% below the average. Housing is the primary culprit, responsible for around 80% of the higher cost of living in California. Around one in three Californian renters spends at least half their income on rent. “In California it’s harder to make it on your own, but there are supports,” explains Heather Hahn of the Urban Institute, a think-tank. “In Texas you may be better able to make it on your own because it is cheaper to live, but if you can’t, there’s less of a safety-net there for you.”
Both states accept federal funds for social-welfare programmes, including the Supplemental Nutrition Assistance Programme, which provides food stamps to the needy. “Texas is pragmatic,” explains Ken Miller of Claremont McKenna College. “It’s willing to accept a dollar if the federal government wants to give it a dollar, but it isn’t willing to follow a government mandate.” California goes further, supplementing many federal programmes with money of its own, whereas Texas mostly does not.
Nets and hammocks
The two states’ safety-nets differ in three significant ways. One concerns handouts. In Texas cash welfare is almost non-existent. That is because the Temporary Assistance for Needy Families (tanf) programme, which is mostly federally funded, gives latitude to states in their spending. After welfare reform in 1996 many states started putting more tanf money towards programmes other than cash welfare, but Texas has been particularly zealous, diverting most such funds to pre-kindergarten, child-welfare services, pregnancy-prevention efforts and more. In Texas only around 6% of tanf funding goes to cash welfare, which means that in 2016-17 only 4% of poor families with children in Texas received a cheque, compared with 23% nationally and 65% in California, according to cbpp. California, on the other hand, heavily supplements federal tanf funding with billions of dollars and spends around 40% on cash assistance.
A second way the states differ in their treatment of the poor is in their approach to redistribution through taxation and wages. California’s progressive tax regime, with a high personal-income tax on the wealthy, leans heavily on the rich. California also offers a state-level earned-income tax credit, which in 2018 gave around $400m to poor people who are working but fall below a certain threshold. It is one of the most effective poverty-alleviation tools available and encourages people to work. Texas does not offer it.
California also believes that paying people more will help them out of poverty and has pushed up the minimum wage, to $11 an hour this year and $15 by 2023. Texas follows the federal minimum wage, which is $7.25, and has fought cities’ attempts to raise it, as Austin and San Antonio have tried. This plays into a larger stand-off between liberal cities, which want progressive policies such as higher wages and paid sick leave, and the more conservative legislature, which has moved to limit cities’ freedom to craft their own policies. “Local control used to be a principle of state government. But we’ve gone from local control to controlling the locals,” says Evan Smith, head of Texas Tribune, a non-profit news organisation.
A third difference in state policies toward the poor is in access to health care. Under the Affordable Care Act, states can extend health-care coverage to a larger share of their poor, uninsured citizens, with the federal government picking up 90% of the bill. California did this and its uninsured rate dropped from 17% in 2013 to 7% in 2017. Texas sued the federal government and did not expand the share of those covered by Medicare through Obamacare. Today its uninsured rate is over 17%, the highest in the country. Texan politicians did not trust the federal government always to foot such a large share, says Mark Jones of Rice University. Whatever the rationale, its decision has hurt the poor, who could have had access to subsidised health care were they living in another state.
Which state’s approach better serves citizens? Neither is helping all the people who need it. Poverty anywhere can feel hopeless, but in Texas it can be especially bleak. In parts of the Rio Grande Valley in southern Texas, one of the country’s poorest regions, more than 40% of children live in poverty. “There are gaping holes in the social-safety net, with so many falling through them,” says Traci Wickett, president of the United Way of Southern Cameron County, a non-profit group that works in the Rio Grande Valley. Nearby are many colonias, unincorporated slum-like areas where the poor live, lacking running water and sewerage.
Without state intervention, California’s poverty would be even more acute. Around 35% of Californian children would have been poor without social-safety net programmes, compared with the actual rate of 21%, according to the Public Policy Institute of California. Children who grow up in homes that qualify for food stamps and health coverage for the poor under Medicaid are more likely to be healthy and achieve higher educational levels and higher incomes. Those whose households qualify for the earned-income tax credit are more likely to go to college and earn more themselves. These outcomes are not only good for families but also for taxpayers, because they translate into more taxes paid, says Heather Hoynes of the University of California at Berkeley.
The first term of Gavin Newsom, California’s governor, will test how much bigger and stronger California can weave its socialsafety net. He is expanding funding for many programmes, including subsidised child care, affordable housing and tax credits for the poor, and has expressed support for universal health insurance for all Californians. Such insurance would cost $400bn, about double the state budget, according to the Legislative Analyst’s Office, making it fiscally impossible. Mr Newsom must also grapple with homelessness, as around a quarter of the country’s homeless live in the state. The success of his governorship will be judged by how much he can relieve the primary reason for residents’ economic struggles, which is the cost of housing.
During economic booms like the one California has been enjoying, it is politically appealing to expand social services. For example, some in the state want to offer health care to poor immigrants of all ages, regardless of their immigration status, which would cost around $3bn a year. But doing this could “demolish” the discretionary spending that needs to go to the university system, courts, parks and other social services, points out David Crane of Govern for California, a non-partisan group. And demand for social services will increase when the economy falters, which is precisely the time when the state’s tax collections fall.
For Texas the main question is whether the state’s low-touch model will have to bend as people demand more of their government. Mr Abbott has made resisting the Affordable Care Act and other Obama-era policies a pillar of his political career. However, some pragmatic Republicans think it is in the state’s and their party’s interest to expand health-care coverage for the poor. Those without health insurance end up in hospital, leaving taxpayers to foot the bill. Ed Emmett, a Republican who served as county judge for Harris County, which includes Houston, supported Medicaid expansion, because a quarter of all local property taxes go to health-care costs. “Why should the property-taxpayers in Harris County pay for indigent health care when the federal government will pay for it?” he asks. Liberals and fiscally minded conservative voters may push Texas towards change. According to Mr Miller, health care could become a “political flashpoint”, where the “conservative model will have to yield”.
California is a leader on environmentalism
That is good for the Earth, but not always for Californians
Print edition | Special report
Jun 20th 2019
inRead invented by Teads
The California Environmental Quality Act (ceqa), which requires state and local agencies to review the environmental impact of new projects, is one example. Signed into law in 1970 by the then governor, Ronald Reagan, ceqa initially applied to public-works projects, but later expanded to housing. Today those opposed to new development can bring ceqalawsuits, holding up projects for years and adding to developers’ costs, which are subsequently passed on to consumers. Even a top adviser to Mr Newsom says that ceqa “is the standard-bearer for what’s wrong with California”.
Some of the state’s other standards for reducing greenhouse-gas emissions contribute to higher housing costs. Many new homes are required to install solar panels, and construction is encouraged near transit hubs, where units are more expensive than less-dense housing farther away from job centres.
California’s environmental efforts have contributed to higher costs for other living expenses, too. Petrol prices are the highest in America, around 40% above the national average, because the state requires a unique formulation for cleaner fuel that only a handful of refineries can produce. This falls disproportionately on the less affluent, who often live far away from their jobs and public transport. Meanwhile, residential and industrial electricity rates in California are 50% and 75% more than the national average. Cheaper power makes other states, such as Texas, more attractive for manufacturers and heavy users of electricity. California counts people and firms that move elsewhere as carbon reductions in its statistics, even though they are moving to states with higher emissions, says Jennifer Hernandez of Holland Knight, an environmental-law firm.
Texas is the country’s number one producer and consumer of energy, and environmentalism is not part of its brand. But change might not be impossible. In the 1990s, under Ann Richards and George W. Bush as governors, the state made efforts to reduce pollution and encourage renewable energy. In 1999 Texas deregulated the electricity market, which promoted competition, reduced prices and set targets for renewables. The state has retired coal plants and become the leading producer of wind power in America.
The business community is increasingly concerned about climate change, says Brett Perlman of the Centre for Houston’s Future, a think-tank. This is especially true in Houston, where Hurricane Harvey caused $125bn in damage in 2017. Even oil companies are investing in wind and solar power as it has become cheaper. But plenty of Texan politicians are still wedded to a conservative ideology and a Republican-voting public that rejects the idea of global warming. Asked if he believes climate change is a problem, Greg Abbott, the governor, replies cryptically: “It’s a fact that the climate has changed in the last decade and the last 10,000 years. The climate is constantly changing.”
That is good for the Earth, but not always for Californians
Print edition | Special report
Jun 20th 2019
inRead invented by Teads
The California Environmental Quality Act (ceqa), which requires state and local agencies to review the environmental impact of new projects, is one example. Signed into law in 1970 by the then governor, Ronald Reagan, ceqa initially applied to public-works projects, but later expanded to housing. Today those opposed to new development can bring ceqalawsuits, holding up projects for years and adding to developers’ costs, which are subsequently passed on to consumers. Even a top adviser to Mr Newsom says that ceqa “is the standard-bearer for what’s wrong with California”.
Some of the state’s other standards for reducing greenhouse-gas emissions contribute to higher housing costs. Many new homes are required to install solar panels, and construction is encouraged near transit hubs, where units are more expensive than less-dense housing farther away from job centres.
California’s environmental efforts have contributed to higher costs for other living expenses, too. Petrol prices are the highest in America, around 40% above the national average, because the state requires a unique formulation for cleaner fuel that only a handful of refineries can produce. This falls disproportionately on the less affluent, who often live far away from their jobs and public transport. Meanwhile, residential and industrial electricity rates in California are 50% and 75% more than the national average. Cheaper power makes other states, such as Texas, more attractive for manufacturers and heavy users of electricity. California counts people and firms that move elsewhere as carbon reductions in its statistics, even though they are moving to states with higher emissions, says Jennifer Hernandez of Holland Knight, an environmental-law firm.
Texas is the country’s number one producer and consumer of energy, and environmentalism is not part of its brand. But change might not be impossible. In the 1990s, under Ann Richards and George W. Bush as governors, the state made efforts to reduce pollution and encourage renewable energy. In 1999 Texas deregulated the electricity market, which promoted competition, reduced prices and set targets for renewables. The state has retired coal plants and become the leading producer of wind power in America.
The business community is increasingly concerned about climate change, says Brett Perlman of the Centre for Houston’s Future, a think-tank. This is especially true in Houston, where Hurricane Harvey caused $125bn in damage in 2017. Even oil companies are investing in wind and solar power as it has become cheaper. But plenty of Texan politicians are still wedded to a conservative ideology and a Republican-voting public that rejects the idea of global warming. Asked if he believes climate change is a problem, Greg Abbott, the governor, replies cryptically: “It’s a fact that the climate has changed in the last decade and the last 10,000 years. The climate is constantly changing.”
Immigration shapes the politics of California and Texas
But the two states’ approaches to the issue are very different
Print edition | Special report
Jun 20th 2019
inRead invented by Teads
For much of the past century immigration has spurred economic prosperity in the country as a whole, and in California and Texas in particular. Around five in ten workers in Texas were not born there. Half of those came from another American state, and half from overseas. Texas and California have the largest share of undocumented immigrants in the country, an estimated 3.8m, or 36% of those nationwide.
Back where they came from
According to the Pew Research Centre, a think-tank, in 2016 undocumented immigrants accounted for 6% of the two states’ total population and 8.5% of their workforce, filling vital jobs in industries like agriculture and construction. The number of people coming across the border has declined from a peak of around two decades ago, but recently there has been an uptick. In May more than 144,000 people were apprehended in the south-west border region, the most since 2007.
As America has become polarised over immigration, politicians in California and Texas have staked out different public positions. No state has gone further than California to demonstrate support for immigrants, both legal and undocumented, who together account for around a quarter of the state’s population. California has declared itself a “sanctuary” state, which means it limits contact between its own law-enforcement officials and federal immigration authorities. (This designation prompted Mr Trump’s administration to sue, but California’s policy was upheld in an appeals court.)
It is one of a few states to offer driving licences and preferential in-state tuition rates at universities regardless of immigration status. It already offers health coverage to undocumented children, and is set to become the first state to extend it to undocumented adults.
Texas has taken a harsher stance. Dan Patrick, the lieutenant-governor, has described illegal immigration as an “invasion”. Many Texan leaders “were Trumpy before Trump”, says Matt Barreto of Latino Decisions, a polling firm, pointing out that their harsher stance on immigration began with the rise of the conservative Tea Party, which predated Mr Trump’s election in 2016.
Since then heated talk about immigration has only become hotter. In 2017 Texas passed a controversial law that, in effect, bans sanctuary cities and gives law-enforcement officials the right to ask people they arrest or detain to show papers confirming their citizenship. More recently Texas led several states in a lawsuit to end a federal programme that provides a path to citizenship to young immigrants who came to America as children, a policy known as Deferred Action for Childhood Arrivals (daca).
This year state officials were involved in a controversial voter purge after they identified 100,000 supposed non-citizens and urged local officials to investigate and remove them from voter registries, even though that list included naturalised citizens. (The action was successfully challenged in court.) Mr Patrick has gone so far as to say that Texas would consider building Mr Trump’s border wall on the federal government’s behalf, as long as the state were reimbursed.
Neither state has always maintained its current political stance. The governorships of George W. Bush and Rick Perry in Texas were marked by tolerance, as well as outreach to, and support from, Hispanics. Under Mr Perry, Texas was the first to extend in-state tuition rates at universities to immigrants regardless of their citizenship status. Today such moderate Republicans are like cowboys—symbols of an earlier, simpler era.
Poll dancing
California’s own volte-face on immigration is a cautionary tale. In the 1990s California led the country in anti-immigrant rhetoric. In 1994 Pete Wilson, a Republican governor, led a campaign for Proposition 187, which limited undocumented immigrants’ access to public services and required public workers to report them. The campaign’s name, “Save Our State”, or “sos”, captured its zealotry. Voters approved the proposition by a wide margin. Although it was later gutted by judicial and political decisions, its impact was long-lasting. Hispanic voters, who had previously been unengaged, became politically mobilised and turned on the Republican Party for its perceived racism.
Some think that Texas may be heading for its own Wilson moment. Greg Abbott, Texas’s governor, says that the state’s political rhetoric is not “anti-immigrant”, just “anti-illegal immigrant”, but many Hispanics and others in Texas hear something harsher. “The way they talk raises the hackles of immigrants of all stripes,” says Ed Emmett, a Republican former Harris County judge. Such rhetoric led more Asian immigrants, who had been keen supporters of the Republican party, to vote for the Democrats in the election of 2018, says Mark Jones of Rice University in Houston.
Hispanics, who have been a latent political force in Texas, could also be mobilised. Around 46% of the country’s registered Hispanic voters live in Texas and California. There will be 32m eligible Hispanic voters nationwide in 2020, surpassing African-Americans for the first time. One political asset California has that Texas lacks is a strong union infrastructure, which mobilised Hispanics. Community-based organisations in Texas will have to fill that hole if there are to be big rises in registration and participation.
In today’s political climate many Hispanics may feel that it is the Democrats who have their best interests at heart. There was record Hispanic participation in the elections of 2016 and 2018 in Texas, in part because of Mr Trump’s rhetoric on immigration. Democrats are hopeful they will be able to win over more Hispanic voters. For two decades Texas has been red with pockets of blue, but that started to change in 2018, and the Democrats are hoping to win more ground in 2020.
Changing demography and the possibility of evolving voter preferences help explain why another event in 2020, the census, has taken on great importance. The once-a-decade tally of citizens is used to apportion resources and political representation among states according to population size. This could mean a meaningful boost to federal funding and extra seats in the House of Representatives for California and Texas, but that depends on their populations being counted accurately. “An inaccurate census count could cost California billions,” says Xavier Becerra, the state’s attorney-general, who sued the federal government over whether it can include a question on citizenship status, which might discourage people from taking part.
California has invested $150m in doing outreach and ensuring an accurate count, whereas Texas has spent nothing. Some think that Texas’s leaders are willing to undercount their immigrant populations, even if it means forgoing federal funding and representation, because any extra seats in the House of Representatives would probably go to Democratic districts. Both states’ once-a-decade redistricting plans will also be undertaken according to where populations are clustered, so a census that counts more recent immigrants could alter the status quo in Texas.
Though both states have staked out different positions on immigration control, the power they hold is limited. Federal funding that could stop drugs and criminals from entering America from the south has been stalled by arguments over the need for a wall. Only the federal government can set the numbers and types of immigrants who are lawfully allowed to enter each year, and policies have been in limbo because of the debate about the wall.
daca, for example, is ensnared in a legal fight, and its future is unclear. “No one is getting the emotional drain on people,” says the boss of one of Silicon Valley’s largest firms, who thinks the “overhang of uncertainty” on immigration is hurting the business environment by making it harder to hire immigrants.
Another brick in the mall
In Texas businesspeople are also rooting for a revamped national immigration policy that would allow more immigrants to work lawfully. The last big immigration bill was passed in 1986 when Ronald Reagan was president, and a smaller bill in 1990, but more recent bipartisan attempts at federal immigration reform have been defeated. “What would cause Texas to really boom is a good immigration bill,” says Ross Perot junior, a businessman, who believes a shortage of workers is the biggest constraint on building.
The Dallas area, for example, is short of at least 20,000 workers, which causes delays of around two months and an additional cost of $6,000 for every new home, according to the Dallas Builders Association. A report by the Centre for Houston’s Future calculated that allowing for more immigration could result in $67bn more in gdp by 2036, around one-sixth of Houston’s economic output.
Immigration and climate change are two areas where chief executives and Texas’s political leadership are not seeing eye to eye. According to Evan Smith of the Texas Tribune, “There is more daylight between the business community and elected leadership than there has been in a long time.”
But the two states’ approaches to the issue are very different
Print edition | Special report
Jun 20th 2019
inRead invented by Teads
For much of the past century immigration has spurred economic prosperity in the country as a whole, and in California and Texas in particular. Around five in ten workers in Texas were not born there. Half of those came from another American state, and half from overseas. Texas and California have the largest share of undocumented immigrants in the country, an estimated 3.8m, or 36% of those nationwide.
Back where they came from
According to the Pew Research Centre, a think-tank, in 2016 undocumented immigrants accounted for 6% of the two states’ total population and 8.5% of their workforce, filling vital jobs in industries like agriculture and construction. The number of people coming across the border has declined from a peak of around two decades ago, but recently there has been an uptick. In May more than 144,000 people were apprehended in the south-west border region, the most since 2007.
As America has become polarised over immigration, politicians in California and Texas have staked out different public positions. No state has gone further than California to demonstrate support for immigrants, both legal and undocumented, who together account for around a quarter of the state’s population. California has declared itself a “sanctuary” state, which means it limits contact between its own law-enforcement officials and federal immigration authorities. (This designation prompted Mr Trump’s administration to sue, but California’s policy was upheld in an appeals court.)
It is one of a few states to offer driving licences and preferential in-state tuition rates at universities regardless of immigration status. It already offers health coverage to undocumented children, and is set to become the first state to extend it to undocumented adults.
Texas has taken a harsher stance. Dan Patrick, the lieutenant-governor, has described illegal immigration as an “invasion”. Many Texan leaders “were Trumpy before Trump”, says Matt Barreto of Latino Decisions, a polling firm, pointing out that their harsher stance on immigration began with the rise of the conservative Tea Party, which predated Mr Trump’s election in 2016.
Since then heated talk about immigration has only become hotter. In 2017 Texas passed a controversial law that, in effect, bans sanctuary cities and gives law-enforcement officials the right to ask people they arrest or detain to show papers confirming their citizenship. More recently Texas led several states in a lawsuit to end a federal programme that provides a path to citizenship to young immigrants who came to America as children, a policy known as Deferred Action for Childhood Arrivals (daca).
This year state officials were involved in a controversial voter purge after they identified 100,000 supposed non-citizens and urged local officials to investigate and remove them from voter registries, even though that list included naturalised citizens. (The action was successfully challenged in court.) Mr Patrick has gone so far as to say that Texas would consider building Mr Trump’s border wall on the federal government’s behalf, as long as the state were reimbursed.
Neither state has always maintained its current political stance. The governorships of George W. Bush and Rick Perry in Texas were marked by tolerance, as well as outreach to, and support from, Hispanics. Under Mr Perry, Texas was the first to extend in-state tuition rates at universities to immigrants regardless of their citizenship status. Today such moderate Republicans are like cowboys—symbols of an earlier, simpler era.
Poll dancing
California’s own volte-face on immigration is a cautionary tale. In the 1990s California led the country in anti-immigrant rhetoric. In 1994 Pete Wilson, a Republican governor, led a campaign for Proposition 187, which limited undocumented immigrants’ access to public services and required public workers to report them. The campaign’s name, “Save Our State”, or “sos”, captured its zealotry. Voters approved the proposition by a wide margin. Although it was later gutted by judicial and political decisions, its impact was long-lasting. Hispanic voters, who had previously been unengaged, became politically mobilised and turned on the Republican Party for its perceived racism.
Some think that Texas may be heading for its own Wilson moment. Greg Abbott, Texas’s governor, says that the state’s political rhetoric is not “anti-immigrant”, just “anti-illegal immigrant”, but many Hispanics and others in Texas hear something harsher. “The way they talk raises the hackles of immigrants of all stripes,” says Ed Emmett, a Republican former Harris County judge. Such rhetoric led more Asian immigrants, who had been keen supporters of the Republican party, to vote for the Democrats in the election of 2018, says Mark Jones of Rice University in Houston.
Hispanics, who have been a latent political force in Texas, could also be mobilised. Around 46% of the country’s registered Hispanic voters live in Texas and California. There will be 32m eligible Hispanic voters nationwide in 2020, surpassing African-Americans for the first time. One political asset California has that Texas lacks is a strong union infrastructure, which mobilised Hispanics. Community-based organisations in Texas will have to fill that hole if there are to be big rises in registration and participation.
In today’s political climate many Hispanics may feel that it is the Democrats who have their best interests at heart. There was record Hispanic participation in the elections of 2016 and 2018 in Texas, in part because of Mr Trump’s rhetoric on immigration. Democrats are hopeful they will be able to win over more Hispanic voters. For two decades Texas has been red with pockets of blue, but that started to change in 2018, and the Democrats are hoping to win more ground in 2020.
Changing demography and the possibility of evolving voter preferences help explain why another event in 2020, the census, has taken on great importance. The once-a-decade tally of citizens is used to apportion resources and political representation among states according to population size. This could mean a meaningful boost to federal funding and extra seats in the House of Representatives for California and Texas, but that depends on their populations being counted accurately. “An inaccurate census count could cost California billions,” says Xavier Becerra, the state’s attorney-general, who sued the federal government over whether it can include a question on citizenship status, which might discourage people from taking part.
California has invested $150m in doing outreach and ensuring an accurate count, whereas Texas has spent nothing. Some think that Texas’s leaders are willing to undercount their immigrant populations, even if it means forgoing federal funding and representation, because any extra seats in the House of Representatives would probably go to Democratic districts. Both states’ once-a-decade redistricting plans will also be undertaken according to where populations are clustered, so a census that counts more recent immigrants could alter the status quo in Texas.
Though both states have staked out different positions on immigration control, the power they hold is limited. Federal funding that could stop drugs and criminals from entering America from the south has been stalled by arguments over the need for a wall. Only the federal government can set the numbers and types of immigrants who are lawfully allowed to enter each year, and policies have been in limbo because of the debate about the wall.
daca, for example, is ensnared in a legal fight, and its future is unclear. “No one is getting the emotional drain on people,” says the boss of one of Silicon Valley’s largest firms, who thinks the “overhang of uncertainty” on immigration is hurting the business environment by making it harder to hire immigrants.
Another brick in the mall
In Texas businesspeople are also rooting for a revamped national immigration policy that would allow more immigrants to work lawfully. The last big immigration bill was passed in 1986 when Ronald Reagan was president, and a smaller bill in 1990, but more recent bipartisan attempts at federal immigration reform have been defeated. “What would cause Texas to really boom is a good immigration bill,” says Ross Perot junior, a businessman, who believes a shortage of workers is the biggest constraint on building.
The Dallas area, for example, is short of at least 20,000 workers, which causes delays of around two months and an additional cost of $6,000 for every new home, according to the Dallas Builders Association. A report by the Centre for Houston’s Future calculated that allowing for more immigration could result in $67bn more in gdp by 2036, around one-sixth of Houston’s economic output.
Immigration and climate change are two areas where chief executives and Texas’s political leadership are not seeing eye to eye. According to Evan Smith of the Texas Tribune, “There is more daylight between the business community and elected leadership than there has been in a long time.”
Texas seems better placed to adapt than California
The state’s Republican leaders may be more flexible because of their concerns about losing power
Print edition | Special report
Jun 22nd 2019
inRead invented by Teads
A similar report, called Texas 2000, was commissioned in 1982 under a previous governor, Bill Clements. It guided the state’s investments in water and roads. Mr Luce is the most prominent example of a growing group of forward-thinking Texans who are quietly concerned about whether the Lone Star State will be able to maintain its edge. “The challenge for Texas is and has been, are we willing to match our grand words with bold action?” says Mr Smith. “I could go down the list of social and physical infrastructure investments not being made.”
California, too, has its critics, who believe the Golden State is losing its sheen. No one is comparing it to Greece these days, as some did after the last financial crisis, but plenty of business leaders and analysts privately point to the pervasive homelessness, volatile tax system and large unfunded pension obligations which are not being dealt with quickly enough. Worriers are right to wonder whether California and Texas are properly preparing themselves for the future.
Where’s the beef?
It is also hard not to see the two states as symbolic of a broader, national problem. The two sides are too stuck in their ideological bunkers, their policies dictated not by the needs of their constituents but by the culture wars. Like the country as a whole, both lack long-term strategic plans. Local politicians, like their national counterparts, have no incentives to make unpopular decisions that could leave the next generation better off. This is true even though the two states have assets for which many others would be thankful: huge populations, natural resources, large businesses, dynamic immigrant communities and a cultural inclination to forge a unique path for themselves.
In the coming decade California and Texas face three main challenges. First, they must remain desirable places to do business, ensuring the creation of well-paid jobs and prosperity for their citizens. On this front Texas is better placed than California, but it cannot take for granted that it will maintain its edge over other states that levy no income tax and offer even lower costs. Second, they must educate their children better. As the number of poor, English-language learners grows in both states, this task takes on even greater significance.
Third, they must be mindful of the gap between the haves and the have-nots and deal with the inequality of income and opportunity that exist in both states. Although it has become more expensive to live in Texas in the past decade, it is still much more affordable than California. The Golden State’s economy used to be a rising tide lifting all sorts of boats, says Joel Kotkin of Chapman University. “Now it’s a rising tide lifting a few yachts.” Both states will also have to confront the gap in services and opportunity between their declining rural and growing urban communities.
In need of a steer
Not everything is in the two states’ control. Two of the most important factors in their success, international trade and immigration, are policies that are controlled by the federal government, points out Stephen Levy of the Centre for Continuing Study of the California Economy, a research firm. Many of the experiments California wants to run, from environmental action to universal health care, are best achieved on a national level. “Someone’s got to be the first to jump out of the plane to test the parachute,” says Xavier Becerra, the state’s attorney-general. Although it has managed to pioneer an alternative vision for America in the face of a hostile federal government, this comes at a cost. Nowhere is this more true than in environmental policy. Though its policies are admirable, until the country as a whole joins its climate-change efforts, California is making life expensive for its citizens.
America today is beset by partisan acrimony. It would be a shame if California and Texas, flagships for the two parties and their visions for the country, were too bogged down in their ideological bunkers to learn from the successes and failures of the other. Far from vilifying California in their political advertisements, Texan leaders should study the Golden State, and vice versa.
Texas’s fiscal prudence is wise, as is its culture of seeing business as an ally. Adopting such policies would mean that, when there is a downturn in America’s economy, as there inevitably will be, states are not left with obligations and promises that they cannot meet. But its ungenerous attitude towards the poor and racial minorities on health care will have to change if it wants to ensure a healthy workforce, as will some of its social policies, such as restricting access to birth control and abortions, which are out of sync with the state’s light-touch philosophy.
California, too, has many admirable features, such as a willingness to help its neediest citizens and thoughtfully invest in people through spending on higher education, which will be essential for states to thrive in a high-skills, knowledge-based era. The state is also broadly inclusive and open-minded, which makes it an attractive place to live and do business. It will continue to innovate and produce new technologies and ideas that will spread nationally. But its high-tax, big-government approach will have to change if it wants to continue to be a destination for new generations to build their lives and fortunes.
Which is more likely to be successful in the long term? California’s politicians are not blind to their state’s problems, but they seem unpragmatic. They are also encumbered by structural issues, such as the entrenched interests of unions, bureaucracy and laws allowing voters to approve major decisions in ballot measures. All this means it is much harder for the state to make the big changes required. They may also be less receptive to moderation and pressure to change because they have no fear of losing power to the Republicans in the near future.
Texas is in a position to adapt more quickly. Its politicians today lean further to the right than previous Republican administrations, which has put them out of step with the business community on practical issues such as immigration and education. But they, or their successors, seem more likely than their Californian counterparts to open themselves to change. The rising strength of the Democratic Party in Texas will also encourage this, as Republicans realise that, with a growing young, urban and Hispanic voter base that rejects a hard-right agenda, there is a risk of losing control.
“You don’t do these things because they’re nice to do. You do these things because they’ll help the entire state be more prosperous. Expanding the social-safety net and investing more in education would improve gdpprospects for Texas,” says Robert Kaplan who runs the Federal Reserve Bank of Dallas. He thinks Texan politicians will be pragmatic. “The culture of this state was one way 30 years ago, and 30 years from now it will likely be different. This is a very practical state.”
The state’s Republican leaders may be more flexible because of their concerns about losing power
Print edition | Special report
Jun 22nd 2019
inRead invented by Teads
A similar report, called Texas 2000, was commissioned in 1982 under a previous governor, Bill Clements. It guided the state’s investments in water and roads. Mr Luce is the most prominent example of a growing group of forward-thinking Texans who are quietly concerned about whether the Lone Star State will be able to maintain its edge. “The challenge for Texas is and has been, are we willing to match our grand words with bold action?” says Mr Smith. “I could go down the list of social and physical infrastructure investments not being made.”
California, too, has its critics, who believe the Golden State is losing its sheen. No one is comparing it to Greece these days, as some did after the last financial crisis, but plenty of business leaders and analysts privately point to the pervasive homelessness, volatile tax system and large unfunded pension obligations which are not being dealt with quickly enough. Worriers are right to wonder whether California and Texas are properly preparing themselves for the future.
Where’s the beef?
It is also hard not to see the two states as symbolic of a broader, national problem. The two sides are too stuck in their ideological bunkers, their policies dictated not by the needs of their constituents but by the culture wars. Like the country as a whole, both lack long-term strategic plans. Local politicians, like their national counterparts, have no incentives to make unpopular decisions that could leave the next generation better off. This is true even though the two states have assets for which many others would be thankful: huge populations, natural resources, large businesses, dynamic immigrant communities and a cultural inclination to forge a unique path for themselves.
In the coming decade California and Texas face three main challenges. First, they must remain desirable places to do business, ensuring the creation of well-paid jobs and prosperity for their citizens. On this front Texas is better placed than California, but it cannot take for granted that it will maintain its edge over other states that levy no income tax and offer even lower costs. Second, they must educate their children better. As the number of poor, English-language learners grows in both states, this task takes on even greater significance.
Third, they must be mindful of the gap between the haves and the have-nots and deal with the inequality of income and opportunity that exist in both states. Although it has become more expensive to live in Texas in the past decade, it is still much more affordable than California. The Golden State’s economy used to be a rising tide lifting all sorts of boats, says Joel Kotkin of Chapman University. “Now it’s a rising tide lifting a few yachts.” Both states will also have to confront the gap in services and opportunity between their declining rural and growing urban communities.
In need of a steer
Not everything is in the two states’ control. Two of the most important factors in their success, international trade and immigration, are policies that are controlled by the federal government, points out Stephen Levy of the Centre for Continuing Study of the California Economy, a research firm. Many of the experiments California wants to run, from environmental action to universal health care, are best achieved on a national level. “Someone’s got to be the first to jump out of the plane to test the parachute,” says Xavier Becerra, the state’s attorney-general. Although it has managed to pioneer an alternative vision for America in the face of a hostile federal government, this comes at a cost. Nowhere is this more true than in environmental policy. Though its policies are admirable, until the country as a whole joins its climate-change efforts, California is making life expensive for its citizens.
America today is beset by partisan acrimony. It would be a shame if California and Texas, flagships for the two parties and their visions for the country, were too bogged down in their ideological bunkers to learn from the successes and failures of the other. Far from vilifying California in their political advertisements, Texan leaders should study the Golden State, and vice versa.
Texas’s fiscal prudence is wise, as is its culture of seeing business as an ally. Adopting such policies would mean that, when there is a downturn in America’s economy, as there inevitably will be, states are not left with obligations and promises that they cannot meet. But its ungenerous attitude towards the poor and racial minorities on health care will have to change if it wants to ensure a healthy workforce, as will some of its social policies, such as restricting access to birth control and abortions, which are out of sync with the state’s light-touch philosophy.
California, too, has many admirable features, such as a willingness to help its neediest citizens and thoughtfully invest in people through spending on higher education, which will be essential for states to thrive in a high-skills, knowledge-based era. The state is also broadly inclusive and open-minded, which makes it an attractive place to live and do business. It will continue to innovate and produce new technologies and ideas that will spread nationally. But its high-tax, big-government approach will have to change if it wants to continue to be a destination for new generations to build their lives and fortunes.
Which is more likely to be successful in the long term? California’s politicians are not blind to their state’s problems, but they seem unpragmatic. They are also encumbered by structural issues, such as the entrenched interests of unions, bureaucracy and laws allowing voters to approve major decisions in ballot measures. All this means it is much harder for the state to make the big changes required. They may also be less receptive to moderation and pressure to change because they have no fear of losing power to the Republicans in the near future.
Texas is in a position to adapt more quickly. Its politicians today lean further to the right than previous Republican administrations, which has put them out of step with the business community on practical issues such as immigration and education. But they, or their successors, seem more likely than their Californian counterparts to open themselves to change. The rising strength of the Democratic Party in Texas will also encourage this, as Republicans realise that, with a growing young, urban and Hispanic voter base that rejects a hard-right agenda, there is a risk of losing control.
“You don’t do these things because they’re nice to do. You do these things because they’ll help the entire state be more prosperous. Expanding the social-safety net and investing more in education would improve gdpprospects for Texas,” says Robert Kaplan who runs the Federal Reserve Bank of Dallas. He thinks Texan politicians will be pragmatic. “The culture of this state was one way 30 years ago, and 30 years from now it will likely be different. This is a very practical state.”
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