California's Strategy: Be More Like Texas

By Derek Thompson

When we last looked at California's $26 billion deficit, I entertained the idea that the future of the America's states would look less like California's lush canopy of government spending, and more like Texas' harsher flatland of lean government services. Today, the New York Times reports that Gov. Arnold Schwarzenegger is very close to budget deal. What does the future of California look like? It certainly looks a lot more like Texas.


From the Times:

Details emerging from the talks suggested that the deal would require extraordinarily deep cuts to school systems and local governments, and, while far smaller than the governor threatened a month ago, substantial cuts to health care and other social services.

Gov. Schwarzenegger and the state assembly are within millions, not billions, of dollars of reaching a deal, according to the article. The result will likely include a lot of social services cuts -- a waiting list for children's health care, Medicaid payments will be cut to their legal bare bones, some family welfare benefits could be scrapped, and so on -- and exactly zero tax increases.

The low-tax, low-services model that Texas has engendered in its state laboratory certainly has its benefits. As the Economist reported, Texas is the most popular state for Fortune 500 companies, and it receives top-notch business-friendly ratings. But, again, the other side having the lowest tax revenue raised per capita is that you have lowest amount of money to spend on services. Texas ranks last or next to last in the following categories:

Percentage of population with health insurance Source 50-1
Percentage of high school graduates age 25 and over Source 50-2
[Percentage] of insured low-income children Source 50-3
Per capita spending on state arts agencies Source 49-2
Per capita spending on water quality Source 49-4
Amount of monthly Women, Infants, and Children (WIC) benefits paid Source 49-5

I don't know that California has a choice here. Not only is raising taxes political suicide in the state, but it's also practically stupid to do in the midst of a recession. So if you're not going to cut incoming revenue, you have to limit outgoing spending -- to the tune of billions of dollars, and to the detriment of education and social services. The California model is, indeed, fading, and the Lone Star state's philosophy is getting some company.

This article available online at:

http://www.theatlantic.com/business/archive/2009/07/californias-strategy-be-more-like-texas/21442/