Can the ‘Texas Miracle’ Survive?

On an average day in 2019, the Texas Workforce Commission received about 13,000 calls from Texans applying for unemployment benefits. Toward the end of the year the state unemployment rate hovered under 4 percent: it had not risen much higher than 8 percent in three decades. Texas almost effortlessly added jobs month to month, amid a rapidly expanding economy driven by population growth and a long-running energy boom that attracted vast sums of capital. Life was very, very good.

By the end of March this year, the commission was receiving, on average, 1.5 million calls a day. The state’s economy had collapsed almost overnight. The service industry and its millions of jobs in now-empty restaurants and hotels and retail shops evaporated thanks to COVID-19. The energy boom had busted, with the price of a barrel of oil well below what many industry players needed to survive. Desperate supplicants called the Workforce Commission hotline hundreds of times a day in the hope of reaching someone who could help them pay rent or afford groceries, mostly without success. To stem the tide, the commission unveiled a rudimentary chatbot, named Larry, to answer basic questions. Applicants did not love Larry, who unhelpfully told them to call the commission.

When Texas comptroller Glenn Hegar warned that the state could soon see a double-digit unemployment rate, it was barely news. But the projection served to put state government on notice: the deluge will not be abating soon. The twin shocks of the virus and the oil glut, which together constitute the greatest economic calamity Texas has faced in a half century or more, threaten to stretch the state’s institutions—and perhaps its politics—to the breaking point. Never before has the Texas way of doing things faced a harsher test.

Since the turn of the century, there has been an ongoing debate about the Texas model, sometimes referred to as the “Texas Miracle,” the regulatory and political system that greases the wheels of growth in the state. Proponents of the Texas model point with great pride to an indisputable fact: the state escaped some of the most severe shocks of the Great Recession of 2007–2009, and job growth here has outperformed that of many other states in the years following. Why?

Predictably perhaps, Texas leaders emphasized the wisdom of Texas leaders—in maintaining the state’s low taxes, light regulations, and small-government philosophy. Critics, including the liberal economist Paul Krugman, countered that Texas’s tax burden, regulatory framework, and government spending were in fact not particularly small, and argued that the state’s oil boom, permissive land-use policies, and low cost of living were largely responsible.

Politicians benefited from a quirk of the economy: the service industry and the energy sector tended to run on different clocks. When the service economy took a devastating hit during the 2008 financial crash, amid foreclosures and falling incomes, state budget writers were helped along, for a while, by oil prices, which ballooned to $147 a barrel in July of that year. And when prices collapsed in 2014 and 2015 to less than $40 a barrel, the blow to state finances was cushioned by the strength of the rest of the economy. Now, like Thelma and Louise, the two pillars of the long boom years have joined hands and sped off a cliff.

Texas will recover in some fashion, and maybe, with luck and wise leadership, the boom will resume. In the meantime, the state will be subjected to a kind of stress test. Is there really anything special about Texas’s economic engine that can’t be explained by healthy oil prices and a population explosion driven by cheap housing? Do business-friendly policies and the lack of a state income tax really goose the state’s economic performance? And how will our current generation of political leaders and institutions, who’ve grown accustomed to the good times, perform in a crunch? We’re about to find out.

Texas is a big state with big opportunities and big problems, even in the best of times. But for the last several decades, it’s been a comparatively easy place to govern. The Texas Legislature, unlike its unlucky counterparts in states with stagnant tax bases and aging infrastructure, enters most sessions eating high on the hog. Cut taxes, or boost spending? ¿Por qué no los dos?

To be sure, there have been tough budgets in the recent past. In the 2011 session, the Legislature cut $5.4 billion from public education funding. (As it turns out, the damage to schools was unnecessary.) But in general, lawmakers have plenty of wiggle room in their budgets. The comptroller’s revenue projections often have been lowballed, so lawmakers start their every-other-year legislative sessions with a bit of a surplus, allowing them to write the state’s two-year budget with bumper rails.

But the Lege also writes its budgets with a kind of boom mentality, which leaves state agencies less resilient and less ready for bad times. For example: lawmakers deliberately underfund the Texas Medicaid program, planning to fill it in with “extra” money during the next session. That kind of borrowing from the future to pay for the past only works in good times.

Another example, and one that is becoming more critical by the day, is the state’s unemployment trust fund, which the Texas Workforce Commission uses to pay out claims to the people now swamping its call centers. The Wall Street Journal reported in March that Texas was one of just six states with trust funds that would likely be exhausted after six months. In late April, analysts at the nonprofit Tax Foundation estimated that the state could only afford the payouts for a couple more weeks.

Later that month, the Workforce Commission asked the U.S. Labor Department for a loan to bolster the fund, which may have to be repaid by raising employment taxes on businesses. Given the number of unemployed persons in need, the tax hikes could be significant. That, of course, would be bad for the recovery. The Legislature has shortchanged the trust fund during times of fiscal health, precisely when it would have been easiest to fortify it, and that decision could lead to a lot of unnecessary pain. The tide is going out, and the TWC probably won’t be the only boat stranded on the shore.

Here’s another example of the boom mentality. In the 2019 legislative session, you may recall, the big-ticket item was a photogenic bill reforming the school finance system. It was part of a sprawling package that capped the amount of taxes that local governments and schools can collect while simultaneously putting an additional $6.5 billion into public education. State lawmakers were extremely proud of this twofer of property tax relief and more money for schools. They convened a lot of backslapping press conferences. They took pictures with a golden retriever.

But there was one little problem: they didn’t attach a specific funding source to the legislation. So the bill only did what it was supposed to do as long as money was still coming in hand over fist. If there was a crash, the Legislature might be forced to renege on its promises. Republicans hoped, at the time, that the boom would last at least a session or two more—long enough for them to sweep to victory in 2020, which they hoped to do in order to draw GOP-friendly new districts for themselves and hold on to power for another decade. But the good times lasted less than a year beyond the 2019 session. Today the school finance bill looks irrelevant; it seems doubtful the Legislature will have enough money to fund it. The handcuffs on local government funding, however, will remain in force.

Even before this mess, the 2020 election was set to be unusually high stakes, and the 2021 Legislature unusually volatile. Texas Democrats looked to have a chance to take control of the Texas House, which was important, because next year lawmakers will redraw congressional and legislative districts. But redistricting may be postponed, thanks to the disruption COVID-19 has inflicted on the collection of census data.

Now the redistricting fight looks as distant and moot as the Legislature’s school finance bill. The recession driven by the oil bust and COVID-19 is everything: the economic calamity we are experiencing will blow a hole in the state’s budget, at the very moment lawmakers will need to act to protect suffering Texans. We won’t know for a while how battered the budget will be. Much will depend on the price of oil in the coming months and how fast the unemployed are able to get back to work.

Federal aid would help, but it’s hard to imagine that states will be made whole, given the vast needs. Cities and counties will need backstopping, too, thanks to the sharp decline in sales tax revenue. Budget writers will almost certainly have to consider tapping the state’s $10 billion Rainy Day Fund.

It’s just as difficult to guess how the crash might affect the election—and Texas Democrats’ chance of taking the statehouse. But let’s say the Democrats secure a slim majority in the House: if the session is going to be the pain party many expect it to be, it might be helpful to Republicans in the long term if Democrats are in control of the lower body. That way, whatever unpopular steps the Legislature takes will have the imprimatur of bipartisanship. Both sides can share the blame.

If that sounds strange, here’s something stranger: for the state to recover, oil prices need to rise and the public needs to return, en masse, to bars and restaurants and retail shops. That isn’t happening until the threat of the virus is ended—or at least, greatly mitigated. The only part of the government with the resources to make that happen (for example, through widespread testing) and to keep Texans spending during the shutdown (through unemployment benefits and other emergency aid) are the federales. After years of fed-bashing, Texas is being forced to publicly put the whole of its weight onto the broad shoulders of big government—lest the Miracle slip away.

This article originally appeared in the June 2020 issue of Texas Monthly with the headline “Going for Broke.” Subscribe today.