Bloomberg Opinion — Texas reminds everyone it “is best for business” because the Lone Star State “is where liberty lives.” Local media reinforce the public perception by reporting the perennial No. 1 Texas ranking in CEO Magazine. In truth, rare is the chief executive officer who embraces taxes and regulation -- mostly eschewed in Texas -- with anything more than an assertion they’re bad for business.
The decades-old reality of Texas simultaneously asserting liberty and trailing its major peers economically is increasingly relevant in the context of recent laws that allow citizens of the state to sue anyone enabling abortions, empower partisan poll watchers to intimidate voters and encourage handguns in public without training or permits -- none of which were supported by the majority of Texas citizens in public opinion surveys. At the same time, America’s CEOs are pleading with lawmakers to expand background checks on all firearms and enact tougher gun control laws.
During the four quarters ending June 2021 when Governor Greg Abbott and the Republicans controlling the legislature decided to make it easier to fire a gun than to vote or save lives from Covid-19, Texas was the 15th worst-performing state as measured by the Bloomberg Economic Evaluation of the States, advancing just 0.4% based on job creation, personal income, home prices, mortgage delinquencies, tax revenue and Texas-based companies in the stock market. California, which Texas governors disparage as everything Texas isn’t, was No. 1 at 3.6% along with Pennsylvania, followed by Florida, 1.8%, and New York, 1.4%.
While it’s no surprise the state that castigates California for its high taxes has paltry receipts itself (ranked 7th in the U.S.), Texas was the 19th lowest among the 50 states creating jobs, with employment rising 10.8% since the second quarter of 2020, according to data compiled by Bloomberg. Mortgage delinquencies rose 3.3 percentage points, making Texas the third-worst in the country. Texas personal income increased a middling 9.2%, trailing California, 10.9%, and New York, 10.4%. Although Texas home prices rose at the U.S. average of 12.8%, it was still behind California’s 13.1%.
For all of its success as the fastest-growing big state (population 29.7 million), luring business with the promise of low taxation and regulation, Texas is an inferior investment. The publicly-traded shares of Texas companies, 33% of which handle fossil-fuel, are laggards in the Russell 3000 Index over three years or longer. That’s true even after crude oil’s 110% gain during the past 12 months, the biggest annual increase since 1999 and enabling corporate Texas to appreciate 80%. But since 2010, Texas (383%) trails California (2,760%) and New York (493%) — places where higher taxes and regulation are considered no hindrance to growth, data compiled by Bloomberg show.
Even after attracting such California transplants as Oracle Corp., the market capitalization of the top 10 firms in Texas averages just $184 billion, far smaller than the average of $1.43 trillion in California.(1) Also, the top 10 companies in Texas have average annual revenue of $90 billion, or half California’s $174 billion. Revenue for these Texas companies declined 11% in 2020, while the California group increased 15%. The biggest companies in Texas tend to turn $100 of sales into a $14 profit, little better than half of comparable California’s $26 of profit, according to data compiled by Bloomberg. California firms have a history of investing in their future by committing 11.9% of revenue to research and development, almost double the 5.8% spent on R&D by Texas companies.
The Lone Star State’s AAA credit rating also gets less than enthusiastic respect in the bond market, generating a total return that is No. 4 among the 11 states sharing the top grade during the past five years, according to data compiled by Bloomberg. Benchmark California municipal bonds, which are rated AA-, produced a total return (income plus appreciation) of 2.1% during the past 12 months, or 52 basis points greater than similar Texas obligations. This year, Texas is third from the bottom in the group with AAA ratings.
Texas isn’t helping itself in the municipal bond market, where some of the biggest underwriters, including Goldman Sachs Group Inc., Citigroup Inc. and JPMorgan Chase & Co., halted their endeavors for the state after the latest gun law took effect Sept. 1. Bank of America Corp. hasn’t handled any Texas offerings since August -- the first time in at least seven years when the biggest firms on Wall Street were absent from a single municipal offering in the state, data compiled by Bloomberg show. Much has been made of the 18.4% increase in Texas’s population between 2010 and 2020, the most among the 10 largest states, and greater than No. 2 Florida’s 16.5% and California’s 6.5%. The fact is, however, that Texas is getting very little return on that population growth in relative terms. The state’s per capita gross domestic product increased 20.3% between 2010 and 2019, while California’s expanded a nation leading 28.9% on a much smaller rise in population, according to data compiled by Bloomberg.
All of which suggests the divergence of people’s preferences and Texas law is less about liberty and more about undermining business.
(1) Tesla Inc., with a market capitalization that recently touched $1 trillion, has announced it is relocating to Texas from California. Also, some of those California companies are the biggest in the world, with Apple Inc. at $2.4 trillion and Google parent Alphabet Inc. at $1.9 trillion.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Matthew A. Winkler is Co-founder of Bloomberg News (1990) and Editor-in-Chief Emeritus; Bloomberg Opinion Columnist since 2015; Co-founder of Bloomberg Business Journalism Diversity Program in 2017. During his 25 years as Editor-in-Chief, Bloomberg News was a three-time finalist and winner of the Pulitzer Prize for Explanatory Reporting and received numerous George Polk, Gerald Loeb, Overseas Press Club and Society of Professional Journalists and Editors (Sabew) awards.