stimulus

[Update: The Austin-American Statesman gives its take on the situation and forecasts tax hikes for businesses as a result of Governor Perry's decision.]

The unemployment rate in Texas continued to rise in July, hitting 7.5 percent statewide, according to the Texas Workforce Commission (TWC). The losses came as the national unemployment rate reached a 26-year high, and they were concentrated primarily in four economic sectors in Texas: Construction, Trade/Transportation/Utilities, Manufacturing, and Professional/Business Services.

The release of the new data coincided with news that Governor Rick Perry requested an initial loan of $170 million—with the option to borrow an additional $500 million later in the year—from the federal government to help pay unemployment benefits despite having rejected $555 million in Recovery Act funds meant to help states cover shortfalls in their unemployment funds. Those funds that were made available to Texas under the Recovery Act were in the form of grants that the state would not have had to pay back, while the current line of credit that Governor Perry has requested will leave the state with an obligation to repay the federal government.

Continue reading below for a full analysis of the unemployment numbers and how the state is planning to provide benefits to jobless Texans.

The rise in unemployment was most pronounced in South Texas, as jobless rates surpassed 10 percent in the Brownsville-Harlingen and Beaumont-Port Arthur areas and over 11 percent in the McAllen-Edinburg-Mission area. Other areas in the state being hit hard by the recession include Houston, which has lost 69,600 jobs in the last year and seen its unemployment rate hit 8 percent.

As those numbers continue to rise, the state's unemployment trust fund is being pushed beyond its limits. The fund, which was already forecasted to be depleted later this year, has approached insolvency faster than state officials estimated, prompting the request from Governor Perry for federal loans. And as Representative Mark Strama pointed out last week, the decision to turn down federal stimulus grants will cost taxpayers large sums, since these new loans will have to be repaid. Another larger concern for the state should be the fact that the unemployment trust fund has been exhausted despite Texas providing benefits to only 28 percent of its unemployed. That number is the lowest among all states, with only the District of Columbia having a lower rate. In fact, one of the stipulations tied to the Recovery Act unemployment funds was aimed at increasing that percentage, something Governor Perry was unwilling to do.  The low rate means that while 285,000 unemployed Texans were receiving benefits as of last month, hundreds of thousands more were going without.

The state has borrowed federal funds for this purpose before—in 2003, the state was authorized to borrow $500 million.  After borrowing $280 million of that total, the state was forced to issue $1.4 billion in bonds to repay the debt and refill the unemployment trust fund.

Delving deeper into the unemployment numbers reveals troubling trends in important industries. One quarter of job losses over the last year have come in the Trade/Transportation/Utilities sector, and that sector combines with the Construction, Manufacturing, and Professional/Business Services sectors to make up almost 90 percent of all job losses in the state since June 2008. That means the state has lost a large number of well-paying jobs over the last year, as the average hourly wage in those sectors ranged from $17.28 to $22.52. [To search for statewide wage and employment data in any sector, click here and scroll down to the "Wages by Profession" link.] The TWC release neglected to mention any anticipated impact of Recovery Act funds on those key sectors, and without stringent reporting requirements it could prove difficult to gather any specific data regarding their impact on the quantity and quality of jobs.

Unemployed Texans got one piece of good news, at least, when TWC reported they would in fact be able to release additional employment benefits on time. The 13-week extension of benefits for jobless Americans was included in the Recovery Act, but TWC had said it was having trouble figuring out how to process the funds, leaving many to fear a delay that could have been disastrous for many households that are depending on those funds. In all, the federally funded extension could provide up to $380 million in benefits to Texans.

Legislators began the 81st Legislative Session with the knowledge that an unprecedented influx of federal money was coming, and Texas Impact was there from the beginning, urging the Legislature to take proactive steps that would increase the likelihood that this windfall would provide the maximum benefit to the state.

At issue was how best to ensure that funds from the Recovery Act would be spent not just in a transparent manner, but in a way that was transformative as well. Now that the session has ended, we can summarize and assess the Legislature's response to the $15 billion in federal stimulus funds, not to mention the hundreds of billions in additional federal dollars that will be available in the form of nationwide competitive grants. In short, the Legislature failed to take proactive steps, opting to end the session without enacting any special measures to accommodate such an extraordinary amount of federal dollars and without passing a single piece of significant legislation related to implementing or tracking Recovery Act funds.

Continue reading for more about the Legislature's actions in full.

In the House, Speaker Straus facilitated the creation of a Select Committee to act as the House’s eyes and ears with regard to the federal stimulus funds. That committee, led by Representative Jim Dunnam, proved to be a valuable resource for keeping the entire body informed about Recovery Act details. Beyond that, however, little to no action was taken to adjust to the state’s new financial situation in the midst of the economic downturn. The Senate did even less, with any discussion of how to handle Recovery Act funds going on behind closed doors. Only one piece of significant legislation dealing specifically with implementing and tracking Recovery Act funds was filed during the session. That bill—HB 4263—passed out of committee before being rolled into HB 2942, which made structural changes to state government, and it went on to pass the House unanimously before dying in the Senate.

When it came time to make the state’s budget for the biennium, the Legislature’s plan for those funds became clearer.  Coming into the session, legislators had planned on tapping the state’s Rainy Day Fund in order to cover a $4 billion budgetary gap, but they quickly saw the Recovery Act funds as a way to leave the RDF untouched in order to use it in 2011, when the structural deficits created in 2006 will be even worse than they are now. Wherever there was an opportunity to supplant state funds rather than supplement them with federal stimulus money, legislators chose to do so. So instead of local school districts receiving extra funds to avoid teacher layoffs and improve education, they will not see the increases that federal officials intended. This strategy of supplantation will save the state some money in the short term, but it will result in stagnant funding for education, Medicaid, and other vital services.

Certainly people across the state will see some tangible benefits from the Recovery Act. The Department of Housing and Community Affairs will scale up its Weatherization Assistance Program, for example, as it was granted more than $300 million to help homeowners increase efficiency. Texans will see tax breaks, extended unemployment benefits, and increased amounts in their food stamp accounts, just to name a few changes.

Those benefits will come with a host of missed opportunities, though. Texas Impact long supported the implementation of temporary measures that would have dealt specifically with the Recovery Act funds. The state could have benefited greatly from having some way to define goals, strategies, and performance measures that would have gone a long way towards ensuring that Texas’ share of these funds is used wisely. Just as important as the $15+ billion the state has already received will be the hundreds of billions of dollars in competitive grants for which state and local governments around the nation will be vying. While most of those other states have taken proactive steps in this regard, entities in Texas—especially those in rural and poor areas—will be at a distinct disadvantage thanks to a dearth of coordination, planning, and resources.

Texas Impact will continue to monitor the state’s handling of Recovery Act funds and work with legislators and state agencies as they look for best practices.

12-Month Medicaid for Kids, ARRA Accountability and More

The budget the House of Representatives adopted unanimously on April 18 included a number of high-priority items that represent real progress in Texas' 2010-11 budget processs. Among the most important improvements the House made on the floor were:

• Authorizing the Health and Human Services Commission to use ARRA funds to provide full-year Medicaid enrollment for children contingent upon the passage of necessary legislation
• Establishment of performance measures for agencies receiving ARRA funds to guide their expenditure of those funds
• Authorizing new ARRA-funded programs for energy efficiency/renewable energy loans and green jobs contingent upon the passage of necessary legislation

Among other noteworthy budget decisions, the House voted to take more than $22 million from the Governor's budget to fund services for veterans and community mental health services and to reappropriate funds from the Texas Enterprise Fund to unemployment insurance if none of the unemployment insurance bills currently working through the legislative process fail to become law.

Texas Impact continues to assert that Rainy Day Funds should be used for shortfalls in operating revenue, leaving federal stimulus funds available to improve services and infrastructure. However, the House-passed budget represents a significant improvement over the Senate budget and Texas Impact thanks the 150 members of the Texas House for their hard work.

The ARRA was conceived as a fast-acting piece of legislation that would stimulate the struggling American economy. "Quick-start" projects are given priority, and the focus is on job creation, energy innovation, and economic growth. Still, the important dates and deadlines in the bill are numerous, and they will stretch well into 2011, when the flow of funds will finally cease and state and local entities will still be reporting on what they achieved with their shares of the ARRA funds. Texas Impact has begun compiling a list of some important dates, and our timeline is included below.

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--APRIL--

--MAY--

--JUNE--

--JULY--