The US economy grew at an amazing 5% rate in the 3rd quarter, an 11-year high, while the Dow and S&P 500 hit all-time highs (thanks Obama!), so why are some experts talking about a possible recession in Texas? That’s because Texas is facing a double barrel shot to its economy as two of its most abundant resources, oil and land take a hit.
The Dallas Fed estimated that the drop in oil prices could be responsible for a loss of as many as 125,000 jobs in the Lone Star State by mid-2015. Michael Feroli, JPMorgan Chase chief U.S. economist predicted that, “Texas will, at least, have a rough 2015 ahead, and is at risk of slipping into a regional recession.”
Halliburton’s CEO Dave Lesar sent an ominous email to all companies employees preparing them for a rough next year saying, “we will not be immune to market conditions and right now it looks like 2015 is going to be a tough year…We will have to make reductions to our structure as any prudent business would.”
Texas won’t likely see the same effects it did from the oil crisis of the 1980s as Erica Grieder pointed out for Texas Monthly because Texas’ economy is more diverse than it was back then. But, the multi-billion dollar hit to the state’s GDP will be felt beyond the oil and gas industry as it ripples through the economy. It was also affect the ability for Texas to replenish its Economic Stabilization Fund (aka Rainy Day Fund) that is stocked by oil severance taxes. This will also have a negative effect on our infrastructure given that voters just pass a ballot proposition to split the oil production taxes between the Rainy Day Fund and the State Highway Fund to previously unfunded transportation projects.
The other half of Texas predicament is that its home values “may be unsustainable,” according to the latest report by Fitch Ratings which named the Lone Star State as the “nation’s most overvalued housing market.” Trulia made a similar conclusion with its annual “bubble watch” placing Austin as its number 1 overvalued market with Houston not far behind. The two cities were the only two of the 100 largest metros said to be more overvalued today than in 2006 before the housing bubble burst. This could spell bad news for Texas’ local governments including over 1,000 school districts that rely on property tax collections for funding, especially since the Tax Foundation ranks Texas in the bottom half of states for property tax burden and statewide officials campaign on property tax relief.
On election night Lt. Governor-elect Dan Patrick told supporters, “The people of Texas have given us a mandate tonight to get property taxes lower.” That makes for good campaigning but Texas’ school funding system is already the subject of lawsuits, and a new report shows that more Texas schools are in need of vast improvement.
Texas’ citizens and its economy are resilient whether by nature or a certain forced self reliance, but the same policies credited with a boom with also have to take some blame for any bust.
Follow me on Twitter at @joethepleb.