Updated April 28, 2014 10:31 p.m. ET
Americans have flocked to Texas in search of a piece of the state’s booming economy as much of the rest of the country struggled.
Now, the state’s largest cities are seeing crowded highways, strained water supplies and other pressures that have come with the growth. And Texas politicians—protective of the small-government, low-tax policies many of them believe are at the root of the state’s success—are grappling with how to pay the price of prosperity.
Aided by the promise of plentiful employment and a low cost of living, Texas added 1.3 million people from 2010 to 2013, more than any other state, according to the U.S. Census Bureau. The Lone Star State’s population has pushed past 26 million and is projected to reach 40 million by 2050.
Half of the 10 American cities with the largest population increases in the 12 months ended July 1, 2012, were in Texas, according to the Census Bureau. Houston, the nation’s fourth-biggest city with about 2.2 million people, added 34,625 residents, second only to New York. Austin added 25,395 and now has some 843,000 residents, more than San Francisco.
The state’s outsize growth is a matter of pride for Republican Gov. Rick Perry, who has touted the “Texas Miracle” as proof that its lower taxes and lighter regulations are effective job creators. Texans paid 7.5% of their income in state and local taxes in 2011, compared with 11.4% in California and 9.2% in Florida, according to the most recent data from the Tax Foundation, a research organization.
But the size and pace of the population spurt is becoming more difficult to manage, presenting public officials with a challenge: How to beef up public infrastructure without straying from their small-government philosophy.
“We are already straining our systems for water, power, schools and roads,” says Texas State Demographer Lloyd Potter, appointed by Mr. Perry in 2010. “And they’ll continue to be stressed unless we invest more heavily.”
Mr. Perry believes that the state’s low-tax, low-spending model is fundamentally sound. In a speech last month, he said: “No state can tax and spend its way to prosperity, but with the right policies you can grow your way there.” In a recent prepared statement, he added that “we can make principled investments in our future without raising taxes.”
His spokeswoman says the governor’s approach “is not something we’re walking away from anytime soon.”
On the state level, Texas spends less per resident than all but three states: Florida, Georgia and Arizona, according to a Wall Street Journal analysis of the most recent state-government finance data from the U.S. Census Bureau. It ranked 45th in the nation in per-capita highway expenditures in 2012, spending about $260 per person, less than California’s roughly $300 and well below the $493 spent by Oklahoma, according to the Journal analysis.
Texas lawmakers and citizens generally oppose raising taxes, but many say state or local governments have to find a way to fund additional investment in roads and other public infrastructure.
“We all want to go around and beat our chest that Texas is the best place to do business, but we need to pay for the infrastructure needs that go with growth,” says Republican state Sen. Kevin Eltife of Tyler.
Many states were hit hard by the recession, but the Texas economy barely contracted. It shrunk by 0.5% in 2009, the state’s economic trough, and expanded by 4.1% in 2010, according to data from the Bureau of Economic Analysis. From 2010 through 2012, it grew faster than that of any other state except for North Dakota, which is bustling thanks to an oil boom.
Texas, too, has benefited from a renaissance of oil-and-gas drilling tied to hydraulic fracturing. It also has added jobs in construction, technology, and health care, economists say.
The emerging growth strains haven’t slowed Texas’ economic momentum. The state added 310,000 jobs in the 12 months ending in March and boasts an unemployment rate of 5.5%, well below the national rate of 6.7%. Nor have they slowed the tide of out-of-staters moving in, especially from California. Roughly a quarter of the people who migrated to Texas from elsewhere in the country between 2006 and 2012 were leaving the Golden State, according to a report by the Federal Reserve Bank of Dallas.
Gov. Perry and others say the lack of an income tax and the state’s light-handed approach to regulating businesses has helped it compete with other big states.
Toyota Motor Corp. said Monday it will open a new North American headquarters in Plano, a suburb of Dallas, creating about 4,000 jobs, many of them now based in California.
When Epicor Software Corp., a maker of business software, announced it was relocating its headquarters from Dublin, Calif. to Austin in February, company president Joe Cowan cited the city’s growing tech focus and the state’s “business-friendly climate.”
The growing population is taxing the infrastructure. The Texas Department of Transportation estimates that it receives $5 billion less a year from the state than it needs to meet current demands for road construction and repairs. The state’s 2012 water plan estimated regional and local entities would need $53 billion to meet additional water infrastructure needs by 2060. Roughly two-thirds of the state is currently in drought.
In a speech this month, Federal Reserve Bank of Dallas President Richard Fisher called water scarcity the state’s biggest potential threat. He recommended that the state issue a 100-year bond to tackle its long-term water needs, telling an Austin audience, “You need to solve this problem now.”
Mr. Perry and Republican Lt. Governor David Dewhurst backed two ballot measures to shift existing state funding to road and water projects. State voters last year approved the creation of a $2 billion water fund, and they will consider another measure in November that would authorize more than $1 billion annually in added transportation spending.
Texas officials have proposed belt-tightening measures to reduce spending in some areas to allow investment in others, though not all the ideas have proved popular.
Last year, the Department of Transportation unpaved some rural roads because it couldn’t afford to repair pockmarks left by oilfield-related traffic. The agency planned to convert 83 miles of road to an unpaved surface but later halted the project after lawmakers in the Republican-led legislature complained.
HEB Grocery Co., which has more than 350 stores in Texas and Mexico and $20 billion in annual sales, has become so frustrated with traffic congestion in its home state that it recommends increasing state gasoline taxes to fund construction and maintenance, says Ken Allen, a consultant who advises the company on transportation issues.
“Higher tax rates would cost us millions of dollars a year, but the cost of congestion is a hidden tax,” says Mr. Allen, formerly HEB’s head of transportation logistics. “We are behind in Texas on infrastructure and are getting more behind every year.”
Mr. Eltife, the Republican state senator, says he would favor a modest increase in gas taxes or temporarily raising the overall sales tax rate to fund transportation needs. He says the state increasingly is financing road projects by issuing debt, and that Texas is approaching a constitutional limit on the amount of debt it can issue. “I get bashed for wanting to raise taxes, but I’d rather tell the truth to taxpayers,” he says.
The chairman of the Texas senate’s transportation committee, Republican Robert Nichols, says most legislators oppose funding transportation by increasing taxes because of concern it could imperil job growth. Mr. Nichols, a former commissioner of the Texas Department of Transportation, says lawmakers have favored alternatives such as striking partnerships with private developers to build toll roads, which eases congestion in a way that is “off the books of the state.”
One point of tension is how states and municipalities should divide the costs. The state traditionally has footed part of the bill for needs such as roads and water. Some of the state’s large cities, which are feeling the biggest burdens of the growth boom and are racking up debt, are hungry for more state money.
The state’s six biggest cities, including Austin and Houston, owed more than $39 billion in debt in 2012, an amount that had grown by 46% since 2003 to pay for roads, water systems, schools and other services, according to a report last year by the Texas Bond Review Board, a state agency that monitors debt financing.
“The state used to provide local communities with more revenue to invest in important infrastructure, whether it is water or transportation,” says San Antonio Mayor Julián Castro, a Democrat. He says the city sold $30 million in bonds in 2012 to help fund construction of highway interchanges. In the past, he said, “the city had never put up local money for what should be a state project. We did that because the name of the game in Texas transportation is [for local communities] to ‘show me the money’ to the state.”
A spokeswoman for the state’s transportation department says that as costs rise and funding becomes scarce, “it’s imperative communities come to the discussion with ideas on how to address growth.”
San Antonio, the nation’s seventh-largest city with nearly 1.4 million residents, draws a majority of its water from an underground aquifer that began the year at its lowest point since a record drought of the 1950s. It has raised municipal water rates 20% since 2011, and will increase them by another 20% in the next four years, partly to raise money for new water projects, including a $400 million desalination plant intended to treat brackish groundwater.
San Antonio’s city-owned water agency is taking on added debt to help cover the costs of the plant, including a loan of about $109 million from the state. The city had about $9.8 billion in debt last year, up about 70% since 2004, according to data from the Texas Bond Review Board.
The desalination plant, expected to be the biggest such inland facility in the country when it is finished in the mid 2020s, will only supply 15% of the city’s annual demand. Officials are already proposing an expansion.
The San Antonio Chamber of Commerce warned in February that the city won’t be able to meet future demand for water and could face thousands of job losses and billions of dollars in lost sales in a drought scenario, unless it comes up with new water sources. City officials play down the concerns.
“The only inconvenience San Antonio residents or businesses will suffer in the future is a limit on water for lawns and landscaping,” says Greg Flores III, a spokesman for the San Antonio Water System.
In the state capital, Austin, a college town and hipster enclave turned major metropolis and emerging technology hub, rapid growth has caused extreme traffic snafus on the city’s two freeways, forcing officials to belatedly weigh adding mass transit.
Austin has the fourth-worst vehicle congestion in North America, according to Inrix Inc., a firm that collects and ranks data on automobile traffic.
Mayor Lee Leffingwell, a Democrat, says Texas has failed to adequately fund Austin’s growing transportation needs, but so too has the city itself, noting that many Austinites remain unwilling to admit that their hometown is now a big city. “Our philosophy has been, if we don’t build it, they won’t come,” he says.
That hasn’t worked. The Austin metro area grows by roughly 100 new residents daily, on average, snarling roads and stoking anxiety that the city’s vaunted laid-back way of life is eroding.
Over the past decade, the number of registered vehicles in Travis County, where Austin sits, has grown by 52% to more than one million. Meanwhile, the number of hours that peak-time travelers were delayed in traffic more than doubled between 1991 and 2011, according to the latest data from the Texas A&M Transportation Institute.
Michelle Dahlenburg, a 35-year-old Chicago transplant, moved to Austin in 2008 to get a graduate theater degree and stayed because of the city’s vibrant arts community. But traffic and skyrocketing rents in her adopted hometown have her occasionally longing for home.
“I can’t go anywhere in town without bumper-to-bumper traffic,” says Ms. Dahlenburg.
The city has one rail line. Austin voters in November will consider a bond measure that would generate at least $200 million to expand the city’s bus and rail networks, among other improvements. If approved, the measure would increase Austin’s debt, which grew from $4.7 billion in 2008 to $5.6 billion in 2013, according to the Texas Bond Review Board.
“We are in an unenviable pinch point where our congestion is horrific, but it’ll be 15 years, at a minimum, before we can provide high-volume alternatives,” says Ryan Robinson, Austin’s demographer.
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