Tag Archives: state economy

Texas Metropolitan Economies

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This is the first in what will be an ongoing series of posts on the Texas economy from the standpoint of its metropolitan areas.

Metropolitan areas are defined by the Office of Management and Budget, a part of the White House. Counties with interconnected commuting patterns are combined into a single metropolitan statistical area (MSA) or, metro area, for short. Each metro area is a common labor market. Companies in that metro area will generally be drawing their workers from the included counties.

Despite its wide open spaces and Hollywood reputation, Texas is more urbanized than the U.S. as a whole. Texas urban areas include 85 percent of the state’s population compared with an 81 percent urban share for the nation. Texas’ 25 metro areas include 82 of our 254 counties. The map below shows the metro areas in green outline. Most of the metro counties are in the eastern half of the state.

Texas MSAs

An urbanized state with a lot of open space

The map also shows the land area of Texas’ 1,700 cities and towns in yellow. Since metros are defined by county, many of the smaller MSAs include only one or a few small cities at the center of a mostly unincorporated metro area. Only the largest metros like Houston and Dallas=Fort Worth are mostly incorporated. This reminds us that population and jobs are even more concentrated than the metro boundaries imply.

Economists and other researchers pay close attention to the health of metro areas. Most major government statistics are published at the metro area. Businesses and others base marketing and expansion decisions on the relative health of metro areas. Government planners and nonprofits need to understand metro area growth to better prepare public services like transportation and public safety.

Today we will take a quick look at a key summary statistic, gross domestic product. When calculated at the MSA level it is often called gross metro product (GMP.) It is defined similarly to the national gross domestic product (GDP) as the total final value of all goods and services produced in a given geography. Economic output is another term for GDP. With a common definition, we can compare GMP performance to national GDP or even state gross state product (GSP.)

Texas’ total economy is over $1.6 trillion. That is slightly larger than the Canadian economy, and 25 percent larger than the Russian economy. Of that total, 93 percent comes from the state’s metropolitan areas. Clearly, it is essential to understand our metro areas if we want to understand the Texas economy as a whole.

The table below lists all Texas metro areas and their GMP growth since the Great Recession in 2008. For comparison at the bottom, we see that the national economy grew 26 percent over the last eight years. Texas’ growth was slightly faster at 30 percent. Metro area performance varies. Only 40 percent, or ten of the 25, of the metro areas grew faster than the state overall. These tended to be the largest metro areas. The state’s smaller metros have not seen as much growth. This uneven pattern is identical to what economists have seen nationwide since the recession. Some communities are prospering, some are continuing to decline, and many are simply marking time.

In future posts we will look closer at our metro areas by digging into the details of different industries and what is happening to jobs, households, and income within and across the state’s metro areas.

Sales Tax and Fiscal Sustainability

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The Texas economy has been a top performer for many years. Indeed, even with the ups and downs of the national economy, since 2002, Texas’ economy grew at an 5.7 percent annual compound rate. As the economy changes, however, all states, including Texas are facing a fiscal challenge. As the economy includes more services and fewer goods, traditional sales taxes are bringing in less revenue.

Based on reports from the Texas Comptroller of Public Accounts, Texas has seen its taxable sales activity grow by only 3.1 percent annually.  With no income tax, sales taxes are a major source of state revenue (26.4 percent of the total in 2015).

Another way of looking at this is to compare taxable sales to total economic activity. Even as the economy has grown, the amount of taxable sales has continued to shrink (see chart.) In 2002, a dollar of gross state product generated 6 cents of taxable sales. That amount fell to 5 cents in 2008 and was down to just over 4 cents by 2015 (most recent data.) This is clearly an unsustainable path. Since cities in Texas also rely heavily on sales taxes, they are facing the same situation. Local conditions may differ and some cities have healthier economies than others, but the trend will be the same.

Texas taxable sales per dollar of state GDP

A changing economy means less sales tax revenue even with growth.

With growth, there is more demand for services: schools, police and fire being the largest categories for local governments. But the available resources are not keeping up. If the circumstances get bad enough, a future Legislature will face pressure to broader the sales tax base to cover more services. As a fiscally conservative state, however, cities, towns and the state government in Texas will likely choose to cut spending rather than seek new revenue sources.

This makes it critical for local leaders to focus on how to make their communities more sustainable through their development policies, land-use patterns, regulations and municipal operations.

Research You Can Use: September 2016

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Introduction

The last week of each month we bring your attention to valuable trends we discovered in our reading. This month we want to draw your attention to the challenges and opportunities that drones present to cities, a national spotlight on Texas cities’ economies and politics and the latest trends in state government revenues.

 

Cities and Drones

In June of this year, the Federal Aviation Administration (FAA) issued rules governing the use of drones in U.S airspace. U.S. drone sales grew from 700,000 in 2015 to an estimated 2.5 million in 2016. The National League of Cities (NLC) prepared a short briefing and a longer report on these rules and offer some helpful suggestions to cities. The good news is that the FAA’s final rule on drones give cities the flexibility to craft locally-appropriate policies. In particular, NLC suggests cities focus on two issues when enacting drone ordinances: (1) address drone take off, landing, and operations through zoning and land use authority and (2) have an ordinance that punishes reckless operators. There are also many opportunities for cities to include drones in their inventory for a variety of uses.

For your consideration: Cities and Drones

 

All-Texas Issue of City Journal

City Journal, a leading publication in the field released a special issue titled Texas Rising. City Journal regularly presents rigorous, thoughtful and creative writing on all things urban. Topics include how Texas’ economic strength comes, in part, from how each of its major metropolitan areas have different industry mixes. This gives Texas economic diversity. Several articles also dive into state and local politics and the fiscal conservativism and economic opportunity that makes the state a magnet for business and families. At the same time, migrants from other states may be putting pressure on some communities to take stronger regulatory roles.

For your consideration: City Journal: Texas Rising

 

State Revenue Conditions

We always urge local leaders to pay almost as much attention to their state government’s finances as they do to local conditions. State legislatures often make up for their revenue shortfalls with cuts in local aid and new mandates that can shift program costs to local governments. This month we want to share cautionary state revenue updates for Texas and for the nation overall.

Earlier this month, the Texas Comptroller’ office released its revenue report for the fiscal year that just ended. The report compared actual revenues for fiscal year 2016 to what the Comptroller’s office projected originally. General revenue in Texas came in at $49.9 billion. This was 1.3 percent below the forecasted amount. By category, sales tax, oil production and regulation tax and natural gas tax revenue were also below projection. Franchise tax revenue came in 10 percent ahead of the earlier forecast.

On the national level, the Rockefeller Institute, the leading university center on state and local finance, reported year-over-year growth in state taxes were 1.6 percent in the first quarter of 2016. Preliminary data showed state revenue decreasing by 2.1 percent in the second quarter of 2016.

For your consideration: Texas 2016 Revenues, and Rockefeller State Revenues

 

What’s Next

Next week, we will report out some of the work we are doing on local economic development and city public finance. In the meantime, take a look at these reports and let us know how we can help you make better choices for your community. Contact

Uneven State Growth and Local Impact

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Following key economic indicators helps you make better decisions in annual revenue forecasting, budget development or long range planning. This week we call your attention to Gross Domestic Product (GDP) by state.

State Performance Impacts Local Options

Your community is unique and may be doing better or worse than your peer cities, but keep your state’s performance in mind. Education and infrastructure funding is heavily dependent on state funding. These services drive long-term economic growth. Also, states set broad tax and regulatory policy that limits what local communities can do. To fix their budget problems, states often shift the burden on localities. GDP is a good indicator of your state’s overall performance.

What is State GDP?

GDP by state is released every calendar quarter, with about a quarter delay, from the U.S. Bureau of Economic Analysis (BEA). It is a state version of national GDP. GDP is the final value of every good and service produced in a place. Our analysis compares [first quarter of 2016] to the first quarter of 2015> We are interested in absolute changes and the relative performance of the states. We discuss 51 jurisdictions, because the BEA considers the District of Columbia a state for their calculations.

Uneven State Performance Compared to the U.S.

Total growth over the year for all states gives us a 3.3% national economic growth rate. Performance from state to state varied. There were 29 states that grew faster than the overall U.S. rate. There were 14 states that grew slower and there were eight states that had shrinking economies. This diverging pattern across the country has been common since the recovery from the financial crisis. Let’s look at the best and worst performers as groups.

Fastest Growing States

Among the faster than average growth group, seven states grew at least 150% faster than the U.S. These grew at 5% or faster over the year, and included: Maine, New Hampshire, New York, Florida, Tennessee, Virginia and Washington. Combined, these represent 21% of the total U.S. economy ($3.8 trillion.) Their total growth was $195 billion. This means they accounted for one-third of the total growth in the country.

Shrinking State Economies

On the other end of the spectrum were eight state economies that shrank over the year. These include: North Dakota, Louisiana, West Virginia, New Mexico, Oklahoma, Texas, Wyoming and Alaska. These eight states account for almost 13% of the U.S. economy ($2.3 trillion.) They lost a combined $48 billion in economic activity. Collectively their declines shaved a third of a percentage point off U.S. growth over the year. Given recent low fossil-fuel prices, it is unsurprising that these poor performers are energy-producers.

These diverging absolute growth rates mean some states’ share of the total national economy is changing. Some states grew in relative importance while others declined. In the last year, four states increased their share of national GDP: New York, Florida, Tennessee and California. Five states lost absolute national share. These were: Connecticut, Illinois, Alabama, Louisiana and Texas. The remaining 42 states maintained their relative importance in the U.S. economy.

 

A year of data is not destiny. It is a good reminder, however, that troubled state economies often mean pressure for local governments as states reduce local aid. In a few weeks we will be reporting a more detailed study of how state economic performance has been affecting local government finances.

What’s Next

Next week we will look at one of the most important tools for helping local leaders make better – fiscal impact analysis. In the meantime, sign up for email updates and let us know how we can help you nurture your community.