As Texas Goes... (14 page)

The Fund was supposed to be a “deal-closer” that would win over firms that couldn’t quite decide whether Texas’s award-winning business friendliness was really enough to make a move there worthwhile. It has zero oversight beyond needing the approval of the three top elected state officials, all currently Republican. Negative minds have been known to refer to it as “
the governor’s slush fund
.”

“If you’re looking for a smoking gun of bad economic development, that’s it,” said Don Baylor of the Center for Public Policy Priorities, an Austin-based think tank. “It’s state money—and it’s money, not tax credits. On top of local tax incentives. It’s a one-, five-, twenty-million-dollar cherry on top of the sundae.”

Now, people, how many of you would like to think that the company you work for might pull up stakes and move someplace else because another state offered them a bunch of money to do it? How many of you would like to spend your own tax dollars one-upping the bids so hometown firms will stay put?

Let me see a show of hands. Just as I thought.

If we’re going to give public funds to businesses, shouldn’t it be going to the ones that can actually create new jobs rather than the ones that are just prepared to ship their existing ones across state lines? “
Nationally, all we are doing
is moving companies around and giving them huge incentives to do what they were probably going to do anyway,” Robert Orr of the North Carolina Institute for Constitutional Law told the
Dallas Morning News
.

And if we’re thinking about the welfare of the country as a whole, shouldn’t we be discouraging states from this kind of wasteful competition? Instead of demanding that every state have an Enterprise Fund like Texas, shouldn’t we be considering whether to make things like the Enterprise Fund illegal? Instead of trying to amend the Constitution to make it impossible for states to permit gay marriage, shouldn’t we be looking at an amendment that would make it illegal for one state to use public money to pay
another state’s businesses to move away?

The Enterprise Fund strategy doesn’t even seem to be working out all that well for Texas.
Reporters discovered
that the Texas Institute for Genomic Medicine—a biotech effort at Texas A & M that received $50 million from the state and allegedly created 12,000 jobs—only actually employed ten people. The
Wall Street Journal
determined that the state had been counting every biotechnology-related job created anywhere in Texas since 2005, including employment in areas like dental equipment and fertilizer manufacturing. In the case of another $25 million for a medical-imaging research facility at a Houston cancer center, Perry took credit for 2,000 jobs created which, the
Journal
noted, included virtually any position added anywhere in the giant cancer center for anything, including “a plumber and a chaplain, along with nurses, social workers and other staffers.” Alec MacGillis of the
New Republic
went to the Houston suburb of Sugar Land to check out the
Texas Energy Center
, an awardee that was supposed to have created 1,500 jobs, and discovered it existed only on paper, through the efforts of the president of the local economic development council, who appeared to be getting a slice of the $3.5 million Enterprise Fund grant mainly for figuring out how to credit the Center with job creation.

We will pause here to contemplate whether Texas’s love affair with the imaginary extends to economic statistics.

One of the most infamous Enterprise Fund deals involved Cabela’s (“Quality Hunting, Fishing, Camping and Outdoor Gear at Competitive Prices”), which got $600,000 to build stores in Fort Worth and Buda, a city just south of Austin. The retailer also received
whopping local incentives
, including $40 million from Fort Worth to help pay for property acquisition and construction.

“
I know I speak
for thousands of fellow hunters when I say we have waited anxiously for this to arrive, like a kid on Christmas Eve,” said Perry, announcing the Buda deal.

The stores arrived but the jobs never really did. Cabela’s eventually lost the last of its $200,000 in state grants and had to pay back $70,000 of what it originally took home because it fell far short of creating the 400 jobs it originally promised. “
But the property
is already bought, the store built and the company saved a couple of million dollars it would have had to pay in salaries and benefits to those 126 mythical workers. Not a bad bottom line,” said the
Fort Worth Weekly
. Also, the other stores, hotels, entertainment parks, and restaurants that the state expansively predicted would follow the Cabela’s openings never materialized.

But there’s still all that outdoor gear. At competitive prices.

“The most important thing that’s happened to us”

Next stop, regulation.

Among the many, many benefits which Rick Perry sees from a cutthroat economic development competition among the states is the way it would force the competitors to reduce unnecessary regulation. And that could indeed be a good thing. Nobody likes unnecessary regulation. Although of course the last
thing in the world we would want is to see rogue companies try to avoid righteous penalties for their bad behavior by decamping to a place that seems intent on allowing them to do whatever the hell they want if only they’ll move in. Obviously.

Let’s take a look at what Texas has been up to.

Given its let’s-whack-California inclinations, the Perry administration was particularly thrilled to announce in 2005 that Hilmar Cheese Company of central California was going to build its new plant in Dalhart, on the Texas panhandle.
The lure, said Hilmar
officials, was Texas’s “common-sense approach to regulation.” They were presumably thinking of the record $4 million fine Hilmar had gotten in California for befouling the local drinking water with the waste from its cheese-making. The wells of Hilmar’s neighbors were contaminated with arsenic, barium, and salts, and the water had become undrinkable.
When people in the Hilmar
zone washed themselves or their laundry, the salt content in the water was so high that “it leaves a residue of white, chunky crystals,” reported
Environmental Health News
.

It wasn’t as if California regulators had been going out of their way to crack down on Hilmar, whose co-founder was Governor Arnold Schwarzenegger’s undersecretary of agriculture.
Water quality enforcers
had pretty clearly been looking the other way until the
Sacramento Bee
published a story with the uncheery title “The World’s Biggest Cheese Factory Fouled Air and Water for Years.”
Then came the fine
—which Hilmar settled for $3 million—and next thing you knew, the firm’s chairman, Richard Clauss, was in Texas, saying he had “never got a welcome like that in California.”

Which was probably true, since Perry’s Enterprise Fund gave Hilmar $7.5 million to build its new factory in the panhandle, a move the cheese-makers said would create 376 new jobs and another 1,586 “associated” jobs at dairies that would naturally spring up to supply Hilmar.
Three years later
, the new factory had actually produced 169 direct jobs and 326 associated jobs.

WHEN TEXAS OFFICIALS
brag about their hatred of business-unfriendly restrictions, they don’t generally point to, say, lax enforcement of laws against water pollution—although the state didn’t claw its way up to the number one spot in toxic discharges into the waterways without a good deal of effort. And God knows what they say in private to chemical firm executives looking to move. But in public, the emphasis is often on the way the state has clamped down on frivolous lawsuits.

“
The most important
thing that’s happened to us is tort reform,” Richard Fisher, the head of the Federal Reserve’s Dallas branch, told Rick Wartzman in that
Los Angeles Times
piece. Fisher added that he believed companies like John Deere have expanded in Texas because they were “largely driven by steps the state has taken to cap non-economic damages in medical malpractice suits and to make it harder to bring product liability and class-action cases.”

Tort reform was one of George W. Bush’s big issues in his 1994 campaign against Governor Ann Richards, the famous race in which Bush astonished the political world with his ability to make the same four points over and over without collapsing from boredom. (The other three, in case anyone ever asks, involved juvenile justice, schools, and welfare.) And he had a point. Even people who believed strongly in the importance of civil suits in protecting the public against defective products and services sometimes admitted that the Texas system could indeed use a little reining in. After Bush was elected reforms ensued, limiting the amount juries could award in punitive damages and making it harder for lawyers to go venue-shopping for the most sympathetic locations for their trials.

Then in 2003, the legislature went tort reforming again, and threw out the proverbial baby with the judicial bathwater.

“
Here is what can happen
to you in Texas today,” Mimi Swartz of
Texas Monthly
wrote in 2005. “If you go to an emergency room with a heart attack and the ER doctor misreads your EKG, you must prove, in order to prevail in a lawsuit, that he was both ‘wantonly and willfully negligent.’ ” Swartz went on to a long list of depressing and distressing outcomes. (“If your child is blinded at birth because of medical malpractice, there is a good chance that her only remedy is to receive a few hundred dollars a month for the rest of her life.”) Then she pointed out that even getting a tiny settlement was dependent on being able to find a lawyer—a difficult project, since under the new regime, few lawyers were willing to take on clients who could only pay a percentage of their final court settlement. Finally, Swartz added that if you did manage to find a lawyer and miraculously win the case, the other side could always appeal. In which case, the odds of your winning were about 12 percent.

And there you are. “Our tort policy has improved the business climate,” said state representative Mark Strama of Austin. “But it’s also the reason one of the mothers in my district whose four-year-old daughter checked into the hospital with a cold and never checked out can’t even get a lawyer to find out why.”

The caps on malpractice awards were supposed to draw more doctors to Texas, and it is true that they’re flocking in. But the rural areas that were underserved by physicians when George W. Bush was governor are still pretty much in the same boat. “The doctors are by and large coming to the places that already had them,” said Alex Winslow of Texas Watch, a consumer advocacy group. The undersupply of doctors, Winslow argues, was never really due to malpractice issues as much as to the state’s low Medicaid reimbursement rates, which discourage doctors from going to any part of the state where there are a lot of poor people—especially a lot of poor people spread far apart. “And overall health care spending has risen more in Texas than the national average,” he added.

(The idea that Texas is innately efficient when it comes to health care delivery lies in the same category as the idea that it has a right to secede. In a much-noted article in
The New Yorker
in 2009, Atul Gawande pointed out that the border town of
McAllen
was the second most expensive health care market in the country after Miami, despite what would seem to be a relatively low cost of living. “In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average,” Gawande wrote. “The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns.” The reason, Gawande found, was simply that medical practitioners and their suppliers organized everything to maximize financial returns—“a medical community came to treat patients the way subprime-mortgage lenders treated home buyers: as profit centers.”)

Once again, we should recall that these are our federal dollars. Which we are happy to see spent on seniors’ health, although not so much to maintain the high incomes of the medical community of McAllen. Particularly not if their state is going to constantly brag about how thrifty it is.

The Bush administration claimed tort reform would save consumers $3 billion a year in insurance premiums, but in 2010, Texas had some of the highest premiums in the country for family health insurance plans and also among the highest deductibles. “High premiums and skimpy coverage,” summarized Sara Collins, vice president for the Affordable Health Insurance program at the Commonwealth Fund.
In 2010, Texas families
spent a higher percentage of their household income on health insurance premiums than any other state but Mississippi and Arizona. Meanwhile, the pressure on other states to follow Texas’s example on tort reform—and then perhaps a second level of mega-tort reform—continued unabated.

“Don’t get hurt in Texas”

Next business-friendly example: Only one state in the union doesn’t require large employers to take part in a state-regulated workers’ compensation system, which provides people with medical benefits and support if they’re injured on the job. We will take a moment’s rest here while everybody guesses which state that is.

Not Vermont. Be serious.

Yes, in Texas—which has the lowest workers’ compensation coverage in the country—about a third of the businesses have left the state workers’ compensation system and gone off on their own. “There are two categories of employers who don’t carry workers’ comp,” says Rick Levy, the legal director for the Texas AFL–CIO. “One is small employers who operate on the margins. Unfortunately, that’s a lot of the most dangerous occupations, like construction. And increasingly, there are Fortune 500 companies.”

Since the late 1980s, the state legislature has reorganized, fiddled, and otherwise changed the workers’ comp system, always with an eye to reducing insurers’ costs and keeping the injured employees from getting legal representation. In Texas, as in many parts of the country, there is an ongoing war between the Republican Party and the trial lawyers, in part because Republicans connect the lawyers with business costs, and in part because the trial lawyers tend to be big Democratic donors. Texas law now limits lawyers’ compensation in these cases so drastically that few will take them. “
Where previously hundreds
of Texas lawyers had significant workers’ comp practices, there now are about 30,” wrote Terry Carter in the
American Bar Association Journal.
If an insurer wants to fight an injured worker’s claim—and the insurer has every reason in the world to give it a shot, or delay resolution for as long as possible—the worker is unlikely to have anyone on his side of the battle. Most Texas workers aren’t unionized, and now the chances of getting a lawyer are small, particularly for a low-paid worker with an unsensational injury.