Economic Gloom Rides High in Texas : Firms and Banks Fail, Joblessness Rampant as Deficit Mounts

The Lone Star State is in Texas-sized trouble.

Banks are failing. Lifetimes of work are going down the drain. Multimillion-dollar corporations are going bankrupt. Unemployment figures are on a stampede.

Texas, proud Texas, is taking on the look of a Rust Belt with armadillos. Just about everything that could go wrong with the economy, has.

In June, Texas passed California to become the state with the most unemployed workers in the country. This state now has 906,800 people out of work, compared to California’s 867,000--but California, the most populous state, has 10 million more citizens. To put it another way: Roughly one of every nine unemployed people in the country lives in Texas.

A $1-Billion Trim

A year ago, Texans were horrified to learn that their state would somehow have to trim $1 billion to break even on the budget because Texas, by law, cannot operate with deficit spending.

If only that had been the worst of it. The state Legislature, which meets every two years, is going into special session on Aug. 6 to wrestle with a deficit that is now projected at $3.5 billion, roughly one-tenth of the state’s budget.

“I don’t think it’s been this bad for the people in Texas since the Great Depression,” said Ernie Cortes, the director of a coalition of community activist organizations in the state.

To make matters worse, the special session of the Legislature comes at exactly the wrong time--in an election year, when Democratic Gov. Mark White is determined not to advocate a tax increase of any kind before the ballots are cast in November. White said as much when he called the session. But refusing to call for new taxes will not necessarily protect him and other elected officials from being tossed out of office, so great is the economic gloom in the state.

‘Incumbents in Trouble’

“I think the incumbents at all levels are in big trouble,” said state Lands Commissioner Garry Mauro, who is himself up for reelection and campaigning hard despite only token opposition.

The major problem for Texas, of course, is oil and its precipitous drop in price in recent months. That problem could worsen if the Organization of Petroleum Exporting Countries (OPEC) fails once again this week to agree on production quotas and the price of oil once again hits the skids.

But other difficulties have come together with woefully poor timing. Agriculture, Texas’ second-largest source of income, is in the dumper, just as it is in most of the rest of the country. Other markets, from livestock to timber to lignite, are depressed. The devalued Mexican peso is strongly curtailing trade along the border. Slumping high-tech industry and a sluggish economy across the rest of the country add to the trend.

A Frightening Combination

The combination is frightening for Texans, whose daily fare these days is headlines about failure and more failure:

--Twelve banks collapsed in 1985, and already that same number have folded this year.

--The Hughes Tool Co., which is the barometer for drilling in the oil patch, posted a massive second-quarter loss of $446 million last week.

--One week before that, the giant Dallas-based LTV Corp. became the largest American company ever to file for bankruptcy.

--The personal income of Texans is still growing, but at only half the national rate and, for the first time in years, more people are leaving the state than are moving in.

“There isn’t any short-term out,” said Bernard Weinstein, director of the Center for Enterprising at Southern Methodist University. “Things are going to get worse before they get better.”

Talk of State Lottery

So great is the unease here that there is renewed talk of a state lottery and pari-mutuel betting, two notions that have always been rejected in this strongly Southern Baptist Bible Belt state. But even if those were approved, they would raise small change when compared to the deficit.

A state income tax is a possibility, but Texans have always shown a powerful aversion to it and still do, so much so that there is a petition circulating in the state now for a constitutional amendment to prevent such a tax--ever.

An increase in the sales tax--currently set at 4.125 cents on the dollar--seems to be the only alternative, but, without a major change of heart by lawmakers, such a measure would not be passed until early next year, when the Legislature convenes its regular session.

Growing Deficit Seen

Mauro, the lands commissioner, said that to do anything sooner would be an aberration for politicians. “What state has solved its problems before the last hour of the last day of the last month?” he asked.

Meanwhile, barring an unexpected miracle, the deficit is expected to grow, along with unemployment. Those looking for a silver lining have not found one. Jared Hazelton, an economist with the Texas Research League, said he had pinned his hopes for a modest recovery on two things: a rise in the price of oil and an upswing in the overall national economy. So far, neither has happened.

“Every number that anyone looks at has been going wrong since March,” he said.

What the Legislature will do when it convenes in August is uncertain, but most predictions are for a “Band-Aid” approach to keep the state from writing bad checks until it can deal more seriously with the matter next year.

Poor May Be Hit Hard

However, there are fears that when the Legislature eventually does its budget cutting, the poor will be hardest hit. Marlin Johnston, commissioner of the Department of Human Services, is worried that because 70% of all state funds must be spent on specific items, the ax will fall on programs for the needy.

“I am concerned because we deal with the more fragile elements of society--the poor, the sick, the elderly, kids who are being mistreated,” he said. “I’m concerned that in tough times things can go astray and these people will be lost in the shuffle.”

State Rep. Paul Colbert, a member of the House Appropriations Committee, said he hopes such cuts will not be necessary, and that he thinks layoffs and reductions in other areas will be sufficient.

But, “If we go beyond that point, a lot of people with no place else to turn could be significantly hurt,” he said.

Layoffs by State

State employees stand to lose in any case; one estimate is that more than 19,000 of them could be laid off. Among the services that could be affected are screening for heart conditions for 5,500 low-income children, a $17.8-million day-care program and services for 900 visually handicapped children. One suggested cut could mean the loss of 180 new state troopers.

Bill Kirby, the commissioner of education, fears large-scale teacher layoffs, pay freezes and a decline in services, particularly for the poorest districts where the state now pumps in the largest share of money.

Lt. Gov. William P. Hobby favors a sales tax hike and is campaigning hard around the state for one, but there is little indication that he will win his fight in the special session.

Meanwhile, Texas is getting poorer. A report released last week showed that home foreclosures in the five major cities in the state have risen dramatically in the last three months. Austin, the state capital, seemed immune to the Texas economic downturn last year. But it now has the highest percentage of foreclosures.

Billionaires Suffering

And the bad news is not restricted to the poor and middle class. The list of Texas billionaires--and mere millionaires--who are suffering financial difficulties is growing longer. Leaders whose names have long been synonymous with Texas are watching their fortunes dwindle. Even John B. Connally, three-time governor and former U.S. secretary of the Treasury, admitted recently that he was selling his real estate empire piece by piece to stay afloat.

Belt-Tightening Among Rich

Perhaps the saddest commentary on the state of the Texas rich came this month from Clint Murchison, the former owner of the Dallas Cowboys, who is now bankrupt. He sold his “sky box” on the 45-yard line of Texas Stadium, his last connection with his beloved Cowboys, for $920,000.

Cortes, the grass-roots activist, believes it will take programs along the lines of Franklin D. Roosevelt’s New Deal to get the state back on its feet. But he does not see any Roosevelt among Texas politicians. Weinstein, the economist, thinks Texas is going to have to impose taxes on almost everything, including, say, dental bills.

And Hazelton, of the Texas Research League, believes that, in time, the state will rebound. But he admits it may be a long time--as much as three years. When it does, Hazelton said, Texas will have wiped the smugness from its figurative face, because it will no longer be the land of milk and honey and big oil.

“It was easy to be smug when the world was going your way for 10 years,” he said.