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A recent Associated Press headline makes it abundantly clear why Texas was right to turn down federal "Race to the Top" funding last month.

The story was titled, "Schools face big budget holes as stimulus runs out."

"The nation's public schools are falling under severe financial stress as states slash education spending and drain federal stimulus money that staved off deep classroom cuts and widespread job losses," the AP reported. "School districts have already suffered big budget cuts since the recession began two years ago, but experts say the cash crunch will get a lot worse as states run out of stimulus dollars."

The result, the AP added, could be "more teacher layoffs, larger class sizes, smaller paychecks, fewer electives and extracurricular activities, and decimated summer school programs."

States that relied heavily upon stimulus dollars -- and less on planning ahead and making economies -- will be hit the hardest.

"The situation is particularly ugly in California, where school districts are preparing for mass layoffs and swelling class sizes as the state grapples with another massive budget shortfall," AP reported.

That's one reason Texas was wise to turn down further federal "incentive" money -- a federal bailout, with no fiscal reform, only puts off the inevitable.

Gov. Rick Perry had other reasons, as well.

"Texas won't compete for up to $700 million in federal stimulus money for education because the program 'smacks of a federal takeover of our public schools,' Perry said," the AP reported last month. "The funding is from the U.S. Department of Education's 'Race to the Top' program, a $5 billion competitive fund that will award grants to states to improve education quality and results. The program, created in the economic stimulus law, is part of Democratic President Barack Obama's efforts to overhaul the nation's schools."

As Brooke Dollens Terry of the Texas Public Policy Foundation points out, the "Race to the Top" money would have been very costly, indeed.

"In order for a state to apply for its share of President Obama's Race to the Top stimulus funds, it will have to explain how it will use those federal dollars on a list of suggested education reforms," she explains.

For one thing, education is a state matter -- not a federal responsibility.

"Texas lawmakers control funding and school requirements, and the State Board makes decisions about curriculum," she says. "All of these are elected positions directly accountable to the voters at least once every four years."

And the federal funds would have to be "leveraged" by the state -- meaning we would have to spend money to get money. It could be as much as $3 billion (in revamping curriculums to meet federal mandates) to have access to a maximum of $750 million.

But the stark reality is stimulus money isn't limitless -- it will dry up.

Other states are already facing that reality. By prolonging the pain, Washington isn't doing those states any favors. Texas was right to turn down the funding. That's the lesson here.

Gov. Rick Perry said Thursday that Texas has been ranked the country’s No. 1 exporting state in the United States for the eighth consecutive year.

He credited the state’s economic environment — including its low taxes, a favorable regulatory climate and a skilled and educated workforce — for holding that distinction.

“Texas leads the nation in so many positive categories, from Fortune 500 companies to job creation, and we owe it to our citizens to continue our economic success by adhering to our proven fiscal disciplines,” Perry says. “Our principled leadership has created an environment that allows us to compete for jobs, investment and business, and defend the economic climate that has made Texas the top exporting state in the nation for the eighth straight year.”

Texas’ exports totaled more than $163 billion for 2009, with the top export recipients being Mexico, Canada, China, the Netherlands and Korea. These countries imported $56 billion, $13.7 billion, $8.9 billion, $6 billion and $5.3 billion in Texas-manufactured goods, respectively. Texas’ top exporting industries in 2009 were computers and electronics, chemicals, machinery, petroleum and coal, and transportation equipment.

He also credited the Texas Enterprise Fund for helping to attract businesses, jobs and investment to the state. The fund was instrumental in convincing Allstate Insurance Co. to establish a bilingual call center in San Antonio and create up to 600 jobs.

San Antonio and six metropolitan areas in Texas are expected to be among the first to emerge from the recession, according to Moody’s Economy.

Texas added 50,000 new jobs in the fourth quarter and activity in the new housing sector remains strong in both Dallas and Houston, according to a new study by SigmaBleyzer.

The Lone Star State has one of the lowest unemployment rates in the nation.

The positive quarterly job numbers come despite the state losing 24,000 jobs in the construction, trade, transportation and hospitality sectors in December. According to a recent Texas Workforce Commission report, Texas experienced employment increases in education, health care, mining and logging.

The study also focused on the broader economy of Texas, which remains under a downturn, but holds a positive outlook for the coming year.

Among residential housing, some signs of recovery are beginning to emerge, according to the report.

Texas has one of the fastest population growth rates in the country, which the report says should sustain long-term demand for housing. According to the U.S. Census Bureau, about 27 percent of all new privately-owned housing units in the nation’s 20 largest cities were located in Dallas or Houston.

The state’s export activity continues to recover as high oil prices and improving foreign demand for high-tech manufacturing increase. Texas remains the largest exporter for the eighth consecutive year. In the first 11 months of 2009, Texas exports only fell by 18 percent, compared to the 21 percent decline nationally.

“This resilience of Texas exporters should help keep the state’s economy on more sustainable footing as the U.S. economic recovery becomes increasingly dependent on the strength of foreign demand,” the report by the Houston-based private equity firm stated.

Based upon the reaction out of Washington, I must have touched a nerve when I announced that Texas won't be pursuing the strings-attached federal stimulus funds known as Race to the Top (RTTT).

President Barack Obama and his administration have put a target on the backs of Texas leaders, taxpayers and employers because state leaders and lawmakers have proven that conservative principles can balance budgets, improve schools, clean the environment and help entrepreneurs create jobs.

Texans have also led the 10th Amendment charge to protect state sovereignty from threats like Obama's latest effort to circumvent the right of states to determine how to best educate their children.

The problem with RTTT funding is clear: Under the program's rules, Washington gives preference and dollars to states that agree to adopt national standards that haven't even been written yet.

Texans strongly support the high standards and strong accountability for our schools that have made us a national leader in both categories. Other states are even studying our approach, the first in the nation to make a college-preparatory curriculum the default for every student, as a basis for their own standards.

Texas is home to some of the country's most innovative charter schools, with more than 115,000 students on nearly 500 campuses. It has the largest merit pay program for outstanding public school teachers. I've also recently announced efforts to make it easier for students to learn via the Internet and called on legislators to bulk up our instruction in critical areas like science, technology, engineering and math.

I suspect there is some head-scratching going on in our nation's capital as federal officials try to figure out how our test scores are rising and our dropout rate falling without mandates or bribes from Washington.

Put simply, we have poured our efforts into preparing the state's students for the jobs of tomorrow.

Considering Texas is among the nation's leaders in standards, I imagine whatever federal standards are eventually agreed upon will be weaker than the ones we have now.

Adding injury to insult, the price tag to change all our text books and instructional materials to comply with Washington's vision for public education would be about $3 billion.

In return, Texas could expect to get back from Race To The Top as little as $75 a student, barely enough to fund our state's educational system for two days.

So turning down the strings-attached stimulus money was an easy call — in terms of ensuring our children get the best education possible and in simple matters of dollars and cents.

A few days after I made that announcement, the president said he wanted another $1.35 billion in borrowed dollars to expand RTTT so he could sidestep states and appeal directly to individual school districts that might be willing to sign away their authority in return for a quick infusion of some federal cash.

Why are Obama and his allies so insistent on funding only those who will accept federal strings and standards? Why not just fund good programs, like we do in Texas?

An answer might be found in a speech Secretary of Education Arne Duncan delivered early last year. Duncan said, "If we accomplish one thing in the coming years, it should be to eliminate the extreme variation in standards across America."

Let's set aside the argument that the "variation in standards" among states fosters innovation and a healthy competition that drives standards ever higher all over the country.

That's not what this seems to be about. This seems to be about one thing, and one thing only: federal control.

Washington doesn't have an issue with our programs. Washington doesn't have an issue with our academic or accountability standards. It just wants to make sure it calls the shots, not Texas educators, school boards and other elected officials.

Should Washington drop its focus on the adoption of national standards and simply allow states the freedom to use this money to fund quality programs on a one-time basis, we can consider possibly applying for future grants.

Until then, however, the education of our children is far too important to entrust to some federal bureaucrat toiling in a distant federal building.

In Texas, we are fighting to maintain our freedom to hold our children to high standards, because that's the only way Texas will maintain its established reputation as a national leader in job creation, innovation and quality of life.

On the eve of the second Texas Republican gubernatorial debate, Gov. Rick Perry told East Texans that under his administration, Texas has set a blueprint to recover from the economic crisis that he believes Washington should follow.

No major state has weathered the recession more successfully than Texas. So it’s logical that the best place to launch a new business would be a prominent Texas metropolitan area.

The nation’s top score for small-business vitality, according to a new Portfolio.com/bizjournals study, belongs to Austin, the state's capital and the center of a thriving metro with 1.7 million residents. A six-part formula was used to analyze the nation’s 100 largest metros, looking for the places that are most conducive to the creation and development of small businesses.

McKinney schools won’t be receiving funds from the federal government’s $4.35 billion Race to the Top program, as governor Rick Perry has decided Texas will not be submitting an application for what is being billed as a national competition to advance school reform. Under the program, the state would have been eligible for up to $700 million in grants if it earned points in such areas as turning around failing schools, showing improvement in teacher effectiveness, and having quality charter schools.

Out of the 50 states and the District of Columbia, Texas ranks No. 3 as one of the top friendliest states for small businesses and entrepreneurship in the country.

The Small Business and Entrepreneurship Council cited the state’s low business tax rates, workers compensation benefits, and state and local government spending issues as positive factors key to Texas’ third place ranking in the council’s 2009 Small Business Survival Index study.

Factors keeping the state from one of the top two spots, however, were gas and diesel taxes, Texas’ crime rate, utility costs, property taxes, and state and local sales, gross receipts and excise taxes, the council said in the study, released in late 2009.

“The Small Business Survival Index gets at the public policy costs and trends that affect – directly or indirectly – entrepreneurship and small businesses,” study author and Small Business and Entrepreneurship Council Chief Economist Raymond J. Keating said in a statement. “These measures should matter to everyone because small businesses, of course, drive innovation, economic growth and job creation. If we want to get our economy back on a solid, robust growth track, then we need pro-entrepreneur policies at the federal, state and local levels.”

David Berzina, executive vice president of economic development for the Fort Worth Chamber of Commerce, said Texas’ high ranking isn’t surprising considering the opportunities available to entrepreneurs across the state and in North Texas.

“Employees from some of these larger firms, Texas Instruments, Bell Helicopter, Lockheed Martin, they get the spirit and start a business of their own after they get their training from some of these bigger companies. They come up with an idea, and pursue the American dream,” he said.

Berzina added that Texas’ universities and community colleges work together to provide opportunities for business education and development.

Brad Hancock, director of Texas Christian University’s Neeley School of Business Entrepreneurship Center, said the center has seen an increasing number of students joining the center and showing interest in opening their own small businesses.

The growing interest could be a rebound effect from the troubles corporate America has experienced over the last several years, Hancock said, adding that while students show interest in a number of different industries, technology is becoming one of the more popular choices.

“We are seeing more students, I think because they’re more technology proficient, looking at technology-based business,” he said. “I think more students are asking ‘How can we use the iPhone? How can we use the Internet and this technology that’s emerging?’”

Alvaro Guillem, president and CEO of ZS Pharma Inc. in Fort Worth, said he could have picked any state in the U.S. to open his pharmaceutical development company, but chose Texas because of the state’s tax rates and business infrastructure.

“Over the last few years what I’ve been doing is developing pharmaceuticals and bringing products to the market,” he said. “We could have headquartered anywhere, but over the last several years, Texas as a state has developed quite an infrastructure when it comes to supporting product development, and supporting everything being contained in Texas. That makes it much more easily managed when you deal with a project where you don’t have to go all over the place to look for resources to support what you’re doing.”

Guillem added that Texas also has been a business-friendly state because of its tax rates.

“Nobody likes to get taxed, but if you have to get taxed at least be reasonable, and Texas seems to do that,” he said. “The business climate has been very conducive for settling in and doing business.”

In ranking the 50 states and District of Columbia, the Small Business and Entrepreneurship Council considered some of the major government-imposed or government-related costs – 36 total – affecting investment, entrepreneurship and business, according to the study.

One of Texas’ highest rankings is a result of the state’s lack of a state personal income tax, which can affect individual economic decision making in important ways, the study said. And while Texas also benefited from not having a corporate income tax, it did receive a low ranking – coming in at 39 out of 51 – for higher state and local sales, gross receipts and excise taxes, in the study. Texas also ranked at 39 for property tax rates, at 45 for the number of health insurance mandates, and at 42 for the state’s crime rate.

“When companies look at Texas, they’re discovering that we’ve fostered an environment that encourages people to pursue their dreams, build businesses and create jobs,” Gov. Rick Perry said in a statement. “This index is further proof that our conservative fiscal principles, low taxes, predictable regulatory environment and educated workforce have made Texas the best state in the nation to build a business and create jobs.”

One of the most closely watched political races of the year should be the Republican primary for the governor's office in Texas, pitting incumbent Rick Perry versus Texas U.S. Senator Kay Bailey Hutchison. Both have spent millions already, with potentially tens of millions on tap, but the heavy betting is on Mr. Perry at this point as the March primary approaches. As one lifelong political operative in the state tells me: "Kay Bailey can't get to the right of Perry on a single issue." That's a big problem in a GOP primary in the reddest of states.

On Wednesday, Mr. Perry moved to seal the deal with conservatives by calling for a new constitutional set of protections for taxpayers. Call it a Texas-style "taxpayer bill or rights." Mr. Perry wants the state's constitution amended to require a two-thirds vote requirement of the legislature for any tax hikes. He also wants state spending capped at the rate of annual population growth plus inflation. States like Arizona, Colorado, and Nevada have already adopted such taxpayer protections and the limitations have worked well to repel new spending, according to economist and state budget expert Barry Poulson of the University of Colorado.

Mr. Perry sounded as if his audience for these reforms was just as much the White House and the U.S. Congress as citizens of his home state. As the tax, borrow and spend "mindset holds sway over Washington, D.C.," Mr. Perry said, "it is more important than ever that we take steps to protect our citizens from the excesses of unrestrained government at every level."

What's the worst state to do business in? According to readers of Chief Executive magazine, it's California. In the same poll, Texas won first place as the best state in which to put your headquarters.

As reported in The Economist, the two largest states in the nation have very different philosophies and very different success rates.

In the 1950s and '60s, California was the embodiment of the American Dream, offering great schools, roads, jobs, and communities with all the latest amenities, not to mention good weather, beaches, and quick access to the mountains and wilderness for recreation. As home to Disneyland and the movie industry, the state represented all that was glamorous and new.

Cut to the present day. California is $26 billion in the hole and has recently been paying its bills with IOUs. Its once-proud schools are suffering and the prison system is releasing criminals early because the state can't afford to keep them. Social services are being cut right and left. Infrastructure is aging and falling apart. Unemployment is nearing 12 percent. State employees are forced to take unpaid furlough days and many California cities are worse off than Detroit. Its state income tax is the second highest in the U.S., and government regulations seem perversely aligned to discourage people from doing business there.

In fact, people are fleeing the so-called Golden State at a rate of more than 100,000 a year. From the Great Depression on, California was a dream destination for Americans. Now it looks more like a nightmare, taking on new debt at a rate of $25 million a day.

Texas, on the other hand, was considered something of a backwater in the 1950s and '60s, and certainly not a glamorous destination for the upwardly mobile masses. How things change. Unemployment in that state is two percentage points below the national average. It has one of the lowest rates of repossession for housing. There is no state income tax, nor is there a tax on capital gains in Texas.

Also, the Lone Star State has more Fortune 500 headquarters than any other place in the union: California has 51, New York has 56, and Texas has 64. AT&T, Dell, Texas Instruments, ExxonMobil, ConocoPhillips, American Airlines, Continental Airlines, Southwest Airlines, J.C. Penny, and Halliburton are all located in Texas.

Texas also has a geographic advantage over California. California has mountains that limit growth. Texas is largely flat. California is big. Texas is bigger. If you drive from Houston to El Paso, you're halfway to Los Angeles – without leaving Texas.

Texas created 70 percent of all the new jobs in the United States in 2008, and it has a budget surplus. No wonder it's the fastest-growing state in America, with 150,000 new residents arriving each year. Houston promises to become the nation's third-largest city in the near future, edging out Chicago for that spot. And 3 of the 10 largest cities in the United States are already in Texas – Houston, Dallas, and San Antonio.

Both the Brookings Institution and Forbes Magazine studied America’s cities and rated them for how well they create new jobs. All of America’s top five job-creating cities were in Texas. It's more than purely economics and regulation can explain, though. Texas – and Houston in particular – has a broad mix of Hispanics, whites, Asians, and blacks with virtually no racial problems. Texas welcomes new people and exemplifies genuine tolerance. When Hurricane Katrina hit, Houston took in 100,000 people. Not surprisingly, Houston has more foreign consulates than any American city other than New York and Los Angeles.

And while Texas is creating jobs and new business, the Financial Times recently observed that the failure of a state as large and important as California is serving as a drag on the entire U.S. economy. Much of what we perceive as a national housing crisis, for example, is really concentrated in a few of the hardest-hit regions – California and Florida chief among them. Meanwhile, areas such as Texas have experienced a much milder downturn. In short, the catastrophes in Florida, Nevada, and especially California make the national market look really bad.