California, which sent a delegation to Austin last year to findout how the Lone Star State had beat it in employment growth,surged ahead of Texas to lead the nation in job creation for thelast two consecutive months.

California added 365,100 nonfarm jobs in the year ending inJuly, a 2.6 percent increase and the state's largest 12-month gainsince 2000. Texas picked up 222,500, or 2.1 percent, according toU.S. Labor Department statistics. California also outpaced Texasthe prior month.

Texas led California in job creation in 18 of the last 24months, since August 2010, the first month both states postedemployment gains following the longest recession since the 1930s.The latest numbers show that California has defied comparisons withfinancially troubled Greece, including a joking reference byRepublican presidential candidate Mitt Romney earlier thismonth.

“What these new figures do is drive a stake through these weakRepublican talking points,” said Gil Duran, a spokesman forCalifornia's Democratic governor, Jerry Brown. “California jobs arecoming back at a higher rate here. We hope that happenseverywhere.”

To be sure, California is the only state where three cities havefiled for bankruptcy in the past two months. The state'sunemployment rate of 10.7 percent in July was the third-highest inthe U.S., trailing only Nevada and Rhode Island. Texas ranked 30thwith a jobless rate of 7.2 percent, beating the national average of8.3 percent.

Texas's economic performance impressed California AssemblymanDan Logue enough that the Republican from Linda organized adelegation of California lawmakers and Lieutenant Governor GavinNewsom, a Democrat who was San Francisco mayor, to Austin in April2011.

California's job picture reflects the depth of the recession inthe state, where the economy relies more on housing andconstruction than energy-dependent Texas, said ChristopherThornberg, principal of Beacon Economics LLC in Los Angeles.

“California got hit a lot harder than Texas during thedownturn,” Thornberg said. “We hit the ground pretty damn hard, soyou'd expect more of a bounce back.”

The increase runs counter to the notion that growth favorsstates with lower taxes. California, the world's ninth-biggesteconomy, has the highest statewide sales tax in the U.S., at 7.25percent. That would rise to 7.5 percent if voters approve aNovember ballot initiative. The income tax rate for those making $1million or more a year, now 10.3 percent, would rise to 13.3percent, the most of any state.

Income Tax

Texas, the 13th largest economy if it were a country, has noincome tax. Most state revenue comes from a 6.25 percent saleslevy.

“Texas is still the model for job creation and economic growthin this country,” said Josh Havens, a spokesman for Governor RickPerry, a Republican.

The state that was once a sovereign nation will maintaineconomic growth by following Perry's policies of “low taxes,restrained spending, reasonable and predictable regulations, and afair judicial system,” Havens said by e-mail.

Texas has higher general-obligation credit ratings thanCalifornia from both Moody's Investors Service and Standard &Poor's, meaning the state can borrow at more favorable rates. Bothstates received top ratings for short-term notes they sold inAugust. Texas completed a $9.8 billion sale of one-year notes Aug.21 at yields of 0.23 percent, a week after California paid 0.33percent to 0.43 percent on $10 billion in short-term notes.

The rivalry between the two most-populous U.S. states came intorelief in April 2011 when 10 Republicans and a Democrat fromCalifornia's Legislature, accompanied by Newsom, visited Texas tostudy its job-creation strategies. That month, Texas'syear-over-year job growth of 254,400 was more than 100,000 higherthan California's.

Logue attributes much of the growth to early implementation ofPresident Barack Obama's health-care program. Educational andhealth-care employment grew 3 percent in the year ended in July,California's Employment Development Department reported. Thebiggest increase was in professional and business services, at 5.4percent.

Newsom, a Democrat elected separately from Brown, said lingeringdifficulties such as negative equity on 2 million homes in thestate's Central Valley threaten to hold back California'srecovery.

'Structural Problems'

“We may have another year or two of a recovery based onlow-hanging fruit, but we still haven't dealt with our structuralproblems,” Newsom said. “It's good to be on the other side ofbragging rights in terms of our competitive position with Texas,but we need to be cautious about reading too much into that.”

California and Texas have different strengths. Texas has a lowercost of living and fewer regulations, while California has a moreeducated workforce and availability of venture capital, said RayPerryman, a Waco, Texas-based economist.

“Both states have fiscal challenges, though California's issomewhat more severe,” Perryman said by e-mail. “Texas has had thelead in that arena for some time, but long-term investments ineducation and infrastructure (primarily roads and water resourcedevelopment) will be needed to sustain it.”

Andrew Puzder, an executive who joined California's delegationto Texas, said he's no longer considering moving his company'sheadquarters from Carpinteria to escape the state's taxes andregulations. Puzder is chief executive officer of CKE RestaurantsInc., which operates the Carl's Jr. and Hardee's fast-foodchains.

Most economic recoveries are led by manufacturing andconstruction, with professional services gaining afterward, saidPuzder, co-author of the book “Job Creation: How It Really Worksand Why Government Doesn't Understand It.”

“Professional and business services are people who generally arenot involved in creating wealth,” Puzder said. “They're involved inmanaging and directing wealth.”

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