Senator Eliot Shapleigh - El Paso, Texas

AUSTIN — Rising unemployment in Texas is giving U.S. Sen. Kay Bailey Hutchison what her strategists believe is a promising target in her emerging bid against Gov. Rick Perry in next year’s Republican gubernatorial primary.

After keeping silent for months, Hutchison has opened up a vocal offensive on the issue, hammering Perry for refusing to accept $555 million in federal unemployment stimulus money. Perry is standing firmly behind his decision, saying taking the money would have subjected Texas employers to taxes long after the benefits expire.

Regardless of the perspective, the debate between the two Republican giants underscores the political stakes as the economy takes center stage in the state’s 2010 elections. At least 383,700 Texans — more than twice as many as a year ago — are drawing unemployment benefits.

To Perry’s detractors in both parties, those numbers make the state’s longest-serving governor vulnerable on what has been his signature issue: his stewardship of one of the most vibrant state economies in the country.

In response, Perry cites his leadership as a core reason that the Texas economy, despite the current hardships, is "the strongest in the nation," with unemployment running lower than the national average.

Employers from other states, he said, "continue to relocate and expand in Texas."

Nevertheless, the political consequences of downward economic swings are well-documented. In the early 1990s, for instance, President George H.W. Bush appeared headed toward easy re-election for his handling of the Persian Gulf War until Democrat Bill Clinton seized on a slumping economy and denied him a second term.

Texas voters are feeling the day-to-day pressures of disappearing jobs and personal belt-tightening. In June, a University of Texas at Austin poll found that 41 percent of respondents rated their economic well-being as somewhat or a lot worse off than a year ago, researchers reported.

The same survey, however, also suggested that Perry might have tapped into prevailing sentiments in Texas with his decision to reject the $555 million.

Forty-two percent supported the move, while 36 percent said he should have accepted the package. Among Republicans, 68 percent endorsed turning down the money, compared with 15 percent in favor of accepting it.

The same survey, released early this month, also showed Perry with a 12 percentage-point lead over Hutchison; she has disputed the findings, citing internal polls showing her with the lead.

Hutchison’s attacks on Perry’s stimulus money decision constitute the first high-profile issue she has raised against Perry since she began moving into a full-scale campaign for governor. She is expected to make a formal announcement in August.

Her latest salvo came in an opinion piece in the Austin American-Statesman on Tuesday. "Nothing better encapsulates our leadership problems in Austin than Gov. Rick Perry’s refusal to accept" the stimulus money, Hutchison said in the opening sentence.

She raised the issue for the first time Friday, asserting: "This is yet another Rick Perry disaster. Higher business taxes. Unnecessary debt. And an unemployment mess."

Hutchison said she voted against "every dollar" of stimulus spending but contends that, once the recovery expenditure was approved by Congress, Texas was entitled to get "its share of those dollars." She said she avoided raising the issue while the Legislature was meeting this year to avoid injecting politics into the session.

The surge in unemployment claims over the past year has drained the state’s unemployment trust fund, forcing the Texas Workforce Commission to seek a federal loan of at least $643 million to continue paying benefits. Texas employers also face an increase in the taxes they pay to support the fund, beginning in January.

Hutchison has suggested that Perry could have averted the problem by accepting the stimulus money instead of going "hat in hand" to the federal government for a loan.

But Perry, in his own opinion piece, pointed out that temporary business tax increases, bonds and federal loans are remedies that Texas and other states are sometimes forced to use during recessions to keep employment benefits intact.

Texas used similar remedies during a 2003 recession, he said. Because of the remedies, he said, "Texas unemployment benefits are safe."

The stimulus money, he said, would have provided less than seven weeks of benefits and would have slapped Texas employers with long-term taxes by requiring the state to expand its benefits program. But Hutchison said she obtained a Labor Department ruling saying Texas could have reversed the added unemployment benefits without penalty.

Jim Henson, director of UT’s Texas Politics Project, which conducted the survey, said Hutchison may be trying to "push back" against Perry’s attempt to label her as a Washington insider and hopes to show that Perry left money on the table that could have landed in Texas.

In turn, he said, Perry is aiming to spotlight his image as a leader who says no to Washington. "It’s going to be a battle of messages between the two of them," he said.