Population growth drives Texas local sales tax revenue

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Amid a continuing population surge, local government sales tax allocations in Texas for June rose more than 10% over the same month last year to $782.1 million, state Comptroller Glenn Hegar said.

Cities, counties and special districts such as hospital districts and municipal utility districts rely on sales taxes along with property taxes for their revenue. The state government, which levies no property or income tax, gets 57% of its revenue from sales taxes.

Local sales tax collections for the first six months of the year are up for the third year in a row.

The allocations to cities, counties, transit systems and special purpose taxing districts are based on sales made in April by businesses that report tax monthly.

Texas cities took the lion’s share of the monthly revenue at $499 million, a 9.2% increase over June 2018 and a 4.9% increase for the year to date.

Among the 20 most populous cities, only Sugar Land in Houston’s affluent western suburbs recorded a decrease for June, down 2.76% to $3.97 million. For the year, Sugar Land’s collections are up 1.95%.

Houston topped the city sales tax chart with $56.2 million, a 3.68% increase over June 2018. For the year to date, Houston’s sales tax revenues are running 1.1% ahead of the same six months last year.

San Antonio, the state’s second-largest city, ranked second in sales tax revenue with $30.1 million, an 11.8% increase over the same month last year. For the year, San Antonio’s sales tax revenues are running 4.5% ahead of the first six months of 2018.

Dallas saw its sales tax rise 9.7% to $25.7 million, but its suburbs were a mixed bag. McKinney, one of the northernmost suburbs, recorded a 16% surge, while Dallas’ bordering suburb of Addison saw a 56% drop. Addison, a retail-intensive city with numerous restaurants and office parks, is down 11.8% for the year.

Meanwhile, Arlington, halfway between Dallas and Fort Worth, had the second largest percentage increase in revenues among the 20 largest cities at 16.2%.

The largest percentage increase among the top 20 went to McAllen in the lower Rio Grande Valley. June sales tax collections there soared 21% to $5.5 million. For the year, McAllen is running 10.6% ahead of the first half of 2018.

President Trump’s threat to close the Mexico-U.S. border next year, and his aborted plans to impose 25% tariffs on goods from Mexico do not appear to have damaged cross-border sales, based on tax receipts.

Laredo, the nation’s top port in terms of cargo value, recorded an 18% increase for June and is running 4.8% ahead of last year’s sales tax collections for the same six months.

El Paso’s sales tax collections grew 9% in June and are running 5% ahead of the same period last year.

In the oil-producing regions of the state, falling prices of West Texas Intermediate crude have not yet affected sales tax collections. The twin cities of Midland and Odessa in the heart of the Permian Basin reported a strong June, with Midland up 15% and Odessa rising nearly 12%.

The state’s 10 transportation districts, which account for 22% of sales tax revenues, also enjoyed a strong June, growing 9.7% for the month and 4% for the first half of the year.

In a report on Dallas Area Rapid Transit Authority and Metropolitan Transit Authority of Harris County, the state’s two largest transit districts, Moody’s Investors Service noted that “population growth is projected to continue in each metro region, providing the transit agencies with the sales tax revenue growth necessary to maintain and expand their systems. The path forward has hurdles, though, as Houston's sales tax collections are more exposed to the volatile energy sector.”

Moody’s rates both districts Aa2 with stable outlooks.

“A key goal for both agencies is boosting ridership,” analysts said. “But if the agencies are not successful and operational challenges arise, creditors are protected by a Texas statutory flow of funds framework that segregates sales tax revenues for debt payment. Ridership has declined in the Dallas region in recent year, while for Houston METRO ridership rose from 2012 to 2017, declining slightly in 2018 due to Hurricane Harvey.”

Texas economist Ray Perryman, principal at The Perryman Group in Waco, said in a report this week that population will remain an economic driver for Texas in the foreseeable future.

Of the 15 fastest-growing large cities, seven are in Texas, he said. New Braunfels ranked second with 7.2% expansion, Frisco is fourth, McKinney sixth, Georgetown seventh, Rowlett eighth, Midland thirteenth, and Round Rock fifteenth.

“Looking at the cities adding the most new residents (as opposed to the largest percentage gain), five are in Texas,” Perryman wrote. San Antonio ranked second, adding 20,824 to top 1.53 million. Fort Worth was third (up 19,552 to reach 895,008), Austin sixth (with a 12,504 gain to 964,254), Frisco tenth (up 10,884 to 188,170), and McKinney thirteenth (up 9,888 to 191,645).

“It is pretty remarkable that even some of the smaller Texas cities like Frisco and McKinney added more people than the likes of New York, Los Angeles, or Chicago,” Perryman said.

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