City Revenues and Expenditures GOVT 2305, Module 11

Houston Revenues Overview Water and sewer--26 % Property taxes—25 % Sales taxes—16 % Aviation—11 % Charges for services—6 % Franchise fees—5 % Licenses and permits—2 % Other—9 % 2/24/2019 Confidential

Houston Revenues 2014 Total: $4.1 billion “Other” includes licenses, fines, fees, and permits. The $4.1 billion is for all accounts. General fund revenues are $2.2 billion.

Water & Sewer Charges City residents pay a monthly water bill to the city that is used to fund the city’s water and sewer service. Water and sewer charges account for 26 % of total revenue.

Property Taxes Property tax collections account for 25 percent of city revenues. They go into the general fund which supports the general operation of the city (police, fire, parks, libraries, street repair, etc.).

Sales Tax A sales tax is a levy on the retail sale of taxable items. State law allows cities to piggyback an extra 1 percent onto the state's general sales tax rate of 6.25 percent. The sales tax generates 16 % of Houston revenues.

The Great Recession Sales tax revenues rise and fall depending on the state of the economy. What’s that?

Sales Tax Growth 2/24/2019 Confidential

Aviation Fees The city operates Hobby Airport, Bush Airport, and Ellington Field. Money generated from the airports goes into an aviation fund to support airport operations. Aviation revenues account for 11 percent of total city revenue.

Franchise Fees Telephone, gas, cable TV, and electric utility companies pay annual franchise fees to city governments for the right to use public rights of way to string wires or lay cable. Franchise fees account for 5 percent of city revenue.

Other revenues sources Fines Licenses Permits Fees Rental car taxes Hotel/motel occupancy

Bonds City governments borrow money by issuing bonds to cover the cost of capital expenditures, such as the construction of buildings, airports, roads, and utility plants. Bond sales must be approved by the voters. Bonds are repaid over time from tax revenues.

Tax Incentives Tax increment financing is a program in which a local government promises to earmark increased property tax revenues generated by development in a designated area to fund improvements in the area, such as roads, parks, sidewalks, and street lighting. Tax abatement is a program that exempts property owners from local property taxes on new construction and improvements in a designated tax abatement district for a set period of time. Enterprise zones are part of a state program that allows local governments to designate certain areas called enterprise zones in which private investors can receive property tax abatements, local sales tax rebates (refunds), and government-backed low-interest loans.

What is the counter to the theory? Controversy Are tax incentives good public policy? Why or why not? What is the theory behind tax incentives? Businesses will locate in a community, creating jobs, because of the tax incentives. Businesses don’t base location decisions on tax breaks. It’s a waste of taxpayer money. Local businesses hurt by competition. What is the counter to the theory?

Sports Arena Should the government provide financial subsidies to build sports facilities? The Harris County-Houston Sports Authority manages $1 billion in voter-approved debt to build NRG Stadium, Minute Maid Park, and the Toyota Center. The debt is paid by rental car and hotel/motel occupancy taxes.

NRG Upgrades The NFL says that NRG Stadium needs $50 million in upgrades before the 2017 Super Bowl, including Wi-Fi installation and luxury suite and box upgrades. Who will pay—the Texans or Harris County taxpayers? 2/24/2019 Confidential

Expenditures

Public Works & Engineering The Public Works and Engineering Department is the largest city department, accounting for 39 percent of city spending. The department is responsible for water and sewer service, street repair, street lights, traffic signals, and fire hydrants. l

Public Safety Police, fire, emergency services, and the municipal court system combine to form the public safety component of the budget. Public safety accounts for 29 percent of city spending.

Airport System Airport operations account for 10 percent of city spending.

Everything Else The other 22 percent of city spending is divided among a number of activities, including parks and recreation, libraries, solid waste, convention and entertainment, and health clinics.

What You Have Learned What are the primary revenue sources for city governments in Texas and the city of Houston? What are property tax incentives and why are they controversial? What are the primary expenditure items for the city of Houston and cities in Texas?