In September, the city of Humble raised its property tax rate for the third year in a row as it plans for the future and attempts to ease its reliance on sales tax revenue.

Humble City Council approved a property tax rate of $0.25 per $100 valuation for fiscal year 2018-19, 5 cents higher than the city’s 2015-16 property tax rate, at a special meeting Sept. 20. Despite this increase, the city of Humble maintains the third-lowest tax rate out of the 22 cities within Harris County, according to county data.

Based on the new rate, the owner of a $150,000 home will pay about $375 in property taxes to the city, a $30 increase from the $345 paid on a $150,000 home last year.

Humble City Manager Jason Stuebe said he anticipates the city will continue increasing its property tax rate over the next five or 10 years until it reaches about $0.35 per $100 valuation.

Although Stuebe could not provide specific long-term projects, he said the increase will allow the city to improve services to residents through a long-term strategic plan as well as prepare it for future complications that could affect its sales tax base. Additionally, it prepares Humble for future state legislation that could limit the city’s ability to increase property taxes in the future.

“If we are going to put ourselves on a course that is sustainable and provides the services at the level we need them, then ... we’ve got to get the revenue … to a more appropriate level,” Stuebe said.

Property tax increases

Property tax revenue is the city of Humble’s second-largest funding stream behind sales tax revenue—which comprises almost half of the city’s operating revenue, according to city budget documents.

Bennett Sandlin—executive director of Texas Municipal League, which provides services and advocates for the interests of cities—said this is uncommon in Texas as most cities rely more heavily on property tax revenue than sales tax funding.

“We do a survey every decade or so of revenue,” Sandlin said. “And our latest survey shows about 35 percent of an average [Texas] city’s revenue comes from property tax, and then about 30 percent from sales tax.”

According to Humble’s budget, the city’s operating expenses for FY 2018-19 are $33 million—a 12 percent decrease from the city’s FY 2017-18 operating expenses. Meanwhile, revenue to fund city operations is estimated at $29.39 million.

Stuebe said the city had to decrease its operating budget by 12 percent in order to get it more in line with its budgeted revenue. Even with this decrease, the city will have to fill that roughly $3 million gap to cover operating expenses by pulling money from the city’s reserves—which is something city officials would rather avoid, he said.

“Our reserves have precipitously gone down year over year over the last five years, and quite frankly we just can’t do that anymore,” Stuebe said.

Increasing the city’s property tax rate to $0.35 per $100 valuation in the next 5-10 years could help generate additional revenue and prevent officials from pulling from the city’s reserves in the future.

Additionally, increasing the property tax rate will allow Humble to branch out from the core services Humble now offers, and it will fund what comes out of the city’s first long-term strategic plan, which officials will begin working on in October.

“We’ll be able to start branching out from core services and invest in things, such as quality of life and parks and recreation, programs and things like that,” Stuebe said. “Because if you look at trends and high-performing cities, ... it’s those ... that place an emphasis on [quality-of-life services].”

Sales tax reliance

In addition to making the city more sustainable and preparing for its long-term plan, increasing Humble’s property tax rate will lessen the city’s reliance on sales tax revenue, which can be inconsistent, Sandlin said.

“The difference between [the revenue streams] is that property tax is controllable and sales tax is volatile,” Sandlin said. “It’s easier to predict [property tax revenue] and create a steady revenue stream to pay for services, such as public safety.”

The city of Humble has experienced some fluctuations in sales tax revenue over the past five years. In FY 2014-15 the city received $13.83 million in sales tax revenue, but it fell to $13 million in FY 2016-17. However, Stuebe said the city’s sales tax revenue will likely increase in FY 2017-18, and he expects it to reach close to $14 million when the fiscal year ends Sept. 30.

Stuebe said he is unsure what caused the increase, but suspects part of it may be attributed to residents purchasing goods to repair their homes after Hurricane Harvey hit in August 2017.

This increase in sales tax revenue occurred despite more than 50 businesses flooding within the city during the storm.

“I don’t know if that is going to go back down and level out at the $13 million mark,” Stuebe said. “The bigger question is ‘This the normal, or is this kind of a small bubble?’”

Mark Mitchell, president of the Lake Houston Economic Development Partnership, said increasing its property tax rate could also help the city prepare for any local retail disruptions.

“Amazon ... is now placing distribution facilities everywhere ... and so that is really changing the landscape relative to how the footprint stores operate,” Mitchell said.

Looking ahead

Along with fluctuations in the city’s sales tax revenue, officials are also preparing for other changes that could affect Humble’s revenue streams.

Stuebe said the city is concerned about the future of an agreement Humble—along with 14 other cities in Harris County—has in place with the Metropolitan Transit Authority of Harris County. Because of this agreement, METRO—which receives 1 cent of the sales tax within the city—provides Humble with half of the revenue it collects within the city’s limits.

METRO spokesperson Laura Whitley said through this agreement, the transit authority allocated $6.6 million to Humble during FY 2017-18, which is in addition to what the city received in local sales tax revenue.

Stuebe said the funds the city of Humble receive from METRO through this agreement must be used on road projects.

The agreement is on a contractual 10-year basis and is up for renewal in 2024. Stuebe said increasing the city’s property tax rate will help the city cope if the agreement is not renewed.

“We don’t know what is going to happen after 2024,” Stuebe said. “In our opinion, I think we would be comfortable in saying, ‘Hey, is there a legislative fix to ... make it permanent?’”

Along with the uncertainty surrounding the future of the city’s agreement with METRO, Humble Mayor Merle Aaron said he is concerned about the state seeking to cap how much cities can increase their property tax rates.

During the previous legislative session in 2017, some state legislators—including State Sen. Paul Bettencourt, R-Houston—filed legislation that would have required cities to hold an election for residents to approve or reject a proposed tax rate if it would increase the city’s property tax revenue by more than 4 percent from the previous fiscal year.

Sandlin said he believes lawmakers will pursue similar bills when the next legislative session begins in January.

“The truth is those cap bills only apply to cities and counties, which is interesting because the real problem with property tax is the state’s overreliance on property tax [to fund public education],” Sandlin said.

Aaron said if any such bill does become a law, it would prolong the time it takes for Humble to increase its property tax rate to $0.35 per $100 valuation.

“We’re pretty well convinced there’s going to be some measure of property tax caps hitting the cities across the state,” Stuebe said. “Such a thing would seriously hinder our ability to get to where we need to be.”