The tax rate is split into two parts: the maintenance and operations rate and the interest and sinking rate. The M&O rate is used to pay for Pearland’s day-to-day operations. The I&S rate is used to pay off the city’s debt. While the maintenance and operations rate is typically the larger portion of the tax rate for nearby cities, the debt service makes up the larger portion of Pearland’s rate. The two rates exist independently, but more money from taxes goes towards paying off debt, rather than the city’s day-to-day operations.
Pearland’s tax rate is double that of Sugar Land’s and is a couple cents higher than League City’s as well, both cities with a similar size to Pearland’s. However, the difference is explained by the different tax bases in each municipality, City Manager Clay Pearson said. Pearson said Pearland’s debt is caused by rapid growth.
“We have had to add these projects quickly,” Pearson said.
City Council members discussed the tax rate at council meetings. Council Member David Little expressed concerns with the growing rate.
“I’m concerned that eventually we are going to price people out of being able to live in Pearland,” Little said.
The money is used to pay off big-ticket items in the city, including roads and new facilities. These projects cost more than the amount of money in the general fund, so the city pays for them over time, Pearson said.
Council Member Trent Perez said if a resident saw what the city needed, they would more likely want to add more things to the budget than cut it, increasing the tax rate further at a meeting.
While the city increased the I&S rate, this increase is not due to the bond that was passed in May. The bond will be paid for through the I&S fund and may raise taxes on citizens but not until the bonds are issued, Pearson said.
“The financing is a key component of accomplishing a number of projects,” Pearson said.
Council Member Woody Owens expressed concern at council meetings that the amount of taxes the city is issuing on residents will not go down in the coming years.
However, the city’s ability to pay off debt is rising as the tax base grows and the amount of debt decreases, Pearson said.
The city will also receive a return on some of its investments, which could potentially lower tax rates for residents, particularly in payment from the city’s tax increment reinvestment zone, the largest portion of which includes Shadow Creek Ranch, starting in 2025. The city will bring in over $8 million for the reimbursement for construction on Broadway Street in 2022, Pearson said.