ESD 10 poised to collect $21M in sales tax since 2014 vote; Magnolia fire department uses revenue source to grow

Following a voter-approved 1-cent sales tax increase in 2014, the Magnolia Volunteer Fire Department is slated to receive more than $21 million in sales tax revenue from fiscal years 2015 to 2019, according to financial audits and budgets from Montgomery County Emergency Services District No. 10, which funds the department. (Kara McIntyre/Community Impact Newspaper)
Following a voter-approved 1-cent sales tax increase in 2014, the Magnolia Volunteer Fire Department is slated to receive more than $21 million in sales tax revenue from fiscal years 2015 to 2019, according to financial audits and budgets from Montgomery County Emergency Services District No. 10, which funds the department. (Kara McIntyre/Community Impact Newspaper)

Following a voter-approved 1-cent sales tax increase in 2014, the Magnolia Volunteer Fire Department is slated to receive more than $21 million in sales tax revenue from fiscal years 2015 to 2019, according to financial audits and budgets from Montgomery County Emergency Services District No. 10, which funds the department. (Kara McIntyre/Community Impact Newspaper)

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Following a voter-approved 1-cent sales tax increase in 2014, the Magnolia Volunteer Fire Department is slated to receive more than $21 million in sales tax revenue from fiscal years 2015 to 2019, according to financial audits and budgets from Montgomery County Emergency Services District No. 10, which funds the department.
Five years after voters in Montgomery County Emergency Services District No. 10 approved a 1% sales tax increase, ESD 10 and the Magnolia Volunteer Fire Department—funded by ESD 10—are slated to have received more than $21 million in sales tax revenue, according to ESD 10’s financial audits and approved budgets. This money has gone to open three new fire stations, hire full-time firefighters and purchase new fire equipment, as the department has sought to keep up with commercial and residential growth, fire Chief Gary Vincent said.

“We would not be able to deliver the level of services to the community that we currently deliver without that revenue stream,” Vincent said. “It has substantially allowed us to increase the safety in the community and keep insurance rates much lower.”

Voters in ESD 10 narrowly approved a proposition in May 2014 to increase sales tax within unincorporated areas of the district by 1%, meaning 6.25 cents of every dollar spent goes to the state, 1 cent goes to ESD 10, and 1 cent is either claimed by other local entities or not charged at this time. The state of Texas caps sales tax at 8.25%, leaving 2%—or 2 cents—available for local entities to lay claim to, Vincent said. However, much of the area within ESD 10 is unincorporated, so the sales tax totals 7.25% within those areas with the proposition’s passage unless a local entity annexes the area into its limits. The change in sales tax took effect Oct. 1, 2014.

While this proposition increased funding for ESD 10—which also receives property tax revenue—Magnolia Mayor Todd Kana said he believes the sales tax split hinders the city’s ability to grow. Prior to the proposition’s passage, the city of Magnolia coul•d levy up to a 2% sales tax within its extraterritorial jurisdiction—unincorporated land outside of a city’s limits that a city can annex—if the city were to annex that land. But now only a 1% sales tax is available in areas that fall within both the city’s ETJ and ESD 10’s •boundaries.

“When we annex an area, we still have to provide water and sewer [utili•ties] and police protection, which obviously costs us money,” he said. “We’re reluctant to extend those expensive services to an area just for the 1% sales tax as opposed to the 2% we used to get.”

Funding the growth


With the additional sales tax revenue, the MVFD has been able to keep pace with the growth of the Greater Magnolia area, Vincent said.


Magnolia ZIP codes 77354 and 77355 saw 4% and 5.5% population increases, respectively, from 2014-17, according to U.S. Census Bureau data, while Pinehurst ZIP code 77362—which is also serviced by the MVFD—saw a 22.8% increase during that time.

To keep up with residential growth, Vincent said he has hired more than 35 full-time and 75 part-time firefighters since 2014, increasing payroll costs from $1.97 million in FY 2014 to $8.33 million in FY 2019, ESD 10 budgets show. Additionally, approved budgets for the last five years show the fire department’s purchase of six fire trucks and three water tankers totaling at least $7.2 million, one rescue boat totaling $23,500, three command vehicles totaling $120,000, nine medical vehicles totaling about $360,000 and a $140,000 Hydratrek flood rescue vehicle. The department also opened three new fire stations located in Pinehurst, on FM 149 and on FM 1486 during this time, totaling approximately $5.12 million, Vincent said.

With the increased staffing and additional stations, response times also decreased by one minute and 14 seconds since 2014 to a total of six minutes and 59 seconds, according to department data, he said.

In addition to quicker response times, the department has also worked to keep its ISO—Insurance Services Organization—rating at a Class 3, which helps keep insurance premiums lower for homeowners and businesses, Vincent said. An ISO rating of 1 is the highest rating.

The lower the ISO rating, the more insurance premiums are, said Jerry Hagins, spokesperson for the Texas Department of Insurance.

“Insurers look at the risk it costs to cover you. If you do not live within 5 driving miles of a fire station, it’s more of a risk to insure you. Therefore your insurance premiums are extremely high,” Hagins said.

Vincent said part of the Dobbin-Huffsmith Road area is one part of the district that does not have a fire station within 5 driving miles. Vincent said the department will have to open up more fire stations and increase staff in the near future to better serve the district and potentially improve the department’s ISO rating. However, he could not share proposed timelines or locations of new stations.

“[Hwy.] 249 is going to open us up and drive demand for service from the fire department, but we’ll be able to respond since we have sales tax [revenue],” Vincent said.

Hindering city growth


Since 2014, the MVFD has gained $15.89 million in sales tax revenue, according to the statement of activities in ESD 10’s financial audits, with an additional $5.37 million expected in the fiscal year 2019 budget, which runs Jan. 1-Dec. 31. Meanwhile, the city of Magnolia—whose fiscal year runs from Oct. 1-Sept. 30 of each year—received $6.16 million in sales tax revenue from FY 2014-15 to FY 2018-19, according to city budget information.

Kana said the city has not annexed existing commercial developments since the sales tax proposition took effect—and therefore not yet lost any anticipated sales tax revenue—but the sales tax increase is still a threat for the pace of future growth.

For example, the potential sales tax lost in the area between FM 149, FM 1488 and Spur 149 is a concern for city officials, he said. Development company Stratus Properties Inc. plans to construct a 120-acre mixed-use development for the area called Magnolia Place, which will include an H-E-B as well as multitenant retailers, single-family homes, townhomes and multifamily space, Community Impact Newspaper previously reported.

Once developed, the city will only receive 1% of sales tax revenue in the Magnolia Place area, Kana said, even though the city was in the process of annexing that property “well in advance” of the May 2014 election.

“When the H-E-B and everything else starts developing, every time we get a [sales tax] check, we’re going to think, ‘It could’ve been twice that,’” Kana said.

Additionally, prior to the proposition’s passage, Westwood Magnolia Parkway Improvement District—a special-purpose district near FM 1488 and FM 2978—shared its 2% sales tax revenue with the city of Conroe since it falls within the city’s ETJ, Executive Director Rob Eissler said. However, after the proposition passed, ESD 10 took half of that 2%. WMPID and the city of Conroe now each get half of the 1 cent of available sales tax, he said.

“We use the cash flow to sell bonds, build roads or complete projects, and then pay it back,” Eissler said. “Obviously when you cut the revenue, it’ll slow you down a little bit.”

Voting for a tax increase


Hundreds of other ESDs across the •state use sales tax revenue for additional funding, as an ESD’s only other source of revenue comes from the state-capped property tax of 10 cents per $100 valuation, said Cliff Avery, executive director of the Texas State Association of Fire and Emergency Districts.

“About one-third of the ESDs in the state go to sales tax [for funding], and the reason they do that is because that 10 cents per $100 valuation—for many ESDs ... they find it very difficult to meet the needs they have,” Avery said.

According to Texas State Comptroller data, there are 341 special-purpose districts—revenue-collecting governmental jurisdictions that are separate from a municipality—that impose a sales tax.

“The property tax would not have allowed for the additional staffing, equipment or stations because it’s just not enough [money],” Vincent said. “It’s the sales tax that’s driving the growth of the fire department and the improvement of service to the community.”

After a failed attempt for a sales tax increase in 2007, ESD 10’s proposition passed in 2014 with 50.64% of voters approving the measure, Montgomery County election results show.

Customers making purchases in the city of Magnolia and the WMPID did not see an increase in sales tax following the proposition’s passage, as sales tax had already reached the 8.25% sales tax cap.

However, all other areas within ESD 10’s 185-square-mile jurisdiction saw a 1% increase, bringing sales tax revenue to total 7.25%, Vincent said.

While ESD 10 services a larger area than the city of Magnolia, Kana said the city would provide additional services to areas within its limits aside from fire protection.

“Whereas [ESD 10] brings fire protection to an area, we bring water, fire protection via fire hydrants, sewer [service], police protection, our ordinances and our zoning,” Kana said. “I believe we’re going to have to do, and will still do, a lot more with that 1% in these areas than the ESD does.”
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