Amid rising property values and rapid population growth, municipalities in north Montgomery County opted to reduce or maintain property tax rates for fiscal year 2016-17 while approving their annual budgets in August. The cities of Conroe and Willis reduced their property tax rates, while the city of Montgomery voted to maintain its rate. City finance officials said they maintained conservative budgets in the face of an unstable energy sector and the fluctuations it has caused in sales tax revenue. Conroe has particularly been affected by losses in the sector because a significant amount of its sales tax revenue is generated by ancillary businesses to the oil and gas industries. “Six out of the last 10 months have shown a decrease in sales tax revenue from the same month last year,” Conroe  Chief Financial Officer Steve Williams said. Still, Conroe plans to undertake several major projects during the fiscal year—including an expansion of Longmire Road, a widening of MP Clark Road, construction of new fire department facilities and enhancements to Carl Barton Jr. Park.

City of Conroe initiatives

The Conroe City Council reduced its property tax rate for the first time in nine years Aug. 25 after it adopted a $161 million operating budget for FY 2016-17. The council voted to reduce its property tax rate to 41.75 cents per $100 valuation after having maintained a 42 cent tax rate since 2008. Still, city officials expect an increase in property tax revenue as a result of population growth and the addition of recently annexed areas. “We wanted to find ways to put more money back in the citizens’ pockets,” Mayor Toby Powell said. “I wanted to do something [regarding the property tax rate], but because the sales tax revenue is down right now, we can’t do everything we want.” Major initiatives funded by the city’s general fund include $665,041 dedicated to employee raises and $376,442 for personnel and apparatus purchases for Fire Station No. 7 at League Line and Longmire roads. The city maintains a separate budget dedicated to its capital improvement program, which it also approved Aug. 25. The council approved a $58 million CIP budget as well as a water and sewer CIP budget of $34 million for the next fiscal year. The capital improvement projects include a $12 million expansion of Longmire Road between FM 3083 and League Line Road, a $7.9 million extension of M.P. Clark Road between FM 830 and League Line Road, construction of the $4.3 million Fire Station No. 7 on League Line Road, a $4 million fire department training facility and $2.3 million for enhancements to Carl Barton Jr. Park. The Longmire Road expansion and construction of the new fire station are intended to address residential growth from incoming developments in the surrounding area—including a 2,000-acre development by The Woodlands Development Company and a 1,300-acre development by Caldwell Companies near the intersection of I-45 and FM 1097, Powell said. “The growth seems to be going north right now,” Powell said. “We need to make sure our mobility and infrastructure projects are completed to improve safety for our citizens.”

Sales tax concerns

A decline in the energy sector has led to a drop in sales tax revenue for Conroe from projected totals last fiscal year. The current budget is projected to fall below its FY 2015-16 sales tax revenue projections by about $423,000. Sales tax makes up about 46 percent of revenue for the general fund, which provides funding for personnel, programs, travel and training programs, Williams said. “The biggest driver of the downturn in sales tax is oil and gas-related,” Williams said. “We have several large manufacturing companies in the industry that contribute heavily to sales tax, and their numbers have dropped dramatically.” Williams said the city has also seen declines in sales tax revenue from building materials, which is the largest contributor to the city’s sales tax revenue. Unlike Conroe, Montgomery sales tax revenue increased in FY 2015-16. The city projects $1.85 million in sales tax revenue by the end of this fiscal year, compared to $1.43 million generated from the previous year. Montgomery City Administrator Jack Yates attributed the increase to a strong year in the city’s retail sector. Additionally, construction of the Kroger Marketplace shopping center at the intersection of Lone Star Parkway and Hwy. 105 also generated revenue. Although the city budgeted for $1.65 million in sales tax revenue for FY 2016-17, Yates said officials anticipate higher revenue totals to be reached. “We are going to be adding the Kroger store in January, and we expect that to be a substantial increase,” Yates said. Although the city of Willis also saw several month-over-month decreases in sales tax revenue this year, Willis Finance Director Rick Valdez said it projects an overall sales tax revenue increase to $2.5 million by the end of the year. The city generated $2.4 million in sales tax revenue last fiscal year. Valdez said the city has not experienced a sales tax revenue decline from the downturn in the energy sector because of a lack of wholesale and manufacturing companies within the city. Instead, he said the city anticipates a strong fourth quarter in the city’s retail sector will help the city recuperate losses throughout the year.

Montgomery, Willis initiatives

The cities of Montgomery and Willis adopted budgets for FY 2016-17 that do not include many major initiatives, officials said. However, both cities are working to fund water and sewer repairs and upgrades next year. Montgomery approved a $7.14 million budget for on Aug. 23, estimating a $168,321 increase in property tax revenue compared to last year. The property tax rate of 41.55 cents per $100 valuation will not change for Montgomery residents, but the city expects to collect the additional revenue because property values have increased, Yates said. The city more than doubled its projected revenue and expenditures from the previous year’s budget to more than $7 million, Yates said. “The primary difference [from last fiscal year] is the intention to borrow $2.66 million for water and sewer needs,” he said. Water and sewer upgrade projects include the connection of two water lines under Buffalo Springs Bridge and improving water lines along Hwy. 105. The capital improvements will be funded with loans from the Texas Water Development Board. Yates said the city expects to receive the money in early 2017. Similarly, the city of Willis is also looking for alternative funding to repair one of its groundwater wells. Willis City Council approved a $5.7 million budget for FY 2016-17 on Aug. 16, including a property tax rate decrease to 56.02 cents per $100 valuation, down from 59.61 cents last year. In spite of the tax cut, Valdez said new development and population growth will help the city generate about the about same amount of revenue as last fiscal year. The city projects $7.4 million in revenue, compared to $5.7 million in expenses. Valdez said approximately $1.48 million of the remaining revenue is dedicated to debt service. “Property values increased, and [there are] more housing or buildings that bring tax revenue [that] have come into the city,” Valdez said. To achieve the property tax cut, Valdez said the city is not undertaking any major capital improvement projects this year. However, Valdez said the city needs to repair one of its water wells within the next six months but cannot afford to do so within the new budget. He said one option to fund the $140,000 project could be an increase in water and sewer rates, but the council has not established a timetable to discuss the matter. “We didn’t budget for that [water well repair] because we would have to increase property taxes—which we did not—or increase utility rates,” Valdez said. “We decided to wait and see if we could come up with some money.”