For the last several years, I have been occasionally comparing the growth in the City of Houston’s sales taxes to some of its suburban neighbors. Recently I compiled the sales tax records for seven Houston suburbs (Katy, Woodlands, Baytown, Pasadena, League City, Pearland and Sugar Land) for the last decade. For most of the last decade the sales tax growth of a sample of suburban cities has significantly outpaced the City of Houston’s growth.
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The difference between the suburbs and Houston has varied over time. The advantage for the suburbs was widening going into the financial crisis. However, for reasons not clear to me, the City’s sales tax receipts weathered the financial crisis better than the suburbs. However, coming out of the crisis, the advantage for the suburbs was rapidly widening again, until this year.
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It may be that the narrowing of the advantage for the suburbs may come from the special events that Houston hosted this year (Super Bowl, Final Four, World Series) and flood-repair-related purchases. The City probably enjoyed something on the order of a $10 million windfall in 2017 sales tax collections from those extraordinary events. But even backing those out, the difference between the City and its suburbs still narrowed significantly this year.
The growth rates for both have been decelerating since 2014, probably reflecting the slowdown in the energy industry.
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It is dangerous to draw too many conclusions from this data. But the picture that seems to be emerging is a region whose growth is slowing and in which the suburbs are significantly outperforming the City. Of course, there are many factors that go into this dynamic and the past does not necessarily predict the future. But my two take-aways would be that (1) the City needs become more competitive vis-à-vis its neighbors and (2) region needs to redouble its efforts to diversify its economy.
In the near future, I will be looking at how Houston compares to some other major cities.
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