City sees drop in sales tax revenue
Collections fall as low oil prices batter industry
Good news at the gas pump is anything but for the broader Houston economy, a fact underscored Wednesday when the state comptroller’s office disbursed monthly sales tax revenue to local governments.
While most of the big cities were up compared with their 2015 totals, Houston’s collections were down 7.5 percent, a sixth straight month of year-over-year decline. Not even the Christmas retail season could prevent a drop — bad news that could become a familiar refrain as oil prices continue to sink and analysts speak of a long-term industry recession.
Other Texas cities with large energy components saw even worse declines. Corpus Christi’s sales tax revenues fell 12 percent from the same period last year, Midland’s about 10 percent. But the increase in Fort Worth topped 4 percent, and Dallas was up about 1.5 percent.
Overall, and largely because of Houston’ s drop to $67.5 million from $73 million, collections across the state were down a little less than 1 percent.
The larger questions of how low oil can go and how extensive the impact will be defy easy answers. Houston may bear only modest resemblance to the city that was pummeled by the oil
bust of the 1980s, but the significance of its oil and gas business remains undeniable, regionally and statewide. Last week, the Dallas office of the Federal Reserve described Houston’s economic outlook as “tepid” and said if the price of oil remains low, the state as a whole is likely to experience a net job decline in 2016.
“Houston has been holding up, but if Houston goes into recession, that will drag on the rest of the state,” said Pia Orrenius, senior economist with the Dallas Fed. “Considering what’s going on with the oil price and the strong dollar, which is adversely affecting exports, I am amazed at Houston doing as well as it has.”
Mayor Sylvester Turner, reacting to the latest sales tax report, said Houston’s financial ride over the remainder of the year will be a bumpy one.
“I assume sales taxes, oil prices and property taxes will bed own,” Turner said. “Regardless of the numbers, the budget has to balance, and it will. This will require shared sacrifice. Everything is on the table, and every department is expected to participate in helping us reach the bottom line.”
The city controller’s office had predicted sales tax revenues would increase by 1.8 percent in 2016. That was too optimistic, Con- troller Chris Brown said, and updated projections call for a 5 percent drop.
“It’s trending the wrong way,” Brown said. “We’re continuing to see the effects of oil prices being low. Not only is that affecting the business-to-business activity, but my thought is consumer sentiment is starting to be affected with these low oil prices. I would not rule out that we would continue to reduce our numbers.” Spending follows oil rigs
The Metropolitan Transit Authority, which takes a 1 percent slice of Houston’s 8.25 percent sales tax, also anticipates a tough 2016. It projected a decline in sales tax revenue and so remains on budget — for now. But February’s dismal revenue eliminates more than half of the $12 million cushion Metro reported in January.
Metro board member Jim Robinson, former chief property appraiser for Harris County, recalled how the 1985 oil price collapse clobbered the Houston economy, with prop- erty tax revenues taking more than five years to fully rebound. Though Houston is more diverse now, Robinson said public officials will have to tighten belts.
“We are not looking at some pleasant times,” he said.
A specific breakdown of which sectors contributed the most to sales tax revenues was not available Wednesday. But it isn’t a stretch to say just how much energy affects local activity.
Sales tax revenues reflect two main components: consumer spending and business spending. The latter, which involves expenditures on goods and services, tends to be more volatile and fluctuates with the economy. And that has dropped substantially, said Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston’s Bauer College of Business.
In Houston, Gilmer said, business spending activity closely follows rig counts. At the peak of the last oil boom, it contributed 60 percent of the sales tax revenue. That balance will reverse if the downturn continues, he said.
“I think sort of that big blow is behind us in terms of the damage done on the business-to-business side, but there can be quite a bit of softening on that consumer sales side,” Gilmer said. Baytown ‘looking good’
Sales tax revenue aside, not all the local news is dire. Although January’s home sales were down about 2 percent from 2015, last year was one of near-record sales. Sales of homes in the $150,000-to-$250,000 range actually rose about 9 percent, the Association of Realtors reported Wednesday. Higher-end listings accounted for the dip in total sales.
And much of suburban Houston fared better in sales tax revenue. While a few were down, Katy was up more than 7 percent, Pasadena more than 5 percent and Baytown better than 3 percent. Two major expansions at refineries owned by energy giants Exxon Mobil and Chevron Phillips are boosting tax growth in the latter.
“They have brought in a lot of construction workers,” said Carl Currie, Baytown’s finance director. “The traffic is terrible, but as you might expect, the flip side is increased sales tax revenue. The workers are eating, buying things, spending money here. Sales tax by its nature is volatile, but things have been looking good for a few years, and we hope they continue as long as possible.”
Baytown’s good fortune is a reminder that for all the gloom and doom pervading Houston, a whole lot of Texas has yet to feel the pain.
“It’s kind of uneven, so there’s somecities out there that are doing well that aren’t feeling the weakness from the oil patch,” Patrick Jankowski, senior vice president of research with the Greater Houston Partnership, said of the downturn.
The Dallas area, for example is in the midst of a period of sizzling growth, record-low unemployment andeven labor shortages in some fields, said Orrenius of the Dallas Fed.
San Antonio, led by the leisure- and- hospitality and medical sectors, and high-tech hub Austin also are faring well, she said. The latter saw sales tax revenue jump by nearly 4 percent.
“Really, it’s everywhere there is the absence of energy as a dominant sector,” she said.
Yet oil’s drag on the broad Texas economy will grow increasingly heavy with a long-term price collapse. ‘Plenty of pain’
One thing economists already have realized, Orrenius added, is howmuch of the manufacturing sector was driven by the shaleoil boom, with its demands for new tools, technology and infrastructure. Now that many of those jobs connected to that boom are gone, it feels as if the roof has fallen in, even if it’s only leaking a bit.
“There is plenty of pain going around, for sure,” Orrenius said.
“Even if we are flat or at 1 percent growth, it feels like a recession. Wewere growing at 3 to 4 percent and were booming well more than the rest of the nation. So with those the lofty heights that we are coming down from, that can make it feel like a recession.”
The difference between feeling like and actually living in a recession may be determined by the duration of cheap oil. For the moment, experts say there is no end in sight.