There are hundreds of municipal governments operating in Harris County. Most of these are municipal utility districts, often called MUDs, primarily operating outside of city limits and offering municipal services to unincorporated Harris County residents. The vast majority of these MUDs operate well, are financially solvent, have a declining tax rate and have transitioned into something akin to general purpose governments, offering quality-of-life amenities. However, fragmented governance in the region caused by the spread between special districts, cities and counties can create inefficiencies in coordination and cause overproduction of services in some areas while neglecting others.
A new report from the Kinder Institute examines the current governance system in the region, finding ways in which the system creates disparities between communities and frustrates regional challenges. The report also highlights several options to address larger systemic issues in the region.
One option highlighted in the report outlines an uncommon approach to regional governance that could significantly improve the overall health and vitality of the region – fiscal regionalism, which supports collecting and funding specific regional operations. In this governance model, local governments contribute a portion of their tax revenue (generally, growth in their commercial-industrial tax base) into a regional pool. This funding is then either distributed across the region to jurisdictions with funding or services gaps or it is used to address regional challenges.
Behind this model is the recognition that municipalities are not independent, but rather part of a symbiotic regional economy and community. Indeed, residents in the Houston-area commute daily across the region for business, entertainment or leisure. The model recognizes the autonomy of existing municipalities while acknowledging the need to address regional issues. Municipalities, general-purpose or otherwise, remain autonomous in this governance model, but are vested in the vitality of the region.
The report highlights some of the benefits of adopting the model, including:
- Addressing service equity concerns across multiple jurisdictions by supporting areas with less revenue
- Improving regional economic health by supporting the efforts of local government with less revenue to provide services or create development
- Creating a mechanism to prioritize and fund solutions to regional issues
- Removing incentives for municipalities to chase a tax base, creating opportunities for growth and development to be planned at a regional level
- Addressing the issue of residents in unincorporated areas who use city services while avoiding city taxes by having to contribute to the shared pool.
However, this approach to governance has challenges, including:
- Requiring participant governments to agree to cede a portion of their revenue to the shared fund as well as requiring state approval;
- There is little public support for this model if the regional needs do not capture the general interest of the public;
- There is a loss of local revenue for commercial/industrial wealthier communities and places where growth is concentrated;
- It is logistically difficult, requiring the creation of a regional body responsible for distributing the shared revenue; and
- The long-term nature of the effort could affect perceptions of it as a waste of funds or simply ineffective.
In fact, while several approaches to metropolitan governance exist in the nation, only two follow this model of fiscal regionalism.
In response to rapid urban growth and increasing costs, Oregon's state legislature authorized the creation of the Metropolitan Services District, later merging with the local area council, the Columbia Region Association of Governments, to form the current Metro regional government.
Notably, the regional government covers the entire three-county metropolitan area, including 24 cities and over 1.5 million residents. The regional government is managed by a council with a regionally-elected president and six district-elected councilors. Despite having extensive authority over regional services, the regional government was not granted independent taxing authority—making the regional government cautious to exercise its authority. Originally, the regional government started by only providing regional solid-waste disposal, but it has gradually increased in scope as needs arose, without diminishing the autonomy and resources of other governments.
Generally, Portland’s Metro is seen as having contained sprawl through its state-mandated urban growth boundary, a requirement for infrastructure to be contained within an urban boundary. Further, it does not act as a tiered government – it does not provide water, sewage, police, transportation, public housing, economic development or most regional services. Rather, its success is its authority to coordinate functions and address regional planning issues. As an elected regional coordinating organization, it is compelled to bring together local interests and regional interests towards solving regional issues.
Perhaps the best-known revenue sharing program is the Minneapolis-St. Paul Fiscal Disparities Program. A product of the Twin Cities Metropolitan Council, the program was an innovative attempt to address growing fiscal disparities within the seven-county area. The Metropolitan Council is managed by a governor-appointed council and president, subject to Senate approval. Notably, the Metropolitan Council started off strong, gaining extensive regional authority in its first decade and has fluctuated in its influence as the region has evolved.
The fiscal disparities program covers seven counties, 186 cities, villages, and townships, 48 school districts and 60 other taxing authorities. The program took effect 40 years ago and requires all communities to contribute 40 percent of the growth in assessed valuation of commercial and industrial property starting at a base year. This revenue is collected into a regional pool, which is then used to promote more orderly regional development and improve equity in the distribution of fiscal resources. To date, more communities gain from the shared tax base (99 net recipients) than lose tax base (80 net contributors). And the “donor” and “recipient” jurisdictions have changed over time, reflecting growth dynamics as the region has evolved.
While fiscal disparities still exist in the region, it has had a robust impact on equalizing disparities. In one assessment, measuring tax base disparity by per capita commercial/industrial value, the tax base disparity among communities with populations over 10,0000 was found to be 3 to 1. In the absence of the program, that gap would have been 10 to 1.
The report does not argue that there is a lack of regional coordination in the region. The response to Hurricane Harvey offers an example of the type of regional cooperation that already exists and shows the importance of building on this foundation. A single governmental entity cannot adequately address all regional issues, because no single entity controls every system that needs attention.
The Kinder Institute report offers several additional options for reform in the region besides this example of regional revenue sharing. While it is not the report's intention to make a specific recommendation or advocate for one option, it is the Kinder Institute’s hope that the report will amplify the discussion of regional governance in the region.