The answer to that question appears to be yes: property taxes paid to the county by those inside the city do subsidize services out in the county—at least so far as general county services are concerned. (On the hospital front, city residents appear to receive more in services than they pay in taxes to the county.)
The overall picture might look different; for example, residents outside the city make many purchases inside the city, and the resulting sales tax goes to the city, not the county. But at least according to a new analysis from the Kinder Institute, with the assistance of the fiscal analysis firm TischlerBise, the county gets more in property tax revenue from city taxpayers than it provides in services.
About half of Harris County’s population of 4.8 million people lives inside the City of Houston, which has a population of 2.3 million people. (Small portions of the city are located in Fort Bend and Montgomery counties.) About 500,000 people live in other cities in Harris County. But almost 2 million people live in unincorporated Harris County—by far the largest unincorporated population in the country. Furthermore, the vast majority of the county’s recent population growth has occurred in the unincorporated area.
Although much of the unincorporated area is served by municipal utility districts, the county government is responsible for providing many services, such as law enforcement and road maintenance, that are typically provided by cities. For this reason, the question of whether city taxpayers subsidize services outside the city has long been debated. At the same time, it should be noted that the county provides many services, such as justice administration and hospital care, to all residents of the county no matter where they live.
The Harris County government collects and spends about $2 billion per year in property tax revenue. The Harris County Hospital District collects and spends about $700 million per year in property tax revenue. A little more than half of the county’s property tax comes from inside the city.
But the amount of money that the county spends on services to city residents varies. For example, we estimate that almost 60% of all county flood control expenditures benefit the city. At the same time, however, almost 90% of county road and bridges expenditures occur outside the city limits. (The chart breaks down our estimated allocation for nine major expenditure categories; these allocations were calculated with the collaboration of the Harris County government.)
So how does this net out? We looked at two different years – Fiscal Year 2019 and Fiscal Year 2020. Here’s what we found:
For FY 2019, city taxpayers contributed about $1 billion in general property taxes (including flood control taxes) and got about $793 million back in services. At the same time, city taxpayers contributed $357 million to the Harris County Hospital District and got about $425 million in services. This nets out to a subsidy of $143 million.
For FY 2020, city taxpayers contributed about $1.12 billion in general property taxes (including flood control taxes) and got about $893 million back in services. At the same time, city taxpayers contributed $360 million to the Harris County Hospital District and got about $420 million in services. This nets out to a subsidy of $169 million.
To reiterate, this analysis covers only property taxes. We did not analyze the extent to which sales tax, for example, might offset this subsidy. We hope to conduct additional analysis in the future that will give a more complete picture.
This study was initiated as the result of a budget amendment from Houston City Councilmember Abbie Kamin. Financial support for this report was provided by both the City of Houston and Arnold Ventures. Harris County, especially the Budget Management Office and the Commissioners Court Analyst’s Office, provided critical information and advice.