Texas law allows municipalities to collect up to two cents of sales tax on sales within their city limits. When the City of Houston, and the fourteen other cities formed Metro, they gave up their right to collect the second cent of sales tax and those sales tax revenues instead go to Metro. Since 2001, Houston and the other cities have given up almost $15 billion in revenue to support Metro.
Shortly after Metro was formed, it was clear that the one cent of sales tax was going to funnel more money to Metro than it needed. So, Metro began rebating part of its sales tax revenue to the cities through a program that became known as the General Mobility Program (GMP).1 State law requires that the money rebated to the cities must be used for mobility related purposes. Mostly, the money has been used for street repairs.
From 2001-2010, Metro averaged returning 30% of its sales tax collections to the member cities. However, in 2013, Metro began reducing the percentage. Since 2013, it has averaged just slightly over 22%. In the last four years, the average dropped to 20.4%. Metro’s budget for this year pegs the GMP payments at 22% of projected sales tax receipts.
This cutback has come at a time that Metro is enjoying historic levels of liquidity. As of the end of its last fiscal year (September 2023), Metro had $1.2 billion in current assets, almost all of which are cash and liquid investments.
The cutback in funding also coincides with a dramatic reduction in the City’s investment in its streets as I discussed in this post. I think we can safely assume that the two are not entirely unrelated.
In 2019, Houston voters approved a referendum for Metro’s updated plan but also specifically authorized Metro to spend up to 25% of its sales tax receipts on GMP payments. As indicated above, Metro’s GMP payments have fallen well below the 25% maximum set by voters. If Metro had funded the entire 25% since the referendum, the cities would have had an additional $122 million to spend on street repairs.
As outlined in the recent Baker Institute report, Houston’s next mayor is going to face some daunting financial challenges, including finding the money for desperately needed street repairs. It seems to me to be a no-brainer that Metro should be allocating the full 25% of their sales tax revenue to the cities for street repairs.
But I also think it is time we have a community discussion about whether we want to continue devoting this much taxpayer money to Metro building nonsensical vanity projects, like the $2.3 billion University BRT. Or would we rather have streets we can drive on without blowing out our tires?
Note 1 - Some of the GMP payments also go to Harris County for work done in the unincorporated areas of Metro’s service area.