The State Comptroller has recently reported the City of Houston's sales tax receipts for 2014.  The good news is that the City enjoyed another year of robust growth in its sales taxes.  The total remitted by the State to the City for year was $646 million, an increase of just over 6% for the year.

What is unclear is what the most recent data suggests about future sales tax receipts.  The City hit an all-time high in sales tax receipts in 2008 at just over $500 million.  However, it saw those receipts decline by about 3% in both 2009 and 2010 in the wake of the Great Recession.  The growth bounced back in 2011 and 2012 with the City enjoying a 7% and 12% increase respectively in those years.  Since 2012, sales tax growth has been cooling dropping to just under 7% last year and coming in a little above 6% this year.

As most of you are aware, the City is facing deficits in its general fund of hundreds of millions of dollars over the next few years.  The size of those deficits vary depending on what assumptions are used.  One of the most critical assumptions is sales tax growth.  Sales taxes make up almost 30% of the City's total general fund revenues and, unlike property taxes, they are not subject to any revenue caps.

In its most recent projections, the City has assumed that sales tax growth will continue to slow to something in the 4-5% range.  It used projections from UH's Institute of Regional Forecasting.  However, those projections were made in September when the price of oil was still above $90.  For every 1% that the City misses their projections, there will be about a $70 million increase in the deficit over the next five years.

Of course, it is impossible to predict the future price of oil and exactly how that will affect Houston's economy and the City's sales tax collections.  However, for those of us who are old enough and have lived here long enough to remember the oil price collapse in the 1980's know these cycles can be painful.  At a minimum, this is a time when we should be taking a vary cautious course with respect to our municipal finances.