Tag Archives: economic divergence

Tax Base in Dallas County Cities

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Introduction

Last week we looked at historical changes in the tax rates of 25 cities that are all or primarily in Dallas County. This week we review changes in the tax bases of those cities since before the Great Recession. The cities included in this analysis are: Addison, Balch Springs, Carrollton, Cedar Hill, Cockrell Hill, Coppell, Dallas, DeSoto, Duncanville, Farmers Branch, Garland, Glenn Heights, Grand Prairie, Highland Park, Hutchins, Irving, Lancaster, Mesquite, Richardson, Rowlett, Sachse, Seagoville, Sunnyvale, University Park and Wilmer. These cities vary dramatically in size. Though all saw their tax base grow, their performance also varied. Much of the growth in recent years was making up for loses following the Great Recession.

Total Tax Base

These 25 cities had a total taxable value of over $238 billion in 2016. This was a $57.2 billion increase over 2007 when their combined tax base was $183.7 billion. That was the year before the financial crisis and the beginning of the Great Recession. That change represents a 32 percent increase.

These cities vary in size, with 2016 tax bases ranging from $93 million for the City of Cockrell Hill to almost $109 billion for the City of Dallas. The five largest cities account for 72 percent of the taxable value in 2016. It takes the 14 smallest city tax bases to account for 10 percent of the total taxable value.

Changes in Tax Base

There are three benchmarks that we can use to evaluate the changes in individual city tax base since 2007. First, the absolute change in total taxable value for the entire county was 32 percent. The larger cities have a major influence on this total change. Indeed, the average change for the five largest cities was also 32 percent.

The average of the changes for all 25 cities was 45 percent. The slowest growing city saw an increase of just 3 percent, in Mesquite. The fastest growing city, Wilmer, had an increase of 308 percent over the period.

A final comparative metric is the median change, which was 27 percent. This implies that half the cities saw their tax base grow faster, and half grew slower than 27 percent.

Figure 1 shows the 25 cities in order of their percentage increase. Most cities had growth rates below 50 percent. The 45 percent average is pulled up by the very high growth rates of several small cities.

Figure 1. Percent Growth in Tax Base for Cities in Dallas County

 

Figure 2 keeps the same order for the cities, but shows the absolute increase in tax base. Figure 2 puts into perspective that the City of Dallas, as by far the largest city, has contributed the most to the total increase. The City of Dallas accounted for 44 percent of the total growth of the 25 cities. Irving and Richardson saw the second and third largest tax absolute growth in tax base.

Figure 2. Absolute Growth in Tax Base for Cities in Dallas County

Decline and Recovery

Comparing the difference between 2007 and 2016 misses the important changes that happened annually after the economic downturn. During this interval, these communities actually experienced four years of declining tax base after the onset of the Great Recession. The tax base in the Dallas County portion of these cities fell an average of almost $5 billion each year between 2008 and 2011. This was followed by growth in tax base for the last five years. Forty percent of the growth in the last five years was simply making up for lost tax base from the Great Recession. The annual changes for the Dallas County portion of these cities is shown in Figure 3.

Figure 3. Total Change in Tax Base for Dallas County Cities

*Includes the Dallas County portion of the 25 cities. Small sections of several communities are located in surrounding counties.

Next week we will continue our examination of the property tax base and rates for our Dallas County cities.

Issues for 2017

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Introduction

We want to start the new year suggesting some important themes and issues local leaders will face in 2017.

Infrastructure

Both presidential candidates promised big infrastructure initiatives. From all indications, the Trump administration will take a different approach than past presidents. In keeping with his campaign themes, the objective appears to be promoting economically viable upgrades in key systems. The method will rely more on incentivizing public-private partnerships than by providing direct funding to states and localities. This may take the form of localities partnering with business to finance projects with the private sector paid back through operating revenue. One consequence may be that communities with weak economies will have fewer infrastructure opportunities. Healthy communities will be in a position to further their advantage by attracting more private investment capital.

This may be a window for localities to implement pilot smart cities initiatives. Broadband should be their priority given its potential to support business and workforce development. Success there will mean finding ways to make it sustainable to serve low-income communities.

Migration and Jobs

Interstate migration rates are returning to pre-Great Recession levels. There has been a long-term decline in migration in recent decades, but the Great Recession caused a dramatic reduction. Lack of new job opportunities outside tech hubs and energy producing regions kept people in place. We should see even more migration to western and southern states in the new year. Growing areas will face new service and infrastructure demands. Communities losing population will be trying to manage their public sector with a smaller economic base.

Migration in 2017 will reflect low oil prices. Energy producing regions will generally not be such strong draws. Though, Texas should continue to see migration to cities in the I-35 Corridor: Dallas-Fort Worth, Austin and San Antonio which have more diverse or tech-focused economies than Houston. Florida, Georgia and North Carolina will continue to grow in the South. The Rocky Mountain West will keep attracting California migrants.

Nationally, we can expect to see continued weak labor markets. 2017 will bring more headlines of workers being replaced by software and machines, the continued growth in the gig / freelance economy. Recent research shows that most new jobs created during the recovery were non-traditional contractor or part time. This trend will continue. Automation will continue reducing the need for corporate-based manufacturing, administrative, retail and even white collar jobs. Local leaders will face fewer more difficult challenges. They will need to adapt their economic development strategy. The objective will be to craft cost-effective ways to make their communities easier places to start businesses and train for a constantly changing and narrowing labor market.

Watch out for the States

As always, one of the biggest factors in local finance and development are policies by state legislatures. With legislative sessions starting soon, local governments can expect more efforts to limit their flexibility and potentially change economic development policies. State budgets are relatively stable, except with lower revenue in energy producing regions. Local leaders who want to preserve their freedom of movement need to pay close attention to these bills and rally their representatives and senators to their position. Restrictions on economic development incentives may emerge in several states, including Texas.

Not So Purple

The presidential election once again highlighted the biggest divide in America – that between urban and rural areas. The fault lines fall somewhere in the suburbs. Older suburbs share many policy and cultural similarities to central cities. Newer suburbs, exurban and rural areas similarly have some political affiliation. Economically, however the nation’s MSAs have little in common with rural America and small towns. Federalism once permitted states to set their own policies in key areas. Today, the individual states are often divided. Solutions will not be easy when it comes to key community building strategies like business and workforce development. Employment and income is increasingly concentrated in a few dozen MSAs. Most other regions need to learn to manage with stable or declining economies.

Holding the Line on Expenses

With housing prices continuing to increase this year, property tax revenues will improve in many communities, especially in the large metro areas. Local leaders will face pressure to restore services cut in recent years. As the largest budget categories, police and fire funding can easily consume all new revenue. Infrastructure backlogs also demand attention. At the same time, cities need to begin thinking of ways to shore up pension and retirement benefit systems. Current asset price highs have papered over structural problems in many public pension programs, but a market correction would reveal many unsustainable systems. Prudence recommends that citizens and local leaders pay close attention to the upcoming budget. These relatively good budget times are opportunities to replenish rainy day funds and have serious conversations on building a more sustainable public finance. These conversations should address the appropriate role of local government, sustainable service levels and innovative ways to achieve acceptable results for less money.

We hope you have a safe and prosperous 2017!

Uneven State Growth and Local Impact

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Following key economic indicators helps you make better decisions in annual revenue forecasting, budget development or long range planning. This week we call your attention to Gross Domestic Product (GDP) by state.

State Performance Impacts Local Options

Your community is unique and may be doing better or worse than your peer cities, but keep your state’s performance in mind. Education and infrastructure funding is heavily dependent on state funding. These services drive long-term economic growth. Also, states set broad tax and regulatory policy that limits what local communities can do. To fix their budget problems, states often shift the burden on localities. GDP is a good indicator of your state’s overall performance.

What is State GDP?

GDP by state is released every calendar quarter, with about a quarter delay, from the U.S. Bureau of Economic Analysis (BEA). It is a state version of national GDP. GDP is the final value of every good and service produced in a place. Our analysis compares [first quarter of 2016] to the first quarter of 2015> We are interested in absolute changes and the relative performance of the states. We discuss 51 jurisdictions, because the BEA considers the District of Columbia a state for their calculations.

Uneven State Performance Compared to the U.S.

Total growth over the year for all states gives us a 3.3% national economic growth rate. Performance from state to state varied. There were 29 states that grew faster than the overall U.S. rate. There were 14 states that grew slower and there were eight states that had shrinking economies. This diverging pattern across the country has been common since the recovery from the financial crisis. Let’s look at the best and worst performers as groups.

Fastest Growing States

Among the faster than average growth group, seven states grew at least 150% faster than the U.S. These grew at 5% or faster over the year, and included: Maine, New Hampshire, New York, Florida, Tennessee, Virginia and Washington. Combined, these represent 21% of the total U.S. economy ($3.8 trillion.) Their total growth was $195 billion. This means they accounted for one-third of the total growth in the country.

Shrinking State Economies

On the other end of the spectrum were eight state economies that shrank over the year. These include: North Dakota, Louisiana, West Virginia, New Mexico, Oklahoma, Texas, Wyoming and Alaska. These eight states account for almost 13% of the U.S. economy ($2.3 trillion.) They lost a combined $48 billion in economic activity. Collectively their declines shaved a third of a percentage point off U.S. growth over the year. Given recent low fossil-fuel prices, it is unsurprising that these poor performers are energy-producers.

These diverging absolute growth rates mean some states’ share of the total national economy is changing. Some states grew in relative importance while others declined. In the last year, four states increased their share of national GDP: New York, Florida, Tennessee and California. Five states lost absolute national share. These were: Connecticut, Illinois, Alabama, Louisiana and Texas. The remaining 42 states maintained their relative importance in the U.S. economy.

 

A year of data is not destiny. It is a good reminder, however, that troubled state economies often mean pressure for local governments as states reduce local aid. In a few weeks we will be reporting a more detailed study of how state economic performance has been affecting local government finances.

What’s Next

Next week we will look at one of the most important tools for helping local leaders make better – fiscal impact analysis. In the meantime, sign up for email updates and let us know how we can help you nurture your community.