The city will gain access to $22.6 million this year and will receive other payments through 2029; starting in 2030, The Woodlands will stop contributing part of its sales tax revenues to the shared fund.
Houston renounced the possibility of annexing The Woodlands in the future after the City Council approved on September 2 a modification to the agreement that has regulated the relationship between the two communities since 2007.
In exchange, Houston will receive a financial benefit of $50 million comprised of money already in a regional fund and additional payments from The Woodlands over the next three years.
The Woodlands is a planned community located primarily in Montgomery County. Although it has its own local government structure under The Woodlands Township, it is not incorporated as a city.
The decision does not mean that Houston had been preparing to annex The Woodlands immediately. The community already had contractual protection until 2057, and Texas law currently also limits annexations without voter approval. The new agreement removes the expiration date of that protection as long as its terms are met.
The 2007 Agreement Protected The Woodlands Through 2057
Houston and The Woodlands established in 2007 a Regional Participation Agreement, known as the RPA.
The agreement had two main components: Houston committed to not annex The Woodlands for 50 years, while The Woodlands allocated a small portion of its sales tax revenues to a fund administered by Houston to finance regional projects.
That fund could be used for projects agreed upon by both parties, such as mobility works, parks and other regional improvements. Houston also had to contribute funds equivalent to access the money allocated for certain projects.
The protection against annexation would have expired in 2057.
Since 2017, Texas also requires a vote before large cities can annex certain communities, so an annexation of The Woodlands was already considered unlikely under current laws. The leaders of The Woodlands sought, however, to preserve contractual protection should those state laws change in the future.
Houston Will Receive the $50 Million in Payments Through 2029
The approved agreement sets a concrete schedule to transfer the money to Houston.
- $22,626,797 by December 31, 2026.
- $9 million by December 31, 2027.
- $9 million by December 31, 2028.
- $9,373,203 by December 31, 2029.
The total amounts to $50 million.
The first $22.6 million is already accumulated in the Regional Participation Fund. The modification removes restrictions that required using that money only for certain projects and also eliminates the requirement that Houston contribute an equivalent amount.
Houston will be able to use those resources for other city needs.
Of the remaining $27.4 million, approximately $7.9 million were already committed under the previous agreement, while the other $19.5 million would come from reserves of The Woodlands Township.
The Woodlands Will Retain More Sales Revenues Starting in 2030
The benefit to The Woodlands extends beyond protection against a future annexation.
Under the previous agreement, the township allocated to the regional fund the equivalent of one-sixteenth of one percent (1/16 of 1%) of certain sales tax revenues generated within the portion of The Woodlands located in Houston’s extraterritorial jurisdiction.
That obligation will end after the payments provided for in the new agreement.
From 2030, that money will stay in The Woodlands and may be used for its own priorities. The Woodlands Township estimates that the change could represent around $4.5 million additional per year on average over the next three decades, although that figure depends on future sales tax revenues.
The Woodlands Will Remain a Township and Will Stay in Houston’s Extraterritorial Jurisdiction
The modification does not turn The Woodlands into a city nor incorporate it into Houston.
The Woodlands will continue to operate as The Woodlands Township and will remain within Houston’s extraterritorial jurisdiction in the areas where that relationship currently applies.
The agreement also does not eliminate the possibility that The Woodlands may consider becoming a city in the future. That decision would still depend on its voters.
The Woodlands already put that issue to voters in 2021 and the incorporation proposal was rejected. The agreement now approved deals specifically with the relationship with Houston and the possibility of annexation, not with a new vote to become a city.
The full terms and the official explanation of the modification can be consulted in The Woodlands Township’s official information about the regional agreement.
The Money Arrives While Houston Faces Budget Pressure
For Houston, the agreement also serves as a cash infusion at a time of financial pressure.
The city approved for FY 2027 a budget of approximately $7.5 billion after facing a sizable budget gap and making changes to the way it funds various municipal services.
The $22.6 million that Houston will be able to use this year represents almost the same amount the city had to withdraw from reserves to balance the current budget, according to city officials.
Mayor John Whitmire backed the deal and argued that Houston should take advantage of available resources now given the uncertainty about how much money the fund might produce in the future.
The Comptroller Questioned Houston’s Giving Up of Future Revenues
The agreement did not have unanimous support within city government.
Houston’s Comptroller, Chris Hollins, questioned the decision because Houston would stop receiving the annual contributions that The Woodlands had been making to the regional fund.
The city currently receives around $2.4 million per year through that structure. Hollins estimated that Houston could leave on the table at least $100 million in future revenue for projects in exchange for the immediate $50 million benefit. That projection depends on how sales tax revenues evolve and on the previous agreement remaining unchanged for the coming decades.
Whitmire rejected treating those projections as guaranteed income and noted that state laws on annexations and inter-municipal relations could change before 2057.
The City Council ultimately approved the modification on September 2. Joe Panzarella was the only council member to vote against it.
With Houston’s approval and the prior unanimous vote of The Woodlands Township board, both sides have now authorized the third modification of the 2007 agreement.
