As El Paso taxpayers look ahead to the Nov. 6 quality of life bond election, some are asking how the city can pay for all those projects and everything else without imposing huge tax increases.
The city’s chief financial officer, Carmen Arrieta-Candelaria, confidently says it can.
The two quality of life propositions that will appear on the November ballot total $473 million. That makes it the biggest bond election in the city’s history – by far.
Not on the ballot are $210 million in certificate of obligation bonds, or COs, that the city intends to sell over the next decade to fund street improvements.
Also not on the ballot are $29.2 million in COs the city will sell to pay expenses related to moving City Hall to make way for a new baseball stadium.
That $29 million will go to the purchase of the El Paso Times building and the building at 801 Texas, along with remodeling and move-in costs.
Altogether, that comes to $712 million.
The city is currently carrying $878 million in bonded indebtedness.
Do a little quick math and that adds up to $1.6 billion in debt – an 81 percent increase. But the quick math would be wrong, Arrieta-Candelaria said.
The quality of life bonds will be sold not all at once, but over seven to 10 years, starting with $33 million in 2014 with the first payments the following year.
Meanwhile, the city’s older debt will be dropping rapidly.
Over that time, the city’s tax rate, now at 66 cents per $100 valuation, will rise by only 5 cents, she says, peaking for two years before starting to decline.
That nickel on the tax rate will cost the owner of a home valued at $150,000, after exemptions, about $75 a year.
“Some cities sell all their debt and then just let it sit in the bank until they need it,” she said. “But we don’t. We don’t want to pay 3-percent interest on money that is earning less than 1 percent.
“We only sell debt when we need it. The second thing is we don’t work on all the projects at once. There’s no way we can fix all those streets at once.”
In the case of the city’s $141 million in quality of life bonds that voters approved in 2004, she said, “We’re just finishing up some of those projects.”
The last of those bonds were sold in 2008, she said.
Reduced debt service
The money to make debt payments comes from a separate portion of the overall tax rate, or 22 cents of the current 66-cent tax rate.
At that 66-cent rate, the owner of a $150,000 home will pay the city $990 in taxes a year. A third of that, or $330, goes to pay off debt.
Arrieta-Candelaria said the city reduced the debt service portion of the tax rate by 1 cent to 22 cents last month for the year starting Sept. 1. They did that be taking $3 million from the city’s reserves and paying down the city’s debt.
“Every penny of the tax rate raises $3 million,” she said. “That reduced the rate, and it left the city with $6 million in reserves.”
Another tool the city uses to lower annual bond payments and hold the tax rate down is refinancing older bonds to take advantage of current low interest rates.
“We’re refunding $23 million in October and that is projected to save $2.4 million in interest over 10 years,” she said. That money will still be collected through the tax rate but it will go toward reducing other debt.
“So, there’s a lot of thought behind the debt model,” she said. “We don’t just issue debt and say we’re done. We’re constantly looking for opportunities to manage the debt and avoid a tax increase.
“The tax rate will go up because we will have more debt, but it won’t go up in large spikes,” she said.
While the city plays down the impact of higher bond debt, the Texas Comptroller’s office issued a report last week warning about the fast-growing debt carried by the state’s cities.
From 2001 until last year, local debt went from $87 billion to $193 billion, a 122-percent increase, according to the report.
E-mail El Paso Inc. reporter David Crowder at email@example.com or call (915) 534-4422, ext. 122 and (915) 630-6622.