Three years ago, and a month after Mayor Dee Margo took office, the new El Paso City Council unanimously adopted a new debt policy to allow the sale of bonds without voter approval to pay for quality of life projects.
Those bonds are called certificates of obligation, or COs, and even then El Paso had more CO debt than any other major Texas city to fund street improvements and other projects deemed essential.
El Paso still leads the state in debt that voters didn’t approve.
Since 2017, El Paso has raised an additional $83 million through the sale of COs on the bond market, bringing the city’s CO debt total to $569 million. That’s more than the city’s general fund budget of $458 million, which doesn’t include the city airport or water utility.
San Antonio, a city of 1.4 million and more than twice El Paso’s population, isn’t far behind and has nearly doubled its own CO debt since 2017.
Meanwhile, Fort Worth has cut its $338 million CO debt in half since 2017, and Houston and Dallas carry very little – $14 million and $7.6 million, respectively, tiny fractions of those cities’ annual budgets.
Robert Cortinas, the city’s chief financial officer, concedes that El Paso’s CO debt is high. But taking on such debt at low interest rates, he said, has been the best way for the city to make basic improvements, such as streets, and special enhancements, like quality of life projects, without having to raise property taxes significantly to finance them out of pocket.
Other cities that are pursuing an ambitious course of keeping up with the basics while bringing on special projects have revenue sources that El Paso can’t match.
They include highly profitable municipal utilities and a far larger share of commercial and industrial properties on the tax rolls that lessen the tax burden on homeowners.
“San Antonio receives almost $400 million a year from their CPS Energy utility,” Cortinas said, referring to the city-owned electric utility. “Unfortunately, we don’t have that luxury.
“Granted, we do have an electric utility franchise fee, but it’s nowhere near $400 million. Austin has the same thing. They get about $200 million a year from their water and (electric) utility.”
The same is true for sales tax income, he said, noting that Dallas took in $314 million last year and San Antonio, $369 million, compared to El Paso’s $94 million.
That’s why City Council approved the sale of $218 million in COs in 2012 to pay for street repairs across the city that had been put off since 2008 because of the Great Recession and its impact on city finances.
“Go back and look at the historical reports because you’ll see the city’s use of COs goes back 15 years, and you really start to see the increase in the use of COs,” Cortinas said.
But those COs didn’t finance major quality of life improvements as they do now because of a policy adopted during the administration of Carlos Ramirez, who was mayor of El Paso from 1997 to 2001. That policy restricted the city’s use of COs to basic and much-needed city projects, including streets, building repairs and equipment purchases.
The policy followed a successful $143 million bond election and was put forth by the head of the ad-hoc bond committee at the time, Dee Margo. And it remained in place until it was scrapped in a unanimous vote by City Council in 2017, soon after Margo’s election as mayor.
Margo declined to comment for this story, saying he’d comment on the city’s finances following budget hearings this week. But Margo’s predecessor and a current candidate for mayor, Oscar Leeser, had a bit to say about certificates of obligation.
He recalled vetoing the sale of COs after they were approved by City Council early in his term.
“I don’t believe in the issuance of certificates of obligation without voter approval,” he said Friday. “We have to make sure that the taxpayers can afford it anytime we issue any type of debt.
“That’s always been important, and when I was in office, you would always hear me say that if we’re going to vote on something, we need to make sure that 100% of our citizens can afford the debt we’re issuing.”
City Rep. Cassandra Hernandez said the city may be moving away from the use of COs.
“While the debt has soared in recent years, the majority of the funds have been spent on critical street infrastructure,” she said in an email to El Paso Inc. “However, this model of debt accumulation is not sustainable.”
Instead, the city has imposed additional franchise fees on El Paso Water customers.
“This franchise fee has and is expected to yield millions annually to pay exclusively for a number of residential and collector road repavement projects that the revenues will allow,” she wrote.
Email El Paso Inc. reporter David Crowder at email@example.com or call (915) 630-6622.