It’s been a tough year for El Paso city government, which has seen sales taxes and other revenues plummet and expenses soar because of the ongoing coronavirus crisis.
City Council talks begin this week on a proposed $436 million general fund budget that City Manager Tommy Gonzalez filed Thursday for the fiscal year that starts Sept. 1.
That budget is $22 million less than last year’s as a result of projected revenue losses and spending cuts made necessary by the economic crisis.
Because of Gov. Greg Abbott’s emergency declaration March 13, the cap requiring an election to approve any city or school tax increases over 3.5% is not in effect – and the prior cap at 8% is.
Robert Cortinas, the city’s chief financial officer, says taxpayers can rest easy.
“We’re not going anywhere near that 8%,” he said. “We’re not going anywhere near a 3.5% increase, either.
“The city manager said it publically, and I said it publically. Then, we built the budget for next year around that assumption.”
Despite the health crisis COVID-19 has caused, the recession it has brought and the impact on businesses, workers and homeowners, Cortinas said he sees no reason to plan for a decline in property tax revenues for the coming year.
Under Texas law, property values are set as of Jan. 1 – regardless of what may happen the following day or in the ensuing months.
But tax agents and others who know the process say business owners will certainly be seeking valuation reductions and challenging increases from central appraisal districts and appraisal review boards across the state.
Before COVID-19 struck in March, leading to the closure of businesses, layoffs and employee furloughs everywhere, the El Paso Central Appraisal District had raised apartment and multifamily property valuations by 38% and commercial properties by 20%. Home values went up 2.1%.
The Appraisal Review Board, or ARB, has wide legal latitude to take other factors into consideration beyond the value set by CAD on Jan. 1.
“We’re fully expecting people to protest to the ARB,” David Stone, the CAD’s deputy chief appraiser told El Paso Inc. in May. “I would not expect that increase to hold up at the ARB.”
While the city is betting on property tax revenue to come in as it would in a normal year, Cortinas said, that is not the case for sales taxes – the city’s second-biggest revenue source.
“We have sales tax projected to continue to decline on top of what we’re already seeing this year,” he said. “So, the way we’re going about this is the city manager has been pretty upfront.
“I’m pleased because I’m in 100% in agreement with the way he wants to develop this budget. It’s going to be realistic.”
Cortinas said he was with the city the last time revenues crashed, catching City Hall by surprise, in the recession of 2008 that carried into 2014. It led to budget cuts for everything from paving streets to hiring more police and buying new squad cars.
That crash was as unexpected as this one is painful for Cortinas and others at City Hall, who were watching El Paso’s economy start to rock and roll before COVID-19 hit.
“From May of 2017 to February of 2020, we saw 34 consecutive months of positive growth in sales taxes,” he said. “The growth usually hovers around 2.6% but from last September to February, we were at 10.6%.
“And then came COVID-19. No one could have predicted that we’d be hit with a health crisis that we haven’t seen in more than 100 years. Unfortunately, we’re put in this situation and we’re going to deal with it.”
March sales taxes dropped 11% and by 13.6% in April compared to 2019.
Despite unemployment and stimulus funding that has put money in the pockets of people and business owners, Cortinas said, May’s revenues could be off by as much as 18%. Those figures will be out this week, too.
“We’re assuming that things are going to continue to be down for a while, especially when you look at the number of people who have filed for unemployment in the last couple of months,” Cortinas said. “It’s just staggering.”
With hotels and motels closed or operating with skeleton crews, another source of revenue, hotel occupancy taxes, has also fallen off. It hit bottom in early April at 25% occupancy when the norm has been close to 80%, he said.
“The good news is that we’ve now seen growth for eight consecutive weeks through the end of May when we were just about 47%,” Cortinas said. “That’s encouraging.”
The long-anticipated Downtown opening of Paul Foster’s Plaza Hotel at Pioneer Park a little over two weeks ago can only help.
But the loss of hotel occupancy tax revenues could put the city on the hook for bond payments on Southwest University Park in Downtown that are supposed to be covered by 2% of those hotel revenues.
Whatever those revenues don’t cover would have to come out of the city’s general fund.
But Cortinas said a proposed refinancing of those bonds at lower interest rates may be going to City Council shortly. That could shave about $600,000 off those debt payments.
While the city might still have to cover a $400,000 shortfall, he said, that beats $1 million.
In the meantime, the city is continuing the closure of quality-of-life venues around the city and the furloughs of the employees who staff them and has other budget cutbacks planned to help hold the line on property taxes.
The city won’t be selling bonds for quality of life projects this coming year either to avoid additional debt payments.
As a result, little city money will be spent on the three signature bond projects voters approved in 2012 – the multipurpose cultural and performing arts center, children’s museum, and Mexican American Cultural Center.
Email El Paso Inc. reporter David Crowder at firstname.lastname@example.org or call (915) 630-6622.