Bill Gilmer

Beneath Downtown El Paso, in the basement of the local Federal Reserve branch, there’s one of the most sophisticated security systems in the city, and a shooting range meant to keep the federal officers here on target.

Every year, $10 billion in cash is counted, sorted and then distributed to banks throughout the region from the El Paso branch.

And on this recent Wednesday afternoon, the man in charge of the El Paso Branch of the Federal Reserve Bank of Dallas sits in his office for one of the last times.

With its meticulously preserved wood-paneled walls, gold-colored trim and clean lines dating back to the 1950s, the office looks like something from the set of the TV show “Mad Men.”

After nine years with the Fed in El Paso, Robert “Bill” Gilmer, 66, is retiring and moving to Houston, where he will do economics research at the University of Houston’s Bauer College of Business.

“It’s been one of those experiences where you need to be careful what you ask for,” Gilmer says of his time with the Fed here.

Unexpectedly, he began his job in 2003 by being ordered to lay off half the staff. That was when the Fed closed check operations in El Paso. Also unexpectedly, his last years at the Fed have been during one of the worst financial crises in U.S. history.

“It’s been a long soap opera and it’s time to get to the final chapter of this thing,” he says.

Gilmer was born in Amarillo but grew up in El Paso, where he attended Bel Air High School and graduated from the University of Texas at El Paso with a bachelor’s degree in economics.

He went on to earn a master’s and a doctorate in economics from the University of Texas at Austin.

Gilmer worked for the Institute for Defense Analysis in Washington, D.C., the Institute for Energy Analysis in Tennessee as a research economist, and the Tennessee Valley Authority as chief economist, producing the TVA’s annual economic and energy forecasts.

In 1989, he joined the Houston branch of the Federal Reserve Bank of Dallas as a senior economist and became officer in charge of the El Paso branch in 2003.

Gilmer’s last day in El Paso is Aug. 31.

He is also a research manager, overseeing the research performed in three of the Fed’s branches – in Houston, San Antonio and El Paso. His favorite topic is energy.

In 2010, the UTEP Alumni Association presented Gilmer with a Gold Nugget Award.

Gilmer sat down with El Paso Inc. in his office and talked about the fiscal cliff and what it means for El Paso, Fed chairman Ben Bernanke’s personality and how the local Fed branch was almost closed – twice.


Q: Your first job here was to lay off half your staff?

Two days before starting the job here, I was having dinner with my dad at Leo’s Mexican Restaurant and the phone rang. It was the chief operating officer I report to and she said they were closing the check operations in El Paso.

That meant my first job here was to lay off half the staff. We probably had about 110 employees then and there are about 65 now.

Q: Check operations?

Half the employment of the Federal Reserve System 10 years ago was processing checks – paper checks. The idea is that, if a check is written on an account at one bank and deposited in another, then there has to be a shift in that money.

The checks were brought to us, we ran them through our high-speed sorters, and because we have a reserve account for every financial institution, we can just move the money from one account to another. So, there was this huge transportation system, moving checks all over the country.

Q: Why are you leaving the Fed?

I’ve been with the Fed for 23 years and in El Paso nine now. We’ve really come to a good point at the El Paso branch, where we’ve got a commitment from the Federal Reserve System that we’ve got a future of at least 10 years.

They did a number of consolidation studies around the whole system. Our San Antonio branch, for example, just saw its operations consolidated into Houston. We were studied twice for that while I was here.

Q: Yikes!

The decision was made to keep El Paso where it is because of the risk of moving money over long distances. We would have been consolidated into Phoenix, and I think the idea of moving large quantities of cash up and down the U.S.-Mexico border every day also played into that decision. They’ve made a commitment to spend several million dollars to remodel this old building. A lot of the building hasn’t been changed since 1958. We got caught up in all these studies and couldn’t do the renovations.

Q: Is that you with Federal Reserve Chairman Ben Bernanke in the photo behind you?

That was in Dallas.

Q: What is he like?

What you see is basically what you get. He’s just a really decent down-to-earth person. He’s a professor and hasn’t given up being everybody’s favorite professor.

Through the financial crisis, the board worked like dogs because they could see Bernanke there working like a dog. He’s a very quiet, introspective kind of person – not at all the personality you expect to wind up in that position.

Q: I imagine it’s been particularly exciting working with the Fed these past few years.

We just had the fifth anniversary of the blow up in the sub-prime market. My first years with the Fed, it was the three tools of monetary policy: market operations, discount rate and reserve requirements. Then all of a sudden we ran into all this unconventional monetary policy: the special facilities set up during the crisis, the liquidity facilities, special kinds of lending through the discount window, the expansion of the balance sheet and asset purchases. It’s been a big lesson in central banking for central bankers because we’d never done this. It was something in a textbook, but not something you dealt with on a regular basis. It’s been a long soap opera and it’s time to get to the final chapter of this thing. It just seems to go on and on.

Q: What does the local Federal Reserve branch do?

Our main operation is providing cash for all of West Texas over to Lubbock, then up to Albuquerque and even into Southern Colorado. About a third of our employees process cash and prepare it for whatever banks order it in our territory.

About a third of our operation is protection for the $10 billion or so we ship out every year. We have about 22 federal law enforcement officers that work for us. The rest of it is administrative costs, and we have a small public affairs staff.

Q: Cash operations? In laymen’s terms, what does that mean?

On Friday afternoon, every bank in El Paso and West Texas has the amount of cash on hand that it needs. Then their customers come in and withdraw money from the ATMs and cash their payroll checks. Then they’ll spend it, and on Monday morning all of the businesses go to the bank and they deposit the money.

So by Monday afternoon, half the banks in El Paso have more cash on hand then they want and the other half are short. They all send us an armored car and half of them deposit cash, and the other half withdraw cash to restore their normal cash balances. We have a machine that counts about 100,000 to 120,000 notes an hour. If a bill is not fit to be re-circulated, it shreds it automatically.

Q: I’m guessing I can’t ask you how much cash and gold is in the basement.

I can tell you there is no gold down there. I can tell you we ship and receive about $10 billion a year.

Q: That certainly explains why the security here is so tight. They’ve inspected the bottom of my car with mirrors when I’ve driven here before.

After 9/11, the Federal Reserve System decided to upgrade the security to federal law enforcement. Before, they were guards licensed by the state of Texas similar to what you find at Wal-Mart, so we have gone through a huge transition.

Q: The focus on public outreach is interesting. I think it was back in April that the first formal press conference by a Fed chairman was held.

Increasingly the branches have gone into economic outreach, public affairs and research. We do a lot of speeches and presentations. Over the course of the crisis we talked to lots and lots of groups about what was happening.

We’ve had an economic education component for a long time. For example, we’ve had an economics boot camp program for Advance Placement economic teachers in high school. You’d be amazed how few of them have even had an economics course.

We have a program I started in Houston and brought here, now being copied by the Kansas City district, called the high school student board of directors. We introduce students to the Fed, bring in speakers, take them to see a manufacturing plant, take them to the back room of a bank and the like.

We also have a college board of directors that is actually a for-credit course both at UTEP and New Mexico State. The job of the local Federal Reserve board is basically to provide the Fed with intelligence on the local economy. We ask these college students to write a paper on what they see happening in the region, and the board has actually learned a lot from the students.

We have another program here called Let’s Talk about College. It’s basically a curriculum for the teachers so they can get kids to start thinking about college and how they can finance that education. We copied it from Boston and are now working with Boston to turn it into a national curriculum.

Q: Sounds timely, since some are saying that student debt may cause the next financial crisis.

No, I don’t think it is going to cause the next economic crisis. Certainly it is going to cause some hardship, though, because most of that debt, you can’t get rid of it through the bankruptcy process. It’s with you to the grave.

Q: The Fed also teaches personal finance to soldiers at Fort Bliss?

The Army uses our personal finance materials to teach soldiers how to take care of their money. While Federal Reserve Chairman Ben Bernanke was at Fort Bliss last November, he took some time to see how the Army was using the program.

Q: I must admit it was rather odd to see a Fed chairman dolling out personal financial advice to soldiers that day.

Yeah, I agree.

Q: You mentioned the purpose of the local board is to gather intelligence. What sorts of things do board members look for locally?

A lot of times it will depend on what’s going on. We’ll get requests from the president for certain types of news. Maybe price trends are particularly important. Maybe it’s inflation or deflation. It could be commodity prices. So we would have examples from pecan farms in Las Cruces and cattle ranches in Alpine. But the hot topics vary quite a bit.

Q: What are the hot topics right now?

Well, housing is important – whether we are really seeing improvement. Credit for small business is also very important right now.

Q: There are reports that the housing sector is showing signs of life. We’ve heard that before, though. What’s going on in El Paso?

You know, El Paso lucked out. We had one of the mildest recessions in the state, but spending $5 billion out at Fort Bliss was timely for El Paso. Now they are bringing in the troops, and the arrival of the troops is shifting the impact to their local purchases and a lot of it is in housing. El Paso is doing much better than the rest of Texas.

Q: Let’s talk energy. How far away is the United States from being energy independent?

For the last 20 years when we have talked about energy independence, it has basically been political hot air or leverage for somebody’s special program. But now it’s actually conceivable because of the volume of natural gas that we have and the change in technology, including fracturing and horizontal drilling.

It looks like there are enormous volumes in North Dakota, as well as in Texas in the Eagle Ford Shale and the Avalon Shale.

We’re seeing a clear decline in the volume of imported oil and the question that is being asked now is what are we going to do with all of the light crude we are producing. We may be sending more to the East Coast to displace oil from the North Sea or the Middle East.

Q: Is the domestic natural gas and oil boom going to have any impact on the El Paso economy?

We’re a very natural gas dependent city for power, heating and so forth, so low natural gas prices have certainly been good news for everybody. In terms of a direct impact, you’d like to think with Midland and Odessa just a few miles away there would be some impact.

I talked to a beer distributor who has the San Antonio area. He said the oil companies were staking out all the 7-Eleven stores waiting for their beer trucks to show up so they could hire their truck drivers.

Q: But no recruiters are standing in front of 7-Elevens in El Paso yet?

No, not yet. Not yet.

Q: For years, El Paso has tried to position itself as the “solar capital” and supposedly, it’s a great place for solar with all the land and sun. Why doesn’t it seem to be working?

The whole alternative energy business now is looking at this incredibly cheap natural gas. Even with the subsidies meant to get the industry off the ground, it’s having a tough time competing.

Q: But our neighbors appear to be having at least some success. For instance, a large global conglomerate has committed to moving its corporate headquarters to San Antonio where it would invest $100 million in solar power. It’s odd the effort hasn’t gained traction here, being the ‘Sun City’ and all.

I agree, but I can’t give you a good answer as to why.

Q: Federal Reserve Chairman Ben Bernanke on Tuesday gave a grim assessment of the economy and where it’s headed if Congress doesn’t act on the budget. How might the local economy be impacted if Congress doesn’t take action by the end of the year?

With such a slow growth rate, the U.S. economy is set up for some sort of external shock to knock us off track – it could be an oil shock in the Middle East, it could be a financial crisis in Europe, it could be this sequestration thing in Congress actually coming to fruition.

It’s kind of like a bicycle going down the street. If it is not going very fast, you can push it over easily.

El Paso’s history is one of being really good at importing recessions. We’re tied to the industrial sector. You can take El Paso’s employment and you can put the industrial production index of the U.S. on top of it and they fall right together. It’s the most volatile piece of the U.S. economy, and we are not going to have Fort Bliss to shield us this time.

On the other hand, the promise of NAFTA was that El Paso was not going to be lost on the edge of the country any longer. It was going to have a strategic location in the middle of this North American market and that actually seems to be happening, finally.

Q: What’s the economic outlook for El Paso over the next year?

Barring the “fiscal cliff,” I would say it’s going to be pretty much more of the same. El Paso should continue to see some moderate growth, better than the U.S. by and large.


 

E-mail El Paso Inc. reporter Robert Gray at rsgray@elpasoinc.com or call (915) 534-4422 ext. 105.

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