As the city of El Paso prepares to issue another multimillion dollar round of non-voter approved debt, experts say the practice raises red flags and will have long-term impacts for generations of taxpayers.
The El Paso City Council recently approved beginning the process of issuing $96 million in certificates of obligation, or debt that can be issued without voter approval if the amount does not exceed $100 million. A public hearing is scheduled for Aug. 24, when the City Council will vote on whether to approve the issuance of the debt.
The council also approved issuing about $93 million in certificates of obligation in April, and since 2019 has issued two separate $100 million rounds of the debt for a variety of city projects and included funding for emergency vehicles for the police and fire departments.
The debt is inching close to the total of the $473 million quality-of-life bond approved by voters in 2012 for projects that included park improvements, library improvements, community centers, the children’s museum, Mexican American Cultural Center and a Downtown multipurpose and performing arts center.
“I think the City Council would do well to reconsider leaning so heavily on this device and put a lot of these expenditures before voters and let them decide on whether or not this is a good use of taxpayer money,” said James Quintero, policy director with the Texas Public Policy Foundation, a conservative Austin-based think tank.
City officials did not respond to El Paso Matters’ requests for an interview on certificate of obligation debt.
El Paso leads the state’s top 30 municipal issuers of certificates of obligation debt with $541 million outstanding, according to the most recent report released by the Texas Bond Review Board.
However, 21 of the 30 cities on the list have higher per capita CO debt than El Paso.
But among the state’s six largest cities, El Paso’s per-capita CO debt is the highest by far, according to the Texas Bond Review Board.
City budget documents show the total outstanding certificate of obligation debt including interest as of 2021 stands at $787 million.
“El Paso isn’t alone in abusing certificates of obligation,” Quintero said. “What’s really unfortunate is there are property tax implications too, to engaging in this sort of bad behavior.”
Quintero said when the state developed the use of certificates of obligation in the 1970s, they were mainly designed to be used for emergencies such as after a major storm. He said over time cities and counties have increasingly engaged in discretionary spending using the non-voter approved debt instrument.
“So you have things like land acquisition, or parks or other lesser priorities being funded through COs,” Quintero said.
El Paso has used certificates of obligation in a variety of ways that include funding quality-of-life bond projects, street repairs, water parks, emergency vehicles and restrooms in San Jacinto Plaza, among others.
“It looks like the city is using this device for a lot of discretionary purposes, or at least things that ought to be put before voters using a general obligation bond,” Quintero said.
Certificates of obligation, which are repaid with property tax revenue, do not require voter approval unless 5% of qualified voters within the jurisdiction petition for an election on the spending in question.
“If you have too much (non-voter approved debt) — that is a red flag in terms of transparency in government and public involvement in governmental activities or (the) public being part of the process,” said Martin Luby, associate professor and public finance expert at the University of Texas at Austin’s LBJ School of Public Affairs.
Luby said governments generally use certificates of obligation as an additional tool in their toolbox to pay for capital or other needs, without having to go through a lengthy referendum process.
“This is a way that the government is kind of circumventing the public’s involvement in government finance activities,” Luby said.
Luby said the decisions by local governments to issue the debt will impact multiple generations of taxpayers that are going to be on the hook to repay it.
During a District 2 community meeting hosted by city Rep. Alexsandra Annello on July 21, city Chief Financial Officer Robert Cortinas said he doesn’t have issues with the city’s use of certificates of obligation.
But Cortinas also said he didn’t agree with how the city had used certificates of obligation in the past to fund items like roof repairs of city buildings or to purchase emergency vehicles.
In 2017, the city used $16.8 million in certificates of obligation to purchase 300 police cars and the issuance from April 2021 included spending for ambulances and Fire Department vehicles.
“It’s not as if we can go from (being) totally reliant on debt to not relying on debt overnight. There’s going to be a gradual shift,” Cortinas said.
Quintero said what is happening in El Paso and throughout the state is that local governments are abusing the tool.
“The way that the tool is being used is clearly excessive,” Quintero said. “El Paso isn’t alone in its excesses here, but it certainly leads the pack when it comes to its peers.”
Cover photo: The public restrooms and visitor center at San Jacinto Plaza opened in late 2019 after the city spent $2 million to purchase and renovate the building on East Mills Avenue. The city used certificates of obligation, a form of non-voter approved debt, to partially fund the project. (Corrie Boudreaux/El Paso Matters)