El Paso County poised to OK $100 million in debt as it fights IRS case

The El Paso County Commissioners Court on Thursday may take the next step toward issuing up to $100 million in certificates of obligation for numerous county facility upgrades – at the same time the county is working to settle an outstanding case with the Internal Revenue Service over debt it undertook a decade ago.

The court during its special meeting on Thursday will consider publishing a notice of intent to issue the debt to rebuild a major county road, renovate Ascarate Park, expand the Fabens airport, build a new medical examiner’s office and upgrade the heating, cooling and alarm systems at its jails and juvenile detention facilities, among other projects.

Publishing the notice is a required step to allow for public input before the court votes on selling the bonds in January. Certificates of obligation bonds, or COs, are debt that doesn’t require voter approval and is repaid through property taxes and other revenue.

The $100 million issuance could cost the owner of a $165,000 home about $23 a year, said Jose Landeros, the county’s director of capital planning.

The issuance won’t increase the county’s debt portion of the tax rate, Landeros said, because it will offset existing debt that will be paid off in 2024, before the county begins repaying the new bonds. But even if the tax rate doesn’t change, taxpayers may see larger county tax bills if their home valuations increase.

“This is the time we have been waiting for – for our debt to drop off,” Commissioner Carlos Leon said during a staff presentation on the proposed bonds to Commissioners Court on Monday. “There’s a tremendous amount of need. … There’s so much need and growth that we have to keep up with.”

IRS notice on 2012 bonds

Commissioners Court last issued certificates of obligation in 2012, approving about $100 million to build the Tornillo-Guadalupe Port of Entry, renovate the Eastside jail annex, buy new sheriff’s vehicles and update the radio communication system for law enforcement officers countywide, among other projects.

Last year, the IRS issued the county a proposed adverse determination – a notice telling the county it may not have been in compliance with certain requirements of the tax code – related to the 2012 certificates of obligation it sold as tax-exempt to bond buyers. The county refinanced those COs in 2015 and 2017.

The IRS cited “certain expectations for the timely expenditure of proceeds” of the bonds as the alleged noncompliance and could find that the bonds are taxable retroactively, the county stated in a July 30, 2021, notice of the IRS opinion. That means the investors who bought the bonds would have to pay taxes on the interest earned from the bonds.

While the IRS determination is not final and the county is appealing the matter, the county may be required to pay administrative penalties to preserve the tax-exempt status of the 2012 certificates, the county stated in its public notice.

In an emailed statement on Wednesday, county officials said they’re limited on commenting on the pending legal proceedings with the IRS but are committed to fulfilling their agreement with bondholders to maintain the tax-exempt status of the bonds.

The statement also said that less than 1% of the 2012 project funds remain “unappropriated and unencumbered” and that the 2012 bond portfolio should be closed out by the end of the fiscal year next fall.

The preliminary IRS determinations don’t impact the county’s “ability nor capacity” to issue certificates of obligation for capital projects moving forward, according to the statement.

“In terms of what we are preparing, we will continue to move forward,” Landeros told El Paso Matters on Monday before referring further questions to the county’s communications manager.

Capital projects and what’s in the bond

The Commissioners Court on Monday also considered moving forward with a smaller issuance, but voted 3 to 1 to allow staff to move ahead with paperwork for the court to vote on a $100 million bond.

Commissioner Liliana Holguin voted against the amount, saying she wanted to scale down the project list and that some projects would be better suited for general obligation bonds on which the public could vote.

“I want to make sure we are using the CO process on projects that are emergency and safety related,” she said.

County Judge Ricardo Samaniego and commissioners Leon and David Stout voted in favor of moving forward with the $100 million bond after County Administrator Betsy Keller reminded the court that it could always issue a bond in a smaller amount but not larger than what it publishes. Commissioner Carl Robinson was absent.

Among the projects in the proposed certificates of obligation:

Ascencion Road: About $11 million to reconstruct the two-lane road from Horizon City to the Montana Vista area as a four-lane divided roadway
Fabens airport: Nearly $11 million for hangars, office space and other improvements to the airport as part of the area’s business development plan that’s turning the airport into a major aerospace technology hub
Medical examiner’s office: About $9.8 million to complete a new office of the medical examiner. County officials say the current space is inadequate and hindered operations during the pandemic
Ascarate Park: About $9.6 million for improvements to the 400-acre park, including renovating the festival area and existing restrooms, adding new restrooms, replacing chain link fence with rock wall and wrought iron fencing, building new concrete stages with canopies, creating drainage ponds to alleviate flooding in parking areas; and expand the park’s entrance by adding a third lane to accommodate large traffic flows
Ascarate Lake: Just over $7.3 million to dredge, or clean the bed, of the 48-acre surface lake and enhance amenities there
Downtown detention facility: About $7.9 million for the jail, including renovating the heating and cooling system and fire alarm system
Juvenile Justice Center: More than $8.5 million for center improvements, including replacing the roof and heating and cooling system system, its security system and other safety upgrades
Montana jail annex: Just under $4 million for the annex to replace its electrical panel and fire alarm system, among other safety upgrades

What’s next

If the notice of intent is approved on Thursday, county leaders would next set up community meetings for public input before its Jan. 23 meeting, where the Commissioners Court will vote whether to authorize the sale of the bonds. The funds would be received in March, and taxpayers would begin paying on them in their 2024 tax bills.

As part of its capital planning, the county is also considering putting a quality-of-life bond of up to $100 million on the November 2024 ballot.

The county last asked voters for general obligation bonds in 1988 to build the existing county courthouse in Downtown. In 2007, voters approved $120 million for the construction of the El Paso Children’s Hospital, which is part of the El Paso Hospital District under county oversight.