Correction: This story has been updated to correctly attribute a comment on the proposed no-new-revenue rate to city Rep. Alexsandra Annello that had been attributed to another city representative.
The El Paso City Council is considering a general fund budget increase of about $47 million for the next fiscal year – half of which will pay for police and fire pay raises – and is looking to support it without a property tax increase.
“You have made the direction very, very clear to us,” Interim City Manager Cary Westin told the council during a budget workshop on Monday. “You wanted us to ease the burden on the taxpayers and make any of the budget adjustments that we needed to to look at lowering the tax rate this year. … We think we can get there. … (but) there’s some potential headwinds ahead.”
The City Council last week held a series of budget workshops as it prepares to adopt the budget for the 2024 fiscal year that begins on Sept. 1. The council directed city staff to come up with what’s called a no-new-revenue tax rate, which is the rate needed to collect the same amount of property taxes as the previous year.
The council put out that directive after approving collective bargaining agreements with the police and fire unions with significant pay raises and calling to increase investments in its workforce, streets and quality of life projects. Among other things, that will likely require the city not issue any debt the next fiscal year and to dip into its reserve fund, which it has just built up to recommended levels the past few years.
Westin and Robert Cortinas, the city’s chief financial officer, on Monday introduced the proposed general fund budget of $559.7 million for the next fiscal year – about 9% over the current year. The general fund is the city’s operating fund for basic services paid for primarily through property and sales taxes.
About half the $47 million increase is to fund pay raises for police and fire uniformed employees, including a 13% increase for new officers that brings their entry salaries to $54,000 a year, and a $10,000 increase to about $48,600 for police cadets. About $8.4 million of that general fund increase will pay for raises of between 2.5% to 6% for all other city employees.
The proposed all-funds budget – the total budget that includes the general fund and other revenue sources and expenditures – stands at about $1.3 billion. That’s an increase of about $133.5 million over the current fiscal year.
Tax rolls, tax rate and property taxes
Whether a reduced or no-new-revenue tax rate to support that budget is achievable will depend on the certified tax roll due from the El Paso Central Appraisal District on July 25, Cortinas said. That will help determine a proposed tax rate to present to council on Aug. 1 ahead of a public hearing on the budget and tax rate on Aug. 8. Both will be up for council approval on Aug. 15.
The City Council has voted for property tax increases in recent years as the adopted tax rates haven’t been enough to offset increased home valuations – which could be the case again for the upcoming fiscal year.
However, the impact of tax rates on individual property owners will vary based on how the property’s valuation changed compared to the average increase. Those whose valuations increased more than the average rates will see their taxes go up; while properties whose valuations increased less than average could see property tax bills decline.
Cortinas said the estimated tax rate for FY2024 could translate to an additional $5 million more in collected property taxes assuming a tax roll increase of 9%. But that won’t be established until the certified tax roll comes in, he added.
The CAD has conducted mass reappraisals of properties within El Paso County for three years in a row, with average home valuations shooting up nearly 20% in 2022 alone.
Sales tax revenues and the reserve fund
Another factor that could allow the city to fund the budget without hitting property owners too hard – at least for the next fiscal year – involves sales taxes.
For several years, city leaders have been conservative with their sales tax revenue projections, putting money collected above the projections into a reserve fund, Cortinas said. In fiscal year 2022, as the community continued to bounce back from the pandemic, the city had a $15 million “surplus” in sales tax revenue over what it projected. That surplus is going to be used over the next five years, including $5 million for FY2024, Cortinas said.
The reserve fund – ideally saved for emergencies – has grown from $39.4 million in 2018 to $163.8 million today, city documents show. The current reserve can fund up to 92 operating days for the city compared to just 17 days in 2018.
The fund includes a cash reserve that can be spent only for specific purposes as stipulated by the City Charter; spendable amounts not contained in other classifications; and committed amounts known as stabilization funds that can be used only for specific purposes determined by a formal action of City Council, according to city documents.
The current reserve fund, for example, includes about $52.7 million to help stabilize the budget and $22.2 million dedicated to making payments toward the civilian, police and fire pension plans.
The city’s budget policies state that the operating and debt stabilization fund is to help minimize future tax rate impacts “in times of slow or declining revenue growth” and as a “source of protection against having to make drastic cuts in City services in periods of economic downturns.” The policies also state that the City Council will have final approval on how to use the fund.
During last year’s budget discussions, Cortinas said he didn’t believe it was “fiscally responsible to use one-time additional revenue to fund ongoing expenditures. It’s not a responsible way to operate.”
In May this year, City Council in a split 4 to 4 vote, with Mayor Oscar Leeser breaking the tie, directed staff to reduce the property tax rate for fiscal year 2024 while maintaining city services. State law already limits the taxable value of a home from increasing more than 10% a year, which means the city will be required to significantly lower the tax rate because of rising home valuations. Any increase above that threshold would require voter approval.
City Rep. Alexsandra Annello said that while she supports a no-new-revenue rate, she has to consider how that would impact city needs and services.
“I have always said that we should not build a budget on the basis of no-new-revenue (rate) if there are absolute needs from our departments to function,” she said during a Monday workshop.
Cortinas told El Paso Matters that “this is the year that we can achieve the no-new-revenue without impacting the city budget long term.”
The mayor and several city representatives also told El Paso Matters that they support a no-new-revenue tax rate, saying they don’t believe doing so would impact city operations, services or future budgets.
“I have been clear in my position that I support a no new revenue tax rate, and I believe this City Council and this management team can identify a manner in which we can find efficiencies to do so, without ensuring any future increases,” Leeser said in an email statement to El Paso Matters.
City Rep. Art Fierro, who was not at the budget workshops but has been briefed on the proposed budget, said “taxpayers deserve a break.”
“If we can afford it, we need to take advantage of it,” Fierro said. “After that, if we need to tighten our belts then we tighten our belts.”
City Rep. Brian Kennedy said he wants taxpayers to know that the Central Appraisal District doesn’t issue taxes and that it’s up to the city and other taxing entities to account for every penny when setting tax rates that impact property tax bills.
“I’m committed to having a no-new-revenue (tax rate),” he said in a phone interview. Kennedy added that city staff “think this is the year we can do it and we’re not cutting services or putting ourselves in a dangerous position.”
City Rep. Isabel Salcido in a Facebook statement on Tuesday, said that she’s “committed to vote against any budget that raises taxes on El Pasoans,” adding that all potential options should be explored. Shortly after launching her re-election campaign last fall, Salcido unsuccessfully sought to have the council adopt a no-new-revenue rate at the 11th hour – on the same day the council was to adopt the budget and tax rate that had been proposed weeks earlier.
Debt to be paid
While Westin and Cortinas said the city doesn’t have to issue any debt this coming fiscal year as planned, the city has about $600 million in voter-approved debt from three past bond elections that needs to be issued – making tax increases difficult to avoid in future years.
Those include the $473 million quality of life bond in 2012 that included parks, pools, libraries, the children’s museum and the arena; the $413 million public safety bond in 2019 for police and fire facilities and additional vehicles; and the $272.5 million community progress bond in 2022 that included funding for parks, streets and a climate action plan.
“There’s no way we can issue $600 million in the next five years and not have taxes go up,” Cortinas told El Paso Matters, noting that some council members are considering another bond issue be put before voters in 2024.
Among them is city Rep. Cassandra Hernandez, who during Tuesday’s workshop said the City Council had given administration “direction” to look at a quality of life bond next year but that discussions have gone nowhere. She said the city is running out of time to conduct studies necessary to determine what projects might be included in a bond.
“We have to have the vision to look at the development for the next 20 years and these 2012 quality of life programs have already come to an end,” she said.
Two signature projects from the 2012 bond – the children’s museum and the Mexican American cultural center – are under construction, while the third – the multipurpose arena – has stalled under litigation and changing direction from different elected officials over the years.
Aside from the bonds, the city has more than $850 million in outstanding debt (including interest) from certificates of obligation that don’t require voter approval, city budget documents show.
“We want to make sure that we’re setting the city up to be sustainable financially and operationally,” Cortinas said. “So we need to just make sure that we’re not making decisions today that are gonna affect us tomorrow.”
