El Paso's property tax rate is among the highest in the nation. Here's why.
Luis Montenegro, a pharmacist who owns a rental home west of Ascarate Park, was prepared to see an increase in his property values when he got his appraisal notices this spring. Interest rates are at historic lows, and demand for homes is outpacing supply, pushing property values higher.
What Montenegro didn't expect was a jump in value of 48% on his modest, three-bedroom rental. The single-story brick house went from an appraised value of $68,000 to nearly $101,000. In response, Montenegro plans to raise the rent on tenants he’s had for the last 12 years.
“I’ve had to raise rent before, but never for this reason,” he said. “Taxes have gone up so much.”
The average market value of a single-family home within the El Paso city limits went up 10.9%, according to the Central Appraisal District's (CAD) most recent data. Some neighborhoods saw property value increases of 35% or higher, according to an analysis of CAD data by El Paso Matters.
One of those neighborhoods is Clardy Fox in south-central El Paso. Montenegro, 44, grew up in this neighborhood. He bought a home there as a bachelor and moved in after graduating from pharmacy school. The home became a rental when Montenegro married and bought a second home in the upper valley with his wife. Montenegro still owes a mortgage on the rental and said he’s not making much money from it. He sees the property as an investment for the future.
“I have three kids whose college I have to pay for,” he said. “So any little bit will help.”
A higher appraisal might be good news for owners who plan to sell their homes. A higher appraisal for those who plan to stay put means footing a higher tax bill in a city with one of the highest property tax rates in the nation. El Paso has the second highest property tax rate among the 50 largest cities in the U.S., according to a joint study by the Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence. Detroit ranks as No. 1.
While the study’s findings might come across as alarming, it’s worth deeper analysis to better understand why El Paso ranks so high.
What businesses are coming to El Paso?:A guide to what's new and under construction
Low El Paso home values equal high tax rates
El Paso’s property tax rate for homeowners within the El Paso Independent School District went up 21% in the last decade. The property tax revenue collected from those rates, which is split among five different taxing entities, rose nearly 70% to roughly $326 million since 2011.
The Lincoln Institute’s Property Tax study puts El Paso’s effective tax rate for homeowners at 2.67%. That means a home worth $100,000 will pay $2,670 in taxes. The effective tax rate, as calculated in the study, bakes in various factors, such as homestead exemptions, that impact the final tax bill. This makes comparing rates among cities and states with different tax structures more accurate. In 2020, the average effective tax rate among the 50 largest cities in the U.S. was 1.40%.
“High or low effective property tax rates do not in themselves indicate that tax systems are ‘good’ or ‘bad’,” the study cautions in its introduction.
One reason El Paso’s tax rate is the second-highest among big cities is that its median home value is among the lowest. You can buy roughly the same size and quality house in El Paso for cheaper than you can in cities such as Albuquerque, San Antonio or Tucson. In the study, El Paso is tied with Milwaukee for the third-lowest median home value at $133,600.
Given the red-hot real estate market, the Greater Association of El Paso Realtors sets a higher median price of $197,250 for a single-family home in El Paso. Their value is as of May 2021, while the Lincoln Institute's value is from 2020.
“Cities with lower property values need higher tax rates to be bringing in a particular amount of revenue,” said Adam Langley, associate director at the Lincoln Institute.
That revenue is what taxing entities, such as school districts and county and city governments, use to provide services to residents.
As for the tax bill itself, El Paso ranks 22nd, near the middle of the 50 city group. The dollar amount a homeowner in El Paso can expect to pay in property taxes for a median-valued home is $3,570. For homeowners with a senior or disability exemption, the bill would be less. El Pasoans are paying roughly the same amount in property taxes as homeowners in Omaha, Nebraska, and slightly more than homeowners in Fresno, California, and Las Vegas, Nevada.
Texas often boasts that it’s one of nine states in the country without a state income tax. But Texans make up for the absence of income tax with higher property and sales taxes. Texas is home to half of the top 10 cities with the highest property tax rates in the Lincoln Institute study. El Paso's property tax rate is the highest among all the big Texas cities.
City of El Paso tax rate up 39% since 2010
Another factor that’s driving up the cost of those taxes locally is city government.
The property tax bill for residents who live in El Paso city limits is split among five different taxing entities: a school district, the city of El Paso, El Paso County, University Medical Center and El Paso Community College.
The largest share of the tax bill goes to the various school districts in the region. But the school districts are also the taxing entities whose growth over the past decade has been the smallest. For example, El Paso Independent School District's rate has grown 3% in the last decade. Socorro ISD's tax rate has gone up 16% since 2010, the most of any district.
The second-largest share of the tax bill goes to the city of El Paso, which is also the taxing entity with the second-fastest-growing tax rate. In the last decade, the city's tax rate has gone up 39% from 63 cents in 2010 to 91 cents in 2021. The total property tax rate for residents living within EPISD's boundary is $3.07. This is the actual tax rate applied to every $100 in property valuation. The actual tax rate doesn’t account for exemptions, as the effective tax rate does in the Lincoln study.
The money generated by the city’s tax rate funds two major categories: debt and the general fund. Of those two parts, the cost of the general fund has risen 42%, or 19 cents in the last decade. The debt portion of the city’s spending has grown 9 cents in that same time, or 32%.
The general fund is the meat and potatoes of city government. It funds everything from pavement on streets to the salaries of firefighters and the city manager. When considering what is driving the growth in El Paso’s property tax rate, the city's general fund is a major contributor.
On Aug. 24, City Council voted to approve the 2021-2022 budget, which maintains the same tax rate as last year. The city's chief financial officer, Robert Cortinas, said in multiple budget presentations that the city is "holding the line" on taxes.
However, when property values rise and taxing entities keep the same rate, a new Texas law passed in 2019 equates that to a tax increase. Even if the city maintains the same tax rate this year, a homeowner who got a higher property appraisal can also expect a higher property tax bill.
To provide relief to homeowners who are 65 and older or who are disabled, City Council approved a tax exemption increase of $2,500. The extra exemptions will result in a $2.4 million reduction in property tax revenue.
Keeping the same tax rate, along with higher property values, will allow the city to generate $14 million in extra revenue, Cortinas said. The total budget for the city's 2021-2022 general fund is $476 million.
“That additional funding is going to restore all the areas that were impacted by COVID-19 that were deferred for the past year plus,” Cortinas said.
In the next fiscal year, which starts Sept.1, the city plans to restore funding to street improvements, public safety equipment such as vehicles and radios, police and fire academies, and city jobs that were furloughed during the first year of the pandemic. City employees will also get at least a 1.5% salary increase in next year's budget.
Even with the extra tax revenue generated by higher property appraisals, City Manager Tommy Gonzalez told council members that it's not enough to bring the city's operations back to where they were before the beginning of the pandemic.
"The reason we kept the rate like we did last year and we’re doing it again this year is to just help the community come back, not only the businesses but also the residents," Gonzalez said.
El Paso forecasts growing deficit in coming years
City leaders show no indication of lowering El Paso’s residential property tax rate in the future. In multiple presentations to City Council, Cortinas has said the city will begin to see a growing deficit between its anticipated revenue and expenses. Cortinas projects the city's revenue will be short by $37 million in 2023. By 2026, he forecasts the deficit will grow to $77.2 million.
The biggest drivers of that funding gap are public safety expenses, specifically the collective bargaining agreements the city signed with the local firefighters union in 2018 and the local police union in 2019. The city is halfway through a 10-year plan to boost the size of the police force by 300 officers. In the next fiscal year, the city plans to hire seven more 911 operators and increase the budget for the police department's crisis intervention team, which responds to mental health-related calls, by $1.2 million.
The city will also have to pay for additional staff and operating costs tied to the new regional command centers and police and fire stations being built as part of the $413 million public safety bond passed in 2019. All together, Cortinas said public safety costs make up a little more than 60% of the city’s budget.
"We live in a community where we're not the only law enforcement governmental entity where there's job opportunities," Cortinas said in a July online public meeting. "We're competing against state and federal agencies in order to keep these guys working on the police force, so we have to be competitive."l
The city is also budgeting more cash for day-to-day costs that weren’t part of previous budgets. Cortinas calls this money "set-aside funds." These funds will go toward streets, building maintenance, replacing vehicles and complying with ADA requirements.
In past years, Cortinas said those short-term costs were sometimes paid with debt, which is considered a credit negative in the public finance world.
"There’s a lot of future operational costs that we are aware of and that we’re factoring in," Cortinas said. "Our approach is very strategic, but it’s very fiscally responsible.”
The city's future expenses also include paying off debt. As of August 2021, the city's tax-supported outstanding debt was almost $2 billion, which includes interest. The amount is below the city's debt limit of 10% of assessed taxable values within the city limits.
City Council approved issuing $180 million in bonds Tuesday. Seventy-two percent of this new debt will go toward public safety costs, including extra funding to pay for projects approved in the 2019 public safety bond. City Engineer Sam Rodriguez said construction costs for those projects have gone up since they were deferred by the pandemic. The money will also provide extra funding to the newly opened Eastside Regional Park and the Mexican American Cultural Center, which has yet to be built.
Cortinas told council members that the city saved nearly $21 million in the current fiscal year by refinancing old debt. He also said the city boosted its reserves over the last six years by almost $42 million.
Luis Montenegro, the pharmacist with the rental home, managed to soften the impact to this property tax bill by protesting the 48% jump in his property appraisal. He was among more than 21,000 property owners to file a protest with the CAD this year. Montenegro managed to lower his appraised value by about $10,000.
His tax bill will still be higher than last year, but he'll have to wait until it arrives by mail in October to know just how much.
"Although I hate to have to pay more taxes, I just hope that that the money is going to be used for the benefit of the citizens," he said.
Editor's note: This article is the first in a series on public finance the El Paso Times will publish in the coming months with an eye on fairness and equity. Our next story will take a closer look at debt. We invite readers to send along questions, tips and feedback to firstname.lastname@example.org.