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Texas tax burden is heaviest on El Paso's poorest residents. Debt increases that burden.

The old dump that lies beneath Modesto Gomez Park in South-Central El Paso resurrected itself in an uneven pattern of sidewalk mounds, making a stroll in the park feel more like riding a rollercoaster.

That was one reason why locals nicknamed their neighborhood “Dizzyland,” a dark pun on the distant California theme park. The other reason was the vertigo-inducing fumes emitted by the city’s oldest wastewater treatment plant, built on what is now Delta Street in 1923.

Alicia Villa, 76, remembers her community organizing to protest the noxious smells. She also remembers lunchtime at Burleson Elementary when she and her classmates would swat flies from the nearby dump off their sandwiches. Converting that old dump into Modesto Gomez Park was yet another fight the community undertook and ultimately won in 1975. For decades, the park's wave-shaped sidewalks were a reminder of what lay beneath.

"It seemed like if they just put dirt on top of all the trash and they didn't pack it as well," Villa said. "I hope they do a better job this time."

Modesto Gomez Park.

Now the sidewalks in Modesto Gomez Park have been torn out and are sitting in piles of rubble behind a chain-link fence that restricts access to the park. After years of disrepair, the park is finally getting a makeover, including a new walking trail, new exercise equipment and renovated sports fields.

Most of the upgrades will be paid for by a city-issued quality of life bond package worth $473 million that voters approved in 2012. But to finish this project and 17 others promised in the bond package, the city has thus far issued an additional $58 million in new debt that wasn’t approved by taxpayers at the ballot box. Instead, the city used certificates of obligation, or COs, a form of debt that cities can issue without voter permission.

Debt has become a subject of heated debate in City Council meetings, especially those leading up to the approval of the latest city budget on Aug. 24. Mayor Oscar Leeser vetoed $96 million in proposed CO debt later that week, which council members overrode 6-2 in the next meeting. Leeser expressed concern about the burden more debt would place on El Paso taxpayers.

“We need to hold the line on taxes,” Leeser said. “I want to make sure that we move forward with these projects and find alternative savings and money to be able to do that.”

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Alicia Villa, a 76-year-old resident of south-central El Paso, voices concerns about her neighborhood while standing next to Modesto Gomez Park, Thursday, Sept. 9, 2021. The park is undergoing renovations.

Finding those alternative funds might require fundamental changes to the state tax system. Texas taxes its poorest residents at a higher rate than its richest residents. The state is home to the second most regressive taxing system in the nation, according to one study. The result is vast income inequality and less tax revenue to invest in public works. 

A family advocates for a community

Three blocks north of Modesto Gomez Park, Cynthia Renteria is restoring an adobe brick home her grandfather built 80 years ago. It's the same home where Alicia Villa,  her mother, was born. When it’s finished, Renteria plans to make it her home. Renteria also worries about the financial burden she’s undertaking as a first-time homeowner whose property taxes are the main means of paying off the city’s debt.

“I'm concerned about how this … affects working neighborhoods and communities like mine when taxes go up,” Renteria said. “These are the neighborhoods that are most likely to have a hard time paying taxes. I'm concerned about the disproportionate ways in which it's affecting working communities.”

Francisco G. Villa was an advocate for south-central El Paso. He came to El Paso from Guanajuanto during the Mexican revolution and worked at the Phelps Dodge smelter for four decades. EL PASO TIMES FILE PHOTO

Renteria’s family has a history of advocating on behalf of their working-class, largely immigrant neighborhood, which stretches south from I-10 down to the border highway and is directly north of the towering red “X” sculpture in Ciudad Juárez. Her grandfather came by train from Guanajuato to El Paso as a boy during the Mexican Revolution. The train wrecked before it reached Juárez, fatally injuring the boy’s mother. His name was Francisco G. Villa, the middle initial added by his family in an attempt to distinguish the boy from the infamous Mexican revolutionary general. 

Villa would later come to participate in community-level revolutions of his own.

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As a young man in the 1940s, Villa fought against discriminatory policies at Phelps Dodge, the El Paso copper smelter where he worked and became a union leader. At the time, Mexicans and Mexican Americans were paid less than Anglo workers and bathroom facilities were segregated. Health insurance and vacation were nonexistent. Villa was chairman of his union’s strike committee when hundreds of workers walked off the job for three months in 1946. When the workers emerged victorious, Villa told a reporter they fought the “American way.”

Francisco G. Villa (front row, center) was the chairman of the strike committee in 1946 for his union at the Phelps Dodge smelter in El Paso. Villa lived in south-central El Paso and advocated for the establishment of Jefferson High School. EL PASO TIMES FILE PHOTO

A few years later, when Bowie High School became so overcrowded that students took turns going to school for only half a day, Villa stepped up once more. He accompanied parents to petition before the school board for a second high school in South El Paso. Their efforts eventually lead the opening of Jefferson High School in 1949.

“My grandfather was very vocal and he advocated for the needs of the neighborhoods,” Renteria said.

Renteria spoke up herself during the last City Council meeting in August, when the six council members voted to override the mayor’s veto of $96 million in CO debt. Half a million dollars of that money is reserved for installing new lighting at Modesto Gomez Park.

"This is an incredibly unjust process that money for our original neighborhoods is being negotiated in certificates of obligation that is a take it or leave it scenario,” Renteria told the council. “We need the investment in these neighborhoods and we don't need to burden our future generations with $96 million in debt.” 

A 1989 newspaper clipping about Francisco Villa, Cynthia Villa's grandfather and Alicia Villa's dad, about the founding of Jefferson High for the school newspaper, the Branding Iron.

Texas asks the most from those who have the least

El Paso has the second-highest property tax rate among the 50 largest U.S. cities, according to a study by the Lincoln Institute for Land Policy. Among the reasons it ranks so high are El Paso’s low-cost homes, which makes homeownership more accessible for some people.

Affordable housing, though, comes with a caveat: a higher tax rate that generates enough revenue to run local governments and schools. Moreover, the absence of a state income tax means that all Texans, including El Pasoans, have to pay more in property taxes. Texas' main sources of tax revenue are sales and property taxes. 

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Debt is not among the largest drivers of El Paso’s high property tax rate. It does, however, add to the burden low-income taxpayers carry. The state of Texas has what’s known as a “regressive” tax system, which is a form of taxation that taxes the poor at a higher rate than the wealthy. Among the 10 states with the most regressive tax systems, Texas ranks No. 2 in a national study by the Institute on Taxation and Economic Policy (ITEP).0

According to the study, Texans whose annual household income is between $36,000 to $56,000 pay nearly 10% of their total income in state and local taxes. The richest Texans, those making above $618,000, contribute only 3% of their income. Texas households living below the poverty line, those making less than $21,000, pay the highest share of their income in taxes at 13%.

ITEP's data is similar to the Texas Comptroller's tax incidence data (page 45).

Regressive tax systems exacerbate income inequality, a growing nationwide problem. According to ITEP, 45 states in the U.S. have regressive tax systems that intensify economic inequality.

Another ITEP study shows that such disproportionate taxation hits minorities and people of color hardest. A legacy of discriminatory policies from housing to banking to education has also put the poor and minorities in the U.S. at an economic disadvantage.

Carl Davis, research director at ITEP, said that tax policy is difficult for most people to understand.

“It might not be obvious to (low-income) people that they're having to pay more of what they earn than a much wealthier family,” Davis said. “As a general rule, unfortunately, higher income and higher wealth people tend to have more influence in the political process.”

The argument in favor of regressive tax systems is that they attract more wealth and investment, a benefit that will “trickle down” or spread to lower-wage earners.

Nathan Ashby, professor of economics and finance at the University of Texas at El Paso, said that “progressive” tax systems, which levy heavier taxes on the rich, work best at the federal level.

“Cities should focus on creating a competing environment to foment development and attract entrepreneurial endeavors,” Ashby said. “Progressive taxation at the local level, though well intentioned, almost always results in bad consequences. The more mobile the tax base, the more likely the progressive taxation will drive wealthy individuals and companies from the city.”

But decades of lowering taxes for the wealthiest Americans has resulted in levels of inequality not seen since before the Great Depression. Between 1989 and 2016, the wealth gap between the richest Americans and the poorest Americans more than doubled. In 2018, according to the Pew Research Center, the wealthiest 20% of Americans took home more than half of all U.S. income.

Equalizing the tax burden

Cities in Texas don’t have many financing options to equalize the tax burden. To minimize the impact of property taxes, many cities, including El Paso, have a series of tax breaks, or exemptions, for homeowners, seniors age 65 and older and disabled residents.

Cities can raise extra money by charging fees for street maintenance or utilities like gas and electricity. But fees generally can't raise the amount of money needed to finance large-scale projects. This is why cities use debt.

“One of the great things about debt is that you’re spreading the cost over many years, meaning that you’re spreading the cost amongst various beneficiaries,” said Martin Luby, a professor of finance at the University of Texas at Austin. “The current taxpayer, they’re getting the benefit of that new road being built. But so is the person 30 years from now. So it makes sense out of equity purposes for both of them to be paying for it. By issuing debt ... you’re able to achieve that intergenerational equity.”

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Cynthia Renteria has been paying property taxes on the home her grandfather built since 2019 and recently qualified for a homeowners exemption. Her tax bill will likely go up after she repairs and restores the home. Renteria counts herself fortunate that the home is paid off. But she has other expenses: home renovation costs, student loans, a car payment and insurance. She has a small amount of savings, but not enough to see her through an emergency. 

The adobe home built by Francisco G. Villa in south-central El Paso. Villa built homes in Kern Place and constructed his home in a similar style in the 1940s. His granddaughter is currently renovating the home.

Still, Renteria, who's finishing a Ph.D. history and will soon be looking for a job, will pay a higher percentage of her income in taxes than someone who makes 10 times what she expects to make.

"I wonder in two to three years, where am I going to be? Am I going to have a family? Am I going to have more expenses? I’m just starting, this is my first house... and things like the job market in my field of expertise worries me," Renteria said.

El Paso’s debt per capita is the highest among large cities in Texas. Debt per capita is what every resident in El Paso would have to pay in order to wipe out the city’s total debt outstanding (population divided by total debt outstanding). The city owed $1.4 billion in tax-supported debt as of August 2020. To pay that off, every person in El Paso would need to pay $2,071 over the life of the debt.

El Pasoans also bring home smaller incomes than the rest of Texas. According to 2019 census data, El Paso's median household income ($48,542) was 24% less than the Texas median household income ($64,034).

While Fitch Ratings gives the city of El Paso’s finances a favorable “AA” rating, the agency adds a note of caution in a 2019 report:

“The city’s long-term liability burden is moderate but has been trending higher. Further increases in the components of this key driver that push the metric much beyond 20% could produce an overall credit profile inconsistent with the current rating and lead to negative rating action.”

Modesto Gomez Park.

Fitch noted that El Paso’s long-term liability burden, which is debt divided by median resident income, was 18.5% in 2017, the most recent figure available according to analysts.

Easing the tax burden for low-income Texans is not necessarily contingent on governments issuing less debt. Instead, bigger structural changes in the way Texas taxes its citizens are needed, according to Dick Lavine, senior fiscal analyst at Every Texan, a nonprofit research group founded by Benedictine nuns.

“Generally it’s the incomes on the top that are growing the fastest,” Lavine said. “By taking a bigger proportion of income from lower-income people…Texas has hitched itself to the slowest horses. It relies heavily on people whose incomes are stagnant and missing out on the incomes of the people whose incomes are growing the fastest.”

Collecting more taxes from wealthier Texans over the long run would generate more tax revenue that could be invested in public services like education and infrastructure. With such investments, local governments might not need to take on as much debt.

Every Texan advocates replacing the state’s regressive tax system with a proportional tax system, in which everyone is paying roughly the same percentage of their income in taxes.  

The nonprofit also calls on making sales price disclosures in real estate transactions public, something not currently required in Texas. Public disclosure of sales prices could help properties, particularly commercial, industrial and high-end properties, be appraised and taxed more accurately.

“Our goal is that everybody pay their fair share,” Lavine said. “If everybody were to put in roughly the same percentage of their income through the tax system, you wouldn’t be holding people down ... who are trying to work their way up into the middle class and create a good life for their families.”

Mónica Ortiz Uribe can be reached at monica.ortiz@elpasotimes.com

This article cites details about El Paso's Phelps Dodge smelter from the book "Mexican Americans" by Mario T. García.