El Paso City Council overrides mayor's veto of $96 million in certificates of obligation
The El Paso City Council voted Tuesday to override a veto by the mayor that would’ve stopped the city from issuing $96 million in nonvoter approved debt.
The vote was 6-2, with city Reps. Claudia Lizette Rodriguez, District 6, and Joe Molinar, District 4, opposing overriding the veto.
City Reps. Peter Svarzbein, District 1; Alexsandra Annello, District 2; Cassandra Hernandez, District 3; Isabel Salcido, District 5; Henry Rivera, District 7; and Cissy Lizarraga, District 8, voted in favor of overturning the veto.
The city’s charter states that six City Council representatives are needed to override a mayoral veto.
Molinar said the city needs to be more frugal with its spending.
"I have to say, this is not our money, it's taxpayer money," Molinar said. "We have a fiduciary responsibility to do well with it."
Rodriguez, the other dissenting vote, said the City Council should be looking for alternative ways to fund projects rather than relying on debt that isn't approved by voters. This form of debt is known as certificates of obligation, or COs.
"Those certificates of obligation that we've collected over the years, we're nearing a billion dollars," Rodriguez said. "Those optics are terrible."
As of August 2020, El Paso ranked No. 1 in the amount of CO debt outstanding among Texas’ six largest cities, according to the Texas Bond Review Board.
Annello, who voted in favor of overriding the veto, said there are a number of ongoing projects that are in low-income communities that she wants to support, but she doesn't want to fund the Mexican American Cultural Center.
"And so here I am, having to put my values and my community on the line and make a very hard decision," Annello said.
Mayor Oscar Leeser said he is in favor of the projects, but wants to find another way to fund them.
"Just like a credit card, just because you have it, you don't need to continue to charge on it," Leeser said. "Sooner or later that credit card is gonna blow up on you, and this is no different."
'Enough is enough,' Leeser says
In April, the City Council approved issuing $93 million in COs. During Tuesday meeting, Svarzbein asked Leeser what changed since then.
"I'm speaking today, because I can tell you that enough is enough, and I think we can find money to be able to do these projects and continue to work together as a body," Leeser said.
Svarzbein responded to Leeser by saying he wish he heard "those words" from Leeser's mouth "three months ago at the beginning of this budget season, not three days after we approved the budget."
Leeser said the city's slow growth reflected in the 2020 U.S. census also influenced his decision to veto the new round of certificates of obligation.
Census data wasn't released until Aug. 13. City Council approved the 2021-2022 budget on Aug 24.
Svarzbein said he felt "blindsided" by Leeser's veto.
"I can't support this. I wish that we were having these conversations, I wish I could hear anything of actual substance about which projects that the mayor would like to propose to defund or cut," Svarzbein said.
What will the bond money fund?
Leeser’s veto applied to only a portion of a $180 million bond package City Council authorized on Aug. 24. The portion Leeser opposed was $96 million in certificates of obligation. The CO money is earmarked for construction projects such as a new roundabout near the Downtown international bridge, street lighting, and animal quarantine areas for El Paso Animal Services.
The total $180 million bond package will pay for extra costs tied to projects voters approved in the 2012 Quality of Life bond package and the 2019 public safety bond.
City Engineer Sam Rodriguez told the City Council that the pandemic delayed many of those projects and now the city needs more money to cover higher construction costs.
The costs for other projects, like the Eastside Regional Park and the Mexican American Cultural Center (MACC), went up after the original bond issuances because of added amenities and design changes.
The MACC and the Eastside Regional Park are set to get $20.8 million in this latest bond issuance.
City figures show $46.7 million of the bond money will go to street improvements.
Chief Financial Officer Robert Cortinas said, "So, some of these projects have already begun with the design or the initial stages of these projects, and, so, the funding that we requested is to, in essence, complete a lot of projects that have already been started."
Cortinas said taking advantage "of the low interest rate" brings the project cost down.
Not all debt is bad
Martin Luby, a professor at the University of Texas at Austin who specializes in public finance, said that debt is a tool cities use to pay for their developmental needs, particularly long-term infrastructure like buildings and roads.
“The fact that there's more debt, that's not necessarily a bad thing,” Luby said. “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. The current taxpayer, they're getting a 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 them both to be paying for it.”
Fitch Ratings gives the city of El Paso a favorable "AA" credit rating, which is the agency’s second highest rating. An April 2021 report by the agency about El Paso municipal bonds said, “Fitch views the city's budget management as strong, marked by a trend of stable and strengthened financial position in recent years.”
Anne Ross, a municipal finance specialist who helps institutional investors buy bonds, said now is a good time for governments to borrow because demand for bonds is high. That demand is pushing down interest rates, making borrowing cheap.
“The inflow of cash into the muni bond space is phenomenal,” Ross said. “If you’re an issuer and you are coming to the market now you are making out like a bandit, because there’s so much demand for your paper.”
Mayor's reasons for veto
In a news release Friday, Leeser gave four reasons for vetoing the certificates of obligation, stating:
- "We cannot continue issuing debt and obligating future generations to that debt.
- "As we just saw with the unexpected COVID-19 public health crisis, we do not know what is in store for us in our future. No one could have foreseen the expenditures we’d be faced with in addressing this crisis. As such, we must tread carefully in issuing any additional debt.
- "I believe in being fiscally responsible and debt cautious in debt management.
- "El Paso already ranks at the top of the six largest cities in Texas with certificates of obligation debt outstanding."
"I honestly believe that being the largest city in the state of Texas with certificates of obligation, and adding additional obligation to the taxpayers that they're gonna have to pay back sooner or later, is going to be tough for our city and our taxpayers," Leeser said.
State law limiting nonvoter approved debt issuances in effect Sept.1
Under Senate Bill 2, which Texas Governor Greg Abbott signed into law in 2019, local taxing entities such as cities and counties are subject to a 3.5% cap on revenue growth generated by property taxes.
Originally that cap excluded revenue that was designated to pay for COs and other nonvoter approved debt.
A new law, HB 1869, which went into effect on Sept. 1, now includes COs in that 3.5% cap, limiting the use of COs by local governments.
Certain COs, like those issued to refinance old debt or pay for critical infrastructure such as streets and fire stations, are not subject to restrictions under the new law.
"What it does do is it redefines the type of debt that can still be serviced with the interest, and that sort of side of the tax rate," El Paso City Attorney Karla Nieman said.
Mónica Ortiz Uribe can be reached at firstname.lastname@example.org.