*NOTE: THIS REPORT FOCUSES ON THE PROPERTY TAX RATE BUT DOES NOT CONSIDER THE NO-NEW-REVENUE TAX RATE
This morning I wrote to you that the City is planning to raise our property tax by an additional 33% by 2026, to approximately $1.21 per $100 of valuation. However, the City’s figures do not account for two major developments: Texas property tax reform and the coronavirus outbreak.
On June 12, 2019, Texas Governor Abbot signed into law Senate Bill 2, which limits annual property tax increases to 3.5% per year. A steeper increase can be authorized only through a general election.
If you do the math you will find that the new law may prevent the City of El Paso from raising the property tax by 33% by 2026. In theory, they could only raise it by 23% unless higher increases are approved by the voters, and that will never happen.
The Texas Tribune points out, however, that “the growth rate excludes taxes levied on new construction and can be averaged over three years, allowing taxing units to exceed the 3.5% threshold in some of them.” This is an important exception in the case of El Paso.
The City likes to tell us that they have already collected most of the property tax for this year, and that is true, but a decline in property tax revenue in FY 2021 and possibly beyond is imminent and they know it.
And then there is the Coronavirus outbreak, whose economic impact during FY 2020 (ending September 1) will be only $32.5 million, according to CFO Cortinas. I feel certain that the economic impact this fiscal year will be far more severe–probably in the range of $50 to $100 million.
Texas property tax reform and the COVID-19 crisis mean that that our City is on a collision course with insolvency.
You can see in the attached City chart that the spread between expenditures and revenues will widen starting this year, and by 2025 we will be in extreme financial danger, since property tax revenue will not keep pace with spending.
The only option will be to cut government drastically.
City Manager Gonzalez and CFO Cortinas know this perfectly well and will need to make City Council understand more clearly the magnitude of spending cuts will be necessary to save us from Chapter 9 bankruptcy.