The El Paso Times was kind enough to publish a guest column I submitted to them and I thank them for letting me share my view about certificates of obligation.
I have appended the text below.
The days of certificates of obligation are over: Max Grossman
A certificate of obligation is a debt instrument that does not require voter approval and it can be employed by local taxing entities to fund public projects. Five years ago, Texas Comptroller Glenn Hegar called the use of COs for this purpose “controversial” because of “concerns about the way in which they circumvent voter approval.” His concerns are not unfounded.
The city of El Paso’s 2022 Budget Book indicates that local taxpayers are responsible for paying $762,613,542 in principal and interest on 10 COs that have been issued since 2012. That is 35.7% of our city’s total bonded indebtedness, and it does not include the principal and interest on the $96 million CO that was authorized Aug. 24, 2021.
Highest per-capita CO debt in Texas
The Texas Bond Review Board recently revealed that El Paso has the highest per-capita CO debt in Texas, $769 per person as of last year — more than Austin and San Antonio combined. By contrast, Houston has only $6 in per capita CO debt, and Dallas only $13.
Amazingly, more than half the city’s CO obligations were assumed in the last four years. On Jan. 8, 2019 our City Council voted to authorize a CO in the amount of $100 million, and on Jan. 7, 2020 another $100 million was authorized. In 2021 two CO issuances were approved: $93 million on April 13 and $96,000,000 the following Aug. 24.
With all of this CO money gushing into the city coffers without citizen oversight, the University Medical Center decided to get a piece of the action. On June 14 the seven members of their Board of Managers voted unanimously to issue a CO to fund the expansion of the hospital, sparking a major controversy.
The board failed to post the dollar amount on the agenda, and only two days later Jacob Cintron, president and CEO of the El Paso County Hospital District, placed an item on the El Paso County Commissioners Court agenda to give notice of the CO issuance as required by Texas law, yet he failed to cite the dollar amount or upload the corresponding documentation. Only when the media made inquiries did the backup appear on the agenda, the day before the court was set to vote. As a result of the controversy, the county opted to delay consideration to give the public and media time to scrutinize the proposed debt issuance.
Petition ends certificate of obligation
Soon after, a conservative group called the Libre Initiative launched a petition drive designed to take advantage of section 271.049(c) of the Texas Local Government Code, which was amended in 2019 to enable citizens to challenge CO issuances by petition. On Oct. 3, the county clerk announced that Libre had collected 32,311 valid signatures, about 7,000 more than were needed, and thus succeeded in terminating a CO that would have cost $346 million plus interest and raised our property tax.
This is one of the first times that the citizens of a Texas city succeeded in stopping a CO issuance by petition, and the financial implications for our local governments are immense. The city of El Paso, which is more addicted to COs than any other municipality in Texas, should be terrified.
It seems likely that any future attempt to issue a major CO will provoke the wrath of the citizens and be targeted by a petition drive. Like UMC, the city will be forced to put any major debt issuance to a vote of the people, who already suffer from one of the highest property tax burdens in the United States, thanks, in large part, to the explosive increase in municipal spending during the last 10 years.
With the exception of Joe Molinar and Claudia Lizette Rodriguez, our city representatives have voted for large CO issuances in rapid succession and with little discussion. Rep. Isabel Salcido of District 5, who not only voted for three property tax hikes since assuming office but also for $389 million in COs, is the only incumbent politician who voted for COs at all, and it will be interesting to see whether her constituents reelect her in November.
Given Libre’s achievement and their principled opposition to COs, our City Council representatives will have to rethink their financial priorities and cut spending, cancel non-essential projects like the multipurpose arena, and focus on the core functions of municipal government.
Max Grossman holds a doctorate in architectural history from Columbia University and serves on the boards of Preservation Texas, The Trost Society, and Restore Sacred Heart Church.