El Paso Matters – Tax increases, service cuts in play as El Paso county, city governments face financial uncertainty

El Paso’s city and county governments are headed into budget planning for the 2025-26 fiscal year with financial uncertainty caused in part by potential funding cuts trickling down from the federal level and obligations mainly driven by police and fire contracts.

The city for the last two years and county for the current fiscal year adopted no-new-revenue tax rates that generate the same amount of revenue as the previous year on the same properties. That has translated to little to no tax increases depending on an individual’s property valuation.

But that may not be sustainable in order to keep or increase services next fiscal year – which could mean tax increases, service cuts or both.

The City Council adopts its budget and tax rate in August for the fiscal year that runs from September 2025 through August 2026. The El Paso County Commissioners Court adopts its tax rate and budget in August or September for the fiscal year that runs from October 2025 through September 2026.

The council held a budget work session Thursday and heard its five-year financial forecast March 17. The county will begin its planning in late March with commissioners receiving monthly financial outlook reports before they go into budget hearings and adoption in August.

“We’re reminding them (the commissioners court) of what the realities are of the financial outlook,” Betsy Keller, the county’s chief administrator, told El Paso Matters.

Keller said the county is closely monitoring a potential financial downturn caused by tariffs, layoffs implemented by local school districts and the federal government that are also impacting federal contractor jobs – which could result in lower sales tax revenue.

Additionally, slow growth in home property values after years of rapid increases could also mean property taxes – the county’s main source of revenue – remains stagnant.

“We basically can expect to see some of the outcomes of that, like people not buying as many items … people not upgrading their homes as much, which impacts property tax growth,” Keller said. “From a financial perspective, those are the things that we’re projecting and we want to just be prepared in case there is a financial downturn.”

The county’s $446 million general fund budget included cuts for the current fiscal year to adopt the no-new-revenue tax rate, and with the economic uncertainties, she said the county may not be able to fully reimplement funding for those cuts in the upcoming fiscal year. Taxpayers with an average value home of about $201,000 now pay about $961 in county taxes a year.

The county will need to fund law enforcement pay increases at a cost of about $5.3 million. It will also have to provide matching funds for a variety of grants, including for those that help the county purchase alternative fuel vehicles or establish crisis intervention teams. But the county, in order to restore funding for small equipment replacement and other items it cut from last year’s budget, would need another $21 million. 

The county last year did not give employee pay raises as part of the cost-saving measures and is not included in the $21 million to restore other funding cuts from last year. 

Possible federal funding loss

Keller said another potential problem is if federal funding gets cut for county programs.

President Donald Trump in January suspended federal grants to education institutions, nonprofits and local governments, but quickly reversed course and rescinded the order. 

But, Keller said, if a similar measure is approved, the county would not be able to make up for that funding. The county receives about $91 million annually from various federal grants that help fund public safety, health and welfare, resource development, community services and public works and has about 69 federally funded employees.

“There’s programs like transportation programs that are federally funded, there’s so many different things that come through federal funding that it would be just devastating to lose that for our community,” Keller said.

Uncertainty from the impact of tariffs, cuts to federal grants and the possible economic slowdown may also impact the city’s budget along with its own financial obligations.

City Manager Dionne Mack said the federal impact is “a huge unknown” during the city’s budget work session Thursday.

Mack said many public health programs, including Women, Infants and Children, or WIC, that provides food, nutrition education and support to mothers and families, are tied to federal funding. It is not clear what, if any, programs or funding may be cut.

“It used to be that we had a good sense of where cuts might happen, but we have no sense right now, and I think everything is very random…so we’re trying to keep our eye on the pulse of things that are happening there,” Mack said.

Deputy City Manager Robert Cortinas, the city’s chief financial officer, said the city will have to address federally funded programs that may end.

“We have not yet been impacted by any of the federal (changes), whether it’s the financial assistance or any of the other executive orders that have come out. We’ve not been impacted on any of the grants yet (but) we are expecting that, eventually, we will,” Cortinas said.

In response to the pandemic, the federal government under the American Rescue Plan Act established the Coronavirus State Fiscal Recovery Fund and Coronavirus Local Fiscal Recovery Fund. The city received about $154 million through state and federal ARPA funds that must be spent by December 2026 when the program funding expires.

“We’ve used that to help fund a lot of our small business assistance, a lot of our economic development activities, a lot of our community development services, whether it’s services,” Cortinas said.

Growing costs for personnel, expenses

Cortinas said other challenges at the city level this year are mainly personnel costs driven by the recent pay raises for non-uniform employees and the contractual obligations from police and fire collective bargaining agreements.

The city’s minimum wage increase in February from $13.11 an hour to $15.75 will add about $12 million to the upcoming fiscal year budget, according to the city’s financial forecast. The increase in pay for police, fire and other uniformed employees will require an additional $3 million.

Another $4 million will be needed for three police academy classes, information technology upgrades, and increased costs for utilities and El Paso Central Appraisal District services.

Although the city established a “pay-go” fund to pay for vehicle replacements and street resurfacing, the financial needs outweigh what is currently allotted, according to the financial forecast.

The city has $19 million in its pay-go fund for street repairs, emergency vehicle replacements, park amenities and facility improvements, with the largest category going toward street resurfacing. The city has $10 million for streets, but would require $46 million annually to keep up with the needs. City estimates show the pay-go fund should have $98.5 million annually for all of the categories.

Cortinas said the street resurfacing category is the biggest challenge to address while trying to minimize the impact on taxpayers.

“We can’t continue to issue debt to be able to try to make an impact (on streets). It’s not worked, it’s not going to work,” Cortinas said. “So, we really need to come up with a long term solution to improve our street condition. That’s probably going to be the biggest discussion we have.”

The strategies the city used to adopt the no-new-revenue rate for this year’s $600 million general fund budget are not sustainable long term, according to the city’s financial forecast. Taxpayers now pay about $1,600 in city taxes on an average-value home of about $205,000.

Issuing new debt

The city this fiscal year did not issue new debt for the $413 million public safety bond approved by voters in 2019 or the $272.5 million community progress bond approved in 2022.

But the city’s financial forecast shows debt may have to be issued in the next fiscal year,  as several bond-funded facilities are slated to begin construction in the upcoming fiscal year, including the public safety complex in Northeast El Paso and the Mission Valley and Pebble Hills regional command center renovations.

That means taxpayers will have to start repaying that debt.

To adopt the no-new-revenue rate, the city cut funding that had been allocated for vacant positions, essentially leaving those jobs unfiled and saving salary costs. It also decreased funding for facilities and vehicle replacements, and dipped into its fund balance.

“Our two main revenue sources are property tax and sales tax, and so we understand the impact property taxes have on our homeowners and our businesses. We’ve worked extremely hard to balance that over the last few years, being very creative with some of the one-time fixes that we’ve done,” Cortinas said.

Cortinas said the city will have to continue to figure out how to balance the expenses and revenues and the needs for services while keeping the impact to taxpayers minimal.

Both the city and county may have to factor in issuing voter-approved debt in the upcoming fiscal year.

Voters in November approved about $155 million for projects under the capital improvement bond for various projects in the county, including a new medical examiner’s office and animal shelter. The cost would mean a $29 increase in annual county property taxes on a $200,000 home.

Keller said some of that debt may be factored into the next budget cycle.

Commissioners Court this week voted to publish a notice of intent to issue about $54 million in certificates of obligation, a form of non-voter approved debt for other infrastructure projects. County officials have said that amount will not impact the debt service portion of the tax rate since prior debt issuances were paid off.

The post Tax increases, service cuts in play as El Paso county, city governments face financial uncertainty appeared first on El Paso Matters.

 Read: Read More