The El Paso Crisis

When I first started my blog around 2000, I soon began to focus on El Paso corruption. Corruption is the underlining issue/problem on the border. This is true for both sides of the border. Most focus on the Mexican side forgetting that for corruption to be successful there must be willing participants. Without a complicit class in El Paso there would by little for the drug cartels to fight over for control of one of the largest transit points for both illicit drugs and guns.

One of the unintended consequences of corruption are the high taxes paid for by taxpayers. The taxpayers must foot the bill for lost monies caused by corruption. In the case of El Paso, not only is money lost through corruption, but corruption also saddles that taxpayers with debt that they must pay for.

To pay for tax-funded needs, a community must grow its tax base. Although government jobs stimulate the local economy by flowing one dollar from the government worker’s paycheck through the local economy and back to the government, it does not create new money.

For example, when the government worker spends their dollar at the local store, that dollar recycles through to another worker at the store in the form of a paycheck which then is used to buy more goods at another store and on through another paycheck until it ends up back at the government in the form of taxes. Each step the dollar makes it sheds some of its worth in the form of taxes – payroll or sales taxes.

But the money does not grow, it just cycles through the local economy.

In the case of private industry, when a widget is made it is sold to someone else. When it is sold outside of the local economy, or the service is provided to a purchaser outside of the local economy the money used to pay for the product/service comes into the local economy from somewhere else.

It is new money.

Therefore, it stands to reason that the private sector stimulates the economy by bringing in new money. The government just recycles money through the local economy. In the case of El Paso, there are federal jobs, like homeland security and Ft. Bliss that gives the illusion that the federal funds are added to the local economy. However, the reality is that a small amount is likely infused into the local economy in the form of local purchases, but most of the federal money does not enter the local economy.

For example, federal government entities do not pay taxes. Ft. Bliss does not pay property taxes. For most Ft. Bliss soldiers, El Paso is but a steppingstone to another location. There are some that will be tempted to argue that soldiers purchase homes, cars and groceries. Likewise, they will argue that Homeland Security workers come from other localities to settle there.

But the question remains, at what expense?

Do the newly arrived workers displace local workers? However, it can be argued that the government jobs from federal agencies bring in new money because they use national taxpayers’ funds for their operations. But at what levels it is difficult to ascertain. Moreover, what is the expense they cost the local economy?

For example, are the added costs to the local healthcare system or police force for the presence of federal workers been quantified? What is the strain on the local infrastructure from use by entities not paying property taxes for upkeep?

Therefore, at best, federal monies in the form of local paychecks have a marginal positive affect on the local economy, other than keeping people employed that otherwise would be unemployed.

According to a 2017 study into government jobs versus public sector jobs, government jobs account for between 12% and 25% of a state’s workforce. The lowest government workers as a percentage of all jobs in a state was 11.8% in Wyoming according to the 2017 study. The highest was 24.9% in Wyoming.

Texas ranked number 29th at 15.9%. (For those that are curios, Florida was 46 at 12.9%)

El Paso’s workforce is 22.4% (2019) government workers, according to the Federal Reserve Bank of Dallas. The balance of the El Paso workforce is mostly shared between retail and the services industry at about 31% and the healthcare industry at about 19%. That is almost 75% of the workforce. In the case of El Paso, the healthcare industry is mostly paid for by federal tax dollars, so it does little to stimulate the local economy.

Therefore, the largest private-sector workforce in El Paso works in the services sector. At 31%, the services sector is the lowest paid of the job sectors and yet accounts for most of the private sector monies that flow into the local government.

El Paso owes $1.7 billion in public debt. That debt must be paid for by taxes the city raises. Most of that money comes from property taxes. Accounting for the city’s assets and the number of local taxpayers, the city needs $3,900 from each taxpayer to pay off the debt. This is in addition to funds the city already collects from those same taxpayers.

This brings us back squarely to the incoming economic crisis for El Paso.

El Paso unemployment rate hovered at around 4% before the pandemic struck. Today’s unemployment numbers are unavailable but according to KTSM, in early April, almost 20,000 El Paso workers were seeking unemployment benefits. That is up from the average of 400 each month.

Assuming an El Paso workforce of about 325,000, the 20,000 lost jobs represents a 6% unemployment rate. There are too many unknown variables at this point to precisely determine the actual unemployment rate today.

However, using the 6% as a starting point until more reliable numbers become available and understanding that the 6% figure is based on numbers from the beginning of the month, it is likely that El Paso’s unemployment rate will rise to, or above 10% soon.

The economy is an endless circular function where one incident cycles through other parts of the circle in turn affecting the size of the circle. The more problems the smaller the circle gets. As each new unemployed individual seeks help their inability to make payments on their rents or mortgages will in turn cycle though the property tax values. The more defaults the lower the tax value becomes.

Those who meet their monthly obligations must now face the prospect of adding more of their money to the $3,900 shortfall the city has to make debt payments to make up the difference that those who dropped off the tax rolls lost. Each step losing even more of the tax base.

The other component to consider is that just because the country is back in business does not mean that the jobs will suddenly reappear. The first order of business for all businesses will be to assess their finances. The next issue they will need to address will be whether there are clients to make purchases from them, and if so, at what level.

If the businesses remain viable, they will not suddenly hire everyone back. They will ramp up their operations step by step. And thus, the vicious economic circle is pressured again because as unemployment remains high there is less income to fund business operations and thus less people go back to work.

The services industry is disposable income. Before the taxpayers start spending monies, they will first asses their own financial obligations and then, if any money is left, look for entertainment outlets. And thus, the vicious economic circle keeps getting smaller and smaller.

The City of El Paso cannot file for bankruptcy to lower its debt. Technically it can but cities, for the purposes of bankruptcy, are not treated as sovereign entities. They must go to federal court and the courts have traditionally looked at the community’s taxpayers to make up the shortfalls.

That is why municipal bonds are considered safe investments because the taxpayers are on the hook for the debt.

For El Paso taxpayers, the pandemic has exposed the fundamental flaw that the unbridled government spending to create illusions of prosperity have created. As many have been arguing for years, it is the El Paso taxpayer that will end up paying the bills of the ballpark boondoggle and the other flights of fancy that the city leaders embarked upon the last 20 years, or so.

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