Government

El Paso Government Owned Companies

When taxpayers think of countries like China or Cuba they inadvertently think about state-owned companies where private ownership is restricted or impossible. Generally, a socialist country owns the companies. Many taxpayers may be surprised to learn that El Paso government entities own private companies.

Public Corporations

Most readers may think of public companies as companies, like Walmart, that are owned by individuals through the purchase of the company’s stock. Generally, a public company or public corporation sells ownership pieces to the public through stock exchanges like NASDAQ. But public corporations are also owned by government entities, for example the County of El Paso. These are known as state-owned companies. The decisions of the quasi-government company are made by individuals working for the government.

Quasi-Governmental Entities

A quasi-governmental entity possesses characteristics of a private company but are owned by the government. Examples of quasi-governmental entities that readers may be aware of are Fannie Mae and the U.S. Postal Service. The United States Postal Service started out as an agency of the United States government. It was included in the U.S. Constitution.

However, in 1970, USPS became a quasi-governmental agency managed by nine members appointed by the president and confirmed by the Senate. Today, USPS operates as a private company, yet it remains a part of the U.S. government.

Fannie Mae, which guarantees home loans, also operates as a quasi-public corporation. It is not treated as part of the government but depends on the government’s money to fulfill its mission.

How Cities Use Quasi-Governmental Units

Cities, like El Paso, use quasi-governmental entities to create public-private partnerships to have more flexibility with managing local projects. Quasi-governmental companies, most of which are also non-profit companies can both receive and spend public monies and private donations.

However, quasi-governmental units can also be like regular companies without the status of being a non-profit.

One example is the El Paso Children’s Hospital that some readers may not be aware is a quasi-governmental entity.

Another example that readers are unlikely to know about is the City of El Paso Downtown Development Corporation.

Although not the only quasi-governmental entities in El Paso, the Downtown Corporation and the children’s hospital are examples of the two types of quasi-governmental entities – a government owned non-profit and a company owned by the city government.

The City of El Paso Downtown Development Corporation

On December 27, 2012, the City of El Paso created a company named the City of El Paso Downtown Development Corporation. According to the corporation’s annual report with the State of Texas, the head of the company is Dee Margo, the treasurer is Robert Cortinas and the director is Tommy Gonzalez. The 2020 report, due later this year, will likely show Oscar Leeser as the company head.

What readers should note is that the company officials are city officials.

Most readers may not be aware that when the company convenes to hold a meeting, usually during a regular city council meeting, the city council closes its meeting and reopen as the Board of Directors of the City of El Paso Downtown Development Corporation.

This is because the company’s directors are the city council but when they are meeting for the company, they are not acting as government officials but rather as company directors.

This is what a quasi-governmental entity owned by the taxpayers of the city but acting like a private company looks like.

Why Did The City Create The Company?

According to the company’s initial bylaws, the City created the company for “the purpose of aiding, assisting, and acting for the City” to “develop, implement and finance, or otherwise pay or reimburse, the costs” of the ballpark, today known as the Southwest University Park. It is the home of the Chihuahuas baseball team.

The City of El Paso Downtown Development Corporation is a public company [see Note: 1] handling the finances of the ballpark for the taxpayers of El Paso. As a quasi-governmental entity, it has the financial backing of the taxpayers of El Paso and the flexibility to act as a company.

The El Paso Children’s Hospital

In 2015, the El Paso Children’s Hospital filed for bankruptcy protection after UMC demanded past due rent and other payments. Within seven months, UMC and El Paso Children’s Hospital reached an agreement for ending the bankruptcy. Under the agreement, approved by the bankruptcy court, the El Paso Children’s Hospital emerged as a reconstituted non-profit owned by one member – the University Medical Center of El Paso (UMC). As readers will note, UMC is a taxpayer funded entity under the County of El Paso.

The El Paso Children’s Hospital is the other type of quasi-governmental entity – a non-profit corporation owned by UMC.

It is important to note that not all non-profits are government owned. Many non-profits are private companies who operate charitable businesses as a non-profit.

Why Quasi-Governmental Entities?

Generally, public government-owned corporations work towards providing services of public interest. With economy of scale and access to capital via the governmental entity, public corporations can offer lower prices.

The advantages that a public corporation holds by virtue of its government ownership also include some disadvantages. Government owned entities do not have an incentive to be competitive and as a result may offer poorer quality services to their consumers. Government-owned public corporations are not required to meet profit metrics to remain as viable concerns because they can be subsidized through their government taxpayers.

Another disadvantage to taxpayers is that quasi-governmental entities are exempt from property and sales taxes. In the case of El Paso, the El Paso taxpayers not only have funded the ballpark and the building housing the children’s hospital, but they receive no tax benefit from the buildings they own.

The El Paso leadership has for many years argued that they are redeveloping downtown to increase the number of taxpaying properties to help decrease the tax burden on El Paso’s property owners.

However, under the scheme of quasi-governmental entities, El Paso’s taxpayers are funding development for properties that do not contribute to the tax base.

Blended Entities

There are several other quasi-governmental entities owned by El Paso government agencies. However, there is no centralized list of quasi-governmental entities. Consulting the Texas Comptroller of Public Accounts, which is the state’s repository of corporate records, does not segregate companies owned by governmental entities. One way to determine what companies El Paso governmental bodies own is by reviewing the annual financial reports filed by each government organization. Comprehensive Annual Financial Reports (CAFR) are the financial statement released by government entities. To determine what quasi-governmental entities a government owns, readers can look for blended entities in the CAFRs.

Most governmental entity financial statements include the blended entities as part of their finances without segregating them making it difficult to determine the costs to the taxpayers.

Accounting firms identify blended entities as “an organization that has separate legal standing if it is created as a body corporate or a body corporate and politic, if it is otherwise possesses the corporate powers that would distinguish it as being legally separate from the primary government.” [1]

Although blended into the governmental body, a quasi-governmental company has the power to act on its own. “Generally, corporate powers give an organization the capacity to have a name; the right to sue and be sued in its own name without recourse to a state or local government unit; and the right to buy, sell, lease, and mortgage property in its own name.” [1]

Blended entities are legally separate entities who hold the benefits of being owned by the government.

Open Records Law

Under the Texas Public Information Act, the public has the right to request most information from government entities, including emails and documents. However, the public information law does not apply to private companies.

The City of El Paso Downtown Development Corporation’s 2012 bylaws specifically make the company subject to the open records law. Article VIII of the company’s bylaws states that the company and its board “is subject to the Texas Public Information Act.”

However, the El Paso Children’s Hospital maintains that it is not subject to the Texas Public Information Act. The children’s hospital makes no mention of the open records laws in its bylaws..

The Texas Attorney General, the enforcing arm of the open records law, published an open records handbook. In it, the Texas Attorney General states that “nonprofit corporations established to carry out governmental business generally are not subject to the Act because they are not within the Act’s definitions of ‘governmental body’.” [2]

The handbook adds that “a private entity does not become a governmental body within the Act merely because it receives public funds.” [2]

Although the El Paso Children’s Hospital received public funds to build its hospital space and remains part of UMC, it is not subject to the open records law, according to the Texas Attorney General’s interpretation.

Confusing Labyrinths

The use of quasi-governmental businesses by local governments create confusing and convoluted entities working in conjunction with the government on public policy agendas but often insulated from government restraints and accountability. Often an entity is created to service a specific need in the community as was the case for the El Paso Children’s Hospital’s building.

But when controversy erupts, the dispute can lead to acronymous litigation, as the case with the El Paso Children’s Hospital bankruptcy. The settlement of the children’s hospital bankruptcy absorbed the children’s hospital into UMC. The mixing of companies into governmental entities leads to confusing comingling of public-private funds that are difficult to track.

The ballpark was able to be created because it bypassed the city’s restrictions by using a company to fund the project. Although the taxpayers funded the ballpark, it is a company that took on the debt on behalf of the city’s taxpayers even though the company’s managers are the mayor and city council members.

Making matters even more confusing is that often times the private companies share offices and staff with their governmental partners. Transparency in governmental affairs is the price for efficient and flexibility in public policy. Recent controversies suggest that in El Paso the use of quasi-governmental entities is unlikely to be of benefit to the city’s taxpayers.

Footnotes:

  1. “Definition of the Financial Reporting Entity,” Michigan Committee on Governmental Accounting and Auditing Statement No. 4, State Treasurer, State of Michigan, Revised December 2005.
  2. “Open Meetings Handbook 2018,” The Office of the Attorney General of Texas.

Notes:

  1. Texas law, specifically, Subchapter D of Chapter 431, Texas Transportation Code specifically allows local government entities, such as the City of El Paso to create “a local government corporation…to aid and act on behalf of one or more local governments to accomplish any governmental purpose of those local governments.” (Tex. Transp. Code § 431.101)

1 reply »

  1. Thank you for clarifying, as much as you could, this very confusing issue. These entities, as we already knew, are not to the benefit of the city’s taxpayers; but with this information we can at least know what questions to ask. We need to be alert to the formation of these “Quasi-governmental” companies & put a stop to it.

    Like

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