Elsa to start paying IRS after four years

ELSA - The city is taking its first steps to get back in good standing with the Internal Revenue Service.

Elsa owes the IRS $436,854 for not paying federal taxes it deducted from employees' paychecks from 2004 to early 2007, Acting City Manager Paul Vazaldua Jr. said Monday - the same day he resigned from his post effective Sept. 1 without a clear explanation.

He said the city received a notice on July 23, just as Hurricane Dolly hit the Rio Grande Valley, that its checking accounts at First National Bank in Edinburg had been frozen.

Because of the natural disaster, which struck Elsa and the surrounding area particularly hard, city leaders were able to convince officials to lift the freeze within 48 hours with a promise they would immediately work on a plan to pay back the taxes.

The city must pay the $130,000 principle balance of the $436,854 tax debt; the remaining balance is interest and fines, which is negotiable, Vazaldua said. Monday afternoon, he said he was on his way to drop off a $40,000 cashier's check at the IRS office in McAllen, along with a proposal to pay another $150,000 in three installments. That figure would cover $60,000 of interest the city says it can pay, and it hopes the IRS will forgive the rest of the balance.

Vazaldua said the money it has gathered to pay comes from revenue generated after cost-cutting measures such as employee layoffs and collection of delinquent taxes, fines and utility bills from residents.He said the city's coffers should be able to cover the remaining $150,000, even though the city's current balance is $55,000, thanks to further projected revenues over the next few months following the cost-cutting measures and delinquent residential bill collections.

Still, the city faces $1.3 million in outstanding debt. It had to lay off a big chunk of if its workforce in 2007 that it has not been able to re-hire.