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How the appraisal game is rigged

The Observer tells the tale of how we got to where we are with the appraisal process and how easy it is for the big boys to get their taxes drastically reduced.

BagOfMoney

At the heart of Valero’s lawsuits in Moore County was a complicated question: What is a refinery worth? For that matter, what is any property worth?

Since most litigation against appraisal districts settles out of court, juries rarely get to answer that question. But that’s what a Galveston jury did in 2013 when it lowered the tax value of Valero’s Texas City refinery from $527 million to $337 million, though Valero had agreed to the higher number only two years before. A local jury, in a town far from rich, sided with the world’s largest independent refiner in its perennial quest to drastically cut the taxes it owes to public schools and local governments.

Appraisal district officials across Texas were flabbergasted. Refineries are a complicated, opaque business, and the technical testimony took a whole mind-numbing week—“a battle of experts,” said Ken Wright, the chief appraiser for the Galveston Central Appraisal District. Yet members of the jury took only four hours to decide in Valero’s favor. It proved what every trial lawyer knows, that the battle is almost always won by the side that not only tells its story best, but has the simplest story to tell. “It’s taken me many years to figure this out,” said a rueful Wright, who is retiring this year.

The story, Valero’s whole case, depended on a one-sentence amendment to the property tax code that whisked through the Legislature in 1997. The details of how that happened are hazy—the legislator who introduced the amendment died years ago—but the man who wrote it is a respected Austin tax attorney, Jim Popp. His firm, Popp Hutcheson, has represented some of the most prominent plaintiffs in lawsuits against appraisal districts, among them Western Refining, the JW Marriott hotels, H-E-B, Walgreens, the Formula 1 racetrack in Austin and Valero.

There are basically two ways to challenge a tax appraisal—on value and on unequal appraisal. The first claims that a property has been appraised above market value. The second claims that while a property may be appraised at market value, others like it are appraised for much less. Before 1997, an unequal appraisal claim required an expensive property analysis called a ratio study, and it was seldom used.

Popp’s amendment created an easier, cheaper way to claim unequal appraisal and gain an automatic reduction in value—so easy that it is now routinely used in tax protests and dominates big-ticket litigation. You simply select a “reasonable” number of “comparable” properties (available on the appraisal district’s website), adjust their values up or down (your house has a swimming pool, mine doesn’t) and find the median—the middle number on the list. What’s reasonable or comparable isn’t spelled out. Market value is beside the point. If your valuation is higher than the median, it gets lowered to that number. The amendment is now called the equity statute, or simply “equal and uniform,” echoing the Texas Constitution’s dictum that taxation be “equal and uniform.”

David Hugin, a Popp Hutcheson lawyer, argued the case in Galveston. Fairness was the theme: The appraisal district had wronged Valero by overvaluing its refinery, and the law showed the jury exactly how to set things right. It produced a breathtakingly simple answer to the vexing question of worth.

All the jury had to do was look at the comparables, the other two refineries in Galveston County—Marathon’s little 84,000-barrel-per-day plant, which processes only light sweet crude oil, and BP’s 451,000-barrel-per-day behemoth (now also owned by Marathon), which runs all kinds of crude oil, sprawls over 1,200 acres and is one of the largest, most complex refineries in the U.S. It had been appraised for $800 million more than the smaller refinery. “They are massively different,” said Wright. “Like comparing a corner grocery to a Kroger’s.”

Read the whole thing. If your blood isn’t boiling by the end of it at the ease with which the lucky few can screw the rest of us, you’re probably one of the lucky ones making a killing off of this. The Legislature could of course fix this, but we all know what the odds of that are. In the meantime, cities, counties, school districts, hospital districts, and ordinary homeowners are all getting squeezed.

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