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Harris County Appraisal District

More lawyers for the bail practices lawsuit

I’m still not thrilled about this.

HarrisCounty

Harris County commissioners voted unanimously Tuesday to add another law firm to the county’s court fight against bail reform, a group whose job will be representing 16 county criminal judges who were recently added to a pending federal civil rights lawsuit.

[…]

Records show Harris County already has paid another law firm, Gardere Wynne Sewell LLP, $169,464 for six lawyers who have worked defending the county against the ODonnell civil case through July, according to a bill obtained through an open records request. Those bills included 113 hours of work by lead attorney Katharine David, who has charged $525 per hour, and 64 hours of work by Mike Stafford, a former Harris County attorney, who charges $610 per hour, according to new details released Tuesday.

So far, the county’s lawyers for the case have charged for, among other things, meeting with the county’s own hearing officers who set bond via video hearings, as well as sheriff’s officials, the 16 judges, the district attorney and other county officials. They’ve also drafted replies and motions in so far unsuccessful attempts to get the case dismissed, according to records obtained from the county attorney Tuesday.

Commissioners voted Tuesday to add another firm, Winston & Strawn LLP, to represent criminal county court at law judges.

Those judges were recently added as defendants to the case, which originally named the sheriff, hearing officers and the county as defendants. Precinct 4 Commissioner Jack Cagle pointed out he was voting in favor because the county attorney recommended approving the additional counsel.

“With the large number of people and entities being sued by the plaintiffs, there is the possibility of a conflict of interest,” said Robert Soard, first assistant county attorney. “Because of the possibility of a conflict and at the request of the judges, the Office of the County Attorney and Commissioners Court decided to retain separate counsel for the judges.”

Soard said the firm is assigning four lawyers to work on the matter and as agreed to charge $450 per hour with a cap of $40,000.

See here for the background. Again, I don’t have a specific objection to hiring outside counsel, and I agree that there could be a conflict of interest for an attorney who was representing, say, both the judges and the Sheriff’s office. But seriously, this lawsuit needs to be settled, like yesterday. This is a mess that the judges have created, and it needs to be fixed as expeditiously as possible. Fighting this lawsuit in court cannot be an option and should not be something that we the taxpayers are asked to support.

Things are tough all over

HISD faces a big deficit:

BagOfMoney

Houston ISD leaders are bracing for a projected $107 million budget shortfall that, in a worst-case scenario, could prompt the district to slash jobs.

During the school board meeting Thursday, however, officials pledged to try keep cuts away from schools.

“We get it,” Ken Huewitt, the district’s deputy superintendent and chief financial officer, told the board. “We’re in the business of teaching and learning.”

Huewitt said he told central office departments to consider not filling vacant positions and asked principals to weigh spending cuts up to $275 per student. His first-draft proposal also would save $10 million by dissolving the teacher bonus program, affecting payouts in January 2018. Money for next year already is in reserve.

He cautioned, however, that the district is still early in the planning process. The board is set to approve the budget in June. District officials typically present the severest financial outlook at the outset, without, for example, using savings to plug the gap.

The looming financial problem stems from the district expecting to reach, for the first time, the revenue level that requires property-wealthy school systems to send significant funding back to the state.

Lawmakers typically change the formula to avoid the so-called Robin Hood payback scenario for the Houston Independent School District and Dallas ISD, but that did not happen in the 2015 session, according to attorney David Thompson. The Legislature is not set to reconvene until January 2017 unless a special session is called.

Which there might be, depending on how the Supreme Court rules in the school finance case. If all goes well for HISD, they would be getting more money out of it. But you can’t count your chickens before they hatch, especially when you don’t know their timetable for hatching. The board has to make a budget, and they can’t make it based on assumptions about things that may happen at some unclear time.

And then there’s Houston.

As if nosediving sales tax revenues and a looming budget deficit were not enough, a swathe of successful lawsuits from business owners protesting their property values have handed Houston City Council another fiscal headache.

Mayor Sylvester Turner lamented what his finance director projects as a $16 million drop in property tax collections during the current budget year, which ends in June.

Granted, that’s not much in a more than $2 billion operating budget. But if all other trends hold, the news means there may be $16 million less on hand to close an already daunting $126 million budget gap for the new fiscal year that starts July 1.

Finance Director Kelly Dowe used new data from the Harris County Appraisal District to make the estimate. That data, said HCAD’s chief appraiser Sands Stiefer, was drawn from November and December, when many judges are trying to clear their dockets.

Turner at Wednesday’s council meeting lashed out at what he said is an “inherently unfair” system that rewards commercial property owners who hire lawyers to argue their properties are worth less than county officials contend.

That hands a higher share of the tax burden to individual homeowners who lack the same means to fight, the mayor said.

“They’re doing it each and every year. When they’re not successful at the appraisal districts, they go to court for relief,” Turner said. “The reality is, that $16 million is a real hit to the city’s budget.”

The hit is particularly harmful, Dowe said, because the city is operating under a cap on property tax collections that voters imposed a decade ago.

So this is the usual story, one part the rigged appraisal system and one part the stupid revenue cap, which does nothing but penalize the city for having strong economic growth, while exacerbating the problem in leaner times. The city has other issues it has to deal with, and the revenue cap is only part of the problem, but if you don’t recognize that it’s part of the problem, then you’re part of the problem, too.

And on that note, a song from the 80s that captures the theme of this post:

That’s John Cafferty and the Beaver Brown Band, who clearly kept on playing after the 80s. Good for them.

Compromise property tax appraisal bill signed

It’s better than nothing, though not by that much.

Gov. Greg Abbott has signed a bill that partially closes a loophole that allowed a powerful oil company to take back millions in tax dollars from Houston-area school districts while draining hundreds of millions more from local government coffers.

The measure that won final approval, HB 2083, from the Republican-controlled Legislature doesn’t go nearly as far in reforming the law as the Legislative Budget Board wanted. The board noted earlier this year that the law is costing the state $70 million to $80 million a year because Texas has to help maintain a certain level of funding at school districts, which are having to repay companies winning court cases based on a 1997 amendment to the state’s tax law.

When the measure takes effect in January next year, though, companies for the first time will be forced to use generally accepted appraisal methods in court cases challenging assessed values under the 18-year-old “equal and uniform” clause of the tax law.

The bill was pushed by county appraisal districts, who complained that often questionable methods were being used during tax appeals to arrive at appraisal values, said Charles Gilliland, a research economist at Texas A&M’s Real Estate Center at College Station.

“I think it will have some effect on it. How much … depends on how much unconscionable activity has been going on,” Gilliland said.

The new standard could give an advantage to appraisal districts, he said. “If they see the numbers being cooked, it gives them ammunition to raise that issue without going to district court,” Gilliland said.

The tax code section at issue gained attention after the Valero oil company forced the Port Arthur school district to refund about $30 million in taxes and other fees, and the Texas City school district about $5 million.

“I think the law was so bad that anything they could do was an improvement,” said Harris County chief appraiser Sands Stiefer, whose county school districts lost $685 million from 2011 to 2014 because of the loophole.

Stiefer, who took part in negotiations over the bill, said the measure leaves much to be desired. He said the issue will be revisited next legislative session. “We would like to see more done,” he said.

See here for the background, and here for a reminder of just how badly the current system is rigged. This bill will help a little, and that’s a good thing. Real Value$ for Texas calls it a “step forward”. I would agree with that and I appreciate the hard work they did to get that step forward taken. My concern is that now that we have taken this step, the perception in Austin will be that the problem is solved, and there will be no appetite to do anything further. I hope I’m wrong and that this is indeed just a first step. Be that as it may, I’m glad to see us get this far. It will make things a little fairer, and that’s never bad news.

Compromise bill to reform property tax appraisals

Better than nothing, I guess, but not clear to me yet how much better.

State lawmakers are looking to partly close a tax loophole that has allowed big companies to drain tens of millions of dollars from local government coffers in recent years, but any reforms that pass may still not end the legal battles that have been driving down appraisals on industrial and commercial properties.

Several reform bills were filed this year as counties began putting pressure on legislators to do something about an increasing number of lawsuits by major companies trying to take advantage of the loophole, which allows property owners to avoid the traditional fair-market system of appraisals.

School districts have been among those hardest hit. Valero Energy Corp. used the loophole to force the Texas City school district to refund about $5 million, while two other lawsuits by the company compelled the Port Arthur school district to pay $32 million in refunds and other charges. The company has new lawsuits pending that could mean even more tax refunds from the two school districts.

The loophole is also costing the state an estimated $70 million to $80 million a year in six counties, according to a January report by the nonpartisan Legislative Budget Board that called for sweeping reforms. The state must pay its share of tax revenue lost by school districts.

Although several reform measures have been introduced, the one that appears to have the broadest support in the GOP-controlled legislature is a measure introduced jointly by state Rep. Drew Darby, R-San Angelo, and state Sen. Kelly Hancock, R-Richland Hills, a Fort Worth suburb.

The compromise bill would require that property values used in court cases be arrived at using generally accepted appraisal methods instead of arbitrary estimates arrived at, in the words of the budget board, “independently of the market values of those properties or the appraisal district in which they are located.”

The measure also addresses the board’s concern that the law now allows commercial and industrial property owners challenging their tax assessments to compare their properties with dissimilar ones in other appraisal districts, or even other states. The bill requires that the comparisons be made within the same county unless there are no comparable properties there.

Alvin Lankford, Williamson County’s chief appraiser, said owners of large apartment buildings in his county typically search for such properties in neighboring Travis County to make comparisons rather than use apartment buildings on the same street. “They are able to pick these properties and get the answer they want,” he said.

Many appraisers, citizens’ groups and officials in affected counties wanted a bill that included more of the reforms recommended by the budget board. However, some of the attorneys, consultants, real estate firms and big businesses that benefit tremendously from the loophole refused to negotiate, said Ed Nolan, Dallas County’s chief appraiser and the chairman of the Texas Association of Appraisal Districts’ legislative committee.

“We didn’t get as much as we wanted,” Nolan said. “But it’s a start.”

[…]

In Houston, property owners concerned about having to shoulder higher property taxes because of tax reductions on industrial and commercial property formed Real Value$ for Texas, which has chapters statewide. The group found that from 2009 to 2013, owners of large commercial properties in Texas’ six largest counties shed $5.6 billion in property taxes that were made up for through higher taxes paid by homeowners.

“It’s unfair, it’s bad public policy and it needs to be changed,” said state Sen. Rodney Ellis, D-Houston, in announcing his own reform bill this month. He said large commercial property owners are using the loophole to “exploit the appeals process to drive down the appraised values of their properties to well below the market value.”

Ellis’ bill was the most ambitious of six reform bills, four by Democrats and two by Republicans. The compromise bill that emerged calls for the most modest changes. It also has the imprimatur of state Rep. Dennis Bonnen, R-Angleton, chairman of the powerful House Ways and Means Committee.

I support Sen. Ellis’ bill, and would like to know what he and groups like Real Value$ for Texas think before I decide how I feel about these compromise bills. They may represent a step forward, but they may also represent a point at which the forces who like things the way they are can say “we’ve already addressed this” and block further progress. The fact that Jim Popp, who may be the single biggest individual profiteer off the current system, appears to have signed off on the Darby/Hancock bills is the surest sign that there’s a lot more that could be done. I don’t think he’s complaining enough for these bills to do enough, but this may be the best we can do for now.

Reforming property tax appraisal protests

From the inbox:

Sen. Rodney Ellis

Sen. Rodney Ellis

Senator Rodney Ellis (D-Houston) releases the following statement regarding Senate Bill 1084, his bill to create a fairer property tax appraisal system in Texas:

“Homeowners and local communities across Texas are shouldering an unfair burden when large commercial property owners manipulate the property tax system to drive down their property values and property tax bills,” said Senator Ellis. “While most homeowners pay taxes on the real value of their property, many large commercial property owners routinely use appeals and lawsuits to avoid paying their fair share. When large commercial property owners shirk their responsibility, ordinary homeowners pay more property taxes to make up the difference. That’s not fair, it’s bad public policy, and it needs to change.”

SB 1084 closes the loophole related to how owners of business properties worth more than $1 million present their cases in court. No longer can lawyers for these property owners game the system, “cherry-pick” properties, or make adjustments that do not follow generally accepted appraisal techniques just to drive down their appraised value. Instead, they must select a reasonable and representative sample of comparable properties located within the county and based on similarities in location, square footage, age, and other conditions.

Relief can only be granted by a court if the appraisal ratio of the property exceeds the median appraised level of the comparable properties by 10 percent.

The bill also requires the Comptroller to adopt rules that establish standards for the equal and uniform appraisal of industrial, petrochemical refining and processing, and utility properties. Lastly, the bill allows courts to award attorney’s fees to appraisal districts that establish that the property in litigation was appraised in an equal and uniform manner.

The Legislative Budget Board examined the issue in the agency’s January 2015 Texas State Government Effectiveness and Efficiency Report. SB 1084 is based on LBB recommendations, as well as numerous meetings with homeowners, appraisers, counties, and cities around the state.

Photos from today’s press conference can be viewed and downloaded here. Video of the press conference can be viewed here.

As you know, this subject has been a minor obsession of mine lately; see here and here for examples. The game is rigged, with a small number of high end properties essentially dictating what their taxes are, while appraisal districts and the vast majority of homeowners are left holding the bag. I don’t know what the odds are of this bill – the Houston Business Journal reports that there are several similar bills out there, including a couple by Republican Senators, though I can’t say how any of them compare to SB1084 – but any step in the direction of fairness and equity is long overdue. Better Texas Blog has more.

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.

Property values declining

I have three things to say about this.

The housing slump that has battered much of the country for two years finally has trickled down to Harris County, where residential property values have declined or stagnated for the first time since the oil bust of the 1980s, the county’s top appraiser said Friday.

Nearly half of homeowners saw their property values decline this year, while a third saw no movement, Harris County Appraisal District chief appraiser Jim Robinson said. Just under 20 percent of properties increased in value, mostly in neighborhoods featuring homes worth more than $500,000.

HCAD has finished appraising 860,000 of the county’s approximately 1 million homes, and homeowners’ value notices should begin arriving in mailboxes in the next few days, Robinson said. The district will spend the next two weeks appraising the remaining homes, mostly new construction and properties damaged by Hurricane Ike.

The total value of the 860,000 homes that have been assessed has declined by about 2.5 percent from last year, Robinson said.

It will be difficult to determine how the sputtering real estate market will affect local governments, which rely heavily on property taxes to fund operations, until all residential and commercial appraisals are completed. Robinson said his office is reporting declining values for many commercial properties after years of soaring appraisals.

“I think there will be some jurisdictions, perhaps a significant number, that will see their tax base less than it was in 2008,” Robinson said.

A decline could force budget cuts or tax rate hikes by some local government entities that have watched their tax revenue grow steadily in recent years.

But local leaders said they have assumed a slowdown was imminent and budgeted accordingly.

1. In a sane world, this would move the biennial crusade for appraisal caps to the back burner. In the world we live in, where there are Republican primaries to be won, I’m not so sure. I must admit, between voter ID and the stimulus, most other agenda items have gotten drowned out to some extent. I haven’t heard much at all about appraisal caps lately. I just think that’s temporary, and not indicative of anything.

2. By the same token, this will probably make it even more difficult to pass sales price disclosure legislation, which is intended to ensure that commercial and high-end residential properties are appraised fairly and accurately. Not that such legislation was likely to pass anyway,

3. This is another reason why federal stimulus money is so important. It can and will help local governments bridge their budget deficits in ways that will let them avoid making the kinds of cuts that would greatly exacerbate the effects of the downturn; specifically, it will help them not have to lay people off. The fewer people that lose their jobs, and the more that feel confident they won’t lose their jobs, the better for the economy.