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Exxon Mobil fighting its tax bill

Of course they are.

BagOfMoney

Exxon Mobil is fighting the Harris County Appraisal District over the $1.04 billion value placed on its sprawling new office complex in Spring, just south of The Woodlands.

The oil giant, which has been guarded about the campus project, would not provide its own estimation of the property’s value. But its appeal claims the actual value “is substantially below” what was assessed.

The company paid nearly $40 million in 2015 taxes for the property west of Interstate 45 at the Hardy Toll Road, although it continues to dispute the amount. It could be headed to a jury trial to resolve the matter.

Like thousands of commercial property owners do every year, Exxon Mobil protested the appraisal after it received its 2015 tax bill. When a review board maintained the initial assessment, Exxon Mobil filed suit, one of the options a property owner has when not satisfied with the decision.

The company said the valuation was “excessive and unequal in comparison with other similar property in the appraisal district,” according to its lawsuit filed Sept. 16 by Exxon Mobil affiliate Palmetto Transoceanic. The property’s actual value “is substantially below” the appraisal review board’s determination, the company said.

[…]

Exxon Mobil has spent several years developing a state-of-the-art corporate campus on several hundred acres in Spring to house some 10,000 workers.

The Irving-based energy giant recently completed construction on 14 office buildings, three parking garages, four support buildings, a central utility plant and a child care center on 242 acres, according to a document from the Harris County Improvement District No. 18, which was set up to issue bonds and levy taxes for infrastructure improvements in the area.

There’s nothing unusual about this – as the story notes, there are over 2,500 similar protests going on right now in Harris County. The reason for that, and the reason why Exxon Mobil will almost surely win in the end, is because the system is rigged in favor of large commercial property owners. The Legislature did take one small step towards leveling the playing field last year, so Exxon Mobil will have to work a little harder to get its taxes slashed. But barring anything unusual, it will be a big upset if they fail.

Harris County settles with HCAD

Not sure about this.

Less than two months after formally challenging the way the local appraisal district calculates the value of vacant commercial land, Harris County has backed down.

Commissioners Court on Tuesday OK’d the withdrawal of a petition filed in early June by the county attorney challenging the Harris County Appraisal District after the two sides reached an information-sharing agreement. The vote came a day before the petition was scheduled for a hearing in front of HCAD’s independent Appraisal Review Board.

The county’s petition was based on the preliminary findings of a study the court ordered earlier this year that concluded the appraisal district had undervalued undeveloped commercial property by more than 80 percent this year. That finding was based on a random sampling of two dozen vacant commercial lots across the county with a combined assessed value of $75.3 million. An expert consultant the county hired in January found that empty lots meant to hold apartments or retail space – making up only about 2 percent of the county tax base – were worth a combined $140.8 million, or 83 percent more than HCAD appraised.

Unlike home and business owners, who can protest appraisal values for individual properties, counties can challenge appraisal values only for entire categories of property.

On Tuesday, though, First Assistant County Attorney Robert Soard told the court that county staff had reached an agreement with HCAD and asked for permission to withdraw the challenge petition submitted to the district on June 2.

See here and here for the background. I’m not totally clear on the details here, if this is an advance for the cause of better appraisals of commercial properties or not. All that’s been agreed to is better information sharing, not that we’ll get better outcomes. There’s no quote in the story from any of the prominent critics of HCAD, and I haven’t seen any reaction from them on their sites, either. So, I’m not sure what to make of this. If you’re in a better position to judge, please leave a comment.

County to challenge vacant lot appraisals

It’s a start.

Harris County is challenging the local appraisal district’s valuation of vacant commercial land after a study it commissioned concluded the agency had undervalued those properties by more than 80 percent this year.

The finding was based on a random sampling of two dozen vacant commercial properties across the county with a collectively assessed value of $75.3 million. College Station-based consultant Ted Whitmer found those vacant lots – among nearly 30,000 on the rolls – were worth a combined $140.8 million, or 83 percent more.

The County Attorney’s Office filed a challenge based on the preliminary findings with the Harris County Appraisal District on Monday, the deadline to submit challenges. The action could evolve into a lawsuit if the district’s Appraisal Review Board does not settle, but agency and county officials said they hope to avoid that.

[…]

Unlike home and business owners, who can protest appraisal values for individual properties, the county can challenge appraisal values only for entire categories of property. Vacant commercial properties make up about 2 percent of the county tax base.

Harris County Commissioners Court voted in February to hire Whitmer to monitor the appraisal district’s valuations of all commercial properties, concerned the appraisal district could be undervaluing certain business properties at the expense of homeowners.

Precinct 3 Commissioner Steve Radack, who requested the study, said at the time that district’s Appraisal Review Board in recent years had agreed to set values for commercial and industrial properties far below what those properties later sell for, suggesting the independently governed agency did not adequately fight property owners who challenged their appraisals in court.

Whitmer’s study found that the appraisal district largely had accurately appraised commercial properties, including downtown skyscrapers and apartment complexes. That is a sign, according to one HCAD critic, that agency efforts to more accurately appraise business properties have paid off.

“I am delighted that we have reached the point where the Harris County Appraisal District, the largest appraisal district in Texas, is vastly closer to true market value,” said blogger George Scott, who worked for the district as a spokesman until 2012.

Scott said the report will help the appraisal district defend values in court against deep-pocketed companies trying to lower their appraisals for commercial and industrial properties.

See here and here for the background. This won’t make a big dent in the appraisal gap, but it’s a good first step in the right direction.

Some grassroots action on the unfairness of commercial property valuation

From the inbox:

Parents, homeowners, teachers, and community members from Houston gathered at the park in front of Nathaniel Q Henderson Elementary School to kick off local efforts in a statewide campaign called Real Values for Texas to fix the state’s broken property tax system.

“Our broken property tax system works against kids, homeowners, and schools,” said Reverend James Caldwell of the Houston Coalition of Community Organizations. “When big building owners manipulate property tax law, they deprive schools and neighborhoods of much-needed funds.”

In Houston, most large commercial property owners exploit loopholes in property tax law that allow them to lower their property tax bills by an average of 40 percent each year. As a result, Houston schools and local communities have lost an estimated $1.4 billion over the past five years. Schools have been hit the hardest, with losses of at least $730 million.

“It troubles me that, unless we change property tax law, kids in pre-kindergarten like my daughter will face obstacles to their education every year because of funding cuts,” said Tarah Taylor, a parent of an HISD student. “Even though she is just 4 years old, my daughter is already fundraising for musical instruments at her school.”

“My students pay the price when large commercial property owners get huge discounts on their property taxes,” said Daniel Santos, an HISD teacher. “From bigger class sizes to limited supplies, each year it gets harder to give students the full attention and resources they need to succeed.”

For homeowners, the impact has been equally significant. Since 2000, the property tax burden on homeowners grew from 45 percent to 54 percent while the share that commercial and industrial property owners paid dropped to less than 20 percent, according to the Associated Press.

“I do my part and pay my property taxes each year, and it’s unfair that homeowners like me have to make up for what big commercial property owners are not paying,” said Guadalupe Avila, a homeowner from Houston’s Northside. “It’s time for a fair system where big commercial property owners pay property taxes on the real market values of their properties.”

Local public officials have also shown support for a fair property tax system.

“Property tax fairness is a simple issue,” said Houston City Council Member Jerry Davis of District B. “It is about fixing the law to ensure that children have a quality education, our streets are safe, and homeowners are not overburdened.”

In April, supporters of Real Values for Texas in San Antonio rallied in front of the Homewood Suites-Riverwalk to call on large commercial property owners to stop exploiting loopholes and to pay property taxes on the real market value of their buildings.

In El Paso, Real Values for Texas supporters are engaging the local community around the connection between property tax manipulation and the proposed budget cuts by the El Paso Independent School District.

You know how I feel about this. Real Values For Texas is a newcomer on the scene, but they’re starting to get some attention, in the Trib and the DMN, which last month had its own big story on the unequal playing field for commercial property owners plus an editorial that called for fixing it. We all know the first step in solving a problem is admitting that you have one. The second step is getting organized. That’s what Real Values For Texas is about, so check them out.

Another story on the huge inequities of our property tax system

The Houston Press returns to an old favorite.

HCAD

“I’ve been sued every year by [JW Marriott],” says Michael Amezquita, the fiery chief appraiser of the Bexar County Appraisal District, which is currently ­facing $10.3 billion in appraisal-reduction litigation compared to the annual $4 billion to $5 billion average. In the 2011 tax year, BCAD’s ten most expensive courtroom losses to class A commercial and industrial property owners resulted in an absence of $1.8 million in tax revenue for San Antonio-area school districts.

“Valero sues every year,” Amezquita adds. “H-E-B [based in San Antonio] is suing every year now. They never used to sue me before.” The Houston Press’s interview request with Bill Day of Valero’s media relations department in San Antonio fell on deaf ears.

Appraisal districts and property-tax experts say the uniform and equal (sometimes called “equity”) provision, cemented into the Texas Constitution in 1997 amid yawns from lawmakers, is the evil responsible for Texas’s defective property-tax system. Also known as the Taxpayer’s Bill of Rights, the statute created an annual circus in which big-money property owners and appraisal districts argue over how best to value the land, the sticks and the bricks, with the property owners almost always winning.

A 2011 study by Texas Comptroller of Public Accounts Susan Combs concluded that the state’s property-tax system generated more than $40 billion in revenue (or 47 percent of total tax revenue) in fiscal year 2011. There are billions of dollars on top of the $40 billion that should be there but aren’t, according to District 13 Senator Rodney Ellis. The Democratic lawmaker from Houston says that for every million dollars removed from the tax rolls, school districts, fire departments and emergency medical services are squeezed out of approximately $30,000.

The problem has been exacerbated by Texas’s absence of sales-price disclosure, which gives property owners a running start in property-tax disputes because appraisal districts must rely on private databases to procure sales numbers. Even then, it’s impossible to seize reliable data for every property — in 2013, HCAD was able to grab decent sales information on only 681 of Harris County’s 3,838 commercial transactions.

“Whoever heard of doing an appraisal without sales information?” says Amezquita. Idaho, Utah and Alaska — whose combined population is only 928,000 more than the total number of residents of Harris County — are the only other states that lock away all sales figures on taxable properties.

“It’s like boxing with one hand tied behind your back,” says former HCAD chief appraiser Jim Robinson, who retired from HCAD in May 2013 after serving 28 years at the agency. “What we see happening time and time again is tax consultants get everything that’s out there and they’ll pick a set of alleged comparables at the very bottom of the list and argue that they should be adjusted to that.”

What happens next, says Ellis, is that “as properties above the median are reduced to the target valuation, the median drops. The result is a constant and growing erosion of the tax base” on which Texas’s public-school finance channels are dependent.

[…]

The state tax code’s “remedy for unequal appraisal” section — the statute that has given central appraisal districts migraines for nearly 20 years — was added to the Texas Constitution in 1997, sans debate, after Representative Paul Hilbert offered the amendment in the waning moments of the 75th Texas Legislature.

“It was one of about 34 floor amendments offered that day…they said, ‘We’re just offering it for some technical cleanup,'” says Stewart, who has been working in appraisal litigation since 1985. “If I had been a member of the House and this had come up as a floor amendment with no fiscal notes or legislative comment, I would’ve voted for it. It was innocuous.”

Amezquita, in a phone interview with the Press, can rattle off the Section 42.26, Paragraph a3, provision from memory, nailing word after arbitrary word with heartfelt disgust: “The district court shall grant relief on the ground that a property is appraised unequally if the appraised value of the property exceeds the median appraised value of a reasonable number of comparable properties appropriately adjusted.”

Prior to 1997, property owners who took issue with an appraisal district’s value would protest based on Section 42.26, Paragraphs a1 and a2 — the part of the tax code that deals with appraisal ratio studies. Now “no one challenges on [paragraphs a1 and a2],” says Amezquita. “[Paragraph a3] is where the money is. Any blind monkey can win that deal. If I wanted to work for the other side, I could triple my money tomorrow.”

Since it was enacted, the law has been expanded in multiple sessions of the Texas Legislature, the most significant change coming in 2003, when “appropriately adjusted” was tacked onto the end of Paragraph a3. With the additional broad stroke of interpretation, ace lawyers have curried favor with the courts, leading an overwhelming majority of judges to side with property owners because there isn’t a definition of comparability in the tax code.

“Nobody has to use the yardstick of market value to keep you honest. They can just get an appraiser — and there are plenty of them out there who are hungry — to come in and pick properties,” says Stewart. “The way the courts are interpreting the statute, they say that’s permissible, and that’s what created the problem.”

Along with the state’s lack of sales-price disclosure, Stiefer says that Texas prohibits its appraisers from auditing any and all sales transactions. “This means the playing field isn’t level,” says Stiefer. “A homeowner can’t hide her house, but businesses can — and do — hide ­assets.”

West Virginia, Illinois, Mississippi, Louisiana and Arkansas also ensure equity among taxpayers in their respective state constitutions. However, none of those states boasts the complex mix of properties, population size or big-money dealings that Texas has.

“This isn’t a Democrat or Republican thing. This has been going on since 1997,” Amezquita says. “It’s not a tax policy. This is nothing more than a scam.”

I’ve blogged about this before; that first link is about the last time the Press covered this story, on the subject of how HCAD is much tougher on homeowners than on commercial properties. This is mostly a legislative problem – the lack of sales price disclosure plus the legal standard that’s allowable for the appraisal lawsuits (read the story for the details) make it ridiculously easy for corporations and other large property owners to get ludicrously undervalued appraisals, which greatly cuts their taxes and starves government at every level of revenue. The Legislature could fix this – as it happens, Wendy Davis filed a bill that would have addressed the latter issue, but it didn’t make it out of committee. We’ve spent a lot of time talking about school finance in this space, and this is an underappreciated part of the problem, as the system is rigged to ensure that school districts get less than they should. It’s yet another issue you should keep in mind when you go to vote this year. Actually, given the dynamic of this year’s election, it’s another issue you should use to remind off-year non-voters why we need them to show the heck up this fall. However you want to look at it, we’re getting screwed. The good news is that we do have the power to fix it, if we care to.

As always when talking HCAD and property taxes, George Scott is your go-to source for the bottom line. A couple of his posts to read on this:

HCAD’s Perverted ‘Golden Rule’ Of Uniform & Equal Value Practices: “Stick It Unto The Little Guys As The Big Guys Have Stuck It Unto Us”

Will Texas Democrats Adopt A Property Tax Political Strategy It Can Drive Into The ‘Republican Suburbs’ In November?’; They Are Fools If They Don’t

To that latter point, let me highlight this Dave McNeely column about Democratic candidate for Comptroller Mike Collier:

In researching Texas’ tax revenue situation and Hegar’s legislative record, Collier’s team found a linkage. A seemingly innocuous legislative tax law amendment in 1997 allowed property taxpayers to appeal to have their appraisals lowered to the “median” for “comparable” properties. Big businesses have more resources and financial incentive to appeal than do homeowners. But under the state’s school finance formula, that leaves it to homeowners and small businesses to make up the tax difference.

An analysis in 2006 showed a shift of $4 billion in tax responsibility — just for that year, Collier said. The lower appraisals also cut tax revenue for local governments like cities, counties and hospital districts.

“Texas is booming, yet our property tax bills keep going up while funding for roads, water and schools is falling way short,” Collier said. “Glenn Hegar is part of the problem.”

In 2013, SB 1342, by Sen. Wendy Davis — now the Democratic nominee for governor — would have required stricter standards for appealing appraisals, including preventing cherry-picking of “comparable” properties. The bill went to the Senate Finance Committee and was referred to the Fiscal Affairs Subcommittee — chaired by Sen. Hegar. There was a public hearing April 18, 2013.

Representatives of several school-associated groups and local governments testified for the bill. Representatives of several business and real estate associations opposed it. The Collier team found that those opponents had contributed $160,000 to Hegar’s campaign since 2006. The corrective bill never got a vote in Hegar’s subcommittee, and thus died.

Davis has been hitting multiple themes, mostly having to do with education and equal pay. I don’t know how much her campaign is interested in breadth versus depth, but however much her campaign talks about this, she can and should get some reinforcement from Collier on this. How much will depend in part on how much Collier can raise to get his message out and in part on how much coverage of actual policy matters Collier and others can get. The issue is there, and Democrats are aware of it. It’s a matter of how much traction they get.

Harris County threatens to sue Harris County Appraisal District

That headline may sound dry, but this is a big deal.

HCAD

Worried about the erosion of the tax base, county officials said Wednesday that they may consider suing the Harris County Appraisal District over concerns it is undervaluing certain business properties at the expense of homeowners.

Officials said HCAD’s Appraisal Review Board in recent years has agreed to set values for commercial and industrial properties that are far below what those properties later sell for, suggesting the independently governed agency did not adequately fight property owners who challenged their appraisals in court.

Commissioners Court on Wednesday took the unprecedented step of agreeing to hire independent appraisers to double-check HCAD’s valuations of business properties. Court members said they would take the appraisal district to court, if necessary, but suggested their action was meant more as a warning to the agency or the Texas Legislature.

“They haven’t been pushing to get these appraisals done the way they should have on some of these major buildings,” said Precinct 3 Commissioner Steve Radack, who placed the item to hire independent appraisers on Wednesday’s agenda. “I think they need to be shook up and understand that they have a very important job to do and not bow down to pressure from people that, you know, hire big guns to get their taxes lowered on buildings, some of which are clearly more valuable than their appraisals.”

[…]

Commissioners Court wants independent appraisers to closely monitor the appraisal process this year, and for the county attorney to be prepared to challenge the results, if the court deems it necessary. Any challenge must be filed within 15 days of HCAD submitting preliminary property values to the Appraisal Review Board, which typically occurs in mid-May.

The Houston Press had a cover story last year about large commercial properties getting lowball appraisals that were costing the county millions in revenue, and before that former Chron business columnist Loren Steffy covered the topic with the specific example of the Williams Tower, which anyone over 35 still thinks of as a the Transco Tower. The issue has been known for a long time, but this is the first time that the county has taken direct action about it. It’s interesting that it comes at a time when real estate is hot and revenues are rising – we sure could have used some of that lost revenue a few years ago when the bottom fell out of the market and everyone that depended on property tax revenues had to cut the hell out of their budgets – but the concern for the longer term is valid and pressing. The response from HCAD is less than convincing to me.

HCAD Chief Appraiser Sands Stiefer defended the settlement process, and predicted the county’s venture would not result in a lawsuit. He said HCAD has implemented changes since he started last June to ensure “that nobody gets away with something unfair” during litigation.

For example, if a proposed settlement exceeds a certain percentage in value, Stiefer said it must be “discussed with me before it is finalized.” Appraisers also must submit formal reports on the settlements before a final agreement is made, he said.

“It’s absolutely untrue that we are giving away the store in that settlement process,” he said, noting that Houston’s hot real estate market means that market values often change rapidly, especially for certain commercial properties.

Sales prices also do not have to be disclosed, which Stiefer described as a “roadblock.”

I agree that sales price disclosure is an issue, but if this is the process to ensure accurate appraisals, it seems lacking to me. Not to be insulting, but what assurance do we have that the head guy isn’t in the same tank as everyone else? Given the track record to date, having a fresh set of eyes on the process sounds like a good idea to me.

Appraisal district critics such as George Scott, who worked for HCAD as a spokesman until 2012, applauded the county’s action Wednesday, saying it would enable it to make a strong case to the Legislature in 2015 for changes to improve the appraisal process for business properties and potentially encourage HCAD to better defend market values.

“It is a powerful, powerful step to tell the Harris County Appraisal District that everything that transpires is now going to be high, high, high on the radar,” Scott said.

Scott’s blog is here, and while he covers a variety of topics these days, HCAD is still his main hobbyhorse. See here and here for a couple of examples. I don’t think anyone believes this matter will actually wind up in court. Radack et al are seeking leverage to get HCAD to change how it does things. I think they’ll win in the end, but it may get messy along the way. I suspect other large urban counties will be keeping a close eye on this as well, and of course other entities within Harris County – Houston and all the other cities, HISD and all the other school districts, HCC and Lone Star College, etc – are affected by this and may want a piece of the legal action if it comes to that. I’m sure we’ll be hearing quite a bit more about this in the next few months.

On HCAD and rigging the system

This Houston Press cover story on the Harris County Appraisal District is provocative, to say the least.

HCAD

A months-long investigation by the Houston Press finds that Brookfield isn’t the only mega-dollar company that’s sitting pretty with a momentous tax break.

According to a June 2012 Service Employees International Union report, corporate giants such as Chevron, Exxon and Hines Real Estate Investment Trust successfully protested the appraised value of 350 large commercial office properties in Harris County. The impact: a total reduction of more than $2.4 billion in tax base on which tax ­liability is calculated.

Critics of HCAD — which is responsible for valuing a complex mix of 1.4 million parcels in no-zoning Houston that includes Baytown’s ExxonMobil, the largest refinery chemical complex in the country — say the agency has purposely and knowingly shifted the tax burden from the filthy rich onto folks who own homes that cost under $150,000.

That’s “a false issue,” according to Jim Robinson, HCAD’s chief appraiser since 1990. Guy Griscom, HCAD’s assistant chief appraiser, also fervently denies the claim.

“No. There’s no truth in that,” says Griscom, who adds that in 2013, HCAD has increased the value of 12.2 percent of the homes in the $80,000-to-$150,000 range.

Instead, HCAD, the third-largest appraisal district in the country, points a finger at the Texas Legislature. In 1997, a provision was added to the Texas state tax code that cripples the ability of appraisal districts to hold the true market value of high-end commercial property, Griscom explains.

“Not only do they have to be valued at market value, but the value has to be uniform and equal. But the measure of equity that’s in the tax code is really junk science [because] it isn’t statistically based,” says Griscom. Texas is one of the few states that don’t require sales-price disclosure on taxable property, which means appraisal districts around the state rely on private contracts to compile sales data that are often incomplete.

“[The tax code] says the median value of a group of comparable properties properly adjusted, whatever in the world that means. Obviously, you can have major disagreements over what are comparables,” explains Griscom, who thinks that a bill filed recently in Austin aimed at changing the equity provision might not have any traction.

In the meantime, lawsuit-prone corporations and their attorneys are beating up HCAD and taking its lunch money. “When you’re talking about major commercial or industrial properties, those property owners have deeper pockets than the appraisal districts,” Griscom says. Vinson & Elkins and Fulbright & Jaworski are two Houston-based international law firms that have represented class A property owners in successful property-tax protests and lawsuits.

Due to the manipulation of the system by the rich and powerful, in 2011 alone, the City of Houston and Harris County lost out on $15.4 million and $9.4 million in tax revenues respectively, while the Harris County Hospital District was deprived of more than $4.6 million in revenue. Local school districts, including Alief, Spring Branch and Katy, were shorted $29.1 million in property-tax revenue.

The thesis of the story, which is worth your time to read, is that HCAD rigs the appraisal process to over-value low-end houses, while big dollar office towers routinely knock millions off their assessments via the appeals process; they also win a greater percentage of their appeals than homeowners. All of this shifts a lot of the tax burden for Houston, Harris County, HISD, and other taxing entities from the high end to the low. HCAD blames the Legislature for tying their hands on commercial appraisals; having discussed this issue before, I have some sympathy for that argument. I don’t have enough information to evaluate the claim about screwing homeowners – I wish that the Press had published the data they collected during their months-long investigation so we could play with the numbers ourselves. Whatever the case, I don’t expect to see a sales price disclosure bill to get passed out of the Lege, so nothing will change anytime soon. Anyway, read the story and see what you think, then go visit George Scott’s blog for more.

It’s going to be a good year for the tax assessor

That should make it a good year for the entities that depend on property tax revenues, as Loren Steffy notes.

When Williams Tower sold for $412 million recently, the new owners may have expected a break on property taxes.

After all, the iconic west Houston skyscraper was valued on the tax rolls at the time for a mere $227 million.

That sort of disparity between a building’s market and taxable value, however, is changing. The Harris County Appraisal District this week released its new appraisal rates for the current tax year, and the district is stepping up efforts to raise the values it assesses on office buildings that have historically been under-appraised. The reason: Houston’s resurgent economy is spurring increased demand for office space.

“You have a lot of activity throughout 2012 that really shows that the market for Class A and Class B office buildings has really improved and values have gone up significantly,” said Guy Griscom, the appraisal district’s assistant chief appraiser for commercial properties.

More sales, higher occupancy and higher rents help raise the averages that the appraisal district uses in assessing values.

While the higher appraisals still won’t catch up to the market value for most prime properties, it will narrow the gap that’s existed for several years.

Individual property appraisals won’t be available a few more weeks, but the district intends to raise appraisals on almost 350 of the city’s top office properties by more than 50 percent.

It’s attempting to address a problem I pointed out last year: the disparity between market values for prime office buildings and the value carried on the tax rolls.

See here for the previous time Steffy wrote about this. I’ve discussed the subject of sales price disclosure a number of times before. That’s not what HCAD is using here since they’re still not allowed to do so, but the volume of sales and other real estate action has given them enough information to at least deal with some of the office buildings that have changed hands. I’m sure the city, the county, and the various school districts are eagerly awaiting the results. See The Leader News for more on a related matter.

Once again with sales price discolsure

Loren Steffy returns to a familiar topic.

By some estimates, Williams Tower could sell for as much as $475 million. When it comes to paying the taxes, though, the 64-story tower will be worth less than half that much.

That’s because the building’s current owner, the Hines Real Estate Investment Trust, waged a successful battle to lower the building’s appraised value year after year, as did the Kuwait investors who owned the building before Hines bought it in 2008.

Last year, for example, the building was appraised at $252 million, 7 percent below the $271.5 million for which it sold in 2008. As I wrote in February, market prices typically are far higher than the appraised value, which determines the amount of tax property owners must pay.

The appraised values, though, are lowered even more by the relentless efforts of building owners. Hines, for example, appealed the appraisal and got it reduced by another 22 percent last year, to $197 million, according to Harris County Appraisal District records.

[…]

Appraisal districts are required by state law to use the “fee simple” method in determining property values. That means the district must consider the physical building and its surrounding area, and then assign a value based on the average values and occupancy rates. It can’t consider many of the intangibles that give value to a prime property like Williams Tower.

In other words, HCAD’s appraisals don’t have much relationship to market prices but represent the district’s best estimate of taxable value.

“This is as good as it gets, and as good as it gets stinks,” said George Scott, a former HCAD researcher who left the district several months ago and now blogs about property tax issues.

Scott’s blog is here; I was not aware of it before reading Steffy’s column. Steffy wrote about this before back in February. That column was focused more on the sales price disclosure issue, while this one is primarily about the appraisal reduction business, but it’s all the same thing in the end, with the same result of lower tax collections for local entities. Patricia Kilday Hart wrote about this as well the week before during the height of the janitors’ strike.

While downtown building owners are shortchanging the janitors at payroll time, union reps argue, they also are shortchanging local governments by gaming the local appraisal system. Commercial building owners aren’t paying a fair wage to janitors, and they aren’t paying their fair share of government services. And that leaves the average Houstonian with a heftier tax bill.

“While janitors are fighting for enough money to keep the lights on and feed their children, the building owners are pulling money out of the services that help the average Houstonian,” said Durrell Douglas of the Texas Organizing Project, which is supporting the janitors’ union. “While some people are scraping pennies together to live, the building owners are not hurting, and they are not paying their fair share.”

Douglas bases his opinion on a study, conducted by advocates for the janitors, of appraisal protests by owners of 350 commercial properties in 2011. Big building owners were successful in knocking down their appraisals in 77 percent of their appeals, compared to only 55 percent of the appeals of single-family homeowners.

The study concluded that commercial property owners managed to knock more than $2.4 billion off of the appraised value of their buildings, which resulted in significant lost revenue for local governmental entities: $15.4 million for the city of Houston, $9.4 million for Harris County, $4.6 million for the Harris County Hospital District and $29.1 million for various school districts. (The study examined big skyscrapers not just in downtown but in Katy, Alief, Spring Branch, Cy-Fair and Clear Lake school districts.)

I don’t have any information about the study being cited, but when Steffy wrote his February column he referenced a “random sample of more than 40 office buildings that sold in the past five years”, and the revenue reductions for that sample are in line with the totals Hart cites. We’re talking real money, and I’ll give you three guesses where cities, counties, and school districts turn to make up for that lost revenue. (Hint: You and me.) I’ll turn it over to George Scott for the last word:

I am a conservative. Conservatism to me means that one has an inherent distrust of government and generally favors the free enterprise principles that less regulation is better than more regulation when it involves the production skills of the American economy.

However, I believe that I can hold that as a guiding principle and still not believe that everything corporations do, think, believe, or support is moral, ethical, rational, justified, or in the interests of the community or nation.

As far as the owners of these downtown buildings, I am personally dedicated to the notion that these folks should no longer be able to ‘game’ the property tax system. That they apparently want to do it at the same time they play hard ball with the janitors is particularly offensive.

There’s an old football sports analogy that comes to mind.

These folks have ‘over-kicked their coverage.’ It may take another year to get the instant replay showing that I am right, but I am right. Stay tuned.

I hope he’s right, because we’ve been talking about sales tax disclosure for several sessions now, and given the slash and burn priorities of the crowd that’s running things now, I don’t see how it will get any traction this time around. I’d love to be proven wrong about that.

Better budget news

For the city.

The city of Houston may have $21 million more in income in the coming fiscal year than it had planned on before Wednesday. That’s when it got the news that the Harris County Appraisal District projects that taxable values in the city — and by extension, the amount of taxes it collects on that property — will rise 4.54 percent in 2012.

The city had previously assumed a rise of only about half that much.

[…]

Also this week, the city got the news that sales tax receipts for the first seven months of FY 2012 (which runs from July 1, 2011 through June 30, 2012) were up 10.66 percent from last year. If the city finishes the year up 10.5 percent, that would roughly double the increase the city had budgeted for. The bottom line would be about $26 million more than the city planned for in its $1.8 billion general fund budget.

Nice. Not enough to wipe out all concerns, but an unexpected extra $50 million or so would go a long way towards making this budget a lot easier to deal with than the last two or three. There’s good news for Harris County, too.

Harris County Commissioners Court is poised to adopt a $1.34 billion budget on Tuesday that envisions no tax increase this fall and, unlike last year, would not require layoffs.

[…]

“We are fortunate that our revenues are stable at this time,” said Chief Budget Officer Bill Jackson. “They’re not decreasing, and it looks like we’re charting our way forward on a slow recovery. Our departments were able to come in at or below budget this year. That helped our financial situation.”

The Sheriff’s Office, at 32 percent of the general fund, is by far the county’s largest department; the next-largest consumes just 5 percent, Jackson said. For only the second time in eight years, the Sheriff’s Office is projected to have finished the fiscal year within its $392.5 million budget.

Part of that success was due to the falling jail population, Jackson and Sheriff Adrian Garcia’s spokesman Alan Bernstein said. The jail population stood at 8,668 Friday, down from a peak of 12,381 in September 2008.

Overtime bills in the short-staffed lockup also have fallen from $33 million two years ago to $21 million last fiscal year; the sheriff has budgeted $15 million for overtime this fiscal year.

This year’s budget may actually allow the Sheriff to hire a few people, which as we know will save some money by not having to authorize so much overtime. Good news all around.

I was amused by this:

County Judge Ed Emmett said he is glad last year’s “storm” of cutbacks seems to have passed. He praised Jackson’s proposal to allow departments that come in under budget to roll over part of their savings, allowing them to make purchases when it makes sense rather than to beat the artificial deadline of the fiscal year’s end.

Yes, well, the entire requirement that revenues and expenditures must be made to match in time for that artificial deadline is silly and makes budget-writing entities do nonsensical things in the name of “balancing” the budget. But hey, the first step in solving a problem is admitting that you have one, right?

Property tax revenues still a year away

Getting better, but not quite there yet.

Local governments should not expect an influx of property taxes to solve their budget woes this year, Harris County Appraisal District officials said Tuesday.

Assistant Chief Appraiser Guy Griscom estimated the countywide tax base, based on a Jan. 1 snapshot that will be finalized this summer, will see values increase by 2.23 percent over last year. Though the economy is strengthening, he said, the resulting increase in property values will not show up until values are gauged again on Jan. 1, 2013.

“Despite all the positive news on the horizon, we haven’t gotten there yet,” Griscom said. “You’re not going to get that turnover in one year. Markets just don’t move that fast.”

[…]

Jackson said he does not anticipate further layoffs in the county, adding that his office is attempting to restore employment in various departments to their levels before last year’s budget, such as by ending furloughs, restoring pay cuts or returning some employees from 32-hour work weeks to 40.

The county is expected to adopt a budget for the fiscal year that begins March 1 on March 13.

The city, which does not adopt a budget until late June, has not compiled a preliminary budget yet, so city officials had no comment Tuesday. In addition, property tax revenues account for 44 percent of the city’s general fund revenue, a lower percentage than its share of the county’s income.

The uptick in property values will not have a significant impact on local school districts under the state’s current school funding system.

Sales tax revenues, which are 27% of the city’s income, continue to do well as well. For all the gloom and doom w’ve been hearing lately, things are getting better. We’ll know more in a few months. I don’t want to sound too optimistic – we are in for another rough budget, and the pension fight is going to be ugly and contentious – but we’re pointing in the right direction. I just hope we can hold on until we get there.

Another item for the city’s legislative wish list

Loren Steffy brings up a familiar issue that has added salience now as the city tries to deal with its long term finances.

Across the city, prime office buildings are selling for far more than their tax values, leaving billions in potential tax revenue on the table at a time when city and county budgets are stretched. It’s almost as if there’s two sets of books: one for the buyers and sellers, and one for the tax man.

A random sample of more than 40 office buildings that sold in the past five years found 2011 appraisals trailing market value by about 40 percent, or more than $1.6 billion in unrecognized taxable value.

“It’s been going on for several years and it’s gotten steadily worse,” said Jim Robinson, the chief appraiser for the Harris County Appraisal District. “We’ve gotten so far away from the concept of market value.”

Unlike residential appraisals, which are adjusted to reflect sales prices, state law requires that appraisal districts value commercial properties based on what’s known as a fee-simple appraisal. That means they must consider the physical building and the surrounding area, and then assign a value based on average sales prices and occupancy rates, but they aren’t allowed to consider many of the intangibles that factor into sales prices. In other words, appraisers can’t use the same criteria in valuing a property that the market uses.

HCAD’s average occupancy rate for the hottest segments of the market – the Central Business District, the Galleria area and the Energy Corridor – was 93 percent last year for the newest buildings or those with the most modern amenities. The average rental rate for downtown was $28 a square foot a year; slightly higher for the Energy Corridor and slightly lower for the Galleria area, according to HCAD.

When a building is sold, though, other intangibles – if it’s fully leased or has one major tenant on a long-term lease, for example – can attract a higher market price.

“We can’t take into consideration the actual leases an individual property may have,” said Guy Griscom, HCAD’s assistant chief appraiser for commercial properties.

Steffy cites the sale last year of Heritage Plaza as an example. Its sale price was $322 million but its 2011 appraisal was for only $211 million. I’ve discussed this issue before. Steffy is quite right to point out that the city, the county, and the school districts all could have a lot more revenue right now than they currently do, if only properties like these could be appraised accurately. State Rep. Mike Villarreal has been a legislative proponent of sale price disclosure, which would help with commercial properties as well as for high end residences. The phrase “fee-simple appraisals” is one I don’t recall hearing before, but it’s clearly a big part of the problem as well. I point out stuff like this because I want to emphasize that the city’s financial situation has many facets. There’s been a lot of focus on the pension issue – it’s practically an obsession for some – but all that attention in one place distracts from the fact that there are other dimensions to the city’s financial situation, and we should avoid being myopic lest we wind up with distorted solutions.

Now that Steffy has pointed out this problem, the question that was left unanswered in his column was how big the effect of it is. His property survey showed that there’s quite a bit of market value being left unaccounted for, but how much actual tax revenue does that translate to? Going by the rates on the Tax Assessor’s property tax page, I calculated that Houston, Harris County, and HISD lost the following, based on Steffy’s 40-property survey and the $1.65 billion in under-valuation he found:

Houston – $10,539,375
Harris County – $6,454,305
HISD – $19,085,550

That’s not nothing, especially when you consider it’s only 40 or so properties. The real total may be quite a bit more than that, and given that this is an annual payment, it adds up quickly. Now it’s true that this can go both ways, though I rather doubt there’s all that much over-valuation, and it’s true that this by itself would not be enough to fix the budget issues these entities have faced the last couple of years. It’s still a factor, and it needs to be a key part of the discussion. This isn’t just a Houston problem – every city, county, and school district in the state is potentially losing out. The city needs legislative help to deal with the pension issue anyway. We should be pushing for reform to the appraisal process as part of the solution. A few million here, a few million there, and maybe we can obsess just a little bit less about pension costs.

Harris County property appraisals dip a little

This is what counts as good news these days.

The appraised value of property countywide has declined slightly, according to numbers released Thursday, but not nearly on the scale of last year’s 3 percent plunge that translated into tens of millions of dollars in budget cuts at the area’s largest local government agencies.

The Harris County Appraisal District certified the value of the county’s appraisal rolls at $271 billion, three-tenths of a percent lower than in 2010.

“It’s not good news, but it’s not bad news either,” said Jim Robinson, chief appraiser for HCAD.

The value is close enough to 2010’s level that local school boards and city councils can send out the same tax bills as last year without raising property tax rates and without facing the kinds of choices they did in passing budgets this year – choices like how many teachers to lay off, how many pools to close and how many mentally ill people won’t get counseling.

The decline in value within the boundaries of Houston Independent School District was three-tenths of 1 percent. It was a tenth of 1 percent in the Harris County portion of the city of Houston.

The reason why this is good news is that Houston had made its initial budget projections based on a 1.5% decline in appraised values. The actual decline, which is listed as 0.04% later in the article, is much less than that, so whatever budget shortfall the city may have been planning for is now less than they originally thought it would be. We’re not out of the hole yet, but we’re getting there.

Property values decline again

Oddly, this is good budget news in the “we were expecting it to be worse” category.

Local governments and school districts this year will suffer a second-straight year of sliding property tax revenues — their main source of revenue — according to data released on Thursday by the Harris County Appraisal District.

Harris County will see overall property values decrease about 1.1 percent this year, to a total of $270.2 billion. The City of Houston will see values fall 1.2 percent. Values within Houston Independent School District are expected to dip 0.9 percent.

“It’s not good news for jurisdictions, obviously, and, really, it may not be that good of news for property owners,” Chief Appraiser Jim Robinson said. “For homeowners who are looking for recovery of their investment, you, obviously, want to see values being up. The recovery, though, has begun to some extent.”

[…]

Harris County prepared its budget based on an earlier HCAD projection that taxable values would drop 2.7 percent. Thursday’s estimate of a 1.08 percent decline is good, said budget director Dick Raycraft, given that three-quarters of the county’s general fund is fed by property taxes. However, he said, that change, if it holds, would not be enough to replenish the county’s reserves.

The county cut 10 percent from last year’s budget when it passed its current $1.23 billion appropriation in March.

“We’re losing so much else through the legislative process and other aspects that it’s hard to tell what our final impact is going to be,” said Raycraft, who said he had not yet seen HCAD’s report. “We hope this is a step in the right direction.”

The latest appraisal figures allowed the city to shave $16 million off its projected deficit for the fiscal year that begins July 1, said Finance Director Kelly Dowe. The gap has shrunk to about $80 million, he said.

So there’s your basis for the city’s optimism about not having to do too many layoffs. They were fortunate to get a revised update before having to commit to a budget, unlike the county. When property valuations go up from one year to the next, that’s when you know we’ll have truly turned the corner. Unfortunately, even if that happens this year, the county and HISD will still have taken a huge hit from the state’s budget. Turning the corner there will take legislative action in addition to the economy getting all the way out of the ditch. Who knows how long that will take? Houston Politics has more.

Effect of exempting schools and churches on drainage fee would be small

As we know, the drainage fee that will be collected to fund street and sewage repairs through the project formerly known as Renew Houston is intended to apply to all property that isn’t specifically exempted by state law, such as state buildings and public universities. Various entities like churches and schools and Harris County have asked for the city to exclude it from the fee, which would mean passing their costs onto everybody else, since the Renew Houston referendum requires the city to collect $125 million per year. It turns out that the cost of granting those exceptions would be fairly minimal.

A new drainage fee under City Council consideration would cost the average Houston homeowner about $5.38 per month if the city decides to exempt local government entities and churches from having to pay, officials revealed on Wednesday.

Each property owner’s fee will be determined by computer, using data from the Harris County Appraisal District and other sources, to estimate the amount of impervious surface of each residential or commercial tract. “Impervious surface” — meaning it does not readily absorb water – will include such things as driveways, decks, foundations, roofs and swimming pools.

[…]

Mayor Annise Parker on Wednesday defended her stance that everyone should pay.

“It is a relatively small amount of money in the grand scheme of things,” Parker said of the $9 million that would be paid by counties, school districts and religious organizations if they are not exempted. “If we are doing this in a fair and consistent manner, everyone should pay their fair share. People who contribute to drainage problems should pay for that drainage.”

Council members have shown little willingness to levy the fees across the board as they continue to hear objections from leaders of local governments and major churches in the city, such as Galveston-Houston Archbishop Cardinal Daniel DiNardo, who publicly has expressed concerns about the impact of the fee on small parishes.

As the story notes in the last paragraph, the fee would be $5 a month under “everyone pays” rules. You know that I agree with the Mayor’s stance on this, but I’m glad to see that if Council succeeds in pushing back on her that it wouldn’t make that much difference. If it comes to that, I’d prefer to see schools and the county be given preference for avoiding the fee, since they are going to get kicked pretty hard by the Lege. As for churches, let’s just say that some are more capable of paying the drainage fee than others. You could maybe talk me into giving some consideration to the smaller ones that Cardinal DiNardo is concerned about, but I don’t know how easily one could come up with an acceptable formula to differentiate between the two. I’d rather see none of them exempted than all of them.

Property tax values drop

This budget news is really really bad.

Thirty percent of Harris County homes declined in market value this year, as the area’s overall tax base dropped for the first time in at least two decades, officials announced Thursday.

The reduced tax revenue will likely require substantial budget cuts for the 600 taxing entities in the county, including cities, school districts, community colleges and municipal utility districts.

Harris County tax rolls, buffeted by residential foreclosures and business failures, are expected to decrease more than $11 billion for 2010. The overall decline represents a drop of more than 4 percent from last year.

Jim Robinson, who heads the Harris County Appraisal District, said only 1 percent of residences, most of them in the Katy and Cypress-Fairbanks areas, rose in market value. Hardest hit were homes worth more than $1 million and those worth between $80,000 and $150,000.

[…]

By the appraisal district’s calculations, the 2010 tax base for the Houston Independent School District is expected to drop by slightly more than 4 percent. School district spokesman Norm Uhl said the loss in revenue will be made up by the state.

The city of Houston’s tax base should shrink by about 5 percent.

City Controller Ronald Green said the tax base decline likely will result in a budget shortfall of at least $32 million — on top of the $100 million gap the city already expects.

I don’t even know what to say. If you thought last year was bad, it’s about to get a lot worse.

HCAD rules for Hoang in homestead dispute

On Christmas Eve, the Chron reported that Council Member-Elect Al Hoang and his wife had claimed homestead exemptions on two separate houses, one in Houston and one in Pearland. Now the Harris County Appraisal District has verified Hoang’s explanation about the exemptions, saying that it was properly carried over from the previous owner.

Hoang had previously refused to answer questions about the homestead exemption. But in an e-mail to the Chronicle on Monday, Hoang said he never sought an exemption for the home on Bugle that he now claims as his residence within District F, which he soon will represent.

Bonnie Hebert, an assistant director at HCAD, confirmed that Hoang’s explanation was correct. State law applies the exemption based on Jan. 1 ownership, Hebert said, and a new owner benefits for the duration of the year even if he or she doesn’t technically qualify.

Hoang will not receive the exemption for 2010, Hebert said.

Fair enough. I still think this should have been reported before the election and not after it, but the Chron just doesn’t put enough resources into lower tier election coverage for that to happen.

The story follows up on the other issues that were raised last week, such as the matter of his voter registration, which was reported as being in District G:

In his e-mail Monday, he said he sent the Harris County voter registrar a form with his new address in May 2008 and went to the office in person to change it after learning his prior address, in Council District G, was still listed as his voting address.

“Maybe it got lost in the mail,” Hoang said.

Well, I can believe that the Tax Assessor’s office screwed it up, as it certainly wouldn’t be the first time that has happened.

Hoang continued to insist in his e-mail Monday that two elements missing from his campaign finance reports — the dates of donations and occupations of donors who gave more than $500 in a reporting period — are not required for city election candidates. The city attorney’s office confirmed that these elements are required.

Hoang can believe whatever he wants, but I can say from having looked at every single finance report that was submitted for this campaign that no other candidate omitted the date like he did. This ain’t rocket science. He needs to listen to what the City Attorney is telling him.