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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.

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.

Valero’s special deal

I’m sorry, I just can’t get behind this.

Companies routinely relocate to the city or state that lures them with the best tax break, but Valero wants Houston City Council to give its eastside refinery the same treatment without having to pack its bags.

Valero wants most of its Manchester facility, the only refinery inside Houston city limits, be considered outside the city boundaries for tax purposes. The rare move would let the energy giant pay lower fees than if it remained in the city and paid property taxes, and would, officials say, ensure a planned $800 million expansion – and the jobs that would accompany it – happens here and not at a Valero facility in Louisiana.

Some community leaders in the struggling Manchester neighborhood that borders the refinery question the proposal, saying the plan amounts to corporate welfare for a firm they blame for polluting the air and devaluing their homes.

The proposal, which City Council will consider this week, would see 161 acres of the refinery’s 190-acre site transition to a so-called industrial district. The remaining 29 acres at the plant sit more than 2,500 feet from the Houston Ship Channel, and, per a provision in state law, must remain inside city limits.

A Houston Chronicle analysis shows Valero would pay a projected $37.7 million in fees under the 15-year industrial district deal. If the refinery remained in Houston and paid property taxes, it could pay an estimated $10 million to $18 million more than that depending on the city’s future tax rate. Andy Icken, the city’s chief development officer, said a voter-imposed cap on the revenue Houston can collect from property taxes means the Valero tax break would not cost the city money. Icken said Houston has already hit the cap and will collect all the property tax revenue it is allowed to collect whether those dollars are paid by Valero or by other taxpayers.

Houston attorney Beto Cardenas, who negotiated the deal for Valero, said the Manchester refinery is at a disadvantage by being inside city limits when all adjacent facilities are in industrial districts. Valero, he said, simply seeks “parity” with its competitors.

Houston has used industrial districts since the 1960s, and today has 104 such agreements in place, generating $16 million in fees annually. Most were initiated in past decades when the city aggressively sought to annex surrounding areas. The agreements, which typically are renegotiated every 15 years, are a sort of economic standoff: The city gets revenue without having to provide services, and companies pay less in fees than they would pay if the city annexed them and levied its full property tax rate.

The Valero proposal would be the second public tax break granted to its refinery this year, and for the same expansion plan. Valero also has come under fire in recent years for seeking controversial state tax breaks and stressing local school districts’ budgets by suing to lower its tax bills.

The previous subsidy, which was approved by City Council and then by Gov. Rick Perry’s office, per the rules of the governor’s Texas Enterprise Zone program, saw Valero commit to the expansion plan in exchange for an up to $1.6 million rebate of state sales and use taxes.

“It’s a perfect corporate double-dip,” said Tom “Smitty” Smith of Public Citizen Texas. “There’s an ongoing assumption now that tax abatements and so forth are going to be given to any existing company that says, ‘We’re threatened,’ even though they may be some of the most profitable companies in the country.”

[…]

Unlike other industrial district agreements, which typically give a company’s existing buildings and equipment an immediate tax break, the Valero deal would ensure the city collects no less than the $2.2 million property tax bill the refinery will owe in January. Also unlike other such agreements, Valero would be annexed back into the city in 2017 if it has not begun the expansion, and in 2020 if it hasn’t completed the project. The facility also would be annexed back into the city at the end of the agreement in 2027 unless the agreement is renegotiated.

Valero also has agreed to continue paying its drainage fee under the ReBuild Houston program, which Icken said is about $200,000 a year.

I get the rationale for this, and the two paragraphs quoted at the end make it all a bit less disagreeable. But it’s stuff like this that makes too many people feel like the system is stacked against them, with one set of powerful interests currying favor from another, to their detriment. Who else can get this kind of deferential treatment, and for what? A handful of jobs whose security are tied to the price of a commodity? In the spirit of the season, let me offer up a two-word summary of this and my feelings towards it: Bah, humbug. Hair Balls has more.

Valero will not appeal tax break decision

Good.

Valero Energy Corp. has decided not to appeal the Texas Commission on Environmental Quality’s rejection of its request for a controversial property tax exemption.

[…]

Valero spokesman Bill Day said the company no longer would seek the exemption because it had reached agreements with appraisal districts for lower valuations on their refineries in all but one county where the company operates. Negotiations are ongoing with Moore County, Day said.

See here, here, and here for the background. One less thing to have to worry about this year, but the Lege still needs to address this going forward.

TCEQ denies Valero tax break

Good.

Texas environmental regulators have rejected Valero Energy Corp.’s request for a tax break that cities, counties and school districts feared would lead to devastating cuts to their budgets.

The Texas Commission on Environmental Quality denied the request because the San Antonio-based oil giant could not show an environmental benefit at its six Texas refineries from the equipment at the center of its application for the tax break.

Texas law provides property tax exemptions for equipment that reduces pollution at the refinery. Valero, however, sought a tax break for hydrotreaters, which are used to produce low-sulfur fuels. In this case, the lower emissions come at the tailpipe.

If TCEQ had granted the exemption, Valero stood to gain up to $130 million a year in property tax relief from cities, counties and school districts, officials said. The company earned $1.2 billion in profits for the most recent quarter, its best quarterly results in four years.

“It’s a nice Christmas gift to many cities, counties and school districts around the state that would have had to shell out millions to a rich oil company,” said Matthew Tejada, executive director of Air Alliance Houston. “Justice and logic can still prevail in the state of Texas.”

See here and here for some background. TCEQ had denied this request once before but reviewed it again at the urging of three of its commissioners. I’m glad to see that wasn’t enough to change their minds. Valero has 20 days to file an appeal, but hopefully this will be the end of it. It would be nice if the next Legislature closed this potential loophole once and for all. Hair Balls has more, and a statement from Sens. Rodney Ellis and Wendy Davis is beneath the fold.

(more…)

The Valero effect

This is just what all of our cash-strapped local budgets need right now.

The Texas Commission on Environmental Quality is not typically a big player in school finance debates.

But an upcoming decision by the commission could strike a major blow to the budgets of many school districts that will have to be made up, in part, by the state, lawmakers said on Tuesday.

At issue is a request by Valero Energy Corp. to apply a property tax exemption for pollution control equipment, approved by voters in 1993, to refinery equipment known as hydrotreaters. That equipment removes sulfur from gasoline and diesel that reduces auto emissions.

The agency’s executive director recommended that the request be denied because the rules require the equipment to provide an on-site pollution control benefit. But that decision was appealed by Valero and in January two TCEQ commissioners directed the agency to reconsider.

That decision is still pending.

The Chron wrote about this last week and then editorialized about it on Wednesday. I can’t quite fathom the rationale for the TCEQ allowing this, but I will agree with the Chron that it would have been better if the Lege had slammed the door on these shenanigans last session. They may have to address it next year whether they want to or not.

Rick Molina, who is running for State Rep in HD144, sent out a press release about this:

Rick Molina, candidate for Texas’s 144th House District, today asked Texas taxpayers to sign his petition opposing a plan pushed by Rick Perry and his Texas Commission for Environmental Quality (TCEQ) that would harm our local school districts and raise the tax burden on Texas’s property owners. The petition can be found at RickMolina.com.

“Rick Perry already increased taxes on small businesses and now many of them are having a tough time making ends meet and creating jobs,” Molina said. “Now, we see he is about to shift more tax burden down to property owners. I just cannot understand why, as the nation is trying to recover economically, Rick Perry believes raising Texans’ property taxes is a good idea. I want Valero to be a successful, profitable company, but it must do so without looking to shift its tax burden to Texas home owners.”

The full release is here. HD144 includes Pasadena, so extra kudos to Molina for taking this on.

On a tangential note, Valero is also busy out in California trying to gut that state’s clean air legislation. They’re quite the corporate citizens, aren’t they? I stopped buying gas at the Valero in my neighborhood when I noticed a poster on their pump urging people to call their Congressperson to oppose cap and trade. They won’t be getting me back any time soon, that’s for sure.