Abbott partially closes tax loophole that costs school districts millions
GALVESTON — 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.
‘Gives them ammunition’
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.
The 1997 amendment makes it possible for a property owner to get a district court to reduce its tax assessment to the median value of similar properties rather than using the traditional fairmarket value measure. Since the so-called “equal and uniform” clause allows property values to be reduced to the median, or the midpoint on a list of comparable property assessments, all of the owners of properties above the median can ask to have their taxes lowered. Stiefer has pointed out that half of all properties will always be valued higher than the median and are therefore candidates for a reduction under the law.
“I think it (the bill to require companies to use generally accepted appraisal methods) will have some effect. How much ... depends on how much unconscionable activity has been going on.” Charles Gilliland, research economist at Texas A&M’s Real Estate Center
Most modest of five bills
Cheryl Johnson, Galveston County’s tax collector-assessor, said the measure signed by Abbott last weekend “sure doesn’t seem to do much.”
“Technically, they should have been doing it anyway,” she said of the use of generally accepted appraisal standards.
Ken Nolan, Dallas County’s chief appraiser, doubted that the Legislature would go further. “This is as good as it’s ever going to be,” said Nolan, who chairs the legislative committee for the Texas Association of Appraisal Districts. He said it would be quixotic to expect further reforms.
The Texas Association of Realtors, which usually opposes appraisal districts on the issue, found value in the revised law.
“It was a step forward. We wholeheartedly supported the bill,” said David Gonzalez, the association’s legislative coordinator. “Time will tell if it’s working. We believe it will.”
The bill, introduced jointly by state Rep. Drew Darby, R-San Angelo, and state Sen. Kelly Hancock, R-Richland Hills, a Fort Worth suburb, was one of at least five bills aimed at reforming the “equal and uniform” clause in the tax law. Although it was the most modest, it was the only one to be voted on in both houses.
The nonpartisan Legislative Budget Board issued a report in January that found the use of the “equal and uniform” clause was shifting the tax burden from owners of high-value property to individual homeowners, who typically do not have the money for a long trial requiring specialized attorneys and expert witnesses. The report was criticized by real estate and business interests that benefit from the tax loophole. “That report came directly from the appraisal districts, so that is not a true, fair report,” Gonzalez said.
Reaching to other states
Besides recommending the use of accepted appraisal standards, the board recommended that the median appraised value no longer be used for comparison and that comparable property be defined. The board found that companies were reaching into other counties and even other states to find properties to use for comparison in court, though the properties were often not comparable, so it recommended that comparable properties be limited to those in the same appraisal district. A compromise clause requiring comparisons be made within the same appraisal district was removed, Stiefer said.
To cope with the difficulty of assessing the value of complex properties like oil refineries, the board recommended that the Texas Comptroller’s Office set standards.
“Had they done that, it would have been a much harder row for them to hoe,” said Johnson, who has advocated for a blue-ribbon panel to develop such standards. “What I want is for the comptroller to test those values.”
She said the comptroller’s office has the authority to test the values of complex properties, but doesn’t have the money, expertise or staff.
The Legislative Budget Board also found fault with the practice of requiring an appraisal district that loses a lawsuit to pay attorney’s fees, but not subject a property owner who loses a case to the same requirement, providing an incentive to sue. The board recommended that the property owner be required to pay attorney’s fees for bringing a losing lawsuit.
Stiefer said that only one budget board recommendation was adopted because of stiff opposition from industry, real estate interests and property tax attorneys.