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April 24th, 2013:

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.

Today is Chapter 42 day

Actually, today is almost certainly the day that the Chapter 42 revisions get tagged by multiple members of Council, thus pushing it back for a week. Nonetheless, this is the beginning of the end of a long, long journey. Here’s another story about what that will mean.

The Fourth Ward would not look quite the way it does now, however, if not for a change in city development rules in 1999. That change hiked the density allowed in single-family housing construction inside Loop 610, allowing the building of several homes on what had been one residential lot.

City Council is poised Wednesday to extend that Inner Loop home density citywide in the first rewrite of Houston’s development rules, known as Chapter 42, in 14 years. And that has [Ray] Washington and other south Houston civic leaders on edge.

“You’ve got different developers. Some are going to be good, and you’re going to get a few bad ones. Our goal is to upgrade this community,” said Homer Clark, president of south Houston’s Five Corners Management District.

“If they say, ‘Hey, this is a nice place, I think I’ll go out here and buy me a little piece of land and I’ll just put this out here,’ that’s our fear, that it won’t be consistent with what we’re doing.”

To address concerns about incompatible development, the proposed rules include protections that would allow neighborhoods to impose minimum lot sizes for up to 500 homes at a time, preventing the subdivision of lots for townhomes. The requirement, which would last 40 years, also would restrict any residential or vacant land to single-family homes, keeping out apartment towers and condominiums.

“In Houston, because we’re not a zoned city, deed restrictions are the one thing that’s relied upon to keep your neighborhood consistent and retain that character,” said Suzy Hartgrove, spokeswoman for the city Planning Department. “It (minimum lot size) is a protection that really is akin to a deed restriction that will be established for these neighborhoods that apply and are designated. It’s a strong protection to have.”

The minimum lot size process has existed since 2001, and is applied only on a block-by-block basis. Under the proposed change, 10 percent of property owners in an area must apply, triggering a balloting process through which 60 percent of owners must vote yes to impose the restriction. City staff could revise an area’s boundaries to secure the necessary support.

The proposal is an acknowledgement that deed restrictions are difficult to amend, said Joshua Sanders, executive director of Houstonians for Responsible Growth, a nonprofit that represents developers.

“We understand the neighborhood concerns, and we think there should be more tools made available to them to protect against any sort of development,” he said.

“It’s not like these rules are in place to protect against bad development. They’re in place to protect the integrity of a neighborhood. We could go in and build something great on one piece of property, but it’s still an issue because it’s damaging the character of the neighborhood.”

[…]

The lot-size proposal is a “huge achievement,” said Jane West of the Super Neighborhood Alliance, though she is concerned areas with many rental properties will struggle with the petition process. That concern led civic leaders to negotiate a phase-in: one year to give neighborhoods time to petition, and a second year during which the new density would be allowed only on tracts larger than an acre; smaller tracts could be developed if most surrounding properties are not residential.

“It will help all the people it can help,” West said. “It depends a lot on the stamina and the abilities of the people in the neighborhood and how badly they want to save the neighborhood.”

See here, here, here, and here for the recent history. This ordinance and the effort to revamp it are big, complex beasts with lots of moving parts and no one really knows what the effect of this or that change will be, but it sounds like the lot size part of it is being well received by all. If both Jane Cahill West and Joshua Sanders think it’s a good idea, that’s saying something.

On a related note, I want to call attention to this comment left by Ed Browne to one of my earlier posts on Chapter 42:

I think that I can speak for the SNA when I say that everyone agrees that the City needs to grow and densify, but there are good ways to grow and bad ways. Tomaro Bell, president of the Super Neighborhood Alliance (SNA), and Jane Cahill West, its Vice President, have experienced the negative aspects of Chapter 42 inside Loop 610 where it has been the law for over 10 years. They and others inside the Loop decided that the rules need to be cleaned up before subjecting the entire City to them. SN 22, along the Washington Avenue corridor, has been a test case for a lot of these issues. Jane gave a tour for City Council members and SN leaders in her area of problems created by Chapter 42 and although many have been addressed by the City, some of the more important ones still need attention.

We had been told by the Mayor and developers that the main thrust for Chapter 42 was to redevelop run-down apartments and strip centers, but no sooner had the SNA removed its objections, then the Mayor started backpedaling – offering to reduce the wait time for neighborhoods to establish minimum lot sizes and setbacks from 2 years for lots under an acre to 1 year for lots under 1/2 acre. Small lots like this are not run-down apartment complexes. They are neighborhoods like yours.

Under street infrastructure for most of Houston is old and antiquated, so we want to be sure that high density building does not occur where the streets have inadequate storm sewers, water lines, and sanitation sewers. When the toilet flushes next door, will you get scalded? But Jane pointed out that high density also makes every detail more important. Where are trash cans stored? Where are mailboxes? Air conditioners? With a requirement of one guest parking spot for every 6 homes, where do guests (and homeowners) really park? In Cottage Grove, emergency vehicles cannot access many homes because too many vehicles are parked on narrow streets. Ladder trucks needed for the 3 or 4 story buildings need a place for the support pads so they don’t topple over. These were Fire Marshall concerns, too, not just Jane’s.

Average lot size can be as low as 1400 square feet, but there is no minimum lot size. Permeable ground can be no less than 150 square feet on a 3500 square foot lot – tiny. Chapter 42 and Chapter 9 are not harmonized; i.e., they contradict one another. Chapter 42 requires green space which increases as the lot sizes reduce until at 1400 square feet 600 square feet of green space is required, but there is no minimum lot size .

Very dense development makes sense in areas that have good mass transit because then people can do without a car, but multiple small shared driveway developments scattered throughout a neighborhood would be messy and would remove the trees and shade that redefine its character. That doesn’t matter to somebody who only wants to make money, but it does matter to the people who’ve searched for the perfect house for their family.

There’s a lot more to what Ed has to say, so go read the whole thing. Just as the changes from 1999 are being revisited now, the key to making this work as best as possible is to be willing to go back and make further tweaks and revisions as issues and problems arise. This is an ongoing concern, it’s not something you can do and be done with. If we see that something isn’t working the way we though it would, let’s not wait another 14 years to fix it.

Texas Lottery Commission dies and is reborn

And we have our first curveball of the legislative session.

Is this the end?

The House voted Tuesday to defeat a must-pass bill reauthorizing the Texas Lottery Commission, a stunning move that casts doubt on the lottery as a whole and may potentially cost the state billions in revenue.

House Bill 2197 began as a seemingly routine proposal to continue the operations of the commission that oversees the lottery until September 2025. But opposition mounted after one lawmaker called it a tax on the poor, and the House eventually voted 82-64 to defeat the measure.

A short time after the vote, the House called an abrupt lunch recess and could reconsider the measure if any lawmaker who voted against it offers such a motion. Unless lawmakers reconsider, the commission would begin a one-year wind down, and cease to exist by Sept. 1, 2014.

“There are more members than I thought who are against the lottery and just have a psychological aversion of it,” said Rep. Rafael Anchia, D-Dallas, who sponsored the failed bill.

The state Senate has yet to consider the matter, but it can’t because the so-called “sunset bill” on the Lottery Commission initiated in the House.

For now, there’s no one to operate the lottery, which means a potential loss of $1.04 billion in annual revenue for the Permanent School Fund and $27.3 million to cities and counties from charitable bingo.

The state budget already under consideration in the Legislature has factored in the $1.04 billion — and losing the lottery proceeds would create a deficit lawmakers would need to fill.

Here’s HB2197. I think it’s fair to say no one saw this coming. Here’s more from the Trib:

During a spirited debate on the bill, state Rep. Scott Sanford, R-McKinney, got a round of applause in the House as he spoke against the bill, calling the lottery a “predatory tax” and “a tax on poor people.”

As soon as the vote was over, House leaders were already discussing possible workarounds to keep the programs going. Anchia said the House may reconsider the vote.

Texans spent $3.8 billion on lottery tickets in the 2011 fiscal year, according to the Legislative Budget Board. The majority of that was paid out to players and retailers, with $963 million transferred to the Foundation School Account. Another $8.1 million was transferred to the Texas Veterans Commission.

Anchia warned that charity groups around the state would be outraged at learning they could no longer host bingo games.

“VFW Bingo’s dead now,” Anchia said. “They’re going to have to go back to their constituents and explain why bingo is illegal.”

I don’t disagree with what Rep. Sanford says, though I wonder if he will feel the same way when the payday lending bill comes to the House floor. In the end, however, everyone sobered up after taking a lunch break.

In a 91-53 vote Tuesday afternoon, the Texas House passed House Bill 2197, continuing the the Texas Lottery Commission. An earlier vote Tuesday had failed to continue the commission.

Bill supporters spent the hour after the first vote impressing on those who voted against it the impact of cutting $2.2 billion from schools. The House Republican Caucus hastily assembled to discuss the situation.

“I think when people took a sober look at the budget dilemma that would ensue, they voted different,” said state Rep. Rafael Anchia, D-Dallas, the bill’s author.

Several lottery critics in the House saw the day’s drama as a victory, setting the stage for a more thorough debate on the lottery in the future. Public Education Chairman Jimmie Don Aycock, R-Killeen, said he originally voted “no” largely to make clear his opposition to gambling. Once that statement was made, it made more sense to back the Lottery Commission for now.

“I don’t like gambling, but I do like school funding,” Aycock said. ‘It was, for me, at least, a signal vote. I sort of anticipated I would switch that vote when I made it.”

State Rep. Lon Burnam, D-Fort Worth, said school funding was also the primary motivator for his switch.

“When you weigh principle vs a billion dollars in public ed, I set aside my principle for a billion dollars in public ed,” Burnam said. “I still hate the lottery.”

I had always wondered why they vote on bills three times in the Lege. Now I understand. Having had their fun and having made their statements of principle, if the Lege is serious about wanting to eliminate the Lottery, let’s go about it in the next session by filing a bill and letting it go through the usual committee process, mmkay? Thanks. BOR, who notes that failure to pass this bill could have led to a special session, and Texpatriate have more.

Craft beer bills pass out of House committee

From Open The Taps.

After waiting in a long queue of bills that were sent from the Senate to the House, the Craft Beer Bills (SBs 515-518 and 639) should see some movement again this week. Our team in Austin has been in regular communication with the House sponsor (Chairman Wayne Smith) and his committee – the House Licensing and Administrative Procedures Committee – and they are confident that the bills will be voted out unanimously this week. Because the companion bills in the House already had a public hearing, these bills only need to be brought up during a meeting of the committee to get a vote. The next step in the process will be for the Calendar Committee to schedule the bills for consideration by the full House, and we anticipate that happening sometime next week or the following week. More to follow as the week progresses, but stay tuned.

The bills in question passed the Senate on March 25. True to Rep. Smith’s word, the bills were unanimously passed out of the House Licensing and Administrative Procedures Committee yesterday afternoon, so the next step is Calendars and a vote on the House floor. We are truly in the home stretch here. I suppose there’s still the chance of something going wrong, but at this point I’m beginning to feel it. After four legislative sessions, this looks like it’s finally going to happen.