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May 13th, 2014:

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.

The Sriracha delegation arrives in California

Can you feel the excitement?

The self-styled “sriracha delegation” of Texas lawmakers heads to Irwindale, Calif., on Monday to woo the maker of a popular hot sauce to the Lone Star State. And the makeup of the delegation makes clear that bringing sriracha back to Texas is a spicy topic for both parties.

State Rep. Jason Villalba, R-Dallas — who has led the charge to bring the Huy Fong Foods sriracha factory to Texas since residents in its current host city in California complained of itchy eyes and unbearably spicy smells — will be joined by state Sen. Carlos Uresti, D-San Antonio, who represents the district where most of the chili peppers needed for the sauce are grown. San Antonio or a nearby city could be a good fit for the factory’s location, Villalba and Uresti have said.

State Rep. Hubert Vo, D-Houston, will also be in the delegation. Vo speaks Vietnamese, the native language of Huy Fong Foods founder and chief executive David Tran. Representatives from the offices of Gov. Rick Perry, Attorney General Greg Abbott and Agriculture Commissioner Todd Staples will also be attending.

Tran has said he is not ready to make a final decision about moving his business. Huy Fong Foods has been in California since it was founded in 1980, and the Irwindale facility relies on a single pepper grower for the chilis used in its famous sauce. California congressmen and other politicians have risen to Huy Fong’s defense. And the Irwindale City Council has backed off of its plan to deem the factory a public nuisance.

See here for all my previous Sriracha-blogging. David Tran may say he’s not made a final decision about moving his business, but he sort of has.

Since the rumble with Irwindale, almost two dozen cities have urged Tran to relocate to their part of the country. For a while, he actually considered it.

City attorney Fred Galante says the problem can be fixed and he hopes it doesn’t come to a move.

“We continue to try to work this out informally,” he says.

And after thinking it over, Tran has decided to stay in his Irwindale factory. He’s lived in California for more than 30 years, and he says he’s not planning to move.

But he might open another site, outside Southern California. An additional location would allow him to keep up with the ever-growing demand for Sriracha, and develop an added source for peppers, in case climate change threatens his current supply.

The Trib confirms this, and point out some obstacles to Texas as a viable Sriracha location:

Tran said Monday the odor controversy hasn’t convinced him to leave California. He told reporters forcefully that he has no intention to move his business, which has been in Irwindale since 2010 and made $80 million in gross revenue last year.

[…]

Actually moving or expanding into Texas wouldn’t be easy, though, for the company. Tran works with a single pepper grower, Underwood Farms, and expects to get 58,000 tons of fresh chile peppers this season. In 2011, according to the U.S. Department of Agriculture, Texas produced only 8,000 tons of chile peppers.

Crop yields in California and New Mexico are also much higher than they are in Texas — Underwood Farms can grow more than 10 times as many chiles on the same amount of land as Texas growers did in 2011. And most of the chile peppers grown in Texas are green; Huy Fong exclusively uses red chile peppers.

Craig Underwood, of Underwood Farms, said his business has produced all of Huy Fong’s chile peppers for 25 years. The company accounts for 75 percent of his revenue. A move to Texas would also be difficult because the weather patterns are very different, he said, and could make growing the chile peppers challenging.

Still, Tran said, Texas is a more viable state than most others because it’s possible to grow chiles there. While other states have expressed interest in his business, Tran said he has only had in-depth negotations with Texas officials, and he likes what he knows of the state so far.

“First-come, first-serve,” he told reporters, grinning.

So expansion is a possible option, and Texas – specifically, San Antonio – is in play for that. It’s too early to say how realistic that is. What is clear is that Tran and Huy Fong Foods have a very close relationship with their existing suppliers.

The jalapeño peppers that will be ground later this year at an embattled Irwindale factory and pureed into the red-hot chili sauce known as Sriracha are now being planted.

Wednesday morning in a Ventura County field off Highway 126, workers unloaded cartons of pepper plants from a Santa Maria nursery and then loaded up a tranplantation machine, which drops the plants into the soil.

Craig Underwood, 72, whose family has been farming in Ventura County for four generations, has been growing the jalapeño peppers that fill the bottles with the iconic rooster on the front and topped with bright-green lids for 25 years. That first year, he called Huy Fong Foods CEO David Tran and asked him if he could grow 50 acres of peppers for him. This year, Underwood will plant 2,000 acres, with plans to harvest 2,200 acres next year.

The international demand for Sriracha sauce has caused Underwood to double the acreage of his crops and expand his operation into Kern County.

“It’s amazing that the sauce has gotten such attention and it has such a cult following. Who would have guessed?” Underwood said.

[…]

Underwood said he and Tran have a special relationship. While most processors are trying to get the grower that will sell them the product for the cheapest amount of money, Tran cares about quality.

Tran insists on peppers that are bright red and have good flavor. He has even brought a taste-tester to Underwood’s fields.

“I don’t know how she did it,” Underwood said, eyes widening at the thought of the heat.

Peppers are always on Tran’s mind.

Underwood said at Tran’s daughter’s wedding, Tran pulled him outside on the balcony to talk about the crop.

“He’s very focused,” Underwood said of Tran.

Underwood will be present at the meetings Rep. Villalba and his posse will have with Tran, and he says in the story that he doesn’t think Tran will move. Who are we to argue with that?

SEC complaint filed against Paxton

We’ll see if anything comes of this.

Sen. Ken Paxton

Days after Texas regulators fined Sen. Ken Paxton $1,000 for working for a financial firm without registering with the state, a plaintiff’s lawyer filed a similar complaint with the U.S. Securities and Exchange Commission.

Paxton, a McKinney state senator and the Republican front-runner in the primary runoff for attorney general, said through a spokesman the complaint is baseless and politically timed to drum up negative media against his campaign just 11 days before early voting begins.

[…]

The claims and counterclaims by Branch and Paxton began last month.

It was fueled further recently when the State Securities Board slapped Paxton with a $1,000 fine for acting as an “investment adviser representative” for Mowery Capital Management, which provides estate planning and investment management, without obtaining state registration.

Following the state action, Longview lawyer John Sloan filed a complaint with the SEC.

“I couldn’t see the guy getting away with that,” Sloan said. “He must feel like he’s above the law.”

The Paxton campaign questioned the timing of the complaint.

Sloan represented a Dallas couple in a 2009 lawsuit against Paxton that was voluntarily dismissed.

Former U.S. Attorney Matt Orwig, in a statement made available by the Paxton campaign, said the Sloan complaint in the middle of a “hotly contested political campaign” is suspicious.

“It appears to be more of a political stunt than a serious complaint given that the issues appear to have been resolved in other venues,” Orwig said.

Former state and federal regulators said it was doubtful the complaint would trigger an SEC investigation.

See here and here for the background. It would be nice to have an objective opinion on the complaint instead of just one from someone that is apparently connected to Paxton’s campaign. As far as the timing goes, when exactly was it supposedly to be filed? We only just found out about Paxton’s peccadilloes and the wrist slap he received for them. And as for the SEC not being likely to act on the complaint, is that normal or is it a statement about the complaint’s merit? Sure, this could be a political stunt – Sloan would appear to have motive – but I can’t get a feel for that from this story. What do you think?

On a tangential note, this Trib story sees a parallel between the current GOP runoff for AG and the one in 1998, when John Cornyn overtook Barry Williamson after the latter got bogged down in stories about his law license lapsing. I wasn’t paying very much attention to that race so I can’t say just how much alike that one is to this one, but for what it’s worth Paxton just lost the endorsement of another law enforcement group for his travails. So who knows?

Another expansion of single stream recycling

From the inbox:

Mayor Annise Parker and Harry J. Hayes, Director of the Solid Waste Management Department (SWMD), are pleased to announce the addition of 62,000 to the City’s popular automated curbside recycling program. As part of the expansion, residents in neighborhoods throughout Houston will receive a new 96-gallon green automated cart similar to the black automated garbage cart they already have. The green carts will take paper, plastics, metals and glass out of the waste stream.

“Once again, we are happy to announce more homes are being added to the Automated Recycling Program”, said Mayor Parker. “This expansion moves us closer to our goal of having all City-serviced homes on the program by the end of 2015. This is a long overdue goal that was established by the Solid Waste Task Force that I chaired back in 2006 – 2007. Director Hayes and his team are to be commended for their hard work.”

“This 62,000 home expansion brings our total homes covered to over 273,000, which is more than 72% of all homes directly serviced by the department,” said Director Hayes. “We’re excited to increase opportunities for our residents to recycle, which is something they want to do.”

Cart delivery will begin this week, with the first collection occurring the week of June 23rd.

Recyclable items that can be placed in the containers include: newspapers, magazines, office paper, junk mail, cardboard, paperboard, paper bags, glass bottles and jars, aluminum cans, tin and steel cans and plastics 1 – 5 and 7.

For areas included in the expansion, visit the Solid Waste Management Department web site at www.houstonsolidwaste.org and go to the section titled “Automated Curbside Recycling Program Expanded to 62,000 Homes” and follow the links.

Here’s the link to that map. For my neck of the woods, this includes a sizable chunk of the Heights – the area bounded by 11th Street, Yale, North Shepherd, and Loop 601 – that had been previously left out, as well as Timbergrove and the area east of I-45 south of Moody Park. I know a lot of people who are going to look at this map and start doing the happy dance. If you’re inside the Loop, other than a few areas in the Third Ward, you will have single stream as of June 23 if you don’t already. Since we all agree that more single stream recycling means more households participating in curbside recycling, this is great news all around. Hopefully by next year, the remaining few places that still don’t have the big green bins will get them.