Tracking changes in public policy is really not all that complicated if one conducts an honest search for the lowest common denominator. Here?s a simple one that most all, if not all, the powerful players in the property tax system attuned to politics of the system in Texas understand.
When the smoke had cleared from the Battle of Downtown Houston over the values of commercial property particularly the Class A office buildings, Buddy Breivogel was no longer the manager of the Property Tax Division of the Texas State Comptroller?s office.
Comptroller Susan Combs replaced Breivogel with the former Chief Appraiser of Travis County Art Corey as an interim move that has led to peace and tranquility between the State?s regulator of the property tax system and its largest, most politically power central appraisal district - Harris County.
To say that Breivogel and his team at the Property Tax Division had become a thorn in the side of HCAD is to say that winter weather in Siberia is cool or that it often sprinkles in a rain forest.
To put it mildly, Harris County Chief Appraiser Jim Robinson?s eyes seemed to spew fire when Breivogel?s name was even mentioned, and his complaints to the organization that has regulatory authority over HCAD were common and vociferous.
Why? In short, it was the then-annual Property Value Study which the State conducted to evaluate the effectiveness of appraisal operations in achieving market value on taxable property in Texas. The PVS is the enforcement mechanism designed to ensure equitable distribution of dollars allocated to school districts in Texas. The PVS is one of those key linchpins that help the State try to maintain a constitutional system of public school finance.
The continuing war-like feelings between Breivogel?s Property Tax Division and Robinson?s HCAD came to a head over over the value study for the 2007 property tax year. In the battle of the regulator versus the regulated, the regulated won. By October 2008, Breivogel was no longer manager of the division as he was assigned to another position in the Comptroller?s office.
In 2007, Breivogel?s PTD had initially determined that Robinson?s HCAD had appraised commercial property in Houston I.S.D. at only 77.6% of true market value. Eventually, that could have led to the loss of millions of dollars of state funds to Houston I.S.D. and some form of administrative take-over by the State of HCAD itself.
The scope of the peace and tranquility between the Regulator and the Regulated can be seen by the fact that the State has made a dramatic transition from believing that HCAD significantly undervalues commercial property concluding that by 2011, HCAD?s assessment of commercial property in Houston I.S.D. had achieved a mark of over 93%. In terms of the driving force of public school finance, the difference between 77% and 93% in the commercial category is roughly the distance between the furthest edges of two solar systems.
The magnitude of that peace was formalized recently with Corey?s successor at the State?s property tax operation (Debbie Cartwright) giving HCAD a perfect score in a state-mandated evaluation of the district?s methods and practices.
In substantial part, the State?s assertion of deficient commercial values overall involved the mega-value properties of downtown Houston in particular as well as other highly developed areas such as Greenway Plaza and others.
Here?s a statistic pulled directly from the State?s 2007 preliminary findings for Harris County property values that helps put the importance of these values in context. While Breivogel?s PTD said that HCAD had assessed commercial properties in Houston I.S.D. at only 77.6%, it also concluded that commercial values in Harris County overall were assessed at 93%. In other words, the focal point was Houston I.S.D.
It revolves around 2007 property values of specific Class A office buildings that were targeted in that year?s Property Value Study for Harris County.
Now, let?s take a closer look at seven particular properties that were among those included in subsequent appeals before an administrative law judge at which the property owner also had standing to appeal. Let?s cut to the chase of one issue. The comptroller had its head handed to it. It lost. It lost big in the appeals process. However, that is far from the whole story which will take multiple columns to pursue.
There are many, including me, who believe that even if the State had won these battles over these properties the State would have simultaneously lost a much bigger, threatening war that could have struck at the very core of public school finance in Texas. The public school finance system has been in perpetual turmoil since at least the 1970?s.
Imagine the ferocity of the turmoil if Texas had penalized Houston I.S.D. school funding by taking away multiple millions of dollars from a district whose student population is about 90% minority - a category of students that has constitutional protection. Whether or not the notion that ?some battles are best not fought? played any role in how the State pursued or responded to its loss in this matter is open to reasonable speculation. Trust me, we will explore some speculation and informed judgment on this issue.
However, here are those seven Class A office buildings showing what values had been assigned to them for the 2007 property tax year by the Comptroller, HCAD, the final value, and the owners? assessment of value.
In 2007, both HCAD and the State Comptroller?s office believed that the value of the One Shell and Two Shell buildings in downtown Houston were over $300 million - HCAD $305.6 and the State $389.2. The property owner asserted the value of the two buildings was just $189.7 million. The final certified value came in 40% below what the State believed and 24% below what HCAD believed.
While it is a different tax year and it is not exactly apples to apples, one should consider that the Shell office complexes sold for some $550 million in 2012. Those that want to believe that the value of those buildings actually appreciated that significantly over the last five years from the certified value of $231.2 million or the owner of asserted value of $189.7 million are free to do so.
What?s happened since to One Shell and Two Shell? Well, the lost Battle of Downtown Houston in 2007 is the loss that kept on losing. And, that?s for just two buildings out of seven out of an entire category of property where the State and HCAD cannot or will not take the policy actions necessary involving mega-value properties to defend public school finance and the school children of Texas.
One-Shell Value Tax Year 2007: $158,981, 200
- 2008: $194,190,080
- 2009: $171,091,840
- 2010: $145,772,000
- 2011: $157,300,000
- 2012: $185,326,423
Two-Shell Value Tax Year 2007: $72,287,400
- 2008: $89,583,156
- 2009: $81,386,881
- 2010: $67,300,807
- 2011: $73,000,000
- 2012: $85,497,670
When push came to shove, the State of Texas failed to defend its assessment of commercial values in Harris County and Houston I.S.D. When push came to shove, Harris County Appraisal District failed to defend its even lower assessment of commercial values in Harris County and Houston I.S.D.
However, perhaps the most damaging development to emerge from the fight over 2007 commercial values is the fatal flaw that was exposed in the property value study itself. It is a system that has taken a serious deviation from what the State?s focus should be.
That?s the subject of the next column which roughly categorizes what the State created in Houston I.S.D. in 2007 and has made no appreciable effort to change since.
Making ?the enemy of my enemy is my friend? seems to have been the result of the State?s bewildering strategy.
Rather than help HCAD and central appraisal districts as a partner in pursuing true market value of these commercial properties, the State has created a situation where central appraisal districts often have to join forces with these property owners and their attorneys and school districts to defend lower values on commercial property. It is perverse public policy at its most perverse when a regulator creates an incentive for the regulated to join forces with property owners to defend lower revenues for the school children of Texas.
By holding minority school children and their school districts hostage to the potential denial of public school funds, the State has forced school districts and central appraisal districts to form operationally unholy alliances with mega-value property owners to defend market values that are lower than even they believe are appropriate.
Perhaps it became an ultimate battle (the 2007 battle over commercial values in Harris County) for which push finally and actually did come to shove. There was going to be a winner and there was going to be a loser. Perhaps the State could not afford to win because winning may have had a price tag too high to pay. Or, at the very least, the loss in administrative hearings pointed out the political and policy treachery that might have been involved in seeking Legislative remedy.
And what the State and HCAD have apparently shown in the State?s largest county is that it is easier and cheaper and quicker to adopt a policy of ?can?t we just all get along?? Ever wonder what the chief appraisers in the small to middle range counties of Texas feel about the State?s relationship with HCAD? I do.
Next: The Unholy Alliance And The Story of The Chicken and the Hog?s Role in Breakfast.
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