Texas legislators to tackle growing concerns over state’s property tax process

Politicians, bureaucrats and citizen watchdogs have debated for years whether Texas’ tax appraisal system is out of whack, with the deck stacked against homeowners.

But it’s not just talk anymore.

The city of Austin has taken the fight to court, challenging the state’s appraisal system in a lawsuit alleging that commercial property owners have an unfair advantage in the state’s tax system. If the courts rule in Austin’s favor, the outcome could uproot the way property is appraised in the state.

The fight promises to be fierce and the stakes are huge — every city, county and other taxing entity in the state could be impacted, and the appraised value of billions of dollars worth of property in Tarrant County alone could be affected.

The quick summary of Austin’s argument is that residential property owners are paying more than their fair share of taxes, Mayor Steve Adler wrote in a recent opinion piece in the Austin American-Statesman.

“To solve tax affordability, we must first ensure that the property tax system treats all property owners fairly,” he wrote. “Did you know that the current Texas system is specifically designed to result in some properties being taxed at values lower than market value? It isn’t fair and it results in more people paying more than they should.”

The issue of whether property appraisals are “equal and uniform,” as Texas’ tax code prescribes they should be, has been simmering for a few years. In August, Austin decided it was time to challenge the system and sued the Travis Central Appraisal District.

Austin alleges that the appraisal district’s figure for the value of commercial property is too low.

Jeff Law, head of the Tarrant Appraisal District, said the case could spark legislation going forward.

Fort Worth Mayor Betsy Price said she saw the issue bubbling during the decade she served as Tarrant County’s tax assessor-collector before being elected mayor in 2011.

For now, Fort Worth has no plans to sue the Tarrant Appraisal District, but Price said: “Everyone is sitting back waiting to see where this goes. It’s a very complicated issue. The courts will decide the equity piece.

“I always tell people and always have, anytime you start messing with values you’re going to impact one group or another,” Price said. “Taxes, by nature, are spread across all groups. When you push one down, somebody else goes up … or rates go up. Rates go up if values go down, unless government cuts their spending.”

The Austin City Council hired a real estate consulting firm to analyze the appraisal district’s commercial valuation and found that between 2012 and 2014, commercial property was undervalued by 47 percent, The Texas Tribune reported.

“I’m confident our appraisal district figures are right,” Price said.

Bennett Sandlin, executive director of the Texas Municipal League, a nonprofit organization that advocates for its 1,130 member cities, said the group’s policy committee and board have not adopted a position on the lawsuit just yet.

“But we are going to be closely monitoring this lawsuit as it progresses and I'm sure many cities, counties, school districts and other taxing districts will be watching it closely also,” Sandlin said.

Property tax dependent

Texas is a property-tax-dependent state, meaning that most of the revenue used to run cities and schools comes from property taxes.

But Texas is also a nondisclosure state, meaning property sales prices are not reported. Some argue that divulging a sales price would make appraising properties easier and more equitable, particularly when it comes to commercial properties.

Appraisal districts use private databases to scour for information they can use to help set appraisals. That includes the Multiple Listing Service, a database where real estate agents list residential properties. When property is sold, a sales price is typically added.

Property owners protest their appraisals solely to reduce the property taxes they will have to pay.

According to its 2015 certified roll, the Tarrant Appraisal District reported a taxable value of $15.6 billion on commercial property and $23.3 billion on residential property in Fort Worth.

This year, TAD’s Appraisal Review Board considered 54,087 protests, of which 32,416 were on residential properties and 16,549 on commercial properties. In some years, Law said, as many as 70,000 protests are filed.

Property owners can sue the appraisal district in state District Court if they still disagree with the review board’s decision. Few that move to state court are related to residential properties. And of the commercial property owners suing, many are owners of apartment communities and hotels, court records show.

Law, Tarrant County’s chief appraiser, said he feels good about appraisal figures this year. It’s not uncommon to see 700 property owners file suit appealing the review board’s decision. He anticipates this being a “light year” with few filings.

“It’s a challenge for us to make sure all the i’s are dotted and t’s are crossed,” Law said, but he added, “There are a lot of times I wonder why they’re suing us.”

Hines suing appraisal district

In an example of a current case in Tarrant County, Houston-based Hines, a privately held real estate firm with billions of dollars of assets worldwide, bought the then-named Chesapeake Tower on the western edge of downtown Fort Worth in August 2014, is suing the Tarrant Appraisal District over the property’s appraised value.

Chesapeake Energy in Oklahoma City sold the property but didn’t disclose a sales price. According to a federal securities filing, Chesapeake said it sold $198 million worth of real estate in the third quarter of 2014, the quarter that included the sale of the building. Chesapeake, though, was also selling off its Barnett Shale property at the same time.

When the building opened in 2004, Pier 1 Imports said it spent $90 million for the land and construction. In 2008, Chesapeake said it paid $104 million for the property.

In 2014, TAD listed the property appraisal at $68.8 million, but in January this year, the appraisal was raised to $81.9 million. Hines protested, and the value was lowered to $76 million. Still not satisfied, Hines is now suing in District Court, saying the amount is “in excess of fair market value.”

Lawyers for the company say the formula used to reach that figure is “fundamentally erroneous” and violates the Texas Constitution and property tax codes and statutes.

‘Meaningful’ reduction

Property taxes and valuations prompted a review by a blue-ribbon task force a decade ago. But little has changed, some say, because Texas doesn’t have a state income tax to help generate tax dollars.

“Property taxes in Texas are among the highest in the nation,” said Mark P. Jones, a political science professor at Rice University in Houston. “As a result, issues of how property is appraised and at what rates and the balances of power between homeowners and appraisal districts and between business property owners and appraisal districts takes on added salience given the very high stakes for all parties involved.”

This year, state lawmakers tried to give Texans some relief. Two of the seven proposed amendments to the Texas Constitution — which Texans will vote on in the Nov. 3 election — address the issue.

Proposition 1, among other things, boosts homestead exemption amounts for school district property taxes from $15,000 to $25,000, which some say could cut property tax bills for the average Texas household by about $125. Proposition 2 makes sure that widows of disabled veterans get the same exemption that their spouse would have received.

“Rising property values are a reflection of a strong North Texas economy,” said state Rep. Chris Turner, D-Grand Prairie. “Texas has a high property tax rate relative to other states, largely because we have no personal income tax. The passage of Proposition 1 will somewhat help reduce pressure on homeowners as the homestead exemption will increase.”

Opponents say the tax break will cost the state about $1.2 billion over the next two years – and that, they say, is money that could be better spent on anything from public schools to infrastructure.

State Rep. Giovanni Capriglione, R-Southlake, is among the lawmakers who have already been getting calls and emails from people in his district about their tax bills, which reflect passage of the Proposition 1.

“In order for your tax relief to happen immediately, we chose to issue it in the October statement,” Capriglione posted on Facebook. “If Proposition 1 were to fail in November, a new notice will be issued without the higher exemption and your new taxes due would be higher.”

Work to be done

Already, Lt. Gov. Dan Patrick has added the “property tax process” to a list of issues he wants state senators to study and address before the next legislative session begins in less than 15 months.

Senators are being asked to study the property tax process — which includes the appraisal system — and propose ways to boost accountability, simplicity and transparency among all taxing entities. They also are to review ways to cut property taxes for Texans.

“We will have a robust discussion of these issues over the interim period with the goal of finding solutions to better meet our needs, strengthen our economy and craft a responsible budget,” said state Sen. Jane Nelson, R-Flower Mound, who heads the Senate Finance Committee.

State Sen. Konni Burton, R-Colleyville, and others have said they will continue to try to reduce the property tax burden.

“Homeowners should not have to pay property taxes in perpetuity, thus never really owning their home,” she said after the legislative session. “The Legislature must take immediate steps to rein in the growth of local property taxes and the out-of-control debt cities are issuing.”

This story was originally published October 24, 2015 at 5:15 PM with the headline "Texas legislators to tackle growing concerns over state’s property tax process."