Steffy: Loophole lets companies punt on part of tax bills

In what may be the biggest mismatch since Bambi battled Godzilla, schoolchildren in Texas City were pitted against one of the country’s biggest refiners. Not surprisingly, the schoolchildren lost – again.

A jury in Galveston recently sided with San Antonio-based Valero and slashed the appraised value of the company’s Texas City refinery by more than $189 million.

The result: The Texas City school district will have to repay about $2.5 million. The city, county and community college district combined will have to refund about the same amount.

It’s not the first time this has happened – four years ago, the district had to repay Valero almost $2.4 million – and unless lawmakers close a loophole in the state law that governs appraisals, it won’t be the last.

Valero has proven adept at exploiting that provision of the law. It’s been aggressively suing appraisal districts in the state to claw back property taxes, and it’s been winning or getting favorable settlements at every turn.

“Valero is pretty well known statewide to sue quite a bit,” said Ken Wright, chief appraiser for the Galveston County Appraisal District. “It’s a little frustrating.”

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Corporations have an obligation to their shareholders to lower expenses, including taxes, and Valero is, as spokesman Bill Day told the Chronicle, simply doing “what any taxpaying citizen would have done.”

While Valero has more legal might at its disposal than most taxpayers, it’s the Legislature that years ago gave big property owners the ability to prevail in appraisal cases by divorcing the appraised value of their property from the actual market value of its property.

Appraisal games

During the past year, I’ve written about the games big companies play with the appraisal system. Just like the owners of prime office buildings in downtown Houston, refinery owners have successfully argued that their properties should be appraised not on their actual market value, but the value of similar properties.

Private homes are valued by the appraisal district in much the same way. It compares homes of similar sizes and ages and determines a value. The difference is that because homes sell frequently, an average market price can be determined based on recent sales.

Refineries, on the other hand, are much more difficult to compare. Their size, complexity and inventory vary greatly. As a result, most refineries are probably under- appraised, much like prime office buildings in Houston, which as I wrote last year, are appraised at an average of 40 percent less than their market value.

BP’s Texas City refinery, for example, recently sold for $2.5 billion, yet it’s on the tax rolls for just over $1 billion, according to appraisal district records. While the sale probably includes some land and other assets that were appraised separately, the taxable value clearly falls below the price set by the market.

Read more: Valero profits double to $1 billion

The result amounts to a legal loophole for big property owners, one that’s further exploited by companies’ legal might. Wright told me the appraisal district has difficulty finding expert witnesses because the best are paid more to testify on behalf of the companies.

“Central appraisal districts are outgunned,” said George Scott, a former researcher for the Harris County Appraisal District who blogs about property tax issues. “Appraisal districts simply don’t have the budgets to go into court time after time after time and match what these corporations can do.”

Victories like Valero’s last week will embolden not just that company but other big industrial property owners as well.

Aggressive industry

“As the economy rises, I think you’re going to see industry getting more and more aggressive,” Scott said.

The losers, of course, are the school districts, which are already facing stretched budgets. Meanwhile in Austin, lawmakers look to restore some of the education funding they slashed to balance the budget in the last session. A good place to start would be helping local appraisal districts collect the money that’s being left on the table by not requiring properties be assessed at market value.

“Public education has been on a roller coaster of unconstitutionality since the 1960s,” Scott said. “One of the fixes is to restore the concept of market value to your tax appraisal system.”

Otherwise, the mismatch between big property owners and schoolchildren is going to play out again and again, and the children will stand about as much chance as a young deer against a fire-breathing monster.