Texas’ two-tiered property tax system is flourishing in Denton County Texas. That’s bad news for Denton area homeowners. Wealthy and commercial property owners are using the equity appeal statutes contained within the Texas property tax code to dramatically lower their property tax obligations every year in Denton County. Amazingly these “equity” appeals have nothing to do with the actual market value of the property being protested by the owner. As wealthy commercial owners wipe $billions off the commercial property tax base each year, they are also shifting the burden of property tax revenue collection onto residential homeowners, the biggest source of property tax revenue for most Texas counties.
In 2018 big commercial property owners wiped over $1.65 billion off of the Denton County property tax base with just 250 accounts. There are several hundred more settled accounts which I haven’t compiled, and a few hundred more pending district court suits accounts which I hope to look into at a later date. The property tax base destruction happening in Denton County is probably mind blowing to the average reader, but I’m not actually surprised. I have been researching Texas’ two-tiered property tax system for a number of years.
In Denton County Texas, like other counties across the state, big commercial property owners sue the CAD in district court to avail themselves of a unique loophole in the Texas property tax code which was initiated back in 1997. It has only grown in popularity for big commercial property owners. Contrary to what was reported in many major media outlets across Texas in 2019 the major legislative initiative known as Senate Bill 2 did nothing to lower the actual property tax bills of most Texas homeowners. This was a feature, not a bug of the “landmark” legislation which was sponsored by Senator Paul Bettencourt of Houston and other business-friendly Texas legislators.
Ironically enough, the final legislation is cited as “the Texas Property Tax Reform and Transparency Act of 2019”. That’s pretty entertaining considering the June 2019 legislation left the biggest commercial property tax loophole on the books completely untouched. If you believe Senate Bill 2 was an act of “transparency”, you may have heard the reports that Jefferey Epstein committed suicide. Both narratives are complete lunacy, but they make for polite public discourse.
While governor Greg Abbott, Dan Patrick, Paul Bettencourt and others in the Texas legislature were busy patting themselves on the back for a job well done capping the revenue of various city and county taxing authorities in 2019, behind the scenes, property tax consulting firms were making sure the gravy train known as the equity appeal statutes remained untouched. As it so happens, Mr. Bettencourt himself runs a property tax consulting firm in Houston Texas, so you can probably imagine why the equity appeal statute received little attention on the legislative floor or his previous committee hearings as the major pieces of the puzzle were coming together for Senate Bill 2. As Mr. Bettencourt described it to the Texas Tribune, his primary work as a property tax consultant is “not a conflict of interest but rather a productive public use of his expertise.”
“It’s difficult to get a man to understand something, when his salary depends upon his not understanding it.” Upton Sinclair
I had the opportunity to testify at one of Paul Bettencourt’s committee hearings several years ago in Houston when a previous public relations exercise involving property tax reform and relief was taking a road show across the state of Texas to preach the message of shared pain and sacrifice due to major property tax increases across the state. I even watched during that hearing as one Texas legislator thanked a representative from a major corporation for the “courage” to come before the panel and ask for consideration. It was all I could do to contain my laughter at the time, but this is the kind of atmosphere we have been dealing with in Texas for years. Texas loves business and industry, and pretty much everything else takes a back seat, including homeowners’ concerns about sky high property taxes.
“I am a “conspiracy theorist”. I believe men and women of wealth and power conspire. If you don’t think so, then you are what is called “an idiot”. If you believe stuff but fear the label, you are what is called “a coward”.” Dave Collum
After pouring through thousands of records in Fort Bend County Texas, I have since had the opportunity to see how things operate in North Texas and Denton County. After the property tax overhaul of 2019, things haven’t changed much. If anything, the situation is worse. The reason should be obvious, but to hear those property tax consulting firms talk about it, Senate Bill 2 brought the most significant change to the Texas property tax code in 20 years. That is probably true, but it also speaks to how impotent the Texas legislature has been during the last few decades while business and industry continues to whittle away the commercial property tax base. The fact that the legislature did not eliminate the equity appeal statutes contained in section 42.26(a)3) and other sections of the code speaks to the power of Jim Popp and the hordes of property tax consulting firms who are running the show when it comes to property tax reform in the Texas legislature.
This means that average homeowners in Texas are often paying much more than they should in terms of property taxes. Bexar County chief appraiser Michael Amezquita has explained it as well as anyone could:
“If you have a whole category of property that is nonresidential systematically paying less, well who do you think is paying more?” Michael Amezquita
I can answer that one pretty easily for Denton County homeowners. If you own a home in Denton County Texas, like most counties across the state of Texas, you are what is know as an ATM for the taxing entities. The 2017 property valuation study (PVS) for Denton County shows how residential homes make up the biggest category of property by far. The state comptroller report shows that single-family homeowners comprised $60.1 billion, or almost two thirds of the $93.7 billion in total property value in 2017. Category B (Multifamily residences, aka apartments), only registered as $6.7 billion in value while Denton County commercial property (Category F1) was valued at $12.4 billion.
After watching another ruse of property tax reform from the legislature in 2019, I obtained the 2018 suits data for Denton County. The district court suit cases offer a very revealing glimpse into why Bettencourt and his legislative colleagues did not want to touch the equity appeal statutes with their latest charade of property tax reform. While property tax consultants across the state are earning big fees representing commercial clients, many Texas homeowners are still getting buried with rampant appraisal creep. The average Texas homeowner would be screaming at their local legislator if they really understood what was going on, but corporate owned media has done a pretty a pretty good job of burying the lead.
The property tax consulting firms are not your ally if you are a typical Texas homeowner. They are a root cause of the problem.
Popp Hutcheson PLLC and the army of attorneys and tax consults who blow holes in the commercial property tax base every year representing the wealthiest corporations in the state are contributing to wealth inequality in the state of Texas and the bastardization of the entire concept of uniform and equal appraisal. The property tax consulting firms, firms like Bettencourt Tax Advisors and O’Connor & Associates have a vested interest in keeping the equity appeal statutes (aka the equity appeal scam) on the books. Those expensive accounts generate big fees when Walmart, Texas Instruments or major apartment development owners can bulldoze the Denton Central Appraisal District for a 30 percent discount off their original notice value and wipe tens of millions of dollars off the property tax rolls in a single account.
The equity appeal scam is lucrative industry in Texas. Bettencourt and the Republican contingent in the legislature have company when it comes to pulling the wool over the eyes of Texas homeowners. If you look at the staff roster of Popp Hutcheson, you will see Eddie Lucio III listed as special counsel for the firm. Eddie III, a Democratic house representative from the Brownsville district, is also the son of Democratic state senator Eddie Lucio Jr. When it comes to trickle-down theory, both Democrats and Republicans enjoy the color of money. Representative Drew Springer (R), was on the payroll for Ryan LLC. Dallas based Ryan LLC earns hundreds of millions every year by carving out billions from the public coffers on behalf of major corporations like Walmart, Exxon, Tyson and other firms. Company CEO, G. Brint Ryan, happens to be the chair of the University of North Texas (UNT) Board of Regents. Ryan LLC spends vigorously on statehouse lobbyists to further the cause of corporate welfare.
Dallas based Ryan LLC even has a related company RyanWest LLC, jointly managed by Ryan LLC and Dallas area Democratic state Senator Royce West. Fortunately for Texans, Royce West is running for the U.S. senate in a bid to challenge John Cornyn. Thanks to new state ethics disclosures and the more robust federal disclosure requirements, Texans can now see that Mr. West and his wife are also familiar with the color of money. According to a recent Texas Tribune article, Royce West and his wife are worth between $8 million and $28 million. In a recent reporting period they earned between $300,000 and $2.3 million from assets which include a 40% stake in the tax consulting firm RyanWest LLC. Apparently conflicts of interest are extremely profitable for Mr. West. Go figure!
Denton area residents are probably familiar with Mr. Ryan’s ties to the University of North Texas. The UNT College of Business is now the G. Brint Ryan College of Business. The longtime friend of the Mean Green is apparently rolling in so much green that Ryan recently dropped a $30 million gift to the university, the largest gift in the university’s history. That gift, which I will affectionately refer to as power brokering disguised as philanthropy, will go to fund “academic” initiatives with focus areas that include…wait for it…”taxation and tax research”. You can’t make this stuff up. Having taxation and tax research at your university bankrolled by Ryan is a bit like having Hannibal Lecter run your Meals on Wheels program.
G. Brint Ryan and Ryan LLC are no strangers to the intricacies of influence in Texas politics. Ryan LLC and it’s employees were major contributors to comptroller Glenn Hegar’s campaign. Not surprising since Ryan LLC consultants help the firm earn big bucks by securing tax breaks for major corporations seeking property tax incentives via programs monitored by the comptroller’s office, programs like the Enterprise Zone Program, the Texas Enterprise Fund and Chapter 313 abatements.
Now that you understand why the equity appeal scam is flourishing in Texas, here is how the scam works. Let’s say Walmart isn’t happy with the appraised value of their supercenter in the Denton development of Razor Ranch. What do they do? Well, they sue the CAD for a huge discount on their property taxes, making an argument not based on actual market value, but by making an argument based on the uniform and equal statutes. They essentially get to compare apples to oranges. That’s what Walmart did back in 2014 to dumb down the value of their Razor Ranch store in Denton to a laughable discount. This is a graphical representation of the scam played on Denton County homeowners from 2013 to 2018. While the property taxes on Denton area homes were going through the roof, this is what happened to the valuation and assessment history of one Walmart store…
How did Walmart get a 34 percent discount at the Denton Central Appraisal District on a single store. They sued the CAD in district court. Here’s the case file of WalMart Stores Vs DCAD 2014
Year after year, Walmart sues the CAD, just like other big commercial players often do, keeping the value of their property below real market value. The game works really well for the commercial owners because they can use the “equity” appeal statutes to make a case which does not even involve market value. In 2018 Walmart was still suing the Denton Central Appraisal District. This the valuation history on one of Walmart’s distribution centers on I-35 showing how the value actually decreased from 2014 to 2018. It’s pretty magical when you can get the value on over a million square feet of improved space sitting on over 213 acres to actually go down in value.
So how did Walmart get over $24 million wiped off the DCAD notice value on their Sanger Texas distribution complex and over $16 million off another distribution center near Roanoke? Here’s the district court case file of WalMart Stores Vs DCAD 2018
Walmart has plenty of company when it comes to suing the Denton Central Appraisal District. Target, Lowes, Kroger, HEB, Apartment owners, commercial office and strip centers, hotels and just about any company with an expensive property has an open invitation to play the game known as the equity appeal scam. It’s how big money comes to play, and how Texas homeowners are left picking up the tab every year in the ruse of uniform and equal appraisal.
Texas Instruments received over $23 million off the 2018 notice value of their Lewisville Texas campus. Here’s a graphic of the valuation history for one of the most expensive properties on the Denton County tax rolls. Notice how it looks nothing like the valuation history on your typical Denton area home.
Here’s the case file showing how TI sued the Denton Central Appraisal District to get 19% reduction. Digital Lewisville vs DCAD 2018
Need a big discount on a cash-generating machine that is your modern multi-family apartment complex? No problem. You can sue the CAD for a 31 percent discount. Here’s a graphic of the valuation history for the Mansions at Sunset Ridge apartment development in Carrollton Texas…
How did the apartment owner get over $32 million knocked off the 2018 notice value from the Denton Central Appraisal District? Here’s the district court case summary. Mansions at Sunset Ridge vs DCAD 2018
This is just like your typical trip to the CAD every year as a homeowner, right? Of course it’s not. That’s the beauty of the district court loopholes available to wealthy commercial property owners. They don’t work for most homeowners! As a homeowner, the burden of proof is on you to prove a lower market value via an informal hearing, a meeting with the Appraisal Review Board or perhaps binding arbitration. This is tough to do when the CAD has a lot of residential comparable sales data. For the commercial property owner, the burden of proof can often be shifted to the CAD, and the game is often rigged in the property owner’s favor since Texas is a non-disclosure state. This is why hundreds of district court property tax suits were filed in 2018 in Denton County, and many more across the state.
Contrary to narrative sold by the property tax consulting firms, the equity appeal isn’t worth a hill of beans to the average Texas homeowner. The 2018 suits data for Denton County I obtained proves it beyond a shadow of a doubt. Out of the 900 plus suits accounts involving real property only 8 show to be for residential homes. That’s less than 0.1 percent of the total. The average valuation for these properties on these 8 residential files is over $1.4 million. All of the other 900 plus DCAD account numbers involving 2018 real property suits pertain to commercial property of various categories. It takes big money and an expensive property to make the district court process worth your time. If you have an average residential home it’s not worth the expense and effort. The equity appeal statute is of little use when your local appraisal district has a large database of comparable sales data on residential homes.
If you have a really nice (aka expensive) home, you can play ball with the CAD and get a 25% reduction off your original Denton County notice value. I had to do a double-take on this particular parcel located in Hickory Creek Texas because the DCAD value history was so absurd it made my head spin. This is how money comes to play at the CAD. This is the Texas Uniform and Equal appraisal of property personified. This is how the Texas property tax system gives a giant middle finger to all of the average homeowners who are disgusted with a blatantly two-tiered system. While the property tax assessment on your average Denton County home was going through the roof from 2012 to 2018, this is the valuation history on a 10,000 square foot mansion on 5-plus acres in Hickory Creek TX.
The value history for this property, and many of the expensive commercial properties throughout the DFW area are a comical joke. As I have repeatedly explained, the Federal Reserve ignited a major real estate boom in the Dallas-Fort Worth area that resulted in escalating property prices virtually everywhere you looked beginning 2012.
The DFW real estate boom that began in 2012 was just as pronounced in the commercial space. Real Capital Analytics published a commercial property price index (CPPI) for Dallas demonstrating how liquidity was driving up commercial property prices through 2017, just as it was in the residential space. The only difference between the residential space and the commercial space is that your local appraisal district started ratcheting up home assessments before commercial valuations began to rise. This is no accident. This is how the game works in Texas due to the lack of sales price data in the commercial real estate sector. Big commercial owners play a yearly game of whack-a-mole to keep their assessments on the lower bound.
The vast disparity of sales data held by the CAD virtually guarantees that your home is going to be valued at closer to market value than the giant warehouse in a DFW commercial district. Appraisal districts have a much smaller data pool for commercial sales, and business uses this to their advantage in the equity appeal scam when they sue in court. With the lack of mandatory sales price disclosure, big commercial property owners can bully the CAD into submission every year, often getting discounts of 30 to 40 percent off their original notice value from the CAD. This is what is going on in Denton County Texas.
In the PVS chart summary noted above, you will see that the F1 category of commercial real estate shows a median level of appraisal at 1.0. That is an elegant ruse which the comptroller and CAD exchange to pretend we have uniform and equal appraisal in the state of Texas. The purpose of the PVS is to “insure the equitable distribution of state funding for public education.” This is straight out of the comptroller’s Property Value Study web page. “The median level of appraisal measures the accuracy of the CAD’s appraisals in relation to the standard of 100 percent of market value.” This is strait out of the comptroller’s handbook on PVS and how to protest.
Any idiot can look at the giant holes big commercial property owners are blowing in the CAD’s assessments and realize that F1 ratio of 1.0 is a work of fiction. The values for B2 multi-family residences (aka apartments) are just as bad, but fortunately we are spared with an empty field for that ratio. When developers and owners won’t share their cost data for big apartment developments and the owners are suing the shit out of the CAD for huge reductions in district court, it’s safe to say the real ratio would be less than 1.0. Looking at the huge pile of suits by apartment owners in Denton County, it’s probably a lot less than 1.0. Apartment owners are suing the Denton Central Appraisal District like there is no tomorrow. This would explain some of the absurd valuation histories on many of the local apartment developments. From the perspective of a real estate broker, it would appear the CAD is only recently catching on to fact that apartment developments are huge cash generating machines.
It is important to keep in mind that these are only the property owners who sued Denton Central Appraisal in district court. There are countless others who didn’t sue and still received reductions, because even the threat of suing the CAD puts wealthy commercial owners in a much better position of leverage with the CAD than that of your typical homeowner. Once you go to court, with the power of the equity appeal scam in your back pocket, the burden of proof shifts to the other side. Every time a big commercial property owner utilizes the equity appeal scam to bulldoze the Denton Central Appraisal District, residential homeowners in Denton County Texas are left picking up the tab. In reality, that means $billions of the property tax base is being shifted onto the backs of residential homeowners every year.
In case I haven’t driven the point home yet, let me put it another way. For the last few decades the Texas Legislature has been following the Animal Farm principle when it comes to uniform and equal appraisal in the sate of Texas.
“All animals are equal, but some animals are more equal than others.” George Orwell – Animal Farm
Here’s a snapshot of the variety of cases that get big discounts at the Denton County CAD, and how the ARB (Appraisal Review Board) will even do some of the heavy lifting for the commercial property owner if they know a district court suit is forthcoming. In the sample you can see the initial notice value, the percent reduction after the ARB hearing, the percent reduction after final judgement, as well as the total dollar value reduction after the final judgement was rendered.
If you are an average homeowner in Denton County Texas, remember that property tax consulting firms are a double-edged sword. It’s often the part they don’t tell you about which is the most destructive to your pocket book. If you need another reminder of how this plays out in the real world, I’ll offer you the 2010 settlement between Patrick O’Connor & Associates with the state of Texas. One of the largest property tax firms in the state at the time, O’Connor settled the case over alleged claims of fraud and deceptive trade practices for $800,000. Here is the actual judgement. State of Texas vs Patrick O’Connor & Associates Judgement
You will know that Paul Bettencourt and the Texas Legislature are serious about property tax reform, if and when they decide to make uniform and equal appraisal a reality. You’ll know Mr. Bettencourt is serious about lowering the property taxes on your home when he and his colleagues eliminate the equity appeal scam from the property tax code. Until that happens, enjoy the show for what it is…a carefully orchestrated distraction from the reality of Texas’ two-tiered property tax system, a system which benefits the wealthy and the powerful at the expense of average homeowners.