Tax Lean

Want a subsidy for your corporate expansion? Local governments are ready with millions in property-tax abatements -- and very little oversight.

The city, by contrast, has a more sophisticated abatement program. But it is far from trouble-free in administration and record-keeping. Houston is less likely than the county to penalize companies that don't meet the terms of their agreements.

"We try to give companies the benefit of the doubt where we can, and work with them through technical problems," says Bill Calderon, the city's assistant director of planning and development.

David Turkel, the county's administrator for economic development, is a former colleague of Calderon's in Houston's finance office. The county hired him to oversee its abatements and other incentive programs.

Before the creation of Turkel's division, the county judge's office administered abatements. Under the standard agreement, a company receives tax breaks on the value of improvements it makes to a property. A business commits to raising the value of a property by a certain amount and to creating or retaining a fixed number of jobs. Current county and city guidelines require a company to increase a property's value by a minimum of $1 million and create -- or prevent the loss of -- 25 full-time employees. Typically abatement contracts run ten years.

Abatements have been available in Texas since 1981, when the legislature first gave cities and other taxing jurisdictions the power to grant such tax breaks on buildings and equipment. County Judge Eckels says little was done by his predecessor, Jon Lindsay, to track companies with abatements.

"My office started looking at [abatements] and saw there were problems early on. We had no way of knowing [if companies were complying]," he says. "If we found they weren't creating the jobs, there was no way to get our money back or sanction them. There was nothing in the abatement that provided for that, so we started putting that in [agreements] and eventually set up a full-time office."

But Eckels, who came into office in 1995, apparently was in no hurry to cure those defects.

The task of bringing order to the abatement program now falls largely on the shoulders of Turkel, a large affable man with ruddy cheeks, thinning gray hair and a mustache. He readily concedes that his staff and information systems are only just coming together. He tries to be helpful by compiling information on the county's abatements, but the data is so riddled with errors, inconsistencies and omissions that it raises serious questions as to how -- or even whether -- the county has been monitoring abatements all these years.

For 19 of the 133 abatements, Turkel's office lists 1999 values that are different from those of the Harris County Appraisal District. HCAD does the tax-roll valuations. Some of the differences can be chalked up to simple data-entry errors, a point Turkel makes several times.

But he finds other instances harder to explain. In one case, the county shows Ellwood Texas Forge, a steel manufacturer, as having an exemption value of $4.3 million for 1999. HCAD, on the other hand, lists the value at only $550,000. At first, Turkel disputes any discrepancy, saying that he got his number straight from the appraisal district. Then he logs on to HCAD's mainframe and sees his figure is faulty.

"This is weird. I see what you're looking at," he says to a reporter, before directing his suspicions at the appraisal district. "We're no better than the information we get from HCAD. That's what we pay them for. I'm not saying they're wrong. I'm saying we may be misinterpreting something."

HCAD's property appraisals are, along with employment numbers, an essential element in determining whether a company is abiding by an abatement agreement. These property values determine how much a firm will have to pay in taxes. The Ellwood case is not too serious, Turkel says, because the abatement is relatively new. During the first three years of an abatement, a company is 100 percent exempt from taxes on improvements. Therefore, Ellwood would not receive an erroneous tax bill as a result of the mistake.

But Turkel admits that if his data was incorrect for one company, the same could be true of others.

"It certainly gives pause to wonder if there are other instances where it might have made a difference," he says. His spirits sag further when he realizes there is another, similar mistake on his list. He complains that it would fall upon him to contact companies on the basis of flawed information.

"I would be the one winding up sending them a threatening letter, or the one who thinks everything is fine when they're in default," he says with a groan. "It's disturbing that HCAD may be giving us faulty information."

Turkel says he would never base final decisions about compliance on a single sheet of data, but rather on an extensive review of a company's file and frequent communication with HCAD personnel and officials from the companies themselves. "I believe we probably are collecting the correct amount of taxes," he says.

Even though Turkel and his staff oversee abatements, they still do not independently check to determine if companies are complying with the job-creation provisions in their abatement contracts. Companies merely report their own employment totals to his office. And unlike the city, the county does not conduct audits.

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