Tax Lean

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

The county follows up on the companies' self-reporting only if there appears to be an anomaly, like if the numbers don't jibe with news reports of layoffs. "Unless we suspect there's a problem, we would accept that at face value," Turkel says. With self-reporting, he says, "You'd be surprised how honest people are…."

The city of Dallas was surprised, unpleasantly so, when officials, who long relied on companies to self-report jobs, completed a review of 90 abatement agreements there. Their study found that 22 companies had not complied with job-creation or property-improvement provisions in their contracts.

"The way we measured compliance was by essentially depending on recipients of tax abatements to tell us whether or not they were in compliance simply by filling out a form and mailing it in," says Alan Walne, a Dallas city councilman. "We will [do audits] from this point forward."

UH economist Craig says tax breaks for some companies provide advantages over competitors.
Deron Neblett
UH economist Craig says tax breaks for some companies provide advantages over competitors.

Houston's planning and development department conducted audits of some 25 companies with abatements over the past five years and found five companies in violation of their contracts.

Turkel, however, dismisses the need for audits. The county, he says, is doing just fine monitoring company performance without them, by reviewing the figures sent in by companies and tracking property values through the appraisal district. Turkel boasts that his office often catches glitches before the city does.

He offers the example of PCS PrimeCo, a communications company with abatement agreements with both the city and the county. The agreement called for the construction of a mobile switch station to serve Houston-area customers. The company committed to property improvements worth $13 million, and 150 full-time jobs.

By 1999, however, the company had only 122 full-time employees and had increased property value by just under $4 million.

"They never hit their total [for either jobs or improvements] back in 1999. We knew that and didn't give them an abatement," Turkel says. "The city waited and did an audit and only now, a year later, are they coming to the same conclusion." Calderon says Houston will terminate its agreement with PCS PrimeCo and recapture the taxes.

Turkel similarly boasts that it was the county, not the city, that last year denied an abatement to Dreyer's Grand Ice Cream for falling short of its job-creation goals by about 20 employees. But records furnished by Turkel indicate the county did offer abatements last year to PCS PrimeCo and Dreyer's.

He attributes the discrepancy to a data-entry error by his assistant.

"This is very embarrassing. We put this together for you overnight," he says, apologetically.

I<1>n 1997 the county added another supposed safeguard designed to send a strong signal to companies not to fudge their employee numbers. Officials added language to abatement contracts that requires companies to certify the number of jobs created as a result of the abated improvements, as well as the employee totals in other facilities operated by the companies in the county.

The information must be submitted annually in the form of a notarized letter to HCAD and the county judge's office. In the contract's ominous wording, the county warns that "Owner's failure to submit this information will render Owner ineligible to receive an abatement for that year."

It sounds strict enough. But a review of files shows that the requirement gets largely ignored by the appraisal district, the county and the companies.

Abatements are administered by the appraisal district once any of the dozens of towns, community colleges, utility districts and other taxing jurisdictions in Harris County approve the agreements. HCAD receives all documents that companies must submit annually and maintains the files.

"All the documents that are required should be there, period," says Phillip Craigen, one of three Texas state comptroller employees who reviewed HCAD's procedures in December.

And yet there is almost universal disregard for the notarized-letter provision. Companies failing to submit the required document include recipients of some of the largest abatements, companies such as Phillips Petroleum, Continental Airlines and Compaq Computers.

Eckels asserts that a signed, notarized statement would make it easier for the county to enforce contracts should compliance disputes arise and lawsuits be necessary.

Walt Gregory, HCAD's special projects director and the man who maintains the abatement files, says he doesn't seek the notarized letters because companies already report their employee figures on another form.

"In cases where we do not get a certifying letter, I don't pursue that," Gregory says. Reacquainting himself with the language of the contract, Gregory acknowledges, "[The letter] should be there."

Eckels maintains that the lack of the designated document is less important than whether or not companies are actually creating the jobs they say they will.

"If we're not getting the notarized letter, what I'd give them is an opportunity to cure that defect," he says. "I'm not looking to put 'I gotcha's' into the contract. If they're substantively conforming with our contract and creating the jobs, the fact that they've left off a notary's stamp does not offend me particularly other than it was a technical defect. But they should be complying with the contract."

County Commissioner Jim Fonteno takes a blunter stand. "They should be made to comply. If they're not doing it, they should. I think we ought to put them on notice and say we'll take them to court if they don't. There's no use having the language in there if you're not going to enforce it," he says.

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