A Taxing Situation
Late one Monday morning in March of last year, Michael Lee was tending his vegetable garden when a stranger appeared at his fence. The man identified himself as Neil Swenson, an appraiser for Harris County. Swenson asked if he could take a look inside Lee's two-story brick house, but for whatever reason, Lee said no. Lee's hands were muddy, he was in the middle of finishing up in his garden and he thought to himself, does this guy really need to look through my house?
So Swenson had to content himself with looking at the exterior of the Lee's Riverside Terrace home at 5504 Ardmore. The house is second from the corner of Ardmore and MacGregor, just up from Brays Bayou. Ardmore is the northeastern boundary of Riverside Terrace, a mostly black residential area that, back in the 1930s, was designed to be an upper-class alternative for wealthy Jews and Catholics who couldn't get into the city's other plush residential area, River Oaks. Some of the neighborhood, which covers an area between Hermann and MacGregor parks, hit hard times through the late '60s and '70s, but now is on the rebound. Parts of it have bounced back better than others.
Lee says his house has "good curb appeal," but -- as he was to find after that March visit -- curb appeal can cut both ways. Curb appeal is fine if a prospective buyer drives by. But Neil Swenson was not looking to buy a house. He was looking to tax one. The appraiser was conducting a field check (a cursory once-over from the sidewalk) of the part of Riverside Terrace near Hermann Park. When his check took him to Lee's house, he liked what he saw.
Swenson liked it so much that he said Lee's house was worth twice what it was the previous year. Swenson and the appraisal district eventually judged Lee's house to be worth $173,000, a big boost from the previous appraisal of $82,860.
When Lee received the news of his reappraisal, he learned that the change meant his taxes would jump to $4,186.38 per year from $2,210.81 per year. Lee, a self-employed architect, says he didn't see how he could survive that kind of financial hit. So he appealed the appraisal. Lee had been down this road before, but this time it turned into a particularly unpleasant dead end. In 1986, the Harris County Appraisal District assessed his house at $102,000. Lee protested. The appraisal was dropped to $90,000.
In 1988, the property was appraised at $135,000. Lee protested. It was dropped to $92,000.
In 1989, the property was put at $114,320. Lee protested. This time it was lowered below the previous appraisal, to $82,860.
In 1990, the appraisal was $113,600. Another protest. It returned to $82,860.
Then came Swenson's $173,000 judgment, more than twice the previous price tag. Again, in an almost annual ritual, Lee protested. This time his protest failed to bring a nickel of relief, but he didn't give up. At this point, after going through a meeting with the appraiser and a hearing with an Appraisal Review Board panel, Lee decided to sue.
The Harris County Appraisal District -- the agency responsible for setting the property values used as the basis for calculating taxes by the city, the county, the school districts and other taxing bodies -- has been sued before. In fact, suing the district appears to be an increasingly popular activity. Lee's suit is one of 553 filed in 1993. A big increase occurred in 1992, when 654 suits were filed, more than doubling the 318 filed in 1991. District officials are quick to point out that '91 was a reappraisal year and some increase was to be expected, but that doesn't explain the continuing large number of suits in 1993. Legal fees for the district in 1992 were $477,742. Last year, the district spent $479,574 on litigation.
"Property owners have a enormous number of rights under this system," says Jim Robinson, chief appraiser and top executive for the district. "The most basic is the right to sue." Basic right or not, filing a lawsuit is the last resort for a disgruntled taxpayer. After receiving notice of what taxes are owed, the first option is to return to the district the "optional notice of protest" form included in the tax notice sent to the owner. The district then schedules an informal hearing, usually held in late May or over the summer, at which the taxpayer can present his case to a district appraiser. If that fails to satisfy, a formal hearing before a three-person panel of Appraisal Review Board (ARB) members is held, often on the same day.
About 100,000 protests are filed each year, and about 12,000 go to a formal ARB hearing, according to Robinson. Compared with the 1.3 million assessment accounts on the books, he says, that's a small number. And besides, he suggests, many suits are motivated by lawyers or tax consultants who have in mind something other than justice for all.
But others have a less sanguine, well, assessment of all this. The present property tax system, implemented in 1982, was intended to divorce property values from political pressure. Before the current arrangement, each taxing unit appraised property itself, a fractured setup that some saw as susceptible to political pressure.
"In a lot of places in Texas, appraisals were done on order and then [a politician] could sit on the governing body and say, 'I've been here ten years and never voted once to raise the tax rate,' " says Robinson. "The system that was changed did away with that." But now a rising demand for revenue could bring that discredited approach to taxation back. What happened to Lee's appraisal is extreme, but it may well be part of the seemingly unavoidable march of increased property values, a march tacitly encouraged by local governmental entities that see their revenues swell without having to risk the political liability of asking for an increase in the tax rate. The rising evaluations amount to a silent tax increase: the public forks over more money without the opportunity to seek revenge by voting out the politician who supported a higher sales, income or property tax rate.
The dependence on such silent boosts in taxes was shown recently when Mayor Bob Lanier's financial people issued "slightly higher" numbers for predicted property values through 1998. Since the city's budget is tied to revenues expected to be reaped from those evaluations, discussion of their accuracy is no small matter.
Not surprisingly, City Controller George Greanias has criticized Lanier's projections as too optimistic. The discrepancies between the mayor's projections and even those of the appraisal district end up at a $10 billion difference in evaluation and a $60 million difference in revenue.
In recent years, property values in the city and county have generally gone up. The city's property values rose from $60.2 billion in 1989 to $64 billion in 1993. During that same period, the amount Harris County brought in from property taxes rose from $342 million to $382 million. Granted, these are not dramatic numbers -- certainly not as dramatic as a house's assessment doubling in one year. But compared with other sources of tax revenue, the growth in property taxes is healthy. Greanias, for one, is aware that increased property values translate into more tax dollars and an easy out for politicians. "It's clear that many in politics want the appraisal district to push values up, which in turn pushes revenues up without the politician having to take the hit about raising taxes," he says. "It's taxation by osmosis."
As far as Michael Lee was concerned, that osmosis wasn't going to equalize anything, but instead bleed him dry. Taken by itself, various amounts could be argued as the real worth of Lee's home. The house is well-kept and clean; it's obvious that Lee has put time and effort into its appearance, particularly the landscaping. The walk leading to his front door is a path of tiles laid in squares, with miniature mondo grass filling the center of every other square. The front walk is lined on each side with liriope grass. But the back yard faces an abandoned railroad easement, the Harris County Psychiatric Center and a power line. And while Lee's house is undoubtedly the jewel of his block, virtually all the other nearby houses on Ardmore are appraised in the $80,000 range. Lee once put his house up for sale and asked $300,000, just to see what would happen. The best offer he got was $120,000.
If there is a motive behind his more-than-doubled appraisal, Lee believes, it's that the appraisal district would like to begin raising property values in a neighborhood on the upswing. "They're hand-selecting properties and giving them a high appraisal," Lee says, "which gives them the foundation to raise appraisals on everyone else."
Lee realizes that his dissatisfaction over his property tax is not especially peculiar. He worries about coming off as just another "gripey homeowner" whining about his taxes. Yet he knows that his complaint is practically universal: it strikes a chord not only with any homeowner, but also with anyone who pays income, sales or an anything tax. Even in biblical times, the apostle Matthew was reviled for having been a tax collector. Of course, the Messiah cushioned him against such grief, advising his followers to keep church and state separate, but also to remember a tithe to both.
However ancient and common Lee's struggle is, as lost causes go, he has picked a doozy. In the popular perception of things unavoidable, taxation comes in second only to death. But Lee is determined to fight the appraisal; he sees it as nothing less than a struggle to survive. When he filed the suit he represented himself. At the initial hearing the judge advised against that approach, invoking the old maxim that whoever represents himself has a fool for a client.
The fight has consumed Lee. His struggle has gone from the specific problem with his house to a general criticism of the county-wide appraisal district. When he shows up to discuss his suit, he carries dozens of colored folders, each with some separate category of documentation or news clippings or background material. As he talks, he recalls articles he has read and studies he has unearthed, and he pauses briefly to recall which folder holds the piece in question and whether he's left it at his home office.
"I have friends who don't want me to talk about it anymore," a weary Lee says of his tax troubles. "They're tired of hearing about it."
He finally gave up the idea of representing himself: just last month he hired a lawyer, though the expense worries him. Even if he wins the case, the most the court may award is attorney's fees equal to the tax savings. That means about $2,000 in Lee's case, probably one-fourth or one-fifth of what he will have to pay his lawyer.
"Even if I'm successful, right after the suit [the district] can reappraise to that value again," Lee says. "So if someone spends $10,000 extra to protest their taxes, and then right after it's over they raise them again, what's the logic?
"As a taxpayer you are totally at their mercy, particularly the small guy, the homeowner. If a developer saves $60,000 in taxes, spending $10,000 to get there, who cares if they reappraise it next year? Big deal."
Facing such prospects, Lee was worried, confused and isolated. He didn't know where to turn for information. Then several people referred him to "Coach Hart." Lee describes Hart as "the only one so far who really understands the whole picture. I'm just a guppy out of water. Coach Hart was able to put things in some kind of methodology. I had no idea."
If Dan "Coach" Hart does have a methodology, it's spread all over his sofa in the front room of his Memorial-area home. Neatly stacked Harris County Appraisal District and Appraisal Review Board publications, news articles, background materials and correspondence cover the sofa and a nearby table. The topic is property taxes, and Hart's knowledge is encyclopedic, his singlemindedness startling. Lee found in Hart a companion soul, an experienced ally and a wealth of agreeable data. Hart was, in fact, a football coach for some 30 years at the private, upscale Kinkaid High School, and though he's left the clipboard and whistle behind, he still has a Vince Lombardi zeal and a spiel that, with a few changes, would fit many a halftime pep talk.
When the 62-year-old retiree takes off on the Harris County Appraisal District, he means what he says and is anything but self-conscious. "This is a personal thing with me now," he says. "I am extremely, highly motivated by a fiduciary responsibility to other people. Whether it's the kids at Kinkaid School, the parents or whoever it is, I am highly motivated by that."
Granted, Hart's preoccupation with the topic was at first in self-interest, but his involvement has gone beyond protests over his own appraisal several years ago. Standing in front of the ranch-style house he built off Memorial Drive in the 1960s, he does mention that his appraisal was just raised $32,000 to $207,000 and points to a newly built mansion across the street that just went for $600,000, but he quickly leaves all that behind to walk inside and start describing a tape he just acquired from the ARB.
"I asked the district to furnish me tapes of the ARB training sessions," Hart says. "They told me, 'You are the first person ever to ask for one of these tapes. Why do you want them?' Well, I said I want them to learn how the rules are."
The importance of preparation and scouting your opponent is not something Hart has forgotten from his coaching days. He also hasn't forgotten strategy. He knows that horror stories about wronged homeowners won't sway public opinion; when citizens see the institutional problems of the appraisal district and its inbred conflicts of interests, that's when reform might happen, Hart believes. That taxing units appoint the district's board of directors and that those directors hire the ARB, which is supposed to be judge and jury on a taxpayer's appeal, is the crux of the problem, he feels.
"If every taxpayer in this city had the understanding I have about this, and knew about the shenanigans these jokers are pulling, what do you think would be the consequences?" he asks. "They'd be blowing [radio talk-show hosts] Jon Matthews and Mike Richards off the radio with complaints, and they'd be in Senator Don Henderson's law office."
But every taxpayer doesn't know, so Hart is trying to educate the public and keep legislators up-to-date with what's wrong with the district and how to fix it. He's compiled a folksy, spiral-bound book with the working title "Texas Homeowners Property Tax Savings Guide," which he hopes to make available to taxpayers. He's optimistic that some of his ideas may gain an audience in the 1994 Legislature.
Despite his wide-ranging criticism of the district, Hart's basic remedy boils down to three proposals. First, replace the district's board of directors, now appointed by the taxing units, with a board elected by citizens. Next, do not let the ARB, which is supposed to be an impartial review panel, be trained by district officials. Lastly, prohibit former members or employees of taxing units from serving on the ARB. If enacted, says Hart, those three changes would provide citizen input into actions of the appraisal district and at least give the appearance that the ARB is separate from the district.
"What we want to do is make the whole bureaucracy, the whole system fairer and impartial for the average citizen, not necessarily better for the district or the director or the ARB or the taxing units or anybody else," Hart says.
Indeed, most of the criticism of the appraisal process centers on the perceived cronyism between the appraisal district and the Appraisal Review Board. The 45-member ARB is appointed by the appraisal district's board of directors, paid by the district and trained by the district. Because of those relationships, many believe that the ARB's role as an impartial citizen review panel is compromised.
"It's a kangaroo court, with unbelievable conflicts of interests," says one tax agent who represents property owners in front of the ARB (and who asked that his name not be published). "They're very tight, the ARB and the district. It's always 'we.' 'We office here, we share an attorney, clerical staff, we're instructed by them, our budget is set by them, but technically we're not employees of them.' It's a total sham."
A study published in the current issue of the Journal of Property Tax Management found that of the five largest tax appraisal districts in Texas, Harris County had the highest ARB budget cost per member, the least accurate tax roll and the highest ratio of lawsuits to tax parcels. The study's author, Dallas tax consultant Paul Pennington, says that in 1992 the Harris County Appraisal District had 654 lawsuits filed against it -- more than twice as many as the second-place district, Dallas, which faced 277 suits. Harris County had a lawsuit for every 1,996 parcels assessed; the Dallas rate was one lawsuit per 2,806 parcels. Pennington believes that districts should view the number of lawsuits filed against them as a barometer of the effectiveness of the appeal process open to taxpayers before filing suit. In that view, Harris County has a problem.
Chief appraiser Jim Robinson dismisses much of the criticism in the appraisal district study and questions the motives of the critic. "The guy who wrote that thing is a paid advocate for property owners," Robinson says. "He works on a contingency. Those guys are in the business to make money. They're not necessarily in the business to bring about equity. They're in the business to make a living for themselves."
What Robinson can't ignore is continuing legislative attention to Texas' appraisal districts. The most extreme example occurred in 1991, when the Legislature passed a bill intended to force the Tarrant County (Fort Worth) Appraisal District and that county's ARB to move into separate buildings. The bill allows that neither party is required to break its lease, but that once the current lease expires in 1997, the two entities must be housed in separate buildings. "The situation in Tarrant County was so egregious it got a revolt started," one tax lawyer says.
"There's a pretty good line of thought of a lot of people that the appraisal review boards are too much in bed with the districts," says state Senator Don Henderson of Houston, who has supported or authored numerous property tax reform bills, including term limits for ARB members. "I've been trying to change that, or at least put safeguards on that." Last session he pushed a bill that would have prevented former employees of taxing units from being appointed to the ARB. "I'm absolutely in favor of that. That was in my bill in the last session. It's a revolving door. Somebody who just quit a taxing unit can end up on the ARB. The attitude I was trying to sell was that an appraisal review board is supposed to be an independent citizen review of someone's appeal."
Current policy prevents an employee of a school district, city, county or any other taxing unit from being a member of the ARB. No rule prevents former members from serving on the ARB.
"What happens is you end up getting a bunch of former appraisers and people who work in the industry and for the taxing units on the appraisal review boards," says Henderson. "That's not what they are supposed to be. They're supposed to be independent citizen reviews."
The $150 per day an ARB member receives while conducting hearings also leads to problems. "In too many instances you're an appraisal review board member and that's how you make your living," Henderson says. "That's not the way it's supposed to be. "
The chief appraiser of the district targeted for the most severe reform so far, Tarrant County, doesn't have any problems with Henderson's proposed elimination of the revolving door. "I don't have any problem with that," says John Marshall. "Any time there's a perception that there's a conflict, or favoritism, and they want to remove that, that's fine. Most appraisal districts wouldn't have a problem with that."
But one district that does appear to have a problem with such a restriction is Harris County. Robinson says he doesn't think the forced schism of appraisal district and ARB is something that ought to spread from Tarrant County. "I don't think the Legislature ultimately will mandate that statewide, because it would run up the cost of administration," he says.
Both the Harris County Appraisal District and the ARB are located in a ten-story building at 2800 North Loop West. Tom Bartlett, ARB chairman, now has his office on the second floor -- six floors below his old office, which was adjacent to Robinson's. They both make much of the move.
"The ARB is separate," Robinson says. "We don't have any contact. We moved Bartlett's office down on the second floor. Even if you move the ARB to Conroe, the law still says the chief appraiser or designee has to appear at every hearing, so you'd have the same number of hearings, the same amount of contact."
Whatever action the state takes, one thing that appears sure is that appraisal districts will be the subject of increasing attention in the years ahead, if for no other reason than because government is relying more and more on property taxes. Some of that mounting pressure is due to cutbacks in federal programs and grants, which result in some services' being dumped on local jurisdictions that rely on property taxes.
Robinson realizes this, pointing out that more local governments have to pick up the tab for services formerly provided by the state or federal government, or worse, pay for mandates from above. "Commissioners Court doesn't enjoy the jailhouse being full of state prisoners, but it's had to use a lot of county money to keep those prisoners in the Harris County jail," he says. Similar new chores have fueled the increase in property taxes. If the level of government that issues the mandate doesn't pay for it, the burden shifts down to the next level.
Even so, ARB chairman Bartlett denies that there has been any indirect or improper pressure from politicians or taxing units to raise property values. He does admit, however, that there are legal routes for taxing units to take if they think property in their area has been underappraised. The Houston Independent School District, for one, claimed that residential property was underappraised a few years ago, but the claim was refuted. Bartlett says individual municipal utility districts have sought redress, mostly to no avail.
But while this may seem a victory for the taxpayer, people such as Michael Lee and his mentor, Coach Hart, aren't about to accept the argument that they're engaged in a battle that doesn't really need fighting. Indeed, if the ARB were to dismiss Coach Hart as an extremist, a man who's redoubled his efforts after he's forgotten his aim, it would be as ill advised as it would be misleading. A Californian named Howard Jarvis was dismissed as a nagging nut for 15 years before he became an overnight sensation in 1978 with the passage of Proposition 13, which froze California property taxes at the 1975-76 level, except for a 2 percent annual hike for inflation. New homes, and homes that had just been bought, were assessed at current market values. Proposition 13 is alternately credited with saving taxpayers billions and blamed for forcing state and local governments to cut services because of insufficient resources.
But what nobody argues anymore is whether Proposition 13 was a watershed in California politics. It was, and Howard Jarvis was the prime mover. A sample of Jarvis' soap-box rhetoric shows his John the Baptist drive and even parallels what happened with Michael Lee's appraisal. "Along about 1972 I began to predict that we'd have 100 percent raises a year ... and then about 1975 we started to get 100 percent and 200 percent and 300 percent raises in one year," Jarvis wrote in his autobiography, I'm Mad as Hell. "All those years the public didn't believe a word I told them, and then it all came true."
Could Lee and Hart be Texas' distant early Jarvis? Maybe not. Texas taxpayers don't seem anywhere near a rebellion of Proposition 13 proportions. And Coach Hart doesn't appear all that mad at anyone. But you do get the idea that he's determined as hell. And a decade down the road, the Harris County Appraisal District may well look back and wonder why it messed with his and Michael Lee's house.
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