Is Valero Really Trying To Take Food Out of the Mouths of HISD's Children?

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The Houston ISD school board has spent several sessions now listening to dire warnings from Chief Financial Officer Melinda Garrett and Superintendent Terry Grier about what may happen if energy company Valero is able to get tax exemptions at its Texas refineries for a piece of equipment that cuts down on pollution in its gasoline.

Each hydrotreater costs a bunch, doesn't add to the company's bottom line and is only used by Valero because that's the way sulphur can be removed from gasoline to levels low enough to meet federal guidelines. The company has been paying property taxes on its hydroeaters, protesting all the way, and now it looks as if the Texas Commission on Environmental Quality commissioners may reverse its historic stand on the issue.

Reversal would mean Harris County, HISD and other school districts would have to give a lot of money back to the state -- Jim Robinson of the Harris County Appraisal District testified before the House Ways & Means Committee last week and said that slightly more than $1 billion will come off the tax rolls if Valero and other companies are granted this exemption.

In addition, if new rules are set and the exemptions are allowed in the future, then both the county and school districts in Harris, Nueces, Jefferson and Galveson counties stand to lose a lot of future tax revenue.

Bill Day, spokesman for Valero, knows that right now his company is being viewed as a greedy giant throwing its weight around at the expense of poor little school children, but he insists a lot of misinformation is going out out there. Referring often to "bureaucrats and politicians" he made the following points.

To the first sticking point -- HISD and other taxing entities say that any pollution reduction has to be done on site to qualify for a tax exemption -- Day says "No." He readily concedes that HISD is right when it says the operation itself of a hydrotreater actually adds to the pollution -- "The TCEQ is well aware that pollution control equipment itself sometimes has its own emissions" -- but says this does not disqualify it for a tax exemption.

And according to Day: "There's nothing in the statute that says the pollution control has to be done on the site."

So Hair Balls went to TCEQ and got this answer:

Section 17.15 of Title 30 of the Texas Administrative Code requires that the environmental benefit provided by the use, construction, acquisition, or installation of the property occur at the applicant's site. The Executive Director has consistently interpreted "at this site" to mean within the fence-line of the applicant's facility.

Which, of course, tells us what has happened in the past, but not what's going to happen in the future since it is based on an interpretation. And its commissioners appear determined at this point to disregard the recommendations of its own staff.

The other major point: HISD says if Valero gets to claim the hydrotreater as a tax exemption all the way back to 2007, then all the other companies like it will do the same thing.

"As far as I know Valero is the only company that's applied for this exemption and they're afraid that if Valero gets this exemption that all other companies will just jump on board. If they haven't applied yet there's no way any other company can go back and get, recoup taxes paid from previous years," Day says. "You can't go back retroactively. They're precluded from getting anything back from the years before their application. I'm sure that they know that too. They've been very good at spreading this fear and hyperbole."

Once again, Hair Balls turned to the TCEQ and got this answer:

Since 2007, Valero has paid taxes on its hydrotreating equipment under protest. As such, depending upon the resolution of their appeals, Valero is eligible to be reimbursed for a portion of those taxes. There are currently eight applications which contain hydrotreating equipment that have been received by the Executive Director, and are currently on hold.

The Executive Director does not receive or review tax information, and is not aware whether these eight applicants have been paying their taxes under protest. At least twelve other refineries in the state of Texas have not yet filed an application for a positive use determination containing hydrotreating equipment. If granted a positive use determination, these applicants would only be eligible to receive a tax exemption on a go-forward basis.

So looks like Bill Day and Valero are right on that one.

But, in fact, speaking at the January 13 TCEQ meeting, the lawyer who represented Valero there, Pam Gilbin, said: "We have been paying those taxes under protest, the right way. So they presumably are in escrow and are not being used. Valero would even be willing to forgo the past stuff if we can get a positive use determination going forward."

Next, according to Day: "Some of the media reports have quoted poiticians and bureaucrats saying, 'There's no benefit in Harris County because none of that fuel is sold in Harris County,' which is absolutely untrue, absolutely a lie.

"If you drive around at all you see Valero stores, fuel at the Valero stores comes from those refineries. They were quoted as saying, 'All that fuel goes to California and New Jersey.' I have no idea where they got that idea because none of the fuel goes to California or New Jersey. We have a huge retailing presence in Texas. The Valero brand still has the largest market share in Texas as far as I know. Obviously much of that fuel is staying right where it is. So the benefit of removing sulphur from the fuel is happening right here in Harris County."

Hair Balls can't figure out whether there's a lot of Valero gasoline staying here or a little, and obviously, just because the gasoline isn't going to California and New Jersey doesn't mean it isn't going somewhere else.

According to Day what's happened is that with the recession all taxing entities are worried about their funds. He says no one knows exactly how much each hydrotreater should be appraised at, all they know at this point is what the company had to pay to buy one.

He predicts success for Valero, but insists that doesn't translate into the doomsday scenarios depicted by HISD and others.

"Even after we get this exemption and Valero is very confident we will get an exemption of some sort, Valero will remain one of the largest taxpayers if not the largest taxpayer in all the areas where these hydrotreaters exist," he says. "This is not going to have any detrimental impact on anybody's budget."

That last statement probably won't get any amens in Harris County, but one thing he says, like it or not, that most homeowners would agree with: "Nobody likes to overpay their taxes. Nobody would do that. Nobody would pay more than they had to. ... All Valero is doing is trying to get what the state allows in terms of property tax exemption."

Update: Hair Balls asked for help in deciphering some HISD charts developed from HCAD data and is able to report that HISD estimates the revenue it would lose if Valero gets its exemption at $1.9 million for 2010 and $5.3 million for years 2007-2009, for a total of more than  $7.3 million.

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