CORPUS CHRISTI, Texas — Nueces County officials are preparing for massive layoffs and cuts to public services as they have learned they are faced with an up to $30 million deficit.
That expected deficit stems from laws governing how the tax rate is calculated. It also means every property taxpayer in Nueces County will see their tax rate drop this year, before skyrocketing next year.
"It's not just a simple budget cut, it's a budget amputation," Kevin Kieschnick, the Nueces County Tax Assessor-Collector said.
Nueces County's annual operating budget is $113 million and the expected loss is a third of what the county collects in property taxes.
"The tax assessor-collector, the county clerk, the district clerk, the DA (district attorney), those are all services to the community. That's what is going to be affected and that's significant," said Brent Chesney, Precinct 4 Nueces County Commissioner.
Public officials said this year's budget is unlike anything they have ever seen, given tax valuations for two refineries: Valero Energy and Flint Hills Resources.
Every year, appraisal districts across the state provide an assessed value of each property, which helps determine the tax owed.
Once the appraisal district certifies the appraised values, which happens at the end of July, taxing entities — such as Nueces County — use those total values to determine tax rates.
But, Kieschnick told 6 Investigates the process is flawed.
The total value of appraised properties that will be used to set the tax rate this year is artificially high, he said, given a 500 percent increase in valuations for Valero and Flint Hills.
In 2022, both refineries were valued at $1.4 billion and $1.5 billion, respectively.
This year, Valero's appraised value is over $6.3 billion, and Flint Hills is over $6.2 billion — values that both refineries are fighting.
Under state law any homeowner or business can contest their appraised value by first requesting an Appraisal Review Board hearing.
If it is unresolved, then the business or homeowner may file suit or request arbitration.
For the last five years, Valero has filed a lawsuit against the Nueces County Appraisal District, disputing its valuation. That litigation is currently pending.
And while these cases make their way through the court system, Valero must only pay tax on its uncontested value, or what it believes it should be valued at.
Last year, that uncontested value was $750 million of the $1.4 billion valuation.
As Valero and Flint Hills continue to contest valuations of over $6 billion this year, taxing entities must use that entire amount — not an uncontested value — to set a tax rate.
For Nueces County this means roughly $30 million in taxes will remain uncollected this year," Kieschnick said.
Public officials described the upcoming budget cycle as a catastrophe.
"$25 to $30 million is basically a third of our taxable budget," Nueces County Judge Connie Scott said. "It will be catastrophic for us. So there will be a lot of things cut."
The Dispute
Wednesday, Valero and Flint Hills went before the county's Appraisal Review Board (ARB) to contest the over $6 billion appraised values.
Refinery attorneys told the ARB there were major flaws in the valuation submitted by the appraisal district and one noted the impact these valuations would have on taxing jurisdictions and the problems it would create in setting budgets.
"I'm not sure I've ever seen a refinery transaction that has come close to $6 billion," David Hugin with the Ryan Law Firm said. "It's just an absurd increase. That should trouble you, it sure seems to come out of nowhere."
They also questioned the 500 percent increase in valuation when the average statewide, for refineries, was 8.5 percent.
Nueces County Chief Appraiser Ronnie Canales told 6 Investigates the appraisal district had been looking at property appraisals, and how those appraisals were conducted, over the last several years. He said these refineries have been "under-valued for years."
This year, Steven Graybill of Downstream Advisors, Inc. was hired by the appraisal district to perform valuations on Valero and Flint Hills.
Graybill also told the ARB panel these refineries have been under-assessed for years.
"All the details are there, this is some of my best work," Graybill said. "I think it's a fair value, an accurate value."
The ARB voted to leave the appraised values as-is and the refineries are expected to file suit against the appraisal district.
As afforded by state law, Flint Hills Resources has paid its taxes at a level consistent with its most recent valuation. We continue to work with the tax authorities and the courts to resolve our differences.
In a written statement Thursday, a spokesperson for Valero said, "We participated in the hearing as it is part of the protest process. We will continue to work through this process collaboratively and in good faith."
Who's Impacted?
Nueces County is not the only entity impacted.
At least $100 million in taxes are estimated to be uncollected among several others, including Tuloso-Midway, Corpus Christi and West Oso Independent School Districts, the Nueces County Hospital District, Del Mar College and a sub-account that funds roadwork in Nueces County.
"It's going to hurt all of us, but I assure you it's going to hurt us first. We as commissioners intend to make the first cuts ourselves. I intend to make the first cuts within our budgets. I will not ask anybody else to make cuts without making ours first," Scott said.
"No one wants to cut anything, right? No one wants to cut any service, but something is going to have to give," Chesney said.
Kieschnick briefed the Nueces County Hospital District Tuesday, telling staff and board of managers they should expect uncollected tax revenue of $7 to $8 million.
Corpus Christi ISD is expected to have a budget shortfall of just over $50 million.
Kieschnick said that one school district may see the biggest shortfall.
"The one that scares me the most is Tuloso-Midway. Tuloso-Midway, it represents about 50 percent or more of their budget," he said.
Potential Legislative Fix
Kieschnick has written a proposed change to the law, which he describes as a hail mary.
Currently, large companies challenging appraisals have until January to tell the appraisal district how much they believe they are worth.
The proposed change would require any company valued at over $100 million — which intends to challenge that valuation — to provide an uncontested value, or the value that it believes it's worth, six months earlier.
This change aligns with the setting of tax rates.
"It allows us to take that uncontested amount and then utilize that when we run our tax calculations as opposed to that number we will never get money out of," Kieschnick said.
This proposal would prevent massive deficits and roller-coaster tax rates.
Valero said during its ARB hearing it had proposed a similar solution to the appraisal district while it contests the current appraisal. The company said they proposed using its appraisal from last year, of $1.4 billion, to be used in determining tax rate calculations for the upcoming budget.
However, that was rejected by the appraisal district.
Lawmakers were called back for a second special session to deal with property taxes. However, one lawmaker said the special session agenda, which is set by the governor, would not likely allow for Kieschnick's legislative change to be heard.
State Senator Juan "Chuy" Hinojosa told 6 Investigates that he does believe a fix is possible, within the time frame needed.
"The Coastal Bend Delegation will be working to find a solution to this problem. We have drafted amendments and legislation to amend this issue," Hinojosa said.
State Rep. Todd Hunter says it may take an additional special session before this item could be heard.
"From the state's standpoint this is a regional issue," Hunter said. "And that's what I want to find out, are other regions impacted the same way as us? Because then you may have some alliances that can work towards the goal. Does it have an impact? Absolutely yes. Does it deserve immediate attention? Absolutely now. And that's what I'll be doing first thing in the morning."
The Coastal Bend Delegation has been coordinating a response with local officials and entities to address these concerns. We are currently working in both chambers with the leadership regarding effective and responsible tax policies to find potential legislative solutions. I look forward to continuing to work with our delegation, local, and state leaders to find a resolution for all of our constituents.
Kieschnick said any legislative fix must be passed by early August. He will join Hunter, Hinojosa, and Scott in Austin to communicate its urgency.
"I've seen some tough budgets, but I've never seen an anomaly like this. Unless this legislative fix happens, it's going to be a budget catastrophe," Chesney said.
