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DALLAS-The corporate-friendly Texas charisma is being held to the fire as the Senate Intergovernmental Committee weighs testimony presented over first-time legislation to cap commercial real estate values. Yesterday’s vote was tabled; a decision is expected late tonight.

The measure, aimed at easing residential tax burdens, is more of a disincentive because it would deter commercial sales and capital improvements, David Dean, executive vice president for Fort Worth-based Crescent Real Estate Equities Co., tells GlobeSt.com as he awaited his turn at the microphone. The proposal has met opposition from the Texas Association of Property Tax Professionals, building owners such as Crescent, most county assessors, including Dallas’ Foy Mitchell, and the Texas Municipal League.

Yesterday, Houston’s assessor-collector Paul Bettencourt has been one the few from the assessor ranks to support HB 3223, which was approved May 9 on a 134-0 vote in the House. The bill was introduced by state Reps. Dwayne Bohac, Glenn Hegar, Dennis Bonnen, Martha Wong and Charlie Howard. Should it pass the Senate and garner Gov. Rick Perry’s signature, the measure would make the Sept. 13 state ballot.

With that said, those attending the Austin session say it’s hard to predict which way the Senate committee will go: kill the measure or push it to the floor for a vote. Mitchell, who frequently testifies before legislative committees, says he couldn’t get a handle on the undercurrent.

Mitchell, executive director and chief appraiser for Dallas Central Appraisal District, left the committee with reams of documents that he says clearly show a commercial cap will “not achieve the intended purpose of lowering the tax burden.”

The proposal lowers the 10% cap on residential properties to 5%, but also reels in commercial properties at the same rate. The cap applies only to state and county property taxes and not school districts.

Mitchell says the state will rue the day, should the bill go full circle for the final signing. The Catch-22 is once values are lowered, as so often happens during appeals, the taxing bodies could only tack another 5% onto the value the following year, putting districts into the position of always playing catch up. And, Mitchell says, “they will never recapture the value difference.”

Dean says the real dilemma rides with the pass-through to tenants because there is no way to keep the playing field level among building owners. Building sales or capital improvements will “reset” the value to market which, in turn, could put transactions at risk, from new construction to negotiating the rent. “Owners make their decisions based upon net operating income. Tenants don’t care what the rent breakdown goes to,” he says, “they just care about what their total bill is.” He explains a new owner would make less money on the same space than the previous owner under the cap plan.

In the event of a sale, a capped appraisal is a double-edged sword for the price tag because it impacts the amount that can be borrowed and deters deep-pocketed shoppers because revenue isn’t as rosy as it once was.

“One of the foundations of a tax system is equality of taxation. Like all artificial limits, the 5% cap will create grossly unequal values within and among the different classes of property,” contends the Texas Association of Property Tax Professionals. “It will provide tax relief to better quality properties that would otherwise rise more rapidly in value and greater tax burden to lesser quality properties that will remain closer to market value.

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