What Commercial Properties HISD Stands To Lose Because Of Texas School Finance

Houston (Houston Public Media-Laura Isensee) April 10, 2017 – The whole scenario has prompted business groups that stayed neutral in the November election to take a position, like the Greater Houston Partnership.

Houston could lose some of its most valuable properties, including a big mall and downtown office towers.

They’d be moved to North Harris County. Not the buildings, though. Just the taxes paid to school districts on those properties.

It’s part of a confusing result of what Houston voters decided last fall.

Houston Public Media obtained a list of the properties. At the top of the list is 5015 Westheimer Rd., also known as the Galleria.

The retail and dining complex – the largest mall in Texas and one of Houston’s tourist draws – is worth $1.5 billion on the tax rolls of the Houston Independent School District. That’s almost 20 percent of the total that would be taken away from HISD and assigned miles away to the Aldine Independent School District.

So how can the Galleria end up in Aldine?

It’s all because of Texas school finance.

The state now considers HISD property-wealthy, so it has to share money with poor districts. It’s called Robin Hood, or recapture.

Last November, HISD asked voters how they want to pay that bill: send a check or lose property.

“When the voters of Houston rejected us writing a check, at the time it was a $162 million check back to the state of Texas, when they rejected us doing that, we fall into something called detachment,” HISD Superintendent Richard Carranza explained recently on Houston Matters.

That detachment is when HISD pays with property. The Texas Education Commissioner recently revealed exactly which properties will leave HISD and go to Aldine in July. He updated the original list in late February and it could change again before the July deadline.

Besides the Galleria, there are downtown office towers, Greenway Plaza and buildings on Post Oak. Altogether they’re worth $8 billion. (The total value includes both real and personal property at the locations.)

We asked one business leader how property owners are reacting.

“One of almost bewilderment and sort of how would that work?” said Bob Eury, president of Central Houston, a downtown development nonprofit. He laughed because Texas school finance is so confusing.

Eury has tried to explain how it works to his members. He said that one concern is that once a property is gone, it’s always gone. So if the Galleria goes to Aldine, Texas law doesn’t have a way to add it back to HISD.

The other concern is about the bottom line.

“Of course the big question for them is, ‘Does the amount of tax we pay go up?’” Eury added.

The answer is right now the amount of tax would go up. Aldine has a higher total tax rate than HISD by almost 12 cents. That may not sound like much. But for a place like the Galleria, that hikes up the tax bill by over $1 million.

Eury said that extra cost will probably be passed on to tenants in these buildings.

The whole scenario has prompted business groups that stayed neutral in the November election to take a position, like the Greater Houston Partnership.

The Aldine Independent School District’s only comment is that they’re working with the state to follow school finance law.

Jay Aiyer, a professor at Texas Southern University, said that the change could help Aldine schools.

“If I were Aldine, I’d probably want detachment to some extent, because it means I can maybe fund new schools in terms of construction, have more facilities. They’re going to get effectively the same amount of money, but with a little more flexibility on what they can do with it,” Aiyer said.

But HISD could take a long term financial hit. If its tax base shrinks, remaining homeowners will have to pay more to make up the difference.

“When they lose that kind of property base, that can be really significant because you’re not going to create a new Galleria, for example,” Aiyer said.

Still, everything could stay the same, and the Galleria and its school property taxes could remain in HISD.

The Houston school board has set a new school finance election in May.

Voters could change their minds and decide to send a check to the state – just like every other wealthy district has done before.