Reappraising the Governor

Long before he got national attention for secessionist foreplay at Tax Day “tea parties,” Gov. Rick Perry quietly launched a personal tax revolt. In March 2001, Texas’ new governor bought an exclusive lot on Lake LBJ’s Horseshoe Bay. Horseshoe Bay Republican state Sen. Troy Fraser sold Perry the Hill Country tract six months after Fraser bought it, along with an adjacent one, in the ritzy Peninsula development. Horseshoe Bay Resort’s Web site calls the Peninsula its “most prestigious address,” adding, “Only 10 legacy waterfront estates lie behind its magnificent gated entrance and the Italian fountains with their distinctive lion head statuary.”

When Perry received his first property-tax assessment for this “prestigious address,” the lion in the Governor’s Mansion shook his majestic mane and issued a roar of protest. The Burnet Central Appraisal District had pegged the lot’s value at $414,700 for tax purposes. After Perry protested, the district slashed its appraisal to $313,762, the price the governor said he paid to Fraser.

The district stuck to this appraisal for six years—during the now-notorious real estate bubble. The governor had coveted waterfront property. Connie Barrington, who has sold Horseshoe Bay real estate for 25 years, told the Observer, “We are running out of waterfront.”

According to Burnet appraisal district Chief Appraiser Stan Hemphill, attorney Colleen McHugh of the defense firm Bracewell & Patterson (now Bracewell & Giuliani) filed a protest on the governor’s behalf in November 2001. At the time, McHugh was Perry’s chair of the Texas Public Safety Commission. The protest argued that Perry’s lot was worth $100,000 less than the appraised value. In December 2001, days after Bracewell announced it had recruited Perry Chief of Staff Barry McBee as a lobbyist, the district agreed to ­reappraise Perry’s lakefront lot at the stated purchase price. That first year, the devaluation lowered Perry’s tax bill from $8,418 to $6,308. Over its six-year life, the lower appraisal kept more than $14,000 in the governor’s pocket that he otherwise would have payed as taxes to local ­government entities. (More than 60 percent of the district’s tax money goes to the Marble Falls Independent School District.)

Burnet District Appraiser Tammy Ribera says that a sales price is widely regarded as the best indicator of a property’s value—provided the sale is “arm’s-length.” The term usually means a deal made by two parties with no special ties with one another “financial, familial, political” and no incentive to stray from market value. The Texas Tax Code, the authoritative source on this issue, defines “market value” as the price a property would sell for if “both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the exigencies of the other.”

The arm that separated Perry from Sen. Fraser was stubby at best. The two politicians have been friends since they were high-schoolers, when they met through Future Farmers of America. When Fraser made his successful first run for the state House in 1988, he did so at the prompting of then-Democratic Rep. Rick Perry. During the two years preceding their land deal, then-Lt. Gov. Perry tapped Fraser to chair a special Senate Subcommittee on Technology and Business Growth—increasing the political clout of Fraser, who now chairs the Senate Business and Commerce Committee.

A Burnet district appraiser says tax protesters typically don’t volunteer information indicating that a purchase may not have been arm’s length. Chief Appraiser Hemphill says he does not recall any arm’s-length concerns about Perry’s purchase. He says appraisers typically work with limited information. Briefed on the relationship of Perry and Fraser, Hemphill declines to discuss the specifics of the case. “If I knew a lot of information about something [like that], it could question whether that’s an arm’s-length sale. Was it or was it not? I don’t know,” he says.

Art Cory, who heads the Texas Comptroller’s Property Tax Division, says, “Most appraisers aren’t going to have this [kind of] information. There’s nothing there that would strongly indicate that it wasn’t an arm’s-length relationship,” Cory says. Typical flags, he says, are sales by parents to children, or sales by parent companies to subsidiaries.

From when he worked at the Travis Central Appraisal District, Cory recalls a politician—he declines to name the name—who filed a tax protest containing a questionable sales price. He says the district rejected the price because it was markedly lower than what comparable properties fetched. “If there’s some suspicion that a relationship caused the sale to be other than a market price,” Cory says, “appraisers are supposed to ensure that the sales price aligns with prices of similar properties.”

Asked how Perry’s price compares with sales prices of comparable properties, Hemphill says, “There’s not much like any of these [Peninsula] properties.” He says the Peninsula “is a unique area” with some of Burnet County’s most desirable waterfront property. While all the Peninsula lots are pricey, Hemphill says the governor’s lot isn’t one of the finest.

Defending the devaluation of Perry’s lot, Hemphill says, “That seemed like a high value for that time.” The appraiser adds that, “It’s hard to argue with a closing statement.”

Perry did not file a closing statement with in his protest. Hemphill says the district provided Perry’s entire protest file to the Observer in response to its Public Information Act request. The file included no closing statement.

Texas is one of few states that do not require sales-price disclosures. (Two bills to mandate disclosure died in House committees during this year’s Legislature.) As a result, Texas appraisal districts often ask property owners to disclose sales prices voluntarily. In July 2001, the governor responded to such a questionnaire from the Burnet appraisal district. Perry reported he bought the Horseshoe Bay lot four months earlier for “$300,000.” That is $13,762 less than the governor claimed the sales price was several months later, when he filed his tax protest. Asked about the discrepancy, appraiser Stan Hemphill says, “Sometimes people round numbers off.”

From 2001 to 2007, just three of the seven undeveloped Peninsula lots managed to avoid an appraisal increase—two belonged to Perry and Fraser. In 2007, when Perry sold his land, the district hiked appraisals of every undeveloped lot in the Peninsula. A district appraiser told the Observer that the increases reflected documented sales of surrounding waterfront lots for more than $1 million apiece. Perry’s 2007 increase almost doubled the appraised value of his land, to $600,000, a 93 percent increase the year he sold the lot. His taxes had gone from $7,543 in 2006 to $12,345 in 2007. Perry had other reasons to sell his Peninsula property. On the same day he sold his lot, he bought a house in College Station (see “Always an Aggie,”Observer, May 15).

The governor’s office did not respond to repeated requests for comment for this story.

When he sold the Peninsula property to Perry in 2001, Fraser kept his neighboring lot. Throughout this period, Fraser owned another Burnet County lot appraised at just $8,000. Fraser’s homestead, appraised at $1.9 million, lies on the Llano County side of Horseshoe Bay. Though these three properties carry collective appraisals of $3.3 million, Fraser has filed sworn personal financial statements with the Texas Ethics Commission in recent years claiming that he has had no real estate interests. The state ethics form asks legislators to “describe all beneficial interests in real property held or acquired by you, your spouse or a dependent child during the calendar year.” Fraser checked “not applicable.”

In this year’s Legislature, Fraser has championed transparency as an antidote to self-dealing at the troubled Pedernales Electric Cooperative. (Fraser, like Perry, did not respond to repeated requests for an interview.) The Ethics Commission can fine officials who file incomplete financial disclosures up to $10,000. Noncompliance also is a criminal misdemeanor for which prosecutors can seek a maximum penalty of $2,000 and six months’ imprisonment.

The empty lot on Horseshoe Bay previously owned by the governor is for sale. Wallace Holdings LLC, which bought the land from Perry, is advertising it with an asking price of $2.85 million—nine times what Perry paid Fraser for it eight years ago.

Andrew Wheat is research director at Texans for Public Justice, a nonpartisan watchdog group.

Investigative reporting for this article was supported, in part, by a grant from the Open Society Institute.