Kenedy County Wide School District v. Glenn Hegar, Texas Comptroller of Public Accounts, in His Official and Individual Capacity

Opinion

ACCEPTED 15-24-00079-CV FIFTEENTH COURT OF APPEALS AUSTIN, TEXAS 2/28/2025 1:51 PM No. 15-24-00079-CV CHRISTOPHER A. PRINE __________ CLERK FILED IN 15th COURT OF APPEALS In the Court of Appeals AUSTIN, TEXAS 2/28/2025 1:51:09 PM for the Fifteenth Judicial District, Austin, Texas CHRISTOPHER A. PRINE Clerk ___________

KENEDY COUNTY WIDE SCHOOL DISTRICT, Plaintiff-Appellant, v. GLENN HAGER, TEXAS COMPTROLLER OF PUBLIC ACCOUNTS, IN HIS OFFICIAL AND INDIVIDUAL CAPACITY, Defendant-Appellee. ___________

On Appeal from the 353rd Judicial District Court, Travis County, Texas ___________

APPELLEE’S BRIEF ___________ KEN PAXTON THOMAS BEVILACQUA Attorney General Texas Bar No. 00793342 Assistant Attorney General BRENT WEBSTER General Litigation Division First Assistant Attorney General P.O. Box 12548, Capitol Station Austin, Texas 78711-2548 RALPH MOLINA Tel : (512) 936-1162 Deputy First Assistant Attorney General Fax: (512) 320-0667 thomas.bevilacqua@oag.texas.gov AUSTIN KINGHORN Deputy Attorney General for Civil Counsel for Appellee Litigation

KIMBERLY GDULA Chief, General Litigation Division

ORAL ARGUMENT NOT REQUESTED IDENTITY OF THE PARTIES AND COUNSEL

Plaintiff-Appellant: Kenedy County-Wide Common School District

Appellate Counsel for Appellant: Judith A. Hargrove Hargrove Law Texas Bar No. 11595050 2029 Dorothy Tel.: (512) 750-0338 Sealy, Texas 77474 judy@hargrovelawtx.com District Court Counsel for Plaintiff: Jim L. Lambeth Linebarger Goggan Blair & Tel.: (903) 597-2897 Sampson, LLP Fax: (903) 597-2402 1517 W. Front St., Suite 202 Jim.Lambeth@lgbs.com Tyler, Texas 75702 Edward J. (Nick) Nicholas Tel.: (713) 844-3405 Fax: (713) 844-3502 nich.nicholas@lgbs.com SOAH Counsel for Plaintiff: Jim L. Lambeth Linebarger Goggan Blair & Tel.: (903) 597-2897 Sampson, LLP Fax: (903) 597-2402 1517 W. Front St., Suite 202 jim.lambeth@lgbs.com Tyler, Texas 75702

Defendant-Appellee: Glenn Hegar, Texas Comptroller of Public Accounts, in His Official and Individual Capacity

Appellate Counsel for Appellee: Thomas Bevilacqua General Litigation Division, Office of the Assistant Attorney General Attorney General Tel.: (512) 936-1162 P.O. Box 12548, Capitol Station Austin, Fax: (512) 320-0667 Texas 78711-2548 thomas.bevilacqua@oag.texas.gov

ii District Court Counsel for Defendant: Samantha E. Tracy General Litigation Division, Office of the Assistant Attorney General Attorney General Tel.: (512) 936-0750 P.O. Box 12548, Capitol Station Austin, Fax: (512) 320-0667 Texas 78711-2548 samantha.tracy@oag.texas.gov SOAH Counsel for Defendant: Cristina Vudhiwat Property Tax Assistance, Senior Counsel, Fiscal & Agency Affairs Comptroller of Public Accounts Legal Services Division 1711 San Jacinto Blvd., Third Floor Tel.: (512) 463-3148 Austin, Texas 78701 Fax: (512) 463-4876 cristina.vudhiwat@cpa.texas.gov

iii TABLE OF CONTENTS

Identity of the Parties and Counsel ........................................................................... ii Table of Contents ..................................................................................................... iv Index of Authorities ................................................................................................. vi Statement of the Case............................................................................................. viii Statement Regarding Oral Argument ........................................................................x Statement of the Issues Presented ............................................................................ xi Statement of the Facts ................................................................................................1 Summary of the Argument.........................................................................................4 Argument....................................................................................................................4 I. Standard of Review ...........................................................................................4 II. The Comptroller’s Decision Should Be Affirmed Because It Is “Reasonably Supported by Substantial Evidence” and the Comptroller Did Not “Act[] Arbitrarily and Without Regard to the Facts.”..................................................7 A. Issue presented on appeal ..............................................................................7 B. The Comptroller must determine either “taxable value” or “productivity value,” depending upon the type of property studied.....................................8 C. The Comptroller has no authority to adjust “productivity value” to account for ARB orders. ...........................................................................................11 1. Kenedy CSD’s attempt to read the term “productivity value” into section 403.302(b)(4) is improper and unsupported. ............................................11 2. The taxable value of the native pasture land is equal to its productivity value..........................................................................................................15 3. Although Kenedy CSD misstates the Comptroller’s position, taxable value, market value, and productivity value remain distinct concepts. ...16 D. The Comptroller’s manuals are consistent with the statutory scheme, which authorizes ARB adjustments to “taxable value” only. ................................19 E. In the alternative, Kenedy CSD failed to prove the amount of its proposed ARB adjustment. .........................................................................................21 PRAYER ..................................................................................................................23

iv Certificate of Compliance ........................................................................................25 Certificate of Service ...............................................................................................25

v INDEX OF AUTHORITIES

Cases All by Grace Home Health Care v. Texas HHS Comm’n, No. 08-22-00223-CV, 2023 Tex. App. LEXIS 6134 (Tex. App.-El Paso Aug. 14, 2023, pet. denied)..........................................................................................5, 7 Dyer v. Texas Comm’n on Envtl. Quality, 646 S.W.3d 498 (Tex. 2022) ..................................................................................6 ExxonMobil v. Coleman, 512 S.W.3d 895 (Tex. 2017) .................................................................................14 H.G. Sledge, Inc. v. Prospective Inv. & Trading Co., Ltd., 36 S.W.3d 597 (Tex. App.-Austin 2000, pet. denied) ............................................7 McKinley Iron Works v. Texas Emp’t. Comm’n, 917 S.W.2d 468 (Tex. App.-Fort Worth 1996, no pet.) .........................................7 Michael Nazarian MD Assoc. LLC v. Aetna Life Ins. Co., No. 02-22-00109-CV, 2023 Tex. App. LEXIS 2796 (Tex. App. Fort Worth-Apr. 27, 2023, no pet.) ....................................................................................................5 Morath v. Texas Taxpayer & Student Fairness Coal., 490 S.W.3d 826 (Tex. 2016) ..................................................................................9 Railroad Comm’n v. Torch Operating Co., 912 S.W.2d 790 (Tex. 1995) ..................................................................................6 Texas Dep’t of Pub. Safety v. Franklin, No. 04-98-00941-CV, 1999 Tex. App. LEXIS 6775 (Tex. App.-San Antonio, Sept. 8, 1999, no pet.) .............................................................................................6 Texas Health Facilities Comm’n v. Charter Med.-Dallas, 665 S.W.2d 446 (Tex. 1984) ..................................................................................6 TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432 (Tex. 2011).......................................................................... 13, 20 Upper Trinity Reg’l Water Dist. v. National Wildlife Fed’n, 514 S.W.3d 855 (Tex. App.-Houston [1st Dist.] 2017, no pet.) .............................8 Statutes Tex. Const. art. II, § 1 ..............................................................................................20 Tex. Const. art. VIII, §§ 1-d, 1-d-1 ..........................................................................10 Tex. Gov’t Code § 403.301........................................................................................9 Tex. Gov’t Code § 403.302.............................................................................. passim

vi Tex. Gov’t Code § 403.303 ............................................................................. 5, 7, 13 Tex. Gov’t Code § 403.304 ........................................................................................9 Tex. Gov’t Code § 2001.174......................................................................................5 Tex. Tax Code § 1.04 ...............................................................................................10 Tex. Tax Code § 23.41 .............................................................................................10 Tex. Tax Code § 23.51 .............................................................................................11 Tex. Tax Code § 23.52 .............................................................................................11 Tex. Tax Code § 41.41 .............................................................................................12 Tex. Tax Code § 41.43 .............................................................................................12

vii STATEMENT OF THE CASE

Nature of the Case: Kenedy County-Wide Common School District (Kenedy CSD or Appellant) protested and objected to the preliminary value findings made by the Comptroller’s Property Tax Assistance Division (PTAD) in preparing the statutorily required 2021 school district Property Value Study (PVS). SOAH-004723. Trial Court: Under Texas Government Code section 403.303(d), the Honorable Maya Guerra Gamble, 353rd Judicial District Court of Travis County, heard Kenedy CSD’s appeal of the Comptroller’s Decision overruling Kenedy CSD’s protest to the Comptroller’s preliminary findings of school district property values to be used in the 2021 PVS. The Honorable Kathy Pickup, Administrative Law Judge, Texas State Office of Administrative Hearings (SOAH) heard the administrative protest of the preliminary school district property values findings for the 2021 PVS. Course of Proceedings: The administrative protest hearing occurred before SOAH on November 2, 2022 (SOAH-004729 to SOAH-004948), the ALJ issued her Proposal for Decision on January 31, 2023 (SOAH-004677), the Comptroller issued his final Decision on March 9, 2023 (SOAH-004715), and the 353rd Judicial District Court heard oral argument on the administrative appeal (RR-1) and issued its Final Order on May 22, 2024 (CR-44). Trial Court In her January 31, 2023 Proposal for Decision, ALJ Pickup Disposition: “recommend[ed] adjusting the values of the properties to account for the 2021 [Appraisal Review Board (ARB)] Orders but decline[d] to change the assigned value of any properties where no such 2021 ARB Order was issued.” SOAH-004690. On March 9, 2023, the Comptroller issued his Decision, in which he made numerous amendments to the ALJ’s Proposal for Decision, concluded that Texas Government Code section 403.302(b)(4) authorizes ARB adjustments to “taxable value” but not to “productivity value,” and found insufficient evidence to support Kenedy CSD’s requested productivity value adjustments. SOAH-

viii 004714 to SOAH-004728. Kenedy CSD filed an administrative appeal of the Comptroller’s final Decision with the Travis County District Court, 353rd Judicial District, pursuant to Texas Government Code section 403.303(d). The district court affirmed the Comptroller’s Decision in its entirety. CR-44. Kenedy CSD’s Motion for a New Trial was denied on July 23, 2024. CR-117.

ix STATEMENT REGARDING ORAL ARGUMENT

The Comptroller does not believe that oral argument is warranted in this case.

The issues that the trial court considered to resolve Kenedy CSD’s administrative

appeal are purely legal, and Kenedy CSD’s appellate brief does not present any novel

or complex question of statutory construction or interpretation. If the Court were

nevertheless inclined to conduct oral argument, the Comptroller would request the

opportunity to participate and answer the Court’s questions.

x STATEMENT OF THE ISSUES PRESENTED

TO THE HONORABLE COURT OF APPEALS—

1. When conducting its PVS, the Comptroller is authorized by Texas Government

Code section 403.302(b)(4) to make appropriate adjustments to its “taxable

value” determinations to account for orders made by the local ARB. But Texas

Government Code section 403.302(b)(4) does not similarly authorize adjustments

to “productivity value” determinations. Did the Comptroller properly determine

that it was precluded from making similar adjustments to its “productivity value”

determinations to account for ARB orders?

xi STATEMENT OF THE FACTS

The Comptroller’s Property Tax Assistance Division (PTAD) carried out a

statistical study of all property in the Kenedy County-Wide Common School District

(Kenedy CSD or Appellant) to prepare the 2021 Property Value Study (PVS)

required under Government Code Chapter 403. SOAH-004723. As part of the

survey, PTAD made value determinations for a category of real property located

within the school district known as “Qualified Open-Space Land” (“Property

Category D1”), which is also referred to as “native pasture land.” Id. 1

Kenedy CSD then filed a petition with the Comptroller to protest certain

preliminary findings in the 2021 PVS; in particular, it asserted fifty-two (52)

objections related to the Comptroller’s valuation of native pasture land, arguing that

the value per acre set by PTAD for such land was too high, and sought a 15.31%

reduction of the PTAD’s overall value determinations for all such property. Id.;

SOAH-000005 to SOAH-000035. In support of the requested change, it alleged that

the Kenedy Central Appraisal District’s (CAD) Appraisal Review Board (ARB) had

adjusted D1 values in the district downward by a uniform 15.31% for D1 property

owners that had appealed and sought a reassessment, and that the appealing property

1 See also SOAH-000008 (listing the various categories of real property, including, for example, single family residential (Category A), multifamily residential (B), vacant lots and tracts (C1), qualified open-space land (D1), farm and ranch real improvements on qualified open-space land (D2), commercial real property (F1), oil and gas real property (G1), etc.).

1 owners held in the aggregate 86.6% of the Category D1 acreage in the district.

SOAH-004638; SOAH-000009 to SOAH-000035. Kenedy CSD did, however, agree

in its administrative challenge that PTAD’s assigned values were accurately

calculated and would otherwise reflect the correct value, but it argued that they had

to be adjusted to account for 2021 local ARB Orders. SOAH-000059, SOAH-

004645.

With PTAD and Kenedy CSD continuing to disagree on this point, the

Comptroller filed a Notice of Referral to SOAH on August 4, 2022. SOAH-000001

to SOAH-000004. On November 2, 2022, the parties presented arguments and

evidence to Administrative Law Judge (ALJ) Pickup. See SOAH-004729-4948. In

her January 31, 2023 Proposal for Decision, ALJ Pickup recommended “adjusting

the values of the properties to account for the 2021 ARB Orders,” but she declined

“to change the assigned value of any properties where no such 2021 ARB Order was

issued.” SOAH-004690.

On March 9, 2023, the Comptroller issued his Decision (SOAH004714 to

SOAH-004728), which made numerous changes to ALJ Pickup’s Proposal for

Decision.2 The Comptroller found, among other things, that Texas Government

Code section 403.302(b)(4) authorizes ARB adjustments to “taxable value” but not

2 The Comptroller set out his relevant findings of fact and conclusions of law in Section II (“Reasons for Decision”) of his March 9, 2023 final Decision, a section which spans from SOAH- 004719 to SOAH-004728.

2 to “productivity value,” as those terms are defined in the Tax Code and discussed

below. The Comptroller’s Decision also found that, even if adjustments to

“productivity value” based on ARB orders were permitted under the statute, Kenedy

CSD had provided insufficient evidence to support its requested productivity value

adjustments. SOAH-004714 to SOAH-004728 (in particular, SOAH-004725 to

SOAH-004727). The final Decision reflects the Comptroller’s finding that the

evidence presented did not support Kenedy’s protest because, in particular, it did not

demonstrate that the adjustments made by the local ARB to Category D1 land

forming the subject of property owner protests were uniform, or even that the ARB’s

adjustments had been restricted to Category D1 property.3 SOAH-004723 to SOAH-

004724.

Thereafter, on April 5, 2023, Kenedy CSD filed its Original Petition for

judicial review of the Comptroller’s Decision in the Travis County 353rd Judicial

District Court. CR-3 to CR-8. The case was heard on May 22, 2024 before the

Honorable Maya Guerra Gamble (RR-1), and Judge Gamble issued her Final Order

affirming the Comptroller’s Decision on that same date (CR-44). Following an

unsuccessful motion for a new trial (filed on June 21, 2024 and denied on July 23,

2024 (CR-117)), Kenedy CSD brought this further appeal through its amended

3 The protest, the ALJ hearing, the ALJ Proposal for Decision, and the final Comptroller Decision were all processes conducted in accordance with the Texas Administrative Code, Title 34, Part 1, Chapter 9, Subchapter L.

3 notice of appeal dated August 7, 2024 (RR-104).

SUMMARY OF THE ARGUMENT

Kenedy CSD challenges the Comptroller’s 2021 PVS for property located in

the school district on the basis that the study’s proposed productivity values should

have been adjusted under Texas Government Code section 403.302(b)(4) to account

for various ARB orders that had been issued lowering the productivity value of tracts

containing native pasture land. But the statute upon which Kenedy CSD relies

authorizes adjustments based on ARB orders only to “taxable value,” which the

Legislature distinguished from “productivity value” for purposes of the PVS.

Because the values at issue are productivity values, the Comptroller lacked the

authority to make the adjustments that Kenedy CSD proposed. In addition, Kenedy

CSD conceded that the Comptroller’s productivity values were accurate. The

Comptroller’s Decision should therefore be affirmed.

ARGUMENT

I. Standard of Review

In an administrative appeal to a state district court challenging the

Comptroller’s PVS, the district court is required by the Texas Government Code to

remand the protest determination to the Comptroller if “on review [it] discovers that

substantial rights of the school district have been prejudiced” and that either “the

comptroller has acted arbitrarily and without regard to the facts,” or “the finding of

4 the comptroller is not reasonably supported by substantial evidence introduced

before the court.” Tex. Gov’t Code § 403.303(d). When the Comptroller’s protest

determination is reviewed again at the court of appeals level, the standard of review

is no more rigorous than that applied by the reviewing district court.

This is because the appellate court undertakes a de novo review of the trial

court’s application of the substantial evidence standard. Michael Nazarian MD

Assoc. LLC v. Aetna Life Ins. Co., No. 02-22-00109-CV, 2023 Tex. App. LEXIS

2796, at *12 (Tex. App. Fort Worth—Apr. 27, 2023, no pet.). “Whether an

administrative agency’s decision is supported by substantial evidence is a question

of law, which [the court of appeals] review[s] de novo.” All by Grace Home Health

Care v. Texas HHS Comm’n, No. 08-22-00223-CV, 2023 Tex. App. LEXIS 6134,

at *5 (Tex. App.—El Paso Aug. 14, 2023, pet. denied). This Court will, “[l]ike the

trial court, … review whether the agency’s findings of fact are supported by

substantial evidence, and … review its legal conclusions for errors of law.” Id.

To affirm the Comptroller’s determination, the appellate court must merely

satisfy itself that there was some reasonable basis for the complained-of decision; it

need not concern itself with whether the decision was correct. Michael Nazarian MD

Assoc. LLC, 2023 Tex. App. LEXIS 2796, at *12. An administrative decision may

be sustained even when the balance of the evidence preponderates against it. Id.

(citing Tex. Gov’t Code § 2001.174).

5 In sharp contrast, a party that asks the appellate court to overrule the district

court’s substantial evidence review and to overturn the Comptroller’s decision

carries a high burden. Because the appellate court must uphold the decision if “there

is any evidence to support it,” an appellant seeking to have a decision overturned

under a substantial evidence review faces a “formidable” burden of proof. Id. It has

been affirmed repeatedly that a reviewing court is required to affirm the decision

even when there is scarcely “more than a mere scintilla of evidence” supporting it.

Id.; see also Texas Dep’t of Pub. Safety v. Franklin, No. 04-98-00941-CV, 1999

Tex. App. LEXIS 6775, at *2-4 (Tex. App.—San Antonio, Sept. 8, 1999, no pet.).

Further, because the substantial evidence test is “a limited standard of

review,” it “gives significant deference to the agency in its field of expertise.”

Railroad Comm’n v. Torch Operating Co., 912 S.W.2d 790, 792 (Tex. 1995). “The

findings, inferences, conclusions, and decisions of an administrative agency are

presumed to be supported by substantial evidence, and the burden is on the

contestant to prove otherwise.” Texas Health Facilities Comm’n v. Charter Med.-

Dallas, 665 S.W.2d 446, 453 (Tex. 1984); Dyer v. Texas Comm’n on Envtl. Quality,

646 S.W.3d 498, 514 (Tex. 2022). “If there is evidence to support either affirmative

or negative findings on a specific matter, the administrative decision must be

upheld.” Franklin, 1999 Tex. App. LEXIS 6775, at *4.

6 Regarding whether the agency “acted arbitrarily and without regard to the

facts” – which is the alternate prong for reversal articulated in Texas Government

Code section 403.303(d) – it is a highly deferential standard. The agency decision

should only be overturned if “reasonable minds” could not have reached the

conclusion the agency reached. All by Grace Home Health Care, 2023 Tex. App.

LEXIS 6134, at *5; H.G. Sledge, Inc. v. Prospective Inv. & Trading Co., Ltd., 36

S.W.3d 597, 602 (Tex. App.—Austin 2000, pet. denied) (“the proper test is whether

the evidence in its entirety is sufficient that reasonable minds could have reached the

conclusion that the agency must have reached to justify the disputed action”); see

also McKinley Iron Works v. Texas Emp’t. Comm’n, 917 S.W.2d 468, 470 (Tex.

App.—Fort Worth 1996, no pet.) (same).

II. The Comptroller’s Decision Should Be Affirmed Because It Is “Reasonably Supported by Substantial Evidence” and the Comptroller Did Not “Act[] Arbitrarily and Without Regard to the Facts.”

A. Issue presented on appeal

Kenedy CSD stipulated that the PTAD’s values are accurate. SOAH-000059,4

SOAH-004645. Kenedy CSD’s complaint is that the productivity values of native

pasture land should have been adjusted under Texas Government Code section

4 SOAH-000059 (“[Kenedy CSD] will not contest that the Comptroller of Public Accounts Property Tax Assistance Division’s (PTAD) assigned values were accurately calculated and would otherwise reflect the correct values, but argues that these values should have been adjusted appropriately for Appraisal Review Board orders.”).

7 403.302(b)(4) to take account of local ARB orders that had reduced the taxable value

of tracts containing this type of land.

Given this, the dispute on appeal can be reduced to a single legal question:

What value(s) does the language of Texas Government Code section 403.302(b)(4)

authorize PTAD to adjust to account for ARB orders?

When an agency decision turns on the construction of a statute, the question

of whether the agency properly construed the statute is a legal question that an

appellate court reviews de novo. Upper Trinity Reg’l Water Dist. v. National Wildlife

Fed’n, 514 S.W.3d 855, 862 (Tex. App.—Houston [1st Dist.] 2017, no pet.). The

appellate court’s “primary concern is the express statutory language.” Id. The court

“applies the plain meaning of the text unless a different meaning is supplied by

legislative definition.” Id.

As explained below, the plain language of Texas Government Code section

403.302(b)(4) makes clear that the Comptroller is authorized to make adjustments to

take account of ARB orders only with regard to “taxable value,” and not concerning

“productivity value.”

B. The Comptroller must determine either “taxable value” or “productivity value,” depending upon the type of property studied.

The PVS is a study of property values in each school district designed to

determine whether property is being accurately appraised by local taxing

8 jurisdictions. See Tex. Gov’t Code §§ 403.301-.304. The State has an interest in

ensuring that local taxing jurisdictions are not under-appraising, because the State has

committed to supplement local education funds as necessary to ensure relatively

equal levels of funding to all schoolchildren in Texas. See Morath v. Texas Taxpayer

& Student Fairness Coal., 490 S.W.3d 826, 836-37 (Tex. 2016) (explaining Texas’

school finance system). The purpose of the PVS is to ensure “equity among

taxpayers in the burden of school district taxes,” as well as equity among school

districts in the “distribution of state financial aid for public education.” Tex. Gov’t

Code § 403.301.

The Legislature directed the Comptroller to conduct the study of school district

property values as follows:

The study shall determine the taxable value of all property and of each category of property in the district and the productivity value of all land that qualifies for appraisal on the basis of its productive capacity and for which the owner has applied for and received a productivity appraisal.

Id. at § 403.302(a) (emphasis added).

The Comptroller is therefore required to determine one of two different values

for each piece of property – “taxable value” or “productivity value” – depending on

the type of property studied.

For most property, the Comptroller is required to determine its “taxable

value.” Id. § 403.302(a), (b). Within the specific context of the PVS, the Legislature

9 defined “taxable value” as market value less certain enumerated deductions. Id.

§ 403.302(d) (“For purposes of this section, ‘taxable value’ means the market value

of all taxable property less ….”). “ Market value,” in turn, is the price at which a

property would sell on the open market in an ordinary arm’s length transaction.

Tex. Tax Code § 1.04(7); see also Travis Cent. Appraisal Dist. v. FM Props.

Operating Co., 947 S.W.2d 724, 727 (Tex. App.—Austin 1997, writ denied) (“[T]he

traditional definition applied by Texas courts [is] that market value means the price

property would bring when offered for sale by one who desires, but is not obliged to

sell, and is bought by one who is under no necessity of buying it.”).

For certain agricultural and open space property, however, the Comptroller

must instead determine its “productivity value.” Texas Government Code section

403.302(a) sets out the relevant rule: “The [comptroller’s] study shall determine …

the productivity value of all land that qualifies for appraisal on the basis of its

productive capacity and for which the owner had applied for and received a

productivity appraisal.”

Productivity value is not based on the price that a property would draw on the

open market, but rather on the value of the agricultural products the property can

produce. See TEX. CONST. art. VIII, §§ 1-d, 1-d-1; Tex. Tax Code § 23.41. Texas

Tax Code section 23.41(a) provides that productivity value shall be determined

10 based on a five-year “net to land” average annual income per acre. 5 See also Tex.

Tax Code § 23.51(4) (definition of “net to land”), § 23.52 (“Appraisal of Qualified

Agricultural Land”).6

Productivity value is thus often substantially less than market value. SOAH-

004763 (testimony of Sarah Gutierrez); see also, e.g., SOAH-00369 to SOAH-00372

(ARB Order 1 finding the total market value to be $15,650 but placing the final total

appraised value and the total assessed value for the special appraisal agricultural

land at $1,310).7

C. The Comptroller has no authority to adjust “productivity value” to account for ARB orders.

1. Kenedy CSD’s attempt to read the term “productivity value” into section 403.302(b)(4) is improper and unsupported.

When the Comptroller makes a “taxable value” determination based on market

value – as is required for most property – he has the discretion under Texas

Government Code section 403.302(b)(4) to make appropriate adjustments to that

5 Texas Tax Code § 23.41(a) (“Land designated for agricultural use is appraised at its value based on the land’s capacity to produce agricultural products. The value of land based on its capacity to produce agricultural products is determined by capitalizing the average net income the land would have yielded under prudent management from production of agricultural products during the five years preceding the current year.”). 6 The Texas Tax Code also instructs the Comptroller to promulgate rules specifying the methods and procedures for calculating productivity value, which are reflected in the Comptroller’s Manual for the Appraisal of Agricultural Land and the Manual for the Appraisal of Timberland. Tex. Tax Code §§ 23.41(b), 23.51(4); 34 Tex. Admin. Code § 9.4001 (“Valuation of Open-Space and Agricultural Lands”). 7 This point appears uncontested. See Appellants Br. at 17 (“Specific to this appeal, if we own land used for agriculture as are the properties at issue, we know that it is taxed at productivity value, which is far less than market value.”).

11 value to account for orders that were issued by the local ARB under Texas Tax Code

section 41.43 following a section 41.41 protest. See Tex. Gov’t Code § 403.302(b),

(b)(4) (“[T]he comptroller shall determine the taxable value of property . . . ensuring

that different levels of appraisal resulting from [ARB orders] are appropriately

adjusted in the study.”).

When, by contrast, the Comptroller makes a determination of “productivity

value” – as is required for the native pasture land here in issue – he lacks such

adjustment authority. The plain language of subsections 403.302(b) and

403.302(b)(4) makes clear that ARB adjustments may be made to “taxable value”

only and not to “productivity value” because there is no mention of “productivity

value” in the relevant statutory language:

(b) In conducting the study, the comptroller shall determine the taxable value of property in each school district:

(1) using, if appropriate, samples selected through generally accepted sampling techniques;

(2) according to generally accepted standard valuation, statistical compilation, and analysis techniques;

(3) ensuring that different levels of appraisal on sold and unsold property do not adversely affect the accuracy of the study; and

(4) ensuring that different levels of appraisal resulting from protests determined under Section 41.43, Tax Code, are appropriately adjusted in the study.

Id. § 403.302(b) (emphasis added).

12 Kenedy CSD is therefore mistaken when it argues that section 403.302(b)(4)

requires the Comptroller to adjust “productivity value” determinations to factor in

ARB orders relating to such property. On the contrary, the above-quoted statutory

provision applies by its terms only to the Comptroller’s determinations of “taxable

value,” as the Comptroller himself found in his challenged Decision. SOAH-004725

to SOAH-004726.

Had the Legislature intended for section 403.302(b)(4) to apply to

determinations of “taxable value” and “productivity value,” it would have employed

both terms: The Legislature demonstrated its ability to do so elsewhere in the

statutory scheme. See Tex. Gov’t Code § 403.302(a) (quoted in Section II.B, supra,

and distinguishing between “taxable value” and “productivity value” assessments

conducted in the course of a PVS).

The inclusion of the term ”taxable value” in Texas Government Code section

403.302(b) and the omission of the term “productivity value” in that section can only

be presumed to be intentional. “ We presume that the Legislature chooses a statute’s

language with care, including each word chosen for a purpose, while purposefully

omitting words not chosen.” TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d

432, 439 (Tex. 2011) (citing In re M.N., 262 S.W.3d 799, 802 (Tex. 2008) (“We …

presume the Legislature included each word in the statute for a purpose and that

words not included were purposefully omitted.”) (citation omitted)).

13 The district court appropriately declined Kenedy CSD’s entreaty to read the

term “productivity value” into section 403.302(b)(4). This Court should, too.

“Productivity value” is absent from the provision, and it must be presumed that the

Legislature purposefully chose to exclude it. ExxonMobil v. Coleman, 512 S.W.3d

895, 900 (Tex. 2017). “[A] court may not judicially amend a statute by adding words

that are not contained in the language of the statute. Instead, it must apply the statute

as written.” Id. (quoting Lippincott v. Whisenhunt, 462 S.W.3d 507, 508 (Tex.

2015)).

As seen, the statutory construction that follows from the combined reading of

the preambular language (i.e., “chapeau”) of Texas Government Code section

403.302(b), which refers only to “taxable value of property,” and the text of section

403.302(b)(4), which refers to possible adjustments based on ARB determinations

but does not refer to adjustments to productivity value assessments, leads to the

conclusion that adjustments to appraisals are permitted only in the context of market

value assessments. This, in turn, leads to the result that the taxable value of the native

pasture land in question here is equivalent solely to the productive value of that

property, without any adjustment being possible. The district court’s decision should

be affirmed.

14 2. The taxable value of the native pasture land is equal to its productivity value.

The conclusion that the taxable value of the property at issue here is equal to

its productivity value also follows directly, albeit mathematically, from a plain

language reading of the preambular language of Texas Government Code section

403.302(d) in combination with subsection (d)(7).

Section 403.302(d)’s introductory language reads: “For purposes of this

section, ‘taxable value’ means the market value of all taxable property less: …”

(emphasis added). This language is then followed by a list of fourteen items, with

the only one relevant to the property placed in issue in this suit being subsection

403.302(d)(7). It reads: “the difference between the comptroller’s estimate of the

market value and the productivity value of land that qualifies for appraisal on the

basis of its productive capacity, except that the productivity value estimated by the

comptroller may not exceed the fair market value of the land” (emphasis added).

Tracking the precise language of these two code provisions, it is possible to

express in mathematical terms the rules set out, when the property in question is all

native pasture land and where:

x = taxable value, y = market value, z = productivity value, and y ≥ z in all cases.

The statutory language can thus be expressed as follows:

15 x = y − (y − z), which is equivalent to x − y = −(y − z), or x − y = −y + z, or x = z, or restoring the statutory terms in the place of the variables,

taxable value = productivity value.

In sum, in the case of the native pasture land under review in this case, the

taxable value is equivalent to the productivity value. Because there is more than a

reasonable basis for this conclusion, because reviewing courts should defer to the

exercise of agency judgment when acting within their subject matter of expertise,

and because it is impossible to find that “reasonable minds” could not have reached

this conclusion, there is no basis to conclude that the Comptroller “acted arbitrarily

and without regard to the facts,” or that his conclusions are not “reasonably

supported by substantial evidence introduced before the court.” The district court’s

decision should be affirmed.

3. Although Kenedy CSD misstates the Comptroller’s position, taxable value, market value, and productivity value remain distinct concepts.

Despite the foregoing, Kenedy CSD in its brief claims to summarize the

Comptroller’s position on Texas Government Code section 403.302(d) as follows:

“[The Comptroller] claims that § 403.302(d) defines taxable value as market value,

16 not productivity value.” 8 Appellant’s Br. at 15. Kenedy CSD then characterizes the

Comptroller’s supposed position as “baseless, misleading and arbitrary.” Id.

Yet, Kenedy CSD’s so-called summary misrepresents or, at a minimum,

misleadingly truncates the Comptroller’s arguments, as it fails to account for the fact

that (as just demonstrated) section 403.302(d)(7) lays out a special rule for valuing

land that is to be appraised on the basis of productive capacity – and for the fact that

that rule defines the taxable value of such land as being equivalent to its productivity

value, to the exclusion of any consideration of market value.

Kenedy CSD also suggests that the Comptroller’s postulate that section

403.302(b)(4) adjustments are not permitted concerning property assessed using

productivity value is undermined by the language of section 403.302(d)(7).

Appellant’s Br. at 16-17. But this, too, is far from the case.

The first sentence of Texas Government Code section 403.302(a) instructs the

Comptroller to “conduct a study using comparable sales and generally accepted

auditing and sampling techniques to determine the total taxable value of all property

in each school district” (i.e., a study that perforce takes account of market values).

Tex. Gov. Code § 403.302(a). That same provision also makes clear that this

assessment is a separate and distinct process from the valuation of land appraised

8 See also id. at 16 (“By interpreting § 403.302(d) as defining ‘taxable value’ as only market value, Comptroller ignores ….”); id. at 16 (“It is frankly incredible for PTAD to argue that taxable [value] means only market value.”).

17 based on productive capacity. Indeed, section 403.302(a)’s second sentence

confirms that the PVS “shall determine the taxable value of all property and of each

category of property in the district and the productivity value of all land that

qualifies for appraisal on the basis of its productive capacity.” (emphasis added)

Further, as just demonstrated mathematically, section 403.302(d)(7) explicitly

removes market value considerations from taxable value assessments when the

property being considered is valued based on its productive capacity (such as

Category D1 land). It does so, as seen, by laying out a rule that defines “taxable

value” as being equal in such cases to “productivity value.”9

* * *

Because the Comptroller is not legally authorized under the applicable

statutory scheme to adjust the taxable value to take account of any ARB orders that

modify the productivity values of native pasture land, it would have been improper

for the Comptroller to take those orders into account. No further response is therefore

necessary or appropriate to Section B.(2), pp. 19-21 of Appellant’s Brief. The district

court’s decision should be affirmed.

9 As explained in Section III.C.2, the statute accomplishes this by defining taxable value for native pasture land as equivalent to the market value less the difference between the market value and the productivity value of that land (which cannot be greater than the market value). This is a just another way of saying that in these cases the taxable value is the productivity value.

18 D. The Comptroller’s manuals are consistent with the statutory scheme, which authorizes ARB adjustments to “taxable value” only.

Kenedy CSD continues to maintain in its Brief that the Comptroller’s manuals

that refer to PVS require the agency to make ARB adjustments not only to “taxable

value,” but also to “productivity value.” However, Kenedy CSD appears now to

accord less place to this argument than in earlier phases of the administrative appeal,

and it limits itself to a single reference to a single Comptroller manual.

More specifically, as support for its claim that the Comptroller “knows that it

is required to adjust taxable values for property reduced by ARB orders,”

Appellant’s Br. at 18, Kenedy CSD highlights a single sentence extracted from “The

School District Property Value Study and How to Protest” manual that reads: “If the

CAD [Central Appraisal District] provides documentation that the local value of any

property in the School District PVS sample was determined by the appraisal review

board, PTAD will adjust its value of the property as required by Government Code

Section 403.302(b)(4).” SOAH-000070 (quoted at Appellant’s Br. at 18).

As a threshold matter, the Comptroller’s manuals cannot contradict the plain

language of Texas Government Code section 403.302(b)(4). Thus, even if there were

some conflict between the statute and the Comptroller’s manuals (there is not), this

fact would not advance Kenedy CSD’s case. This Court would be bound, just as the

Comptroller is, to respect the statute and to ignore the manuals to the extent of any

inconsistency. But the referenced manual is consistent with the statutory scheme.

19 A review of the full version of the School District Property Value Study and

How to Protest manual shows that the single sentence about adjusting values for

ARB orders on which Kenedy CSD relies applies only to the calculation of “taxable

value” – it is located in the section that carries the heading “Calculating Taxable

Value – Overview.” SOAH-000971 (section title); SOAH-000973 (subsection

cited by Appellant). This portion of the manual thus has no bearing on the

determination of “productivity value,” which is the only value at issue in this case.

Nor could the manual contradict the plain language of Texas Government Code

section 403.302(b)(4). See TGS-NOPEC, 340 S.W.3d at 438 (agency interpretations

cannot contradict statutory language ); TEX. CONST. art 2, § 1 (separation of powers).

In addition, and importantly, the section of the manual in which Category D1

property is addressed – the section entitled “Qualified Agricultural Land” and found

at pages 13 to 14 of the manual (SOAH-000980 to SOAH-0000981) – logically

makes no mention of adjusting productivity values to account for ARB orders.

Further, the manual’s Exhibit 13 presents a chart entitled “Examples of Protest

Issues.” The chart identifies an “appraisal review board (ARB) decision” as a protest

ground for single-family residential property (Category A), multifamily residential

property (Category B), “Rural Land, not Qualified for Open-Space Appraisal, and

Improvements” (Category E), and Commercial real property (Category F1), but it

does not list ARB decisions as a protest ground for “Qualified Open-Space Land”

20 (Category D1). SOAH-000988.

The Comptroller reached the identical conclusion in his Decision, finding that

the language on which Kenedy CSD relies “relates to sampled properties

individually appraised at market value, rather than to qualified open-space land

appraised by category based on productivity value.” SOAH-004727 (emphasis

added). The district court properly affirmed the Comptroller’s decision, and this

Court should also affirm.

E. In the alternative, Kenedy CSD failed to prove the amount of its proposed ARB adjustment.

In the alternative, in the event that the Court were to find that the Comptroller

was required to adjust productivity values to account for ARB orders, the

Comptroller’s Decision must be upheld because Kenedy CSD failed to prove at any

stage of its administrative challenge the amount of any appropriate adjustment.

To conduct a PVS, the Comptroller is required to value all native pasture in

the relevant school district. Tex. Gov’t Code § 403.302(a) (providing that the PVS

shall determine the “productivity value of all land that qualifies for appraisal on the

basis of its productive capacity and for which the owner had applied for and received

a productivity appraisal”). Yet, the ARB orders upon which Kenedy CSD relies did

not concern all native pasture land in the district, but rather only a portion of that

land. See SOAH-004873, SOAH-004884 (testimony of Robby Harbuck). The

Comptroller’s Decision noted in this regard that “[a]ccording to [Kenedy CSD],

21 there are 642,971 D1 native pasture acres in Kenedy County, but only 556,840 acres

were the subject of ARB protests.” SOAH-004723.

Equally important, some of the ARB orders at issue concerned parcels that

included both native pasture and other types of property, and when the ARB orders

reduced the value of the entire parcel, they did not specify what portion of the

reduction, if any, was attributable to native pasture as opposed to other types of

property in the parcel. See SOAH-004831 to SOAH-004840 (testimony of Gary

Zeitler); SOAH-004884 to SOAH-004886 (testimony of Robby Harbuck).

Finally, some of the ARB orders that Kenedy CSD relied upon actually

increased the value of the entire parcel, which is not consistent with Kenedy CSD’s

proposed reduction of 15.31% for all native pasture in the district. See SOAH-

000461, SOAH-000464, SOAH-000622.

It was thus simply not possible to determine from the evidence in the record

the percentage adjustment to which Kenedy CSD would have been entitled even if

the Legislature had authorized ARB adjustments to productivity value. See SOAH-

004831 to SOAH-004840 (testimony of Gary Zeitler). Indeed, in his Decision, the

Comptroller concluded that

it is not possible to identify the amount of the ARB’s value adjustments that reflects changes in the productivity value for the protested property as opposed to changes in value related to reclassification of portions of the protested property by simply looking at the ARB orders, Notices of Appraised Value, or ARB meeting minutes.

22 SOAH-004723 to SOAH-004724.

For the foregoing reasons, Kenedy CSD did not meet its high burden of

showing that the Comptroller’s values were not reasonably supported by substantial

evidence, or that the Comptroller acted arbitrarily and without regard to the facts.

Tex. Gov’t Code § 403.303(d). Kenedy CSD stipulated that the Comptroller’s values

were accurate, SOAH-000059, SOAH-004645, and the evidence introduced in the

record did not support Kenedy CSD’s proposed ARB adjustment of 15.31% for all

native pasture in the district.

The Comptroller’s Decision and the trial court’s Final Order in this case

should therefore be affirmed, even if this Court were to conclude that Texas

Government Code section 403.302(b)(4) requires, when appropriate evidentiary

support exists, that adjustments be made to “productivity values” to account for ARB

orders concerning property subject to appraisal based on productive capacity.

PRAYER

The Comptroller respectfully requests that the Court affirm the decision of the

trial court.

Dated: February 28, 2025

23 KEN PAXTON THOMAS BEVILACQUA Attorney General of Texas Texas Bar No. 00793342 Assistant Attorney General BRENT WEBSTER General Litigation Division First Assistant Attorney General P.O. Box 12548, Capitol Station Austin, Texas 78711-2548 RALPH MOLINA Tel : (512) 936-1162 Deputy First Assistant Attorney General Fax: (512) 320-0667 thomas.bevilacqua@oag.texas.gov AUSTIN KINGHORN Deputy Attorney General for Civil Counsel for Appellee Litigation

KIMBERLY GDULA Chief, General Litigation Division

24 CERTIFICATE OF COMPLIANCE

The undersigned counsel certifies that this Brief of Appellee complies with

Texas Rule of Appellate Procedure 9.4(i). The text is set to 14-point and the number

of words in the document as calculated by the word count feature of Microsoft Word

is 5,778.

/s/ Thomas Bevilacqua Thomas Bevilacqua Assistant Attorney General

CERTIFICATE OF SERVICE

This is to certify that the above and foregoing instrument has been served on

all counsel of record in accordance with the Texas Rules of Appellate Procedure on

February 28, 2025 through the electronic filing system.

Judith Hargrove judy@hargrovelawtx.com

Jim L. Lambeth Jim.Lambeth@lgbs.com

/s/ Thomas Bevilacqua Thomas Bevilacqua Assistant Attorney General

25 Automated Certificate of eService This automated certificate of service was created by the efiling system. The filer served this document via email generated by the efiling system on the date and to the persons listed below. The rules governing certificates of service have not changed. Filers must still provide a certificate of service that complies with all applicable rules.

Troy Sager on behalf of Thomas Bevilacqua Bar No. 793342 troy.sager@oag.texas.gov Envelope ID: 97931128 Filing Code Description: Brief Not Requesting Oral Argument Filing Description: 20250228_Defs Appellee Brief Status as of 2/28/2025 1:58 PM CST

Associated Case Party: Kenedy County Wide Common School District

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Associated Case Party: GLENN HEGAR, TEXAS COMPTROLLER OF PUBLIC ACCOUNTS

Name BarNumber Email TimestampSubmitted Status

Thomas Bevilacqua thomas.bevilacqua@oag.texas.gov 2/28/2025 1:51:09 PM SENT

Troy Sager troy.sager@oag.texas.gov 2/28/2025 1:51:09 PM SENT