Tax Dispute Puts West Texas Town in Financial Limbo

Freeport's Stronghold

by Robert Bryce

Members if the Culberson County Road and Bridge Department who lost their jobs on October 1 hue to a tax dispute with Freeport-McMoRan. (l-r) Raul Balcazar who has worked for the county for five years; Pete Soliz, 12 years; Antonio Reyes, 12 years; Arturo Sanchez, six years; Ramón Carrasco, 15 years; Antonio Lopez, 15 years. photograph by Robert Bryce

For 12 years, Antonio Reyes worked as a welder and mechanic for the Road and Bridge Department in Culberson County in far West Texas. A quiet man with gray hair and sad eyes, his job was one of the few in the city of Van Horn that pays more than minimum wage. On October 1, Reyes, 56, who was earning $9.25 an hour, was fired. Along with him, eight other county employees, six from the Road and Bridge Department, lost their jobs.

The issue wasn't job performance. It was lack of money. For the past 18 months, Culberson County has been in the midst of a financial crisis brought about because the county's biggest taxpayer -- New Orleans-based Freeport-McMoRan -- sued the county over its tax bill. Freeport, which operates a sulphur mine in northeast Culberson County, sued the county over its 1995 and 1996 tax appraisals. After filing suit, the company paid taxes on the undisputed portion of the 1996 appraisal, a move which forced the county to borrow $300,000 in order to stay in operation. The dispute also left the Culberson County Hospital in Van Horn -- the only hospital within a 120-mile radius of the town -- teetering on the brink of insolvency. If you think Freeport-McMoRan is unpopular in Austin, visit Van Horn.

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Poorest of the Poor

Culberson County ranks 245th out of 254 Texas counties in terms of per capita income. According to figures from the state comptroller's office, the average per capita income of Culberson county residents is $10,619 a year. About nine out of 10 residents are Hispanic, and 85% of the students in the Culberson ISD qualify for free or reduced-price lunches.

While the payroll from the Freeport mine does not have much effect on Culberson County -- most of the mine's workers live in Pecos or Carlsbad, New Mexico -- the mine accounts for about one-third of the county's taxable property.

"They know those dollars mean a lot to us and we can't afford a long drawn-out fight. They know we will settle," said Richard Lee, the administrator and CEO of the hospital. "They hold the handle and we hold the blade."

Area residents say the hospital is vital to Van Horn and the surrounding area because it has the only emergency room capable of treating trauma patients between El Paso and Fort Stockton. Freeport's lawsuit and its refusal to pay its property taxes "may not force us to close," said Lee, "but it's going to push us damn close."

Kyle Brookshier, who grows pecans near Van Horn, chaired the appraisal review board in 1995 when Freeport first raised objections to their appraisal. "It was a completely fair appraisal," says Brookshier. "They couldn't show us a legitimate reason to lower the valuation. It was obvious that their sole purpose was to stick it to us."

The tax dispute in Culberson County is similar to an ongoing tax dispute between Freeport's local subsidiary, FM Properties, and the Travis Central Appraisal District. In 1993, FM Properties sued the appraisal district, claiming that it had placed too high a property value on the company's land. Litigation over that appraisal is ongoing. Freeport won its original lawsuit against TCAD in Travis County District Court. In June, the Third Circuit Court of Appeals in Austin, in a two-to-one vote -- Justice John Powers dissented -- upheld the lower-court ruling. But TCAD plans to appeal the decision to the Texas Supreme Court, with arguments expected some time this fall.

The Culberson mine was owned by Pennzoil until early 1995, when it sold the operation to Freeport-McMoRan and its subsidiary, Freeport-McMoRan Resources Partners. In a balance sheet filed with the Securities and Exchange Commission after the sale, Freeport and Pennzoil valued the assets in the sale -- which include a shipping terminal near Galveston -- at $50.27 million.

In 1995, the Culberson appraisal district valued the mine at $38.4 million. In 1996, the appraisal -- which relies, in part, on the price of sulphur -- rose to $51.3 million. Freeport sued the appraisal district in August 1995, and again in August 1996, contending that the valuations for the two years were too high. Because it was contesting the valuations, Freeport was allowed to withhold a total of $727,638 from the school, county government, and hospital. That's equivalent to about one day's profit for the two Freeport companies.

Sally Carrasco, the chief appraiser at the Culberson County Appraisal District, said Pennzoil, which owned the mine for more than a decade, was a good corporate citizen and always paid its property taxes on time. "We never had any problem with them. They always paid their taxes on time. One year they paid them early, in October, to help us out," says Carrasco.

Messages left for Freeport spokesmen Bill Collier and Garland Robinette were not returned.

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Future's So Bleak

Two weeks ago on a hot, cloudless morning in Van Horn, Reyes and the five other workers in the road department who were to be fired milled around the ramshackle tin quonset hut that houses the Culberson County Road and Bridge Department. They drank coffee and spoke in Spanish about what they are going to do. Reyes is not hopeful. "It's very difficult here to find work," he said.

Some of the men being fired have been working for the county for 15 years. None make more than $10 per hour. When told that Jim Bob Moffett, the chairman of the board of Freeport-McMoRan made $41 million last year, or about $19,000 an hour, Pete Soliz, a heavy equipment operator who has been in the road department for 12 years and is on the list to be fired, said, "The people they are laying off don't make that in a year." Raul Balcazar, 36, has worked for the county for five years. He, too, is on the list to be fired. He earns $8.20 per hour, which he uses to support his wife and three children, ages 17, 11, and six. He said of the dispute with Freeport: "It's the big dog eating the small dog. They are crying about their taxes and they don't know how much they are hurting these people."

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Settling with Freeport

Last week, Culberson County officials announced a settlement with Freeport, which keeps the 1995 valuation in place and lowers the 1996 valuation by about $3 million. John Jones, a county commissioner who runs a small gas station and diner at the intersection of I-10 and US 90, said in a telephone interview that he and other county officials simply wanted to put an end to the dispute. "It's not a good deal," said Jones. "We are just glad it's over." Jones said the county had to settle because it could not afford to keep fighting, having already spent more than $70,000 on attorneys. Looking back, Jones wishes Pennzoil had never sold the mine to Freeport. "Pennzoil was a good partner. We hoped the Freeport relationship would be good too. But the first thing we got from them was a summons."