Executive Summary

In July 2007, the Texas Comptroller of Public Accounts identified Cooper Independent School District (Cooper ISD), located in Delta County, as one of 43 school districts meeting the criteria that initiate an Appraisal Standards Review (ASR) of the appraisal district that serves them. In January 2008, the Comptroller's Property Tax Assistance Division (PTAD), with assistance from contractors, began its review of the Delta County Appraisal District (Delta CAD).

School Districts, the Property Value Study and Appraisal Standards Reviews

Texas funds public education by a combination of state and local funds. Local funding comes from property taxes assessed by a school district's board of trustees. The state bases its funding on the amount of money per student that a school district can raise locally. The state's funding formula sends more money to districts that are less able to raise money locally because of insufficient taxable property value.

A county appraisal district charged with appraising property at market value serves each school district in the state. The chief appraiser of each appraisal district determines the property values that, after approval by the appraisal review board, its school districts will use to set tax rates.

PTAD conducts an annual Property Value Study (PVS) that assigns a value to all taxable property within each school district for state funding purposes. The PVS is an independent estimate required by the Texas Legislature to help the state ensure equitable school funding. The PVS ensures equity by detecting instances in which school property values are not at market value and adjusting them to market value for use in the state's funding formula.

The Comptroller's property values do not directly affect local values or property taxes. However, when study statistics give the Comptroller a high degree of confidence that the aggregate local value for property categories tested in the study is lower than the state's estimate of the correct value, and that aggregate local value is more than 5 percent below the state's estimate, the school district may receive less state funding than it expected. School districts may protest the state's preliminary determination of their property value through an appeals process. Understanding the reasons for the differences in valuation, however, can be critical for school districts and the appraisal districts that serve them.

If the PVS findings adversely affect a school district's funding, the Legislature grants the school district a two-year grace period. During this grace period, school districts can work with their appraisal district to correct any inaccuracies or inconsistencies, before state funding is lost. To aid this process, the ASR provides the appraisal district and its local taxing units with an independent assessment of their appraisal standards.

By law, to be eligible for the grace period, a school district must have an invalid local value that does not exceed the state value; valid local values for the two preceding years; and a current aggregate local value for tested property categories that is at least 90 percent of the lower limit of the margin of error.

Appraisal Standards

PTAD performs ASRs when a school district is eligible for the grace period. ASRs recommend changes in procedures or methods that can improve appraisal accuracy and compliance with state law and appraisal standards. The results can help school districts understand the reason for the invalid findings so that they can work with their appraisal districts to correct problems and ensure that the CAD appraises all property in the school fairly and accurately.

In conducting an ASR, PTAD examines and evaluates appraisal practices including methodologies, planning and procedures, and the application of and adherence to generally accepted appraisal standards and practices. The Property Tax Code and Comptroller rules are the major criteria used in the review.

The Property Tax Code requires appraisal districts to use certain generally accepted appraisal procedures or standards, such as the Uniform Standards of Professional Appraisal Practice (USPAP), specifically Standard 6: Mass Appraisal, Development and Reporting, as well as the International Association of Assessing Officers' (IAAO's) Technical Standards. In addition, ASRs rely on other generally accepted standards when reviewing appraisal procedures and methods.

The two principal purposes of the ASR are to determine why the local value is invalid and to recommend improvements to appraisal practices. Upon completing the review process, the Comptroller issues a report of findings that includes commendations for exemplary appraisal practices and recommendations for improvements. The law requires appraisal districts to comply with the Comptroller's recommendations concerning appraisal methods and procedures within one year of the report's release.

If PTAD finds that the CAD's board of directors has failed to comply with the ASR recommendations within one year of their issuance, state law requires the Comptroller to notify the judge of each district court in the county. The district judge(s), in turn, must appoint a five-member board of conservators to implement the recommendations. This board of conservators supervises and controls the CAD's operations until each school district it serves has valid local values in the annual PVS. The CAD must bear the costs for this supervision.

While the review team identified a commendable practice implemented by appraisal district employees, Delta CAD faces several challenges in achieving and maintaining consistent, current market valuations.

Commendable Practice

The review team identified a best practice used in Delta CAD that other appraisal districts should consider adopting.

Delta CAD's computerized appraisal information is properly stored, maintained, backed-up and secured by user passwords while still publicly available and ensuring confidentiality of required information.

Key Findings and Recommendations

Below is a summary of the ASR's key recommendations. These recommendations address the problems and challenges identified in the detailed findings described in Chapter 2 of this report. In total, PTAD makes seven key recommendations:

Use statistical software to calibrate data and determine which of three approaches to market value is appropriate, as required by Property Tax Code Section 23.0101 and generally accepted appraisal standards and practices.
Include instructions in appraisal manuals for all categories of real and personal property to help ensure accurate mass appraisal models.
Develop and document a coordinated set of detailed land and improvement schedules that track local market values and use them in the CAD's automated appraisal system.
Develop and implement written procedures for sales verification; procedures for comparing sold property to existing CAD property characteristics; and procedures for use of sales verification codes.
Develop written procedures for internal ratio studies; run the sales ratio program with the more detailed parameters for various sub-markets; correctly apply results to appraisal valuation approaches; and use ratio studies after field seasons for quality control of values.
Prepare and use a detailed procedures manual for all functions of property data collection.
Comply with Property Tax Code Section 23.18 by revising the reappraisal plan to include CAD-specific details on items such as the property characteristics involved in valuation formulas, identification of market areas, delineation of neighborhoods and valuation models.

Other Recommendations

In addition to the previous recommendations, the review team identified a management and operational issue not directly related to the appraisal process, but that can have an indirect impact on the CAD's ability to conduct its appraisals accurately and consistently. The CAD is not obligated to implement this recommendation, but PTAD provides it here for consideration as an additional way to enhance operational effectiveness and efficiency. Appraisal districts, as Texas governmental entities, are required to comply with all applicable laws.