In July 2008, the Texas Comptroller of Public Accounts identified Clarendon and Hedley Independent School Districts (ISDs), located in Donley County, as two of 40 school districts meeting the criteria that initiate an Appraisal Standards Review (ASR) of the appraisal district that serves them. In October 2008, the Comptroller's Property Tax Assistance Division (PTAD), with assistance from a contractor, began its review of the Donley County Appraisal District (Donley CAD).
School Districts, the Property Value Study and Appraisal Standards Reviews
Texas funds public education with 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 can be raised locally. The state's funding formula sends more money to school districts that are less able to raise money locally because of insufficient taxable property value.
Each school district in the state is served by a CAD charged with appraising its property at market value. The chief appraiser of each CAD determines the property values that, after approval by the appraisal review board (ARB), 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, an independent estimate required by the Texas Legislature, is intended to help the state ensure equitable school funding. The PVS ensures equity by detecting instances in which a school district's total property value is not at market value and adjusting the total 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. But 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 at least 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 appraisal, however, can be critical for school districts and the CADs that serve them.
The Legislature granted a two-year grace period for school districts whose state funding is adversely affected by PVS findings. During this grace period, school districts can work with their CADs to correct any inaccuracies or inconsistencies, before state funding is lost. To aid this process, the ASR provides the CAD 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 Reviews
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 finding so that they can work with their CADs to correct problems and ensure that all property in the school district is appraised 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 CADs 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) 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 may include commendations for exemplary appraisal practices and recommendations for improvements. The law requires CADs 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.
Donley CAD faces several challenges in achieving and maintaining consistent, current market appraisals.
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 two of this report. In total, PTAD makes four recommendations:
Develop internal ratio studies that include stratifying property by ISD and property category.
Develop a comprehensive appraisal manual that includes detailed procedures, instructions and protocols for fieldwork activities, methods for appraising property and guidelines for property classification.
Amend the existing reappraisal plan to comply with Property Tax Code Section 25.18.
In addition to the previous recommendations, the review team identified a certain management and operational issue that is not directly related to the appraisal process, but 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 it is provided here for consideration as an additional way it can enhance operational effectiveness and efficiency. CADs, as Texas governmental entities, are required to comply with all applicable laws.
Adopt an appraisal contract administration policy that complies with Property Tax Code Sections 25.01(c) and 5.16(a) (2).