Appendix 1-8 Appendix 9-15 Appendix 16-19
PROPERTY VALUE STUDY
This section presents an overview of the Property Value Study and then explains the procedures in detail for those wanting more in-depth knowledge of the Study.
The Property Value Study.
The Property Value Study (Study) is conducted annually by the Comptroller to estimate the taxable property value in each school district and to measure county appraisal district performance. It is often referred to as a ratio study because it uses the appraisal roll values divided by market value. The appraisal roll value is the property value estimated by the local appraisal district. Market value, in simple terms, is the price for which a property would sell under normal conditions.
Primary Purpose of the Property Value Study
The primary purpose of the Study is to ensure that state funds for public schools are distributed equitably.
In Texas, public education is funded through a combination of state and local funds. Local funding comes from local property taxes. The chief appraiser of each county appraisal district (CAD) determines local property values, and school districts set tax rates that determine the amount of local tax revenue. State funding is based on the total taxable property value within each school district as determined by the Study.
The Commissioner of Education uses the Study to ensure equitable distribution of education funds so that school districts have roughly the same number of dollars to spend per student, regardless of the school district's wealth, or lack of wealth. School districts with less taxable property value per student receive more state dollars for each pupil than districts with more value per student. The state's fair distribution of school funding depends largely on the Comptroller's taxable value findings.
School Funding Equity Example
Relying solely on the values set by the 253 Texas appraisal districts could result in inequitable school funding in some school districts. For example, assume that two school districts, school district A and school district B, are identical in every respect except that the appraisal district for school district B does a better job appraising property than the appraisal district for school district A. Appraisal districts are required to appraise most property at market value-in short, a property's fair selling price. If property values in school district A are at 75 percent of market value, while property values in school district B are at 100 percent of market value, school district A would appear to have less taxable property value per student than school district B. Accordingly, more state funding would flow to school district A, even though the two districts have the same number of students, the same taxable property value and are alike in every way. This is clearly an unfair result.
Court Challenges/State Response
A series of court cases brought in the 1980s by poor school districts challenged the Texas funding system. One of the issues was that property values were not set at uniform percentages of market value in each school district, resulting in an unfair distribution of funds. As part of its response to these court challenges, the legislature directed the Texas Comptroller to provide an independent estimate of taxable property value in each school district to ensure fair school funding-providing more money to those districts that are less able to raise money locally because of insufficient taxable property wealth.
The independent estimate is accomplished through the Study by adjusting school district property values to market value. If the locally appraised value in a school district (local value) is within an acceptable range of the adjusted value (state value), the Comptroller's Property Tax Division (PTD) certifies the local value to the Commissioner of Education. If the local value is outside the acceptable range, PTD certifies the state value, unless the school district is eligible for a grace period-a two-year period when local value is used even though it is invalid.
The state funds districts based on either the local value or the state value - depending on which was certified. The state values do not directly affect local property taxes, which are based on the local appraised values provided by each appraisal district. If state value is used in the funding formula, however, it normally is higher than the local value and causes the school district to receive less money than expected. For this reason, school districts should monitor the efforts of their appraisal districts to maintain market values and should encourage them to perform accurate appraisals.
Chapters 41 and 42 of the Texas Education Code describe how the findings of the Study are used in the school funding formula to determine state aid. For questions about state aid or the funding formula, contact the Texas Education Agency at 512/463-9238.
The secondary purpose of the Study is to provide taxpayers, school districts, appraisal districts and the Legislature with measures of appraisal district performance and to provide accountability for appraisal districts that fail to meet certain performance standards. PTD staff achieves this by publishing measures of appraisal level and uniformity, conducting performance audits and appraisal standards reviews.
Appraisal Level and Uniformity
Section 5.10 of the Property Tax Code requires the Comptroller to measure appraisal district performance annually and to publish the results. PTD measures the level and uniformity of property tax appraisals in each appraisal district using data collected in the annual school district study. The level of appraisal shows whether the district has appraised typical properties at 100 percent of the legally required level-normally the market value. The uniformity of appraisal indicates how much the percentage of market value varies from property to property.
The school district study required by Section 403.302 of the Government Code and the appraisal district study required by Section 5.10 of the Property Tax Code are jointly referred to as the Comptroller's Property Value Study.
Appraisal Standards Reviews
In addition to the performance audits, Section 5.102, Government Code requires the Comptroller to perform an appraisal standards review of the appraisal district(s) serving a school district that receives a grace period. This review produces a report with recommendations for improving their appraisal procedures so that future studies will validate their property values. And, as with the performance audits, the affected school districts will receive a copy of the Comptroller's findings so that they can work directly with their appraisal district to remedy any problems. The school district, through its appraisal district, can prevent any adverse funding consequences by achieving valid values in the year after the two-year grace period. It can also meet an important requirement for re-establishing eligibility for a future grace period by achieving valid values for two years in a row. If the appraisal district fails to take remedial action within a year of the report's issuance, the Comptroller is required to notify the judge of each district court in the county. The district judge would be required to appoint a five-member board of conservators to take control of the appraisal district. The board of conservators would supervise the appraisal district until all its component school districts' values are found valid in the Study.
Other Legal Requirements
The Government Code, Section 403.302, requires the Texas Comptroller to conduct the school district taxable value portion of the property value study.
Taxable value is the estimated property wealth of each school district. By law, it equals the market value of all property in a district, minus certain exemptions and deductions. The Comptroller's estimated taxable value reflects deductions for state-mandated homestead, disabled veterans' exemptions and value limitations. Deductions are also made for reinvestment zones, freeport exemptions, productivity appraisal of qualified agricultural lands, and the school tax ceiling for homeowners over age 65 or disabled, and other state-mandated exemptions.
In estimating school district taxable values, the Government Code requires the Comptroller to:
- use generally accepted sampling, valuation and statistical techniques;
- ensure that different levels of appraisal on sold and unsold property do not adversely affect the accuracy of the Study; and
- test the validity of taxable values and presume that appraisal roll values are correct when values are valid.
Margin of Error
The Comptroller tests the validity of the taxable values assigned to each category of property by the appraisal district as required by the Code by constructing a statistical margin of error around the Comptroller's estimate of value for selected property categories in each school district. Values are presumed valid when they are within the error margin. The margin of error is plus or minus 5 percent of the state value at a minimum, but may be higher.
Local Value Above Market Value
Even though a school district's local value is invalid, the law requires the Comptroller to certify the local value if the local value is higher than the state value. This requirement prevents a school district from receiving extra state funding based on a lower state value while receiving local funds from taxes on property that is appraised above market value.
The Government Code also requires the Comptroller to use the local appraisal roll values to estimate the total taxable value in an eligible school district for up to two years even when the local appraisal roll values are invalid. This is known as a grace period. A school district is eligible for the grace period if it meets three conditions:
- the district's values are invalid in the most recent property value study;
- the district's values were valid in the two studies preceding the most recent study; and
- the district's local value is above 90 percent of the lower threshold of the margin of error.
The Study is an annual project by PTD staff with the assistance of appraisal districts and taxpayers. The Study begins in February each year and concludes in July of the following year. A new Study begins while the previous year's Study is being modified by protests, so there is considerable overlap.
Under the Government Code, the agency must certify the preliminary findings of taxable value for each district before February 1 of the year following the year under study. The agency delivers the findings to school and appraisal districts and also certifies them to the Commissioner of Education. Districts that wish to protest preliminary value findings must do so within 40 days after the date of preliminary certification.
The Comptroller publishes the results of the appraisal district study simultaneously with the school district study and distributes copies to all appraisal districts and members of the Legislature. Although the Property Tax Code does not give appraisal districts the right to protest Study findings, the Comptroller allows appeals of level and uniformity measures in an effort to enhance fairness and accuracy.
After Study protests are complete, the Comptroller certifies final values to the Commissioner of Education on or about July 1. The Commissioner uses the final values to adjust school district funding the following September.
The Government Code and the Property Tax Code require the Comptroller to develop ratios and value estimates for property categories and to combine information on the various property categories into overall estimates.The property categories generally used are:
A. real property: single-family, residential;
B. real property: multifamily, residential;
C. real property: vacant lots and tracts;
D/E. real property: acreage at market value, and farm and ranch improvements;
D1. real property: acreage at productivity value;
F1. real property: commercial;
G. real property: oil, gas and other minerals;
J. real and tangible personal property: utilities; and
L1. personal property: commercial.
SCOPE AND OBJECTIVES
An appraisal standards review (ASR) examines and evaluates a county appraisal district's (CAD) appraisal practices including appraisal planning, appraisal procedures and methodology, and application and adherence to appraisal standards. The review assesses the comprehensiveness of the district's procedure manual and IT appraisal support systems and staff qualifications to perform appraisals efficiently and effectively. The review determines whether the CAD is in compliance with generally accepted appraisal standards and practices. District practices, standards and procedures are evaluated against Texas property statutes and rules, the Uniform Standards for Professional Appraisal Practices (USPAP) and the International Association of Assessing Officers Standards (IAAO).
The two principal focuses of the review are to determine why a school district served by the CAD was deemed eligible and whether or not the appraisal district is in compliance with generally accepted appraisal standards and practices.
The review evaluates five broad areas of CAD functions for equality and uniformity, including district information processing systems, district staffing, property mapping and discovery, appraisals and appraisal standards.
The review is not a performance audit and does not evaluate district functions that do not support the district appraisal process. Items not reviewed include board minutes, notices, applications, exemptions, collections and appraisal review board procedures.
As the result of the review process, the Comptroller will issue a report of its findings that includes recommendations for change and commendations for exemplary district appraisal practices. The appraisal district will have one year to implement the recommendations.
The review process will use a Comptroller-developed protocol to assess the district's compliance with appraisal standards. The process will include a review of the final Property Value Study results, a self-assessment questionnaire, a review of documents submitted by the district in response to a preliminary data request, interviews of the CAD's chief appraiser, appraisal staff and appraisal firms, an assessment of the district's mapping system, procedures and practices, and, as necessary, a review of a select sample of appraisals.
Limitations of Scope
The appraisal standards review was limited to appraisal district's operations directly related to appraisal functions.
The objectives of this audit were to:
- determine the extent to which the appraisal district complies with applicable laws or generally accepted standards for appraisal or other relevant practices;
- determine the cause for any significant deviations from ideal uniformity and equality;
- report on the general efficiency, quality of service and qualification of appraisal district personnel; and
- provide recommendations and assistance to help the appraisal district provide a more equitable and effective appraisal system.
2003 PVS STATISTICAL ASSESSMENT
From a statistical standpoint, the 2003 PVS found that the following were contributing factors to an overall finding of an invalid value in Mason ISD:
- Category A, Residential Properties, with a weighted mean ratio of 0.8542, and
- Category D, Rural Real Land, with a weighted mean ratio of 0.8131.
Districts with a ratio of 0.95 to 1.05 are typically in compliance.
METHODOLOGY OF REVIEW
This chapter of the report includes the basics of the methodology used for the review.
The following methodology was used to accomplish the objectives of this review:
- Reviewed and analyzed existing documents. Reviewed written policies and procedures of the district to develop an understanding of the appraisal district's operations. This included reviewing the following:a) appraisal schedules and guidelines;
b) reappraisal plan;
c) annual financial audit;
d) appraisal district budget; and
e) policies and procedures manuals
- Conducted interviews. Interviewed the chief appraiser and senior appraiser.
- Reviewed the records system. Reviewed samples of appraisal cards, the appraisal roll, exemption and agricultural-use valuation applications to determine the extent to which the appraisal district complies with the Tax Code and Comptroller's rules.
- Developed recommendations. Compiled and analyzed the results of interviews, tests, inspections, and document reviews and determined alternative operating procedures.
- Prepared a report of findings, recommendations and commendations. A draft of the report was prepared by the review staff, circulated for agency comment and the updated draft of the report was delivered to the appraisal district for review and comment.
- Report finalized and published. The district's comments on the report were reviewed and addressed as appropriate, the report was set in its final format, published in typed and electronic form and distributed as directed by law(s) and agency guidelines.
The Tax Code and Comptroller rules were the major criteria used to measure the appraisal district's performance. The evaluation of the appraisal district's appraisal methods was based on a comparison of local methods and procedures to those generally accepted by the mass appraisal industry in Texas. The Tax Code dictates certain appraisal procedures or standards such as the Uniform Standards of Professional Appraisal Practice (USPAP), specifically Standard 6: Mass Appraisal and Standard 7: Personal Property. Also the International Association of Assessing Officers (IAAO) Standards on Assessment were used as guidelines on the operation of an assessment office. All related standards as required by Section 23.01 of the Tax Code were used.