Appendix 1-6 Appendix 7-15
Texas Tax Code, § 5.102 - Review of Appraisal Standards
(a) The Comptroller shall review the appraisal standards, procedures, and methodology used by each appraisal district that appraises property for an eligible school district as defined by Section 403.3011, Government Code, to determine compliance with generally accepted appraisal standards and practices. The Comptroller by rule may establish procedures and standards for conducting the review.
(b) In conducting the review, the Comptroller is entitled to access to all records and reports of the appraisal district and to the assistance of the appraisal district's officers and employees.
(c) If the review results in a finding that an appraisal district is not in compliance with generally accepted appraisal standards and practices, the Comptroller shall deliver a report that details the Comptroller's findings and recommendations for improvement to:
(1) the appraisal district's chief appraiser and board of directors; and
(2) the superintendent and board of trustees of each school district participating in the appraisal district.
(d) If the appraisal district fails to comply with the recommendations in the report and the Comptroller finds that the board of directors of the appraisal district failed to take remedial action before the first anniversary of the date the report was issued, the Comptroller shall notify the judge of each district court in the county for which the appraisal district is established, who shall appoint a board of conservators consisting of five members to implement the recommendations. The board of conservators shall exercise supervision and control over the operations of the appraisal district until the Comptroller determines under Section 403.302, Government Code, that in the same year the taxable value of each school district for which the appraisal district appraises property is the local value for the school district. The appraisal district shall bear the costs related to the supervision and control of the district by the board of conservators.
Added by Acts 1991, 72nd Leg., ch. 843, § 9, eff. Sept. 1, 1991.Amended by Acts 1995, 74th Leg., ch. 260, § 46, eff. May 30, 1995; Acts 1997, 75th Leg., ch. 1040, § 65, eff. Sept. 1, 1997; Acts 2003, 78th Leg., ch. 1183, § 5, eff. June 20, 2003.
Texas Government Code, § 403.302 - Determination of School District Property Value
(a) The Comptroller shall conduct an annual study using comparable sales and generally accepted auditing and sampling techniques to determine the total taxable value of all property in each school district. 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. The Comptroller shall make appropriate adjustments in the study to account for actions taken under Chapter 41, Education Code.
(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; and
(3) ensuring that different levels of appraisal on sold and unsold property do not adversely affect the accuracy of the study.
(c) If after conducting the annual study the Comptroller determines that the local value for a school district is valid, the local value is presumed to represent taxable value for the school district. In the absence of that presumption, taxable value for a school district is the state value for the school district determined by the Comptroller under Subsections (a) and (b) unless the local value exceeds the state value, in which case the taxable value for the school district is the district's local value. In determining whether the local value for a school district is valid, the Comptroller shall use a margin of error that does not exceed five percent unless the Comptroller determines that the size of the sample of properties necessary to make the determination makes the use of such a margin of error not feasible, in which case the Comptroller may use a larger margin of error.
(c-1) Notwithstanding Subsection (c), if after conducting the annual study for the year 2002 the Comptroller determines that the local value for a school district is invalid and the local value exceeds the state value for the school district determined by the Comptroller under Subsections (a) and (b), the taxable value for the school district for that year is the district's state value as established by the Comptroller. This subsection expires September 30, 2004
(d) For the purposes of this section, "taxable value" means the market value of all taxable property less:
(1) the total dollar amount of any residence homestead exemptions lawfully granted under Section 11.13(b) or (c), Tax Code, in the year that is the subject of the study for each school district;
(2) one-half of the total dollar amount of any residence homestead exemptions granted under Section 11.13(n), Tax Code, in the year that is the subject of the study for each school district;
(3) the total dollar amount of any exemptions granted before May 31, 1993, within a reinvestment zone under agreements authorized by Chapter 312, Tax Code;
(4) subject to Subsection (e), the total dollar amount of any captured appraised value of property that:
(A) is within a reinvestment zone created on or before May 31, 1999, or is proposed to be included within the boundaries of a reinvestment zone as the boundaries of the zone and the proposed portion of tax increment paid into the tax increment fund by a school district are described in a written notification provided by the municipality or the board of directors of the zone to the governing bodies of the other taxing units in the manner provided by Section 311.003(e), Tax Code, before May 31, 1999, and within the boundaries of the zone as those boundaries existed on September 1, 1999, including subsequent improvements to the property regardless of when made;
(B) generates taxes paid into a tax increment fund created under Chapter 311, Tax Code, under a reinvestment zone financing plan approved under Section 311.011(d), Tax Code, on or before September 1, 1999; and
(C) is eligible for tax increment financing under Chapter 311, Tax Code;
(5) the total dollar amount of any exemptions granted under Section 11.251, Tax Code;
(6) 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;
(7) the portion of the appraised value of residence homesteads of individuals who receive a tax limitation under Section 11.26, Tax Code, on which school district taxes are not imposed in the year that is the subject of the study, calculated as if the residence homesteads were appraised at the full value required by law;
(8) subject to Subsection (e), the total dollar amount of any captured appraised value of property that:
(A) action required by statute or the constitution of this state that, if the tax rate adopted by the district is applied to it, produces an amount equal to the difference between the tax that the district would have imposed on the property if the property were fully taxable at market value and the tax that the district is actually authorized to impose on the property, if this subsection does not otherwise require that portion to be deducted, or
(B) action taken by the district under Subchapter B or C, Chapter 313, Tax Code;
(9) the market value of all tangible personal property, other than manufactured homes, owned by a family or individual and not held or used for the production of income;
(10) the appraised value of property the collection of delinquent taxes on which is deferred under Section 33.06, Tax Code;
(11) the portion of the appraised value of property the collection of delinquent taxes on which is deferred under Section 33.065, Tax Code; and
(12) the amount by which the market value of a residence homestead to which Section 23.23, Tax Code, applies exceeds the appraised value of that property as calculated under that section.
(e) The total dollar amount deducted in each year as required by Subsection (d) (4) in a reinvestment zone created after January 1, 1999, may not exceed the captured appraised value estimated for that year as required by Section 311.011(c) (8), Tax Code, in the reinvestment zone financing plan approved under Section 311.011(d), Tax Code, before September 1, 1999. The number of years for which the total dollar amount may be deducted under Subsection (d) (4) shall for any zone, including those created on or before January 1, 1999, be limited to the duration of the zone as specified as required by Section 311.011(c) (9), Tax Code, in the reinvestment zone financing plan approved under Section 311.011(d), Tax Code, before September 1, 1999. The total dollar amount deducted under Subsection (d)(4) for any zone, including those created on or before January 1, 1999, may not be increased by any reinvestment zone financing plan amendments that occur after August 31, 1999. The total dollar amount deducted under Subsection (d)(4) for any zone, including those created on or before January 1, 1999, may not be increased by a change made after August 31, 1999, in the portion of the tax increment retained by the school district.
(f) The study shall determine the values as of January 1 of each year.
(g) The Comptroller shall publish preliminary findings, listing values by district, before February 1 of the year following the year of the study. Preliminary findings shall be delivered to each school district and shall be certified to the commissioner of education.
(h) On request of the commissioner of education or a school district, the Comptroller may audit the total taxable value of property in a school district and may revise the annual study findings. The request for audit is limited to corrections and changes in a school district's appraisal roll that occurred after preliminary certification of the annual study findings by the Comptroller. Except as otherwise provided by this subsection, the request for audit must be filed with the Comptroller not later than the third anniversary of the date of the final certification of the annual study findings. The request for audit may be filed not later than the first anniversary of the date the chief appraiser certifies a change to the appraisal roll if the chief appraiser corrects the appraisal roll under Section 25.25 or 42.41, Tax Code, and the change results in a material reduction in the total taxable value of property in the school district. The Comptroller shall certify the findings of the audit to the commissioner of education.
(i) If the Comptroller determines in the annual study that the market value of property in a school district as determined by the appraisal district that appraises property for the school district, less the total of the amounts and values listed in Subsection (d) as determined by that appraisal district, is valid, the Comptroller, in determining the taxable value of property in the school district under Subsection (d), shall for purposes of Subsection (d)(12) subtract from the market value as determined by the appraisal district of residence homesteads to which Section 23.23, Tax Code, applies the amount by which that amount exceeds the appraised value of those properties as calculated by the appraisal district under Section 23.23, Tax Code. If the Comptroller determines in the annual study that the market value of property in a school district as determined by the appraisal district that appraises property for the school district, less the total of the amounts and values listed in Subsection (d) as determined by that appraisal district, is not valid, the Comptroller, in determining the taxable value of property in the school district under Subsection (d), shall for purposes of Subsection (d)(12) subtract from the market value as estimated by the Comptroller of residence homesteads to which Section 23.23, Tax Code, applies the amount by which that amount exceeds the appraised value of those properties as calculated by the appraisal district under Section 23.23, Tax Code.
(j) For purposes of Section 42.2511, Education Code, the Comptroller shall certify to the commissioner of education:
(1) a final value for each school district computed on a residence homestead exemption under Section 1-b(c), Article VIII, Texas Constitution, of $5,000; and
(2) a final value for each school district computed on:
(A) a residence homestead exemption under Section 1-b(c), Article VIII, Texas Constitution, of $15,000; and
(B) the effect of the additional limitation on tax increases under Section 1-b (d), Article VIII, Texas Constitution.
(k) For purposes of Section 42.2522, Education Code, the Comptroller shall certify to the commissioner of education:
(1) a final value for each school district computed without any deduction for residence homestead exemptions granted under Section 11.13(n), Tax Code; and
(2) a final value for each school district computed after deducting one-half the total dollar amount of residence homestead exemptions granted under Section 11.13(n), Tax Code.
(l) If after conducting the annual study for the year 2003 or a subsequent year the Comptroller determines that a school district is an eligible school district, for that year and the following year the taxable value for the school district is the district's local value. Not later than the first anniversary of the date of the determination that a school district is an eligible school district, the Comptroller shall complete an appraisal standards review as provided by Section 5.102, Tax Code, of each appraisal district that appraises property for the school district.
(m) Repealed by Acts 2003, 78th Leg., 3rd C.S., ch. 10, § 3.02.
Added by Acts 1995, 74th Leg., ch. 260, § 26, eff. May 30, 1995. Amended by Acts 1997, 75th Leg., ch. 592, § 1.07, eff. Sept. 1, 1997; Acts 1997, 75th Leg., ch. 1039, § 44, eff. Jan. 1, 1998; Acts 1997, 75th Leg., ch. 1040, § 63, eff. Sept. 1, 1997; Acts 1997, 75th Leg., ch. 1071, § 27, eff. Sept. 1, 1997; Acts 1999, 76th Leg., ch. 62, § 8.04, eff. Sept. 1, 1999; Acts 1999, 76th Leg., ch. 396, § 3.01(b), eff. Aug. 31, 1999; Acts 1999, 76th Leg., ch. 396, § 1.36, eff. Sept. 1, 1999; Acts 1999, 76th Leg., ch. 983, § 9, 10, eff. June 18, 1999; Acts 1999, 76th Leg., ch. 1467, § 1.19, eff. June 19, 1999; Acts 1999, 76th Leg., ch; 1525, § 1, eff. Sept. 1, 1999; Acts 2001, 77th Leg., ch. 1420, §9.005, eff. Sept. 1, 2001; Acts 2001, 77th Leg., ch. 1505, § 7, eff. Jan. 1, 2002; Acts 2003, 78th Leg., ch. 411, § 7, eff. Jan. 1, 2004; Acts 2003, 78th Leg., ch. 1183, § 3, eff. June 20, 2003; Acts 2003, 78th Leg., ch. 1276, § 9.004, eff. Sept. 1, 2003; Acts 2003, 78th Leg., 3rd C.S., ch. 10, § 3.01, 3.02, eff. Oct. 20, 2003.
Property Value Study
This section presents an overview of the Property Value Study (PVS) and explains its procedures in detail.
The Texas Comptroller's office conducts the PVS annually to estimate the total taxable property value in each school district and to measure county appraisal district performance. It is often called 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 PVS
The primary purpose of the PVS 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 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 PVS.
The commissioner of education uses the PVS to ensure equitable distribution of educational funds, so that school districts have roughly the same number of dollars to spend per student, regardless of their 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
A sole reliance 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, districts A and B, are identical in every respect except that the appraisal district for school district B does a better job appraising property than that 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.
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's office to provide an independent estimate of taxable property value in each school district to ensure fair school funding.
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 during which the 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 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.
Texas Education Code, Chapters 41 and 42 describe how the findings of the PVS 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 PVS 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
Texas Tax Code, §5.10, 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 Texas Government Code, § 403.302, of and the appraisal district study required by Texas Property Tax Code, § 5.10, are jointly referred to as the Comptroller's Property Value Study.
Appraisal Standards Reviews
In addition to the performance audits, Texas Property Tax Code, § 5.102, 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 PVS reports will validate their property values. The affected school districts will receive a copy of the Comptroller's findings so that they can work directly with their appraisal district(s) 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 then must appoint a five-member board of conservators to take control of the appraisal district. The board of conservators supervises the appraisal district until all its component school districts' values are found valid in the study.
Other Legal Requirements
Texas Government Code, § 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 also are made for reinvestment zones, freeport exemptions, productivity appraisal of qualified agricultural lands, and 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 Government 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.
Local Value More Than 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 more 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. A school district is eligible for this 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 PVS is an annual project by PTD staff with the assistance of appraisal districts and taxpayers. It 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 PVS protests are complete, the Comptroller certifies final values to the commissioner of education on or about July 1. The commissioner of education uses the final values to adjust school district funding the following September.
The Government Code and 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.
Appraisal District Review Protocol
Determine County Appraisal District's Compliance with Appraisal Standards and State Laws
Governance and Management
The quality of the property tax system depends on the county appraisal district('s) board of directors. Individuals serving on the board of directors bring to the board knowledge, judgment and expertise in establishing policies and procedures for the district's organization and operation.
- Copy of Comptroller's Property Value Study (PVS) findings for each district in the appraisal district
- Results of Comptroller's Board of Directors Survey
- Copy of strategic planning documents prepared over the last five years
- Copies of the board-approved budget for prior three years, the notices of public hearing posted to adopt the budget, and the budget calendar showing hearing dates, resolutions from the taxing units approving the budget (statute; IAAO)
- Copies of collection budgets, if the district collects for any taxing units
- Copies of two most recent financial audits and related documents (statute)
- Copies of board minutes for the prior three years
- List of current board members, who they represent, and date board members began serving on the board (statute)
- Copies of board of directors policies (statute)
- A list of all chief or interim chief appraisers employed by the district over the last 10 years and the reason for their leaving, such as retirement, termination or resignation
- Copies of chief appraiser's resume (or some document showing all current certifications), job description, expectations and formal annual evaluation document for last three years, as applicable
- Names of law firms, copies of contracts and budgets for external and internal legal services, as applicable
- The dollar amount actually expended for legal services (broken down by and ARB costs) in the last three years, shown by retainer and hourly billings by the lawyer
People to Interview
Budget or Finance manager
Financial auditor, as necessary
Activities to be Performed
A. After carefully analyzing the Property Value Study (PVS) findings for all school districts in the appraisal district, reading the Comptroller's summary assessment of those findings and interviewing the chief appraiser and selected board members, prepare a list of the possible causes identified by the district for the invalid finding in one or more school districts within this appraisal district. For each cause identified, whether the cause is internal to the district or based on some external factor, show what actions the district has taken or is planning to take to remedy the situation.
B. Develop an exhibit with the names of board of directors, what governmental entity each member represents and the date the member started serving on the board. Identify whether any board members are elected officials.
C. Prepare and index of all key board of directors' policies, noting any outdated or legislatively required, but missing, policies. Discuss efforts used to ensure compliance; note any deviations from state law, regulations or rules; and make recommendations for improvement.
D. Chart the budget preparation and strategic planning processes for the district and determine how planning and budgeting are linked to ensure that sufficient resources are available to achieve district goals and that available resources are being used wisely. (IAAO Chapter 2)
E. Prepare a table showing the budget for the last three years, and examine the district's budget documents for compliance with Texas Tax Code requirements as set forth in Section 6.06 and where deviations are noted, discuss the deviations and suggest possible remedies.
F. Prepare a table comparing the budget and actual expenditures for the last three years, showing the percentage change from prior years for each category of the budget and showing the budget-to-actual expenditure deviations. Note areas where there have been significant changes in the budget and in the budget-to-actual numbers, up or down. Through interviews, determine the reason for those changes and how strategic planning may have been used to determine critical needs in the budget. (IAAO Chapter 2).
G. Examine the most recent district financial audits and determine how the district has addressed the findings in the management letter or any noted material weaknesses. If material weaknesses or findings are identified, note how the district has rectified the problems or make specific recommendations for immediate remediation.
H. Prepare a list of all chief or interim chief appraisers employed by the district over the last 10 years, showing the reasons for any turnover such as retirement, resignation, termination and the like. Examine the chief appraiser's resume (certifications), job description, expectations and evaluations for the last three years. Through interviews, determine the method used to communicate expectations and progress toward meeting those expectations. Discuss in detail the extent to which performance goals are measurable, the subjectivity or objectivity of the evaluation process, and the methods used to monitor and communicate progress annually and throughout the year.
I. Prepare a list of law firms showing whether a written contract is in place, the key terms and conditions of each contract, and total budget to total actual expenditures for legal services for the last three years. Through interviews, determine how the district defends values and legal issues and how it offers legal advice.
Generally Accepted Appraisal Practices
There are three general appraisal methods or approaches-cost, income and market-that a chief appraiser must consider in determining the market value of property. The chief appraiser must use the method most appropriate in appraising a particular property. These three approaches are outlined below.
Additional information about the approaches to determining or appraising value may be found in appraisal textbooks. Appraisers usually determine the value of producing mineral deposits-such as oil, gas and coal-and the value of many utility and commercial properties by using the income approach to value. Most appraisal districts contract with consultants to appraise mineral and utility properties. The chief appraiser can provide information concerning the method used to appraise mineral and utility properties.
When using the cost method of appraisal, the appraiser should:
1. use cost data obtained from generally accepted sources;
2. adjust appropriately for physical, functional or economic obsolescence;
3. make available to the public, on request and for a reasonable charge, cost data developed and used by the chief appraiser on properties within a property category;
4. state clearly the reason for any variation between generally accepted cost data and locally produced cost data, if the data vary by more than 10 percent; and
5. make available to a property owner, on request, all applicable market data that demonstrates the difference between the replacement cost and the depreciated value of an improvement.
When using the income method of appraisal, the appraiser should:
1. analyze comparable rental data available to the chief appraiser or the potential earnings capacity of the property, or both, to estimate the gross income potential of the property;
2. analyze comparable operating expense data available to the chief appraiser to estimate the operating expenses of the property;
3. analyze comparable data available to the chief appraiser to estimate rates of capitalization or rates of discount; and
4. base projections of future rent or income potential and expenses on reasonably clear and appropriate evidence.
When using the market data comparison method of appraisal, the appraiser should use comparable sales data and adjust the comparable sales data to the subject property.
The Tax Code also requires appraisers to use special methods for land qualifying for agricultural or timber appraisal. (Tax Code, Chapter 23, Subchapters C, D, E and H)
- Access to maps or geographic information system documentation
- Map and list of all market areas identified by the appraisal district
- Copy of the district re-appraisal plan used last year and the one for this year (statute)
- Policies and procedures documenting the district's appraisal techniques (IAAO)
- Copies of all appraisal district manuals for each relevant category of property (IAAO; statute)
- Documentation on the agricultural use appraisal system and procedures for granting and verifying qualified lands (IAAO; statute)
- Documentation on the timber appraisal system and procedures for granting and verifying qualified lands (IAAO; statute)
- Documentation on the personal property appraisal system and procedures for discovery and verification of personal property
- Copies of internal ratio studies for all categories of properties for the past three years (IAAO)
- Appraisal records (sample examined while on-site)
People to Interview
Chief appraiser and district staff
Activities to be Performed
A. Obtain a copy of the reappraisal plan; make a list of the activities required by Section 25.18(b), Tax Code and to the right of each activity state whether it is provided for in the plan, and whether it is actually being performed. Pull appraisal cards, review procedures manuals and interview staff to confirm the activities.
B. Compare the district's maps or geographic information system (GIS) to the International Association Assessing Officers (IAAO) Standard on Digital astral Maps and Parcel Identifiers and note compliance or deviation from the standard. Review and describe the district's appraisal software system and the district's mapping or GIS and describe how each operates. Determine when these systems were installed and/or upgraded, whether they are standalone or integrated with other systems, whether the departments are experiencing any major problems with the system and if any are scheduled for replacement or upgrade in the near future. Detail whether or not the appraisal system and the mapping system/geographic information system are integrated, and if they are not integrated, detail how the system could be integrated.
C. Make a list of all of the market areas identified by the district. Review the maps or GIS system in conjunction with the appraisal district's market areas and note whether market areas have been identified and whether they appear reasonable (rural appraisal districts may not need market areas, while more urban appraisal districts should have several).
D. Interview staff members about their property discovery procedures and obtain copies of the district's discovery procedures. Prepare a list of all real property discovery methods such as building permits, physical inspections, telephone directories, sales tax records, etc. Determine whether the district is in compliance with Section 23.12, Tax Code, as well as IAAO standards on personal property. Note any deviations from the standard and recommend additional procedures that should be in place.
E. Prepare a list of all appraisal procedure manuals that the appraisal district provides to staff; state the date when each was revised next to each manual, as well as the usefulness and applicability of the manuals to the appraisal district's operations (adapted to fit the community needs, rather than being a purchased general appraisal guide); and note whether the manual complies with generally accepted appraisal standards such as the Uniform Standards of Professional Appraisal Procedures, the IAAO Standard on Mass Appraisal of Real Property and the IAAO text Property Appraisal and Assessment Administration. If not in compliance, state specifically how it is out of compliance. Also, list any additional manuals that should be provided by the district. Make recommendations for improvement where needed.
F. Obtain a copy of internal ratio studies for the past three years. Make a chart showing property categories and show the result of each ratio study next to each property category for which sales exist. Review the internal ratio study results, procedures manuals and appraisal records, and interview staff to determine whether the district is reappraising according to a plan that prioritizes its reappraisal efforts based on the needs reflected in the internal ratio studies. Determine whether the market areas with the lowest appraisal level are being reappraised as soon as possible after a low ratio is shown in the ratio study, and whether all properties are being reappraised within the three-year period required by law. Compare the budget, reappraisal plan and internal ratio studies to determine whether ratio study results are used as significant tools in the budgeting and reappraisal processes. Prepare a timeline, including significant dates, in the ratio study and the budgeting and reappraisal processes. Based on your interviews, comparisons, timeline and other research, describe how these processes are linked and how priorities are set, and recommend further linkages or different priorities, if necessary.
G. Interview staff members regarding their procedures for obtaining sales information, review their sales procedures manuals and inspect the appraisal district's sales files. List the methods used by the appraisal district to acquire sales (e.g. multiple listing services, sales questionnaires, agreements with local real estate appraisers, etc). List any methods that might be available to the appraisal district that are not being used. List sources of construction cost data and income data and list other sources not being used.
H. Examine and prepare a flowchart of the district's sales screening procedures (procedures to confirm that a sale occurred, to verify the accuracy of sales prices, sales dates and other sales information, and to exclude non-market sales). Note any additional procedures that should be used.
I. Examine and list the district's sales adjustment procedures (procedures to adjust sales prices for date of sale, financing, personal property and the like). Note any additional procedures that should be used.
J. Describe the district's use of sales, cost and income data in the three approaches to value and write your recommendations for improvement, if any.
K. List all property categories appraised by the district (including special appraisal categories) and list the appraisal method(s) used by the district next to each category. If other methods would be more appropriate, so indicate. Next to each category, list whether the district's methods follow the requirements of Chapter 23, Tax Code for property appraised at market value, and for qualified agricultural land or other special use property. If any of the district's appraisal methods deviate from the requirements of Chapter 23, Tax Code, describe the deviation.
Resources and Management
In organizing and administering a county appraisal district, the chief appraiser is responsible for hiring, firing and training personnel; for ensuring compliance with a wide range of legal requirements; and for maintaining policies and procedures for the effective operation of the appraisal district.
Conduct a comprehensive examination and evaluation of the district's staffing, personnel qualifications, and the system of positions, as well as assess the human resources in the district available to perform district functions in each county appraisal district reviewed.
- Copy of Comptroller's Exhibit 3
- Copy of operational and personnel policies and procedures (IAAO; statute)
- Copy of district organization chart (IAAO)
- A diagram of all facilities and information pertaining to total square footage of the facilities, as well as the age and condition of each facility
- List of all appraisal district staff, job titles, salaries, length of service in the district and certifications held (IAAO)
- Copies of employee handbook and appraisal district personnel policies and procedures manual
- Copies of all conflict of interest statements signed by staff (Chapter 171, Local Government Code) (statute)
- Any other personnel files not confidential as a matter of law
- Copies of appraisal contracts or other contracts related to appraisal standards and compliance and all contracts relating to district operations and district information technology systems (IAAO)
People to Interview
Chief appraiser and district staff
Board members who express an interest in being interviewed
Activities to be Performed
A. Prepare a list of the district's operational policies and procedures; note the last revision date, any missing or incomplete procedures, and missing procedures for day-to-day operations such as purchasing, bank reconciliations, payroll or the like; and discuss how the district ensures legal or regulatory compliance and a system of adequate internal control. Make recommendations for remediation, where applicable.
B. Using the list prepared above, and a copy of the most recent organizational charts, interview supervisory staff and show what staff or contractors are responsible for fulfilling each of the operational functions, who serves as their backup for each function and the level of cross-training among staff that would ensure all operational functions can be carried out in the absence of key employees. Where staffing is inadequate, or where internal control weaknesses exist, make recommendations for improvement.
C. Using information pertaining to the square footage and physical arrangement of the district office, show the square footage of office space allocated per full-time equivalent (FTE) and discuss the adequacy of the facilities and any impediments to work or taxpayer access that result from the design or size of the facility.
D. Develop an exhibit that lists staff names (names will be omitted in final report), positions (titles), certifications, length of service in the district and salary information. Indicate how each person's qualifications comply with appraisal standards and state laws. Note any areas of deviation from the law or guidelines, and recommend improvements. Compare the current staffing information to that reported to the Comptroller on the most recent Operations Report and discuss variances.
E. Examine a copy of the employee handbook and other personnel-related policies, and prepare a list of the key topical areas covered. Specifically compare the district's policies on staff conflicts of interest to signed employee conflict statements, noting any identified weaknesses in the district's policies or improperly documented employee conflict statements.
F. Prepare an organization chart showing both employee and contract positions, and to the extent possible, explain the reporting relationships between contractors and staff, and between supervisors and staff. Note areas where the span of control is too great or too small, and where internal organizational weaknesses may impede the organization's efficiency. Make recommendations for improvement where needed.
G. Examine the supervisor to staff ratios, the staff to parcel ratios and the appraiser to locally appraised parcel count in the district as compared to statewide averages and to peer districts, and note significant variances. Through interviews, determine the reason for variances and make recommendations accordingly.
H. Examine all contracts entered into by the district for the last year to determine compliance with the Tax Code; Local Government Code, Chapter 271, Subchapter C; and IAAO, Chapter 2.10 provisions. Prepare a list of all contracts, the name of the contractor, the dollar amount of the contract, expiration date of the contract, the type of bid procurement process used to enter into the contract and the position name of the person in the district assigned to monitor contract compliance, pay invoices and act as liaison with the contractor. Where compliance deviations are noted, discuss the deviations and make recommendations to bring the district into compliance with state laws and regulations; review the district's contract monitoring and invoice payment procedures and review all contracts for IAAO compliance and contracting practices.
I. Examine each employee's job descriptions, expectations and evaluations for the last three years and determine, through interviews, the method used to communicate expectations and progress toward meeting those expectations. Discuss, in detail, the extent to which performance goals are measurable, the subjectivity or objectivity of the evaluation process, and the methods used to monitor and communicate progress annually and throughout the year.
Information Processing and Data Collection
Computers have become a necessity for all appraisal districts. The use of computers allows the district to amass large amounts of data, perform complex tasks that otherwise would take hundreds of staff hours to perform manually, and more accurately analyze trend data to ensure accurate valuation of similar properties. Technology infrastructure is the underlying system of cabling, phone lines, hubs, switches, routers and other devices that connect the various parts of an organization through a wide area network (WAN) and through a series of local area networks (LANs). Maintaining a strong infrastructure and integrating the various systems used by the district is critical to increased staff productivity, fewer costly data errors and better customer service to the users, community members and the taxing units dependent on the appraisal district for critical information. Technology is a critical part of managing large amounts of data effectively and appraisal districts use appraisal systems and mapping or geographic information systems to improve appraisal accuracy and uniformity.
- Documentation for the district's information processing system, including contracts and specifications on the appraisal software system and the mapping/geographic information system (IAAO), and a list of all hardware and other software
- Documentation on the internal control mechanisms used to ensure uniformity and accuracy of appraisals (IAAO; statute)
- Copies of documentation or procedures for gathering, entering, verifying, confirming, and maintaining data electronically (IAAO)
- Copies of written procedures for the use of electronic data in the appraisal process (IAAO)
- Procedures and systemic capabilities and controls within the electronic data systems that ensure compliance with (statute; rule):
1. uniform tax records system (Rule 9.3003)
2. appraisal cards (Rule 9.3001)
3. tax maps (Rule 9.3002)
4. alphabetical index of property owners (Rule 9.3009)
5. partial exemptions lists (Rule 9.310)
6. absolute exemption lists (Rule 9.3011)
7. special appraisal lists (Rule 9.3012)
8. property identification system (Rule 9.3014)
9. certification of appraisal roll (Rule 9.3059)
- Copy of the district's disaster recovery plan
- Copies of procedures on data security and integrity
People to Interview
Chief appraiser and District staff
Selected members of the board of directors
IT and Mapping staff
Activities to be Performed
A. Compile a list of specialized appraisal software and major administrative programs being used by the district. Review and describe the district's appraisal software system and the district's mapping or geographic information systems and describe how each operates. Determine when these systems were installed and/or upgraded, whether they are standalone or integrated with other systems, whether the districts or departments are experiencing any major problems with the system and if any are scheduled for replacement or upgrade in the near future. Detail whether or not the appraisal system and the mapping system/geographic information system are integrated, and if they are not integrated, detail how the system could be integrated. Examine all documentation and output to determine whether the current information system adequately ensures compliance with applicable Comptroller rules.
B. Examine the disaster recovery plan and any other documents that show how the district has prepared for the event of a disaster. List the major components of the plan and how the plan ensures business continuity following a disaster. In the absence of a formal plan, determine what elements of a plan are in place and what still remains to be done.
C. Examine and diagram the internal control mechanisms, including data security and integrity, within the district's information management system(s) to determine whether sufficient controls exist to ensure uniformity and accuracy of appraisals and the protection of data from unauthorized access. Examine measures for uniformity, such as a ratio study, as outlined in the uniform Standards of Appraisal Practice (USAP), to determine if additional controls are needed. Where control weaknesses are noted, discuss and make recommendations for improvement.
D. Examine and diagram the district's method of obtaining, entering and maintaining all data on the computer system(s) to determine if the methods used are in compliance with USAP. Where system or procedural weaknesses are noted, discuss and make recommendations for improvement.
E. Examine and describe the district's Web site. Compile a list of information the district provides on its Web site. If the district does not have a Web site, outline what the district needs to do to set up a Web site.
All appraisal districts in Texas are required by law to post various notices, send various reports to the taxing units and to the state, and comply with a host of laws, rules and regulations. Appraisal districts have three primary functions: property discovery, property listing and property appraisal. Although much attention is placed on the appraisal process itself, the administrative functions of discovery and listing are equally important to accurate and timely appraisal.
Another important appraisal district responsibility is the administration of exemptions. An exemption is an exclusion of all or part of a property's value from taxation. Texas law grants a number of total and partial exemptions. Between January and May, the chief appraiser decides which taxpayers and which properties will receive exemptions.
The chief appraiser has legal responsibilities for preparing the appraisal roll within a statutory time frame.
- Copies of all state mandated forms and applications currently used by the district for the last two years
- Documentation showing evidence of timely compliance with certification of tax rolls to each taxing unit in the district over the last three years
- Documentation showing compliance with the deadline for delivery of applications for special appraisal and exemptions requiring annual applications
- Documentation showing timely compliance with all state reporting requirements
- Access to a sample of appraisal records
- Procedures relating to renditions and access to a sample of submitted renditions
- Copy of policies and procedures for granting, verifying or denying exemptions
- Copy of the records retention policy filed with the State Library and Archives Commission
- Procedures for document storage, retention and destruction
- Copies of notification of annual application of exemptions/special appraisal for last two years
People to Interview
Chief appraiser and district staff
Designated records management officer
Taxing unit representatives, as appropriate
Activities to Perform
A. Prepare a list of all state-mandated forms and applications, and after examining district forms and applications, note if all of the district's forms are in compliance with the Comptroller's rules found at 34 Texas Administrative Code (TAC), §§ 9.402, 9.415, 9.417, and 9.419. Where forms are found to be out of compliance, make recommendations for achieving full compliance.
B. Examine a sample of the district's appraisal records and for each record examined, note if the records contain all of the information required to be certified to the Comptroller annually, as set forth in Comptroller's rule, 34 TAC, § 9.3059, as well as with Texas Property Tax Code, § 26.01. Through interviews, determine how the records are maintained and when records were most recently updated.
C. Examine district records management policies and procedures and prepare a side-by-side comparison of the requirements set out in the Texas Local Government Records Act (Title 6, Subtitle C, Local Government Code). Contact the State Library in Austin to determine whether all required paperwork has been filed with their offices. Interview the designated records management officer, and discuss the process used by the district to ensure compliance with state laws and policy. Where weaknesses are noted, make recommendations for improvement.
D. Examine the district's documentation for evidence of compliance with certification of the appraisal roll to each taxing unit as required by law, and note the certification dates for each of the taxing units in each of the last three years. Through select interviews with taxing units, confirm that appraisal district records are accurate and complete. If certifications were not done timely or if evidence of timely certification is not available, determine the reason for the delay and determine what actions have been taken to ensure compliance in the future. Where applicable, make recommendations for improvements that will ensure full compliance.
E. Examine the documentation proving notification of annual application of exemptions/special appraisal for the last two years, and in a formal paragraph, discuss whether this was done in full compliance with Sections 11.11-11.47, Tax Code. If deviations have occurred, prepare a discussion of the reasons for noncompliance and any steps taken to remedy the situation. Where appropriate, make recommendations for compliance.
F. Examine policies and procedures relating to exemptions and a sample of properties with exemptions and the corresponding documentation. Prepare a write-up discussing the district's level of compliance with the Tax Code on granting, verifying and denying exemptions, and/or special appraisals, as shown in Sections 11.11-11.47, Tax Code. Where system or procedural weaknesses are noted, discuss and make recommendations for improvement.
Industry Appraisal Standards
Uniform Standard of Professional Appraisal Practice Standards.
The USPAP Standards may be obtained from:
The Appraisal Foundation
1029 Vermont Avenue, NW, Suite 900
Washington, DC 20005-3517
Or they may be viewed on the Internet at: www.appraisalfoundation.org.
International Association of Assessing Officers Standards.
The International Association of Assessing Officers (IAAO) Standards of Assessment Practice can be obtained from the:
International Association of Assessing Officers
130 East Randolph St., Suite 850
Chicago, IL, 60601.
Web site: www.iaao.org.
Scope and Methodology Used to Perform Appraisal Standards Reports
An appraisal standards review (ASR) examines and evaluates a county appraisal district's 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 manuals and IT appraisal support systems and staff qualifications to perform appraisals efficiently and effectively. The review determines whether the appraisal district 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 and the International Association of Assessing Officers Standards.
The two principal focuses of the review are to determine why a school district served by the appraisal district 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 appraisal district functions for equality and uniformity, including governance and management; generally accepted appraisal standards; resources and management; information processing and data collection; and assessment administration.
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 then has one year to implement the recommendations.
The review process employs a Comptroller-developed protocol to assess the district's compliance with appraisal standards. The process includes 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 appraisal district'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.
The objectives of this audit are 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.
Methodology of 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:
- appraisal schedules and guidelines;
- reappraisal plan;
- annual financial audit;
- appraisal district budget; and
- 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 paper 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, specifically Standard 6: Mass Appraisal and Standard 7: Personal Property. The International Association of Assessing Officers Standards on Assessment was 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 as well.