Executive Summary

In July 2007, the Texas Comptroller of Public Accounts identified Loraine Independent School District (Loraine ISD), located in Mitchell 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 March 2008 the Comptroller's Property Tax Assistance Division (PTAD), with assistance from contractors, began its review of the Mitchell County Appraisal District (Mitchell 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 can be raised 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.

Each school district in the state is served by a county appraisal district charged with appraising its property at market value. 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, 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 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. 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 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.

The Legislature has 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 appraisal districts 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 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 appraisal districts to correct problems and ensure that all properties in the district are valued 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, Mitchell CAD faces several challenges in achieving and maintaining consistent, current market valuations.

Commendable Practice

The review team identified a best practice used in Mitchell CAD that other county appraisal districts should consider adopting:

The Mitchell CAD ARB prepares taxpayers for protest hearings by providing them with publicly available documentation of the hearing process and procedures and the ARB's guidelines and suggestions for presenting protests, which enhances the transparency of its process for handling taxpayer protests.

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 five recommendations:

Improve the effectiveness of internal ratio study analysis of sale price data by stratifying property characteristics that determine value, apply those conclusions to the automated valuation model and evaluate the CAD's mass appraisal performance in appraising local value at market value.
Improve methods for obtaining data for calculating productivity values.
Develop procedures for gathering and analyzing valid sale price data and, when indicated, how to time adjust sale price data to the assessment date.
Develop local appraisal manuals that include the process, procedures and directives necessary for performing real and personal property appraisals.

Other Recommendation

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 district's ability to conduct its appraisals accurately and consistently. The CAD is not obligated to implement this recommendation, but it is are provided here for consideration as an additional way to enhance operational effectiveness and efficiency.