Appraisal Standards Review
Comptroller Required to Review Certain Appraisal Districts
The Comptroller’s Property Tax Division (PTD) has set its procedures for conducting required mandatory appraisal standards review.
The 2003 legislative session amended the Tax Code to require the comptroller to conduct a mandatory appraisal standards review of county appraisal districts (CADs) that contain one or more “eligible school districts.”
An “eligible school district” is one in which the comptroller has determined, in the most recent annual Property Value Study (PVS), that the local value is invalid under Government Code Section 403.302(c) and does not exceed the state value. The comptroller sets the criteria for the review and may include all or part of a performance audit required by Tax Code Section 5.12. To be an eligible school district, the school district’s local value may not be higher than the assigned state value.
Grace period for schools
Eligible school districts will receive a “grace period” in the state funding formula. To receive the grace period, a school district must meet three criteria: it must have two consecutive years of local value determinations by the Comptroller’s PTD; the school district must receive a state value determination in the most recent PVS; and the aggregate local value of all the categories of property sampled by the comptroller may not be less than 90 percent of the lower limit of the margin of error of the aggregate value of all categories of property sampled.
To clarify, a school district that receives a grace period is not eligible in the second year of that grace period to be eligible for a new two-year grace period. The school district must have two consecutive years of local value determinations by the Comptroller’s PTD.
See the sample graphic that follows to illustrate this provision.
For an eligible school district, the district’s local value will be assigned for two years. Beginning with the 2003 PVS, an eligible school district will receive local value for 2003 and 2004. For a school district identified as eligible in the 2004 PVS, the district would receive local value in 2004 and 2005.
Even if a school district is in “grace,” the district should strive to receive local value. The district can help achieve this by active participation with its CAD to ensure the CAD understands that uniformly maintaining property values at their legally required level (market value in most cases) is a top priority. The school district should monitor the CAD’s management, staffing and planning to ensure that it has the resources and direction necessary to do the job.
When the School and Appraisal Districts’ Property Value Study - 2003 Preliminary Report was released in January 2004, 139 school districts were initially designated as eligible school districts. PTD notified superintendents of these school districts by letter in January alerting them to the designation and its consequences. Should those districts’ preliminary findings continue as the final certified findings, then those school districts would be under the “grace period” for two years, receive local value for the year and be subject to a mandatory appraisal standards review.
The School and Appraisal Districts’ Property Value Study - 2003 Final Report will establish each appraisal district’s actual eligible school districts in July 2004.
The comptroller will conduct an appraisal standards review of each CAD that had any participating school district designated as eligible.
CAD appraisal standards review
Amended Tax Code Section 5.102 details when a CAD gets a mandatory appraisal standards review. The prior requirement for annual reviews of CADs was replaced with a review of a CAD where a participating school district is eligible for the grace period.
Section 5.102 directs the comptroller to review the appraisal standards, procedures and methodology used by each CAD that appraises property for an eligible school district to determine compliance with generally accepted appraisal standards and practices.
In addition to a review of appraisal standards, procedures and methodology, Section 5.102 also allows the comptroller to conduct an audit of a CAD to analyze the effectiveness and efficiency of its policies, management and operations. This audit can be conducted at the sole discretion of the comptroller and may apply to a CAD in which school districts were not eligible for the grace period.
Further, Section 5.12 requires the comptroller to conduct performance audits of a CAD under certain prescribed conditions. Based on two consecutive annual studies of a CAD, the conditions include any combination of the following: an overall median level of appraisal of less than 0.75; a coefficient of dispersion around the overall median level of appraisal exceeding .30; or the difference between the median levels of appraisal of two classes of property greater than .45.
The comptroller will use the International Association of Assessing Officers (IAAO) standards in performing the appraisal standards review of a CAD. A copy of the protocol to be used in conducting the reviews is available by contacting PTD’s Area Manager James Archer at 1-800-252-9121, extension 5-9808, or by e-mail at email@example.com. The protocol is available on the Web at www.window.state.tx.us/taxinfo/proptax/proptax.html.
In conducting the appraisal standards review, the comptroller is entitled to access all CAD records and reports and seek the assistance of the CAD’s officers and employees. The comptroller may charge the CAD for the cost of the review.
CADs will receive a letter from PTD notifying them of the required reviews. Onsite work will typically last 2-3 days, depending on the review’s scope and CAD size. Before the onsite work begins, PTD staff will require that the chief appraiser provide preliminary data.
Both appraisal standards reviews and discretionary audits will address the:
- extent to which the district complies with applicable law and generally accepted standards of appraisal or other relevant practice;
- cause of significant deviations from uniformity and equality of appraisal standards of major kinds of property;
- duplication of effort and efficiency of operation; and
- general efficiency and qualification of appraisal district personnel.
The PTD may amend the scope of the review at any time during the review if PTD determines it is relevant to the appraisal district’s performance.
The PTD will send the CAD a draft report with findings and recommendations for improvement. The CAD will have two weeks to provide written comment. The comptroller will make corrections to the report if documentation provided by the CAD substantiates the need for change(s).
Once finalized, the PTD will publish the report of its appraisal standards review and send copies to the CAD’s chief appraiser, board of directors and both the superintendent and board of trustees of each school district participating in the CAD. The CAD will have one year to implement the report’s recommendations.
By receiving the final reports, school districts will be aware of the CAD’s problems and can work together with the CAD to find solutions before those problems impact state funding to the school districts.
If the CAD and the board of directors fail to comply with the report’s recommendations, the comptroller must notify the judge of each district court in the county and request that the judge appoint a board of conservators, consisting of five members, who will implement the recommendations. The board will supervise and control CAD operations until the comptroller determines that taxable value of each school district for which the CAD appraises property is the local value for that school. The CAD is responsible for all associated costs of the board of conservators.
The comptroller anticipates conducting 40 or 50 appraisal standards reviews annually, or about 20 percent of all districts statewide, based on current grace period eligibility.
The PTD conducted pilot appraisal standards reviews in November and December 2003 in two appraisal districts. In the first CAD, PTD found staff was not appraising property consistently. The chief appraiser said demand for water rights drove up land prices during a short period; the district did not have a reappraisal plan in place to deal with rapid changes in property value. The report recommendations included: adopting procedures to run ratio studies; reappraising all real property and adopting a reappraisal plan; adopting a policy and procedures manual that complies with IAAO standards; and following uniform standards of professional appraisal practice.
In the second CAD, the appraisal standards review concluded similar district property was being appraised inequitably. The district had not reappraised vacant lots, or had not appraised them uniformly. The findings noted the district: may not have sufficient staff to appraise all property on a three-year time schedule; did not have a reappraisal plan; used outdated maps in making appraisals; did not use ratio studies to establish reappraisal strategies; and had failed to appoint an agricultural advisory board.
Copies of the final reports were shared with these CAD’s school districts so that they can work together with the CAD to find solutions to the problems before those problems impact state funding to the school districts.
The comptroller plans to return in a year to review compliance in these two CADs.
See the November 2003’s STATEMENT article titled Property Tax Value Study and S.B. 671 for more details on other changes associated with S.B. 671.