Property Value Study and S.B. 671
New Law Grants Grace Period, Requires Review
Senate Bill (S.B.) 671 changes the application of the school property value study (PVS) conducted by the Comptroller’s office. Called the “grace period” bill, it provides a two-year reprieve to certain school districts from the funding effects of state value findings in the annual study. The new law requires the Comptroller to conduct a mandatory appraisal standards review of the appraisal district with school districts under the “grace period.”
S.B. 671 also eliminates the current practice of allowing school districts whose local values exceed the state’s value from receiving a state value determination for purposes of school funding.
The Government Code requires the Texas Education Agency to use the Comptroller’s annual estimates of individual school district taxable wealth to determine state aid payments. The Comptroller’s office reports its preliminary findings at the end of January following the last local tax year and its final findings by July 1.
The study findings vary from the preliminary to final findings because school districts, appraisal districts and certain taxpayers (with property in the study) may file appeals and corrections with the Comptroller’s Property Tax Division (PTD).
The Comptroller’s latest findings are contained in the agency’s 2002 Final Report of School and Appraisal Districts’ Property Value Study, released July 1, 2003, and reported in the September 2003 STATEMENT. Or, call the Comptroller’s PTD at 1-800-252-9121, option 5, to order a copy of the final report.
Who gets a “grace period”
S.B. 671 adds Government Code Section 403.3011 to specifically define "eligible school districts" for purposes of the "grace period."To be eligible for 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;
- In the third year, the school district must receive a state value determination; and
- In the third year, 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. See the sample graphic to illustrate this provision.
For eligible school districts, the PTD will substitute the districts’ local value for the first and second year that they receive state value. This would be the “grace” period for state funding to the eligible school district.
These provisions take effect for the 2003 study year that affects school funding for school year 2004-05.
For the 2002 study that was recently certified, S.B. 671 provided additional funding for the 2003-04 school year for those school districts that received state value determinations. While House Bill (H.B.) 28, Third Called Session, repealed this provision, it was to have a one-time only provision to reallocate approximately $3 million on a proportionate basis to Texas Education Code Chapter 42 school districts with 2003 maintenance and operation tax rates exceeding $1.42. (See the article about the special session below.)
S.B. 671 incorporates both a mandatory appraisal standards review and a discretionary performance audit. During the first year of the “grace” period, the law requires the Comptroller’s office to conduct an appraisal standards review of the appraisal district in which the school district is located.
PTD is currently developing the appraisal standards review criteria in cooperation with the Texas Association of Appraisal Districts’ (TAAD) BTPE/PTD Liaison Committee. As a part of the development process, PTD will conduct a pilot appraisal standards review in selected appraisal districts prior to full implementation.
The Comptroller’s office presents recommendations from the review to the local school districts and to the appraisal district’s board of directors. Failure to comply with the review’s recommendations within one year results in the county’s district judge(s) appointing a board of conservators to be paid by the appraisal district. The board administers the appraisal district until all school districts have local value according to the annual PVS.
The Comptroller’s office also may conduct a discretionary performance audit to analyze the effectiveness and efficiency of the appraisal district’s policies, management and operations. The Comptroller may request reimbursement for the costs of the audit. The Comptroller has discretion in determining not only which appraisal districts to audit, but also in what manner.
S.B. 671 requires that school districts with appraised property higher than the amount determined to be valid (or state value) in the PVS will be assigned local value for purposes of school funding. This is effective for the 2003 PVS. The Texas Legislature also changed S.B. 671’s application to the 2002 PVS during the third called session (see article below).
School report audit process
S.B. 671 also streamlined the procedure for changing a prior year’s PVS findings. It clarifies that changes are limited to corrections and changes in the school’s appraisal rolls occurring after certification.
School districts must file requests for audits within three years of certification, except for appraisal district corrections permitted by Tax Code Section 25.25 or judicial decisions. Those corrections may be limited by the amount of reduction in taxable value in the school district.
Recently adopted Comptroller Property Tax Rule 9.103 conforms to the S.B. 671 changes. The rule establishes how the Comptroller’s PTD will conduct audits of school districts’ taxable property values, as provided by Government Code Section 403.302(h).
The rule provides for filing deadlines and extensions. The new rule requires the use of prescribed model forms and an affidavit.
See the June/July 2003 STATEMENT for more about Comptroller Rule 9.103.
Finally, S.B. 671 requires appraisal districts to report their property sales information to the Comptroller’s office in an approved-Comptroller format.
PTD also is working with TAAD’s BTPE/PTD Liaison Committee about sales information, submission dates and format. Some items that PTD is considering for submission on each sale are in the box below.
Possible items of sales information for CADs to submit to PTD include:
- Property’s category code, using the Comptroller’s Category Codes;
- Account number;
- Parcel address;
- Legal description;
- Sale date;
- Grantee’s name and address;
- Grantor’s name and address;
- Deed volume and page;
- Deed type (general warranty, warranty with vendor’s lien, contract for deed, special warranty);
- Source of information;
- Sales information verification;
- Validity as arm’s length transaction;
- Confidential information;
- CAD value on land and improvement;
- CAD value on any personal property;
- Current property characteristics, including square footage of improvements, number of bedrooms, baths, heating and air conditioning, year built, construction class, number of stories, subdivision/neighborhood code, and financing;
- Property’s characteristics at time of sale (reflects sale condition);
- Land size;
- Number of days property listed for sale on the open market;
- Previous CAD value on land and improvement; and
- Several sales information comment fields to provide any additional data about the property.
S.B. 671 amended Government Code Sections 403.301 and 403.302 and added Section 403.3011, effective June 20, 2003. To obtain a copy of S.B. 671, go to Texas Legislature On-Line to this address: www.capitol.state.tx.us/tlo/78R/billtext/SB00671F.HTM
H.B. 217 also amended Section 403.302(d) to replace the term “elderly” with the phrase “individuals who receive a tax limitation under Section 11.26, Tax Code.” This change adds the new school limitation for disabled homeowners, approved by Texas voters September 13. Since H.B. 217 is effective January 1, 2004, it will apply to the 2004 PVS.
House Bill 28 Address ISDs with State Lower Than Local Values
House Bill (H.B.) 28 from the Third Called Session of the 78th Texas Legislature changed a part of Senate Bill (S.B.) 671 that passed during the regular session.
H.B. 28 provides that all school districts that had a “state lower than local” taxable value will use the lower state value number for the 2002 study (used in funding for the 2003-04 school year). Beginning with the 2002 PVS, S.B. 671 assigns local taxable value to a school district when that school district’s state value determined by the Comptroller’s Property Value Study (PVS) is lower than the district’s local taxable value.
A second and third change by H.B. 28 repealed the one-time amnesty provision that addressed the 2002 PVS and also gave instructions to recomputed school funds based on the now repealed section of S.B. 671. This earlier provision had allocated approximately $3 million to those school districts that had been assigned local value for the preceding two years of the PVS (2000 and 2001 years) but received state value in the 2002 PVS and had a maintenance and operations rate exceeding $1.42.
HOUSE BILL 28, THIRD CALLED SESSION,78th TEXAS LEGISLATURE
ARTICLE 5. EQUITABLE USE OF REVENUE AND UNIFORMITY IN RELATION TO SCHOOL DISTRICT PROPERTY VALUES
SECTION 5.01. Section 403.302, Government Code, is amended by adding Subsection (c-1) to read as follows:
(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.
SECTION 5.02. Section 403.302(m), Government Code, as added by Chapter 1183, Acts of the 78th Legislature, Regular Session, 2003, is repealed.
SECTION 5.03. The commissioner of education shall compute the amount of funding under Chapters 42 and 46, Education Code, to which each school district is entitled for the 2003-2004 school year, and the wealth per student of each school district for purposes of Chapter 41, Education Code, for the 2003-2004 school year, without regard to Chapter 1183, Acts of the 78th Legislature, Regular Session, 2003. If a school district received an underallocation or overallocation of state funds because a payment made before the effective date of this Act was computed in accordance with Chapter 1183, Acts of the 78th Legislature, Regular Session, 2003, the commissioner shall adjust the computation of the amount of the payments made to the school district for the remainder of the 2003-2004 school year or take other action so that the total payments made to that school district for that school year equal the amount the school district would have received for that school year had none of the payments been computed in accordance with Chapter 1183, Acts of the 78th Legislature, Regular Session, 2003.