Property Value Study October 12th , 2017

The Peveto Bill established the State Property Tax Board

A Short History School Tax Assessment Practice Board 1979 State Property Tax Board 1991 Comptroller’s Property Tax Division The Comptroller’s Property Tax Division (PTD) was formed after the merger of the State Property Tax Board (SPTB) with the Comptroller’s office in 1991. The SPTB was created with the passage of HB 621 in 1979. Prior to the SPTB, the School Tax Assessment Practice Board conducted ratio studies for school funding purposes.

PTAD Appraisal Staff Residential Appraisers = 26 Commercial Appraisers = 8 Personal Property Appraisers = 4 Utility Appraisers = 2 Ag Appraisers = 2 Mineral Appraiser = 1

Indirect Equalization Texas – PTAD No authority over CAD’s PVS affects School Districts

Direct Equalization Authority over Appraisal Districts Jurisdictional adjustments Property Class adjustments

Primary Reason for PVs

Ensure equitable distribution of state funding for public education.

Secondary Reason for PVS

To measure CAD performance (Report Card)

Tax Code Section 5.10(a) Ratio Studies At least every 2 years Each appraisal district Degree of uniformity Median level of appraisals Each major property category At least once every two years, the comptroller shall conduct a study in each appraisal district to determine the degree of uniformity of and the median level of appraisals by the appraisal district within each major category of property

PVS Major Category Metro Areas - CAT A: Residential East Texas – CAT E: Rural Residential West Texas – CAT D1: Agriculture South Texas – CAT A: Residential Permian Basin – CAT G: Minerals

What is a Ratio Study? Evaluate appraisal performance Determine taxable value Appraised values vs. independent market values A generic term for all studies designed to evaluate appraisal performance or determine taxable value by comparing appraisal district values with independent estimates of market value based on either sales prices or independent appraisals. Key point: Compares locally appraised values with independent market value estimates.

Uses of Ratio Studies Appraisal districts Taxpayers Texas legislature Policy makers Direct equalization Indirect equalization Used by appraisal districts Used by taxpayers Used by the legislature and other policy makers Direct equalization Indirect equalization Ratio studies cannot be used to judge the accuracy of individual property values. The PVS does not determine or set the value for any individual property in Texas.

IAAO Standard on Ratio Studies

Steps in Ratio Studies Define the purpose, scope and objectives Design 1 Define the purpose, scope and objectives 2 Design 3 Stratification 4 Collection and preparation of market data 5 Matching appraisal and market data 6 Statistical analysis 7 Evaluation and use of results Steps in Ratio Studies Ratio studies generally involve the seven basic steps listed below. 1. define the purpose, scope and objectives 2. design 3. stratification 4. collection and preparation of market data 5. matching of appraisal and market data 6. statistical analysis 7. evaluation and use of results

Categories A = Residential B = Multi-family C = Land D1 = Ag land D2 = Farm & Ranch improvements E = Rural Residential & Non Qualified land F = Commercial G = Minerals J = Utilities L = Business Personal Property

When is a Category Tested? Add up all categories Subtract D1, F2, L2 & S = adjusted total Divide category total with adjusted total All categories over 5% are tested except for Categories under 5% but over $250,000,000

Sampling Applied statistics Conclusions about the population based on a sample Sample of sales and independent appraisals Not sampled property categories with less than 5% of ISD value industrial properties personal use vehicles inventories of automobile or equipment dealers A ratio study is a form of applied statistics, because the analyst draws conclusions about the appraisal of the population of properties based only on a property sample. The sample consists of sales and independent appraisals. PTD does not sample property categories with less than 5% of ISD value, industrial properties, personal use vehicles or the inventories of automobile or equipment dealers.

Sample Size Statistical model ISD 3% margin Generate samples PVS The sample size for each ISD is determined by using a statistical model designed to achieve a uniform 3 percent margin of error in each ISD The program uses a 3 percent margin of error as the default to ensure enough samples are generated to achieve a 5 percent margin of error in the PVS.

2016 PVS Sample Size 120,000 Total Samples

2016 Breakdown of Samples 81,500 Sales 38,500 Appraisals

Breakdown by Category CAT A – 85,000 Samples CAT B – 2,150 Samples CAT C – 3,750 Samples CAT D2 – 250 Samples CAT E – 7,650 Samples CAT F – 9,000 Samples CAT G – 6,250 Samples CAT J – 1,300 Samples CAT L – 4,700 Samples

Training & Market Research PVS Calendar March – July PVS appeals April - January Conduct PVS February Training & Market Research March – May: All field staff working on appeals from the previous PVS. May 1: Target date for most field appraisers to begin the current PVS. June: All field appraisers should be on current PVS.

Property Value Study Workflow

Property Value Study Workflow

PVS Appeal Cycle

PVS Appeal Cycle

PVS Sales Time Frame IAAO Ratio Study Recommendations: At least 12 month period Balanced time frame covering assessment date Blind testing

IAAO Section 4.1

IAAO Appendix A4 The sales reviewer should take the position that all sales are candidates as valid sales for the ratio study unless sufficient and compelling information can be documented to show otherwise. If sales are excluded without substantiation, the study may appear to be subjective.

IAAO 5.2.1 Value Outliers When the weighted mean is used for indirect equalization, a method that identifies high-value influential sales is recommended. IAAO 5.2.1 Value Outliers When the weighted mean is used for indirect equalization, a method that identifies high-value influential sales is recommended.

Field Appraiser’s Manual Procedure 4.1 Task 2 Confirm and verify all outliers identified by the report and document why the sample parcels were either left in the PVS or excluded. Field Appraiser’s Manual. Procedure 4.1 Task 2. Confirm and verify all outliers identified by the report and document why the sample parcels were either left in the PVS or excluded.

2017 PVS STANDARD TIME FRAME July 1st 2016 to June 30th 2017

2017 PVS Extended Time Frame May 1st 2016 to August 31st 2017

IAAO Section 9 Oversight agencies must ensure that sold and unsold parcels are appraised at the same level.

Sales Chasing Test IAAO recommends 1 of 4 Tests Comparison of average unit values (psf) Split Sample – Before & after assessment Comparison of distribution of ratios Comparison of average value changes

PTAD First Test 5 Ranges Comparison of expected distribution of ratios Minimum of 30 sales per ISD 30% or more in any range = fail 5 Ranges .98 to 1.02 .97 to 1.01 .96 to 1.00 .95 to .99 .94 to .98

PTAD Second Test Comparison of average value changes Conducted by PTAD - DSAT team Combine EARS & EPTS data 3% variance = fail CAD has two weeks to appeal results Possible data errors Properties misclassified in wrong category Partial complete coded incorrectly

Margin of Error PVS target Margin of error 5% margin of error ½ confidence interval In the PVS, we target a 5% margin of error. The margin of error is ½ the confidence interval.

A. Size of the population In order to reach a 5% margin of error, what is the most important factor? A. Size of the population B. Median level of the sample C. Weighted mean level of the sample D. The variability of the sample

A. Size of the population In order to reach a 5% margin of error, what is the most important factor? A. Size of the population B. Median level of the sample C. Weighted mean level of the sample D. The variability of the sample

IAAO Section 3.2.2

Field Appraisers Manual - Appendix 1 Statutorily Imposed Value Constraints The Tax Code requires local appraisal of certain property using statutorily prescribed methods of appraisal that produce constrained values that are less than market value.

ARB Subtitle F Capped Homestead 4. Arbitration

Valid/Invalid Valid = local value within 5% of PVS value Invalid = local value not within 5% of PVS value Invalid ISD = School district could receive less funding than planned

Grace Period Requirements School districts Two year grace period Local value accepted even if invalid Four conditions: district values are invalid in the current study district values were valid in the two preceding studies district local value is above 90 percent of the lower threshold of the margin of error compliance with MAP study All four conditions must be met for eligibility.

2015 PVS Results Invalid School Districts – 111 Appraisal Districts – 52 1st Year Grace Period – 56 ISD’s 2nd Year Grace Period – 14 ISD’s State Value – 26 ISD’s State Lower than Local – 15 ISD’s

2016 PVS Results Invalid School districts - 131 Appraisal Districts – 69 1st Year Grace Period – 56 ISD’s 2nd Year Grace Period – 11 ISD’s State Value – 56 ISD’s State Lower than Local - 8 ISD’s

Who requests the PVS data?

Taxpayers School Districts Legislature

Residential Inventory Levels Texas Trends Crude Oil per barrel Residential Inventory Levels

Crude Oil Per Barrel

2014 Residential Inventory Levels Austin = 1.8 months Houston = 2.5 months Dallas = 3.0 months Midland = 3.1 months San Antonio = 4 months Amarillo = 4 months Waco = 5.3 months El Paso = 7.7 months Texarkana = 12 months Brownsville/Harlingen = 13.8 months

2017 Residential Inventory Levels Dallas = 1.8 months Austin = 2.1 months Waco = 2.6 months San Antonio = 3 months Amarillo = 3.2 months Midland = 3.4 months Houston = 3.5 months El Paso = 5.5 months Brownsville / Harlingen = 9.9 months Texarkana = 14 months

Contact Information Bill.Messick@cpa.texas.gov Phone: (512) 936-0627