School districts collect taxes based on the value of property in the district. The TCAD is responsible for assessing these values annually to determine the tax rate a district will enforce in the upcoming year, Eanes ISD Chief Financial Officer Chris Scott said. Every two years, the Texas comptroller conducts its own property value study to ensure the local values calculated by the appraisal district are within 5% of the assessed value determined by the comptroller.
In the event the difference between the local values assessed by the appraisal district and the state values determined by the comptroller is greater than 5%, school districts are deemed “invalid” for that year, said Pam Sanchez, Lake Travis ISD’s assistant superintendent for business and operations.
“2021 was not a typical year,” You were seeing much higher-than-normal increases after that cutoff date, which caused some of those districts to fail,” Scott said.
After failing, the district then enters a two-year grace period to allow for the reassessment of local property values to ensure they fall within 5% of the state-calculated values. Generally, property is assessed by the comptroller every two years, but during a grace period property is assessed annually, Sanchez said.
Every school district in Travis County failed the property valuation study in 2020 because property values were not reassessed. This was due to a legal conflict with the use of data from the Austin Board of Relators, which the appraisal district previously used to determine property valuations, Sanchez said. In 2021, five districts within Travis County failed the study: EISD, LTISD, Leander ISD, Round Rock ISD and Lago Vista ISD.
The reason these districts failed is due to a difference in timing when it comes to assessing property values, Sanchez said. The appraisal district uses property values as of Dec. 31 of any given year, while the comptroller can use values determined up to six months later in June of the following year.
In a typical year, property values rise 7%-8% in the Lake Travis area, and districts typically fall within the plus-or-minus 5% range. The property values in Travis County rose 30%-40% during the six months between December 2020 and June 2021 particularly in areas with high levels of residential real estate, such as EISD, LTISD and LISD, Sanchez said.
Consequently, the values determined locally and by the state were beyond the 5% difference for the second year in a row. This difference in the timing results in comparing two data sets that are not “apples to apples,” Sanchez said.
“In a typical year, houses and property values are rising pretty continuously, and so the values that are collected after the cutoff date will be higher than what that value would have been maybe six months earlier,” Scott said.
EISD and LTISD are in the process of challenging the “invalid” rating received in 2020. In the event these efforts are successful, the districts will return to their usual biannual comptroller review because without the initial “invalid” designation in 2020, the district would not have entered the grace period or been reassessed in 2021, Scott said.
If the protest is denied and the “invalid” ruling for 2020 and 2021 remain, the district will be forced to revert to state-calculated values for their property assessments. These values are typically higher than local appraised values due to the timing of the valuation, which could potentially impact the district’s recapture rate, or the amount of excess tax dollars the district pays to the state annually.
However, due to updated language in House Bill 3, a school finance bill passed by the 86th Texas Legislature in 2019, the district is permitted to use “current values” for its tax rates. This means that the “invalid” rating will not negatively impact the district financially at this time, as a district’s total recapture payment cannot be more than the funds required to run the district and its programs, known as Tier 1 Entitlements, Sanchez said.
There is still value in correcting the “invalid” ratings due to potential legislation changes in the future, Sanchez and Scott said.
“Hopefully the Legislature won’t change that language because the swing in our [tax] collection rate could make us fall out of that [5%] confidence interval,” Sanchez said. “We never know if we’re going to be plus or minus [5%]; it just seems like too small of a percentage.”
The legal battle to overturn the "invalid" ruling is ongoing for the school districts.