Property Tax Board

Guidelines for the Valuation of

PUBLIC ACCESSAIRPORT PROPER Y

May 1987

Second Printing

State Property Tax Board9501 North IH-35P.O. Box 15900

Austin, Texas 78761-5900This manual was originally adopted by the State Property Tax Board an December 8, 1982, Rule 161.10, effective January 1, 1983.

MEMBERS OF THE BOARD: ADMINISTRATIVE STAFF:Ben Munson, Chairman - Denison; Ron Patterson, Executive DirectorWilliam J. (Bill) Burnette - San Antonio; Bob Carroll, Deputy Director of OperationsMarvin L Jones - Spearman; Tim Wooten, Deputy Director of ValuationsNicholas V. Lampson - Beaumont; John Franklin Niles, General CounselCiro Trevino - Edinburg;Gerald (Buddy) Winn - Bryan

TABLE OF CONTENTS

INTRODUCTION PAGE1

SECTION I. LEGAL REQUIREMENTS OF CHAPTER 23, SUBCHAPTER G, PROPERTY TAX CODEStatutory Provisions 1Definitions 1Restrictions on use of property 3Requirement for restricted property use 3Property subject to appraisal 3Imposition of additional taxation 3Penalty tax 4

SECTION II. PROCEDURE TO VERIFY QUALIFICATION FOR PUBLIC ACCESS AIRPORT PROPERTYApplications 4Deadline for application 4If there is a change 4Review of application forms 4Action of applications 5Notification 5

SECTION III. PRACTICAL APPLICATION OF PUBLIC ACCESS AIRPORT PROPERTY VALUATIONMarket valueFactors influencing value 6Approaches tQ value 6

Market data approach 6Cost approach 7Income approach 7

Special considerations in appraisal of restricted land 8Correlation and value conclusion 8Summary 9

SECTION IV. APPENDIXApplication for appraisal of restricted land 10

GUIDELINES FOR THE VALUATION OFPUBLIC ACCESS AIRPORT PROPERTY

INTRODUCTION

In 1981, SenateBill 970,as passedby theRegularSessionoftheSixty-SeventhLegislature,addedSubchapterGto Chapter23 of thePropertyTax Code.SubchapterG wasamendedbyHouseBill 30 asadoptedby theFirst Called Sessionof theSixty-SeventhLegislature.This SubchapterbecameeffectiveJanuary1, 1982, andis entitled “Appraisal of Public AccessAirport Property”.

This subchapterprovidesan additional meansby which apropertyownermay createavoluntarydeedrestrictionon realpropertyrestrictingtheproperty’suseto public accessairportproperty as defined in the statute. It establishesspecificlimitations on andproceduresfor creationof therestriction.

Owners of real property subject to theserestrictionsmayapply to have their propertyappraisedunderprovisionsofSubchapterG. SubchapterG sets out qualifications andguidelinesfor such appraisalandestablishesprovisionsforadditional taxation of the land when the deedrestrictionexpires, theuseof the land changesor theprovisionsof. therestrictionareviolated.

Local, tax administratorsmust be knowledgeableof the

operationsof provisionsof SubchapterGin orderto respondtoinquiries receivedand to administerprovisionsof the law.Taxpayersareurged to studycarefullyprovisions of the lawprior to applying, since the additional taxation provisioncould result in paymentof taxesbasedupon thevalueof thepropertyasunrestrictedfor a periodof five years.

Section23.93(e).authorizesanddirectstheStatePropertyTaxBoardto promulgateruleswhichspecifythemethodsto applyandtheproceduresto usein appraisinglandwhich qualifiesunderSubchapterG. Thismanualhasbeenadoptedundertherule-makingauthority of theboardpursuantto this statute.

Fororganizationalpurposes,this manualisdivided into foursections:SectionI. Legal Requirementsof Chapter23, SubchapterG,PropertyTax CodeSection II. Proceduresfor Verifying thatPropertyQualifiesasPublic AccessAirport PropertySection III. Practical Application of Public AccessAirportPropertyValuationSectionIV. Appendix

SECTION I. LEGAL REQUIREMENTS of Chapter 23, Subchapter G,Property Tax Code

Subchapter G of chapter 23 contains the following statutoryprovisions:

Sec. 23.91. Definitions

In this subchapte,-~(1) “Airport property” meansreal propertythat isdesigned to

be used or is used for airport purposes, including the landing.parking, shelter, or takeoff ofaircraft and the accommodation ofindividuals engaged in the ‘operation, maintenance, ornavigation of aircraft or of aircraft passengers in connectionwith their use of aircraft or of airport property.

(2) “Public access airport.property” means privately ownedairport property that is regularly used by the public for orregularly provides services to the public in connection withairport purposes.

(3) “Deed restriction” means a valid and enforceableprovision that restricts the use of property and that is includedin a written instrument tiled and recorded in the deed records ofthe county in which the property is located.

Added by Acts 1981, 67th Leg., p. 2355, ch. 581, §1, eff. Jan. 1,1982.

Sec. 23.92. voluntary Restrictions

(a) The owner ofa fee simple estate in propertyof atleast fiveacres may limit the use of that part of the property which isairport property to public access airport property by filing withthe county clerkof the county in which the property is located awritten instrument executed in the form and manner of a deed.

(b) The instrument must describe the property and therestricted part of the property, name each owner of theproperty, and provide that the restricted property may only beused as public access airport property during the term of thedeed restriction. The term of the deed restriction must be for atleast 10 years, and the length of the term must be stated in theinstrument

(c) The county attorney ofthe county in which the restrictedproperty is located- or any person owning or having an interestin the restricted property may enforce a deed restriction thatcomplies with the requirements of this section.

Added by Acts 1981, 67th Leg., p.2355, ch. 581, §1, elf. Jan. 1,1982.

Sec. 23.93. AppraIsal of Restricted Land

(a) A person is entitled to have airport property he ownsappraised under this subchapter if, on January 1:

(1) the property is restricted as provided by thissubchapter;

(2) the property has been devoted exclusively to use aspublic access airport property for the preceding year; and

(3) he is using and intends to use the property exclusivelyas public access airport property in the current year.

(b) The chief appraiser may not consider any factor otherthan one relating to the value of the airport property asrestricted. Sales of comparable airport property not restrictedas provided by this subchapter may not be used to determinethe value of restricted property.

Public Access Airport Property1

(c) Improvements to the property that qualify as publicaccess airport property are appraised as Provided by thissubchapter, but other improvements and the mineral estate areappraised separately at market value.

(d) If airport property is appraised under this subchapter fora year, the chietappraiser shall determine attheend ofthatyearwhether the property was used exclusively as public access

-airport property. If the airport property was notused exclusivelyas public access airport property, the assessor for each taxingunitshall impose an additional tax equal tothe differencein theamount of tax imposed and the amount that would have been~imposed for that year if the property had not been restricted touse as public access airport property. The assessor shallincludethe amountof additional taxplus intereston the nextbillfor taxes on the land.

(e) The State Property Tax Board shall promulgate rulesspecifying the methods to apply and the procedures to use inappraising property under this subchapter.

Added by Acts 1981, 67th L~g., p.2355, ch. 581. §1, eff. Jan.1,1982. Amended by Acts 1981,67th Leg., 1st c.s., p. 151, ch. 13,§13, §81, eff. Jan. 1, 1982.Sec. 23.94. Application

(a) A person claiming the right to have his airport propertyappraised under this subchapter must apply for the right thefirst year he claims it. Application for appraisal under thissubchapter is made by filing a sworn application form with thechief appraiser for each appraisal district in which the land islocated.

(b) A claimaint must deliver a completed application form tothe chief appraiser before May 1 and must furnish theinformation required by the form. For good cause shown thechief appraiser may extend the deadline for filing theapplication by written order forasingle period notto exceed 60days.

(C) If a claimant fails to timely file a completed applicationform, the property is ineligible forappraisal as provided by thissubchapter for that year. Once an application is filed andappraisal under this subchapter is allowed; the property iseligible for appraisal under this subchapter during the term ofthe deed restriction without a new application upless theownership of the property changes or its eligibility under thissubchapter ends. However, the chief appraiser, if he has goodcause to believe the property’s eligibility under this subchapterhas ended, may require a person allowed appraisal under thissubchapter in a prior year to file a new application to confirmthat the property is currently eligible under this subchapter bydelivering a written notice that a new application is required,accompanied by the application form, to the person who filedthe application that was previously allowed.

(d) A person whose property is allowed appraisal under thissubchapter shall notify the appraisal office in writing beforeMay 1 after eligibility~of the property under this subchapterends.

(e) If the chief appraiserdiscovers that appraisal under thissubchapter has been erroneously allowed many one of the 10preceding years, he shall add the difference between theappraised value of the property under this subchapter and thevalue of the property if it had not been restricted to use as publicaccess airport property to the appraisal roll as provided bySection 25.21 of this code for other property that escapestaxation.

(1). The State Property Tax Board in prescribing the contentsof the application forms shall ensure thateach form requires aclaimant tofurnish the information necessary to determine thevalidity of the claim and that the form requires the claimant to

2nnlmrnt•nn .nr OflflVa.oo~

state that the airport property for which he claims appraisalunder this subchapter will be usedexclusively as public accessairport property in the current year.

Added by Acts 1981, 67th Leg., p. 2355, ch. 581, §1, eff. Jan. 1,1982. Amended by Acts 1981,67th Leg., 1st c.s., p.152, ch. 13,§82, eff. Jan. 1,1982.

Sec. 23.95. Action on Application(a) The chief appraiser shall determine individually each

claimant’s right to appraisal under this subchapter. Afterconsidering the application and all relevant information, thechief appraiser shall, as the law and facts warrant

—‘(1) approve the application and allow appraisal underthissubchapter;

(2) disapprove the application and request additionalinformation from the claimant in support of the claim; or

(3) deny the application.

(b) If the chief appraiser requests additional informationfrom a claimant, the claimant must furnish the informationwithin 30 days after .the date of the request or before April 15,whichever is earlier, or the application is denied. However, forgood cause shown the chiefappraisermay extend the deadlinefor furnishing additional information by written order for asingle period not to exceed 15 days.

(c) The chief appraiser shall determine the validity of eachunaer this subchapter ulitfWitWtiiiW

before he submits the appraisal records for review anddetermination of protests as provided by chapter 41 of thiscode.

(d) If the chief appraiser denies an application, he shalldeliver a written notice of the denial to the claimant within fivedays after the date of denial. The notice must include a briefexplanation of the procedures for protesting the denial.

Added by Acts 1981, 67th Leg., p.2355, ch. 851, §1, eff. Jan. 1,1982. Amended by Acts 1981,67th Leg., 1st c.s., p.153, ch. 13,§83, eff. Jan. 1,. 1982.Sec. 23.96. Taxation for Preceding Years

(a) If airport property that has been appraised under thissubchapter is no longer subject to a deed restriction, anadditional tax is imposed onthe property equal tothe differencebetween the taxes imposed on the property for each of the fiveyears preceding the yearzin which the deed restriction expiresthat the property was appraised as provided bythis subchapterand the tax that would have been imposedhad the property notbeen restricted to use as public access airport property ineachof those years, plus interest at an annual rate of seven percentcalculated from the dates on which the differences would havebecome due.

(b) A tax lien attaches to the property on the date the deedrestriction expires to secure payment of the additional tax andinterest imposed by this section and any penalties incurred.The lien exists in favor ofthe state and all taxing units forwhichthe additional tax is imposed.

(c) The assessor shall prepare and deliver a statement forthe additional taxes as soon as practicable after the deedrestriction expires. The taxes become delinquent and incurpenalties and interest as provided by law for ad valorem taxesimposed by the taxing unit if not paid before the next date onwhich the unit’s taxes become delinquent that is more than 10days after the date the statement is delivered.

(d) The sanctions provided by Subsection (a) ofthis sectiondo not apply ifthe change of use occurs as a result of a saleforright-of-way or a condemnation.

Added by Acts 1981, 67th Leg., p. 2355, ch. 581, §1, eff. Jan. 1,1982.

Public Access Airport Property

Sec. 23.97.Penalty for Violating Oced Restriction

(a) If airport property appraised under this subchapter isused as other than public access airport property before theterm ofthe deed restriction expires, a penalty is imposed on theproperty equal tothe difference between the taxesimposed ontheproperty on the basis of appraisal under this.subchapter forthe year in which the violation occurs and the amount thatwould have been imposed for that year had the property notbeen restricted to use as public access airport property.

(b) The chief appraiser shall make an entry in the appraisalrecords for the property against which the penalty is imposedindicating liability for the penalty and shall deliver a writtennotice of imposition of the penalty to the person who filed theapplication for appraisal under this subchapter. The noticeshall include a brief explanation ofthe procedures for protestingthe imposition ~f the penalty.

(c) The assessor for each taxing unit that imposed taxes on•the property on the basis of appraisal under this subchaptershall add the amount ofthe penalty to the unit’stax bill fortaxeson the property against which the penalty is imposed. Thecounty assessor-collector shall add the amount of the penaltyto the county’s tax bill for taxes on the property. The penaltyshall be collected at the same time and in the same manner asthe taxes on the propertyagainst which-the penalty is imposed.The amo~ijnt of the penalty constitutes a lien on the property

- . ~penalty~interest in the same manner as a delinquent tax.Added by Acts 1981, 67th Leg., p. 2355, ch. 581, §1, eff. Jan. 1,1982. Amended by Acts 1981,67th Leg., 1st C.S., p.1 54, ch. 13.§84, eff. Jan. .1, 1982.While theprovisionsof SubchapterC containmanyspecific

guidelines concerning its administration, certainadministrativeaspectsandquestionsarenot addressedby law.Sincethis is anewstatuteandnodirectexperienceexistsrelatedto the practical administration of SubchapterG, certainquestions remain unansweredand will require the useofprofessionaljudgmentanddiscretion.

Public accessairport property defined

Section23.91(2)defines“public accessairportproperty” tomean“privately ownedairportproperty that is regularlyusedby thepublic or regularlyprovidesservicesto thepublic inconnectionwith airport purposes.~‘ “Airport purposes”aredefinedby Section23.91(1)to include thefollowing purposes:

a. the landing,parking, shelter,or takeoffof aircraft;b. the accommodation of individuals engaged in the

• operation;maintenance,or navigationof aircraft; andc. theaccommodationof aircraftpassengersin connectionwith their useof aircraftor of airportproperty.

“Airport property” is definedin Section 23.91(1)as “real.property which is designed.to be usedor is usedfor airportpurposes.”

Establishmentof restrictions on useof propertyThis subchapteris initially significantbecauseit provides

for astatutorymeansby whichapropertyownermaylimit theuseof his property. To accomplishthis, theowner of a feesimple estatein propertymayexecuteawritten ii~strument•inthe form andmannerof adeed.Theessentialrequirementsoftheexecutionof suchan instrumentarethatit must: includeadescriptionof theproperty,statethenamesofeachownerof theproperty, state the term of the restriction, state that therestrictedpropertymay only be usedaspublic accessairport

gaainstW~iGh4he~oenaltv~isimoosed—and-accrues ~“~— —

property, be signed by the owner or agentauthorizedinwriting, be acknowledgedbefore a notary public or twocrediblewitnesses,andbe filed with thecounty clerk of thecounty in which theproperty is located.

In addition to this meansfor creationof adeedrestriction,deedrestrictionscouldbecreatedby restrictivecovenants,orbyany otherrecordedwritten instruments.

Section23.91(3)definesdeedrestrictionto mean:

...a valid and enforceable provision that restricts the use oftheproperty and that is included in a written instrument filed andrecorded in the deed records ofthe county in which the land islocated.

In verifying, thatpropertyis eligible for appraisalunderthissubchapter,theappraisershouldreview thedeedrestrictiontoensurea valid andenforceableprovision existsunderSection23.92,PropertyTax Code.

If restrictionscontainprovisionswhichallow therestrictionto be voluntarily removedby filing of requestby theownerprior to theendof thetermof therestriction,therestrictionisnot truly bindingupon the property.Undersuchconditions,therestrictiondoesnot affectthemarketvalueof thepropertysince the restriction may be voluntarily removedand thepropertysold without the restriction.

Jiequir~mentsfor restrictedpropertyuse:

Section23.93 establishesrequirementsrelatingto theuseoftheproperty. In addition to requiringavalid deedrestrictionon theproperty,thepropertymustbeexclusivelydevotedto useaspublic accessairportpropertyin theprecedingyearandbeusedexclusivelyfor therestrictedusein thecurrentyear.Theuseof thepropertyin theprecedingyearneednothavebeenbythecurrentowner. In general,incidentalusesassociatedwiththe restricteduse would not be judged to violate thedeedrestrictionor theuserequirementof this section.

Property subject to appraisal

Propertysubjectto appraisalunderthissubchapterincludesthe land and improvementsto the land so long as theimprovementsaredesignedfor or usedfor airportpurposesasdefined above.Both the land and the improvementswhichqualify should be valuedwhile taking into considerationtheuserestrictionsplacedon them.

Imposition of additional taxationPropertyqualifiedfor appraisalunderthis subchapterwill

possibly be subject to additional taxation. The additionaltaxation provision, contained in Section 23.96(a), is verysimilar to the rollback or recaptureprovisionswhich existundertheagricultural productivity valuation sectionsof theCode.

However,arollbackorrecaptureof taxesis triggeredin onlyone instance. Upon expiration of the . deed restriction, arollback taxis triggered.A rollback taxis not triggeredif theuseof theproperty is divertedto a useother than aspublicaccessairportproperty.In thissituation,apenaltytaxwouldbedueas will be discussedin thenext section.The amountofrollbacktaxdueis measuredby thedifferencebetweenthetaxespaid under the valuation proceduresin SubchapterC ofChapter23, PropertyTax Codeandthetaxesthat would havebeenpaidif thepropertyhadnotbeenrestrictedaspu.Aicaccessairport property.

Therollbackperiodis for the“...five yearsprecedingtheyear

Public Access Airport Property 3

in which thedeedrestrictionexpires [(Section 23.96(a)I.Ifthetaxassessordeterminesthatthedeedrestrictionhasexpired,theadditional taxwould be for thefive yearsprior to theyearthe restriction ends.Eachof theseprior five yearswould bereviewedto seeif thevaluationwasgranted,andthoseyearsinwhich thevaluationwasgrantedwouldbeusedto calculatetherollback taxes.Rollbacktaxesincurinterestatanannualrateofsevenpercent,to be calculatedfrom thedateson which thedifferenceswould havebecomedue.

Afterdeterminingthatadditional taxesaredue, theassessormustdeliverataxstatementfor thosetaxesandinterestassoonaspracticable.Thetaxesbecomedelinquentandincurnormalpenalty andintereston thedatewhentheunit’s taxesbecomedelinquentso long as that dateis more than 10 daysafter thedatethestatementis delivered.

The tax assessor’sresponsibility to determinewhen arollback of taxes is required and the chief appraiser’sresponsibilityconcerningthedetermintionof theimpositionof apenaltytaxarisingfrom violationsof thedeedrestrictionsshould bedischargedin acooperativeeffort betweenthetwo.Penalty tax

In anotherprovisionof SubchapterG,apenaltyis incurred

for anyyearin which thelandis usedasotherthanpublicaccessairportproperty.The chiefappraiseris requiredto determineat the end of each year whether the land hasbeen usedexclusivelyfor publicaccessairportpropertyuses.Thispenaltyshould not be imposedif thenonqualifyingusesweremerely

• incidental to the restricteduses. However, if the usesaresignificantly in violationof thedeedrestrictions,thenapenaltywill be imposed under Sections 23.93(d) and 23.97. Themeasureof the penalty for the year in which theviolationoccurs is the samemeasurefor determining theamount ofrollback taxduein oneyear.Thepenaltywill bethedifferencebetweenthe taxes paid under the restricted usevaluationproceduresand the taxes that would havebeenpaid if theproperty had not been restricted to public accessairportpropertyuses.Theassessormustincludethis ontheunit’s nextbill for theproperty. The penalty taxaccruespenaltiesandinterestin thesamemannerasadelinquenttaxif notpaidpriorto thedelinquencydate.In addition, thechiefappraisermustsenda written noticeof the imposition of thepenalty to theperson.whoappliedfor thisaPpraisal.Thenoticemustincludea brief explanation of the proceduresfor protesting theimposition of thepenaltybeforetheappraisalreviewboard.

SECTION II. PROCEDURES TO VERIFY QUALIFICATIONS forPublic Access Airport Property.

Thefollowing procedureswill assistin determiningwhetherpropertymay qualify for appraisalunderthis subchapter.

ApplicationsIn order to be consideredfor qualification as public access

airport property as defined by Texas Property Tax CodeSection23.91,theproperty’sowneroragentmustfile aswornapplication the first year that he claims it with the chiefappraiserof theappraisaldistrict in which theproperty islocated.

TheStatePropertyTaxBoardprescribedthecontentsof thepublic accessairport propertyapplicationby rule. A sampleform hasbeenincludedin theappendix.Although this form’suse is not mandatory, the information containedon it ismandatory.

Deadlinefor application

Completedapplicationsmustbe timely filed with thechiefappraiserafterJanuary1 andbeforeMay 1. Forgoodcause,thechiefappraisermayextendthefiling deadlineby writtenorderfor a singleperiodof up to 60 days.

If a claimant should fail to timely file a completedapplication form, the property is ineligible that year forappraisalas public accessairportproperty,underSubchapterG. However, if a valid deedrestrictionexists, the restrictionmustbetakeninto considerationin makingadeterminationoffair marketvalueevenif no applicationis made.

After an applicationhasbeenfiled andvaluationaspublicaccessairport property has •been granted, the property isineligible for this special valuation in subsequentyearswithout theneedfor anewapplication.This is trueduring theterm of the deedrestriction for as long as the property’sownershipremainsthesameandits eligibility remainsintact.

However, if thechiefappraiserhasgoodcauseto believetheproperty’s eligibility has ended,he• may require a personallowedspecialvaluationaspublicaccessairportpropertyin aprior year to file an updatedapplication.This will servetoconfirm that the property is currently eligible. The chiefappraisermust deliver notice that a new application isrequired,alongwith anapplication,to thepersonallowedthespecialvaluationin a prior year.

If thereis a change

Personswho receive the public accessairport propertyappraisalmustnotify theappraisaldistrict office in writingbeforeMay 1 after theeligibility of thepropertyends.

If thechiefappraiserdiscoversthatthis specialappraisalhasbeenerroneouslyallowed in anyoneof the10 precedingyears,in thatit wasappraisedasrestrictedwhenin factit wasnot,hewill subtractthedifferencebetweentheappraisedvalueof theproperLy(as publicaccessairportproperty)md theproperty’smarket value (had it not beenrestricted)and add it to theappraisal roll for each year the property was erroneouslyallowedthis specialappraisal.Todo so,thechiefappraiserwillusetheprovisionsof TexasPropertyTaxCodeSection25.21,for propertyWhich hasescapedtaxation.

Review of application forms

Following is achecklistof theconditionswhichmustbemetin orderto establisheligibility of public accessairportproperty:

1. The application must be on a form providedby thechiefappraiserand prescribedby the State PropertyTaxBoard.

2. Theapplicationmustcontain thenecessaryinformation todeterminethe validity of theclaim. The information

4 Public Access Airport Property

I approve the application and designatethe property forappraisalaspublic accessairport property;

solicited on the State Property Tax Board form issufficient, if completedin full by thepersonclaimingtheexemption and if the property is eligible. If not 2.completedin full, thechiefappraiserhastheauthoritytorefuse to qualify the property. However, the better orpracticeis to give theapplicantasecondopportunity tocompletetheapplication beforethedeadlinerunsout.

3. Eachapplicationmustidentify theownerof theproperty, If thechiefappraiserrequestsadditionalinformationfrom athelegaldescriptionof theland,thetotal acreageunder claimant,theclaimantmustfurnish theinformationwithin 30applicationandcontainan affirmation stating thatthe daysafter thedateof the requestor theapplicationis denied.propertywill beusedexclusivelyaspublic accessairport However,for goodcauseshownthechiefappraisermayextendpropertyin thecurrentyear. thedeadlinefor furnishingadditional information by written

4. Specialprovisionson theform mustbe reviewed, orderfor asingleperiodnotto exceed15 days.Section23.95(b)a. •• In completing question number one under actually provides that the additional information must be

Eligibility Requirements,theuseof theland •~ givenwithin 30 daysafterthedateof therequestor by April• for theprecedingyearmustbeindicated.If not 15th, whicheveris earlier. It appearsthat this April 15th datecomplete,an applicationmaybe rejected. may be an error becausea claimant who timely files an

b. In completingquestionnumbertwo, indicate applicationbetweenApril 15andMay I couldnotmeetthedue• the useof thelandfor thecurrentyear.If not datefor a requestfor additional information.

• . . . The chief • a raisershall determinethe validity of each• complete,an applicationmay be rejected. PPc. In completingquestionnumberthree,list all applicationfor valuationaspublicaccessairportpropertyfiled

improvementsto the land claimed•on the with him beforehesubmitstheappraisalrecordsfor reviewandapplication, along with their uses. If not determinationof protestsby theappraisalreview board

.

colnjlleteTanapplicauionmayb&rejected.d. Theanswerto questionnumberfourmustbe

yes.” If “no,” thepropertyis ineligible.e. Theanswerto questionnumberfive mustbe•

‘~yes.” If “no,” theproperty is ineligible.f. The answerto questionnumber six mustbe.

‘~yes.” If “no,” thepropertyis ineligible.

Action on applicationsThe chief appraiser shall determine individually each

claimant’sright to valuationfor publicaccessairportproperty.Afterconsideringtheapplicationandall relevantinformation,thechiefappraisershall, as thelaw andfactswarrant:

disapprove the application and request additionalinformation from theclaimantin supportof theclaim;

3. denytheapplication.

Notification

If thechiefappraiserdeniesanapplication,heshalldeliverawritten noticeof thedenial to theclaimantwithin five daysafter the date of denial. The notice must include a brief~explanationof theproceduresfor protestingthedenial. It is agood practiceto includein thenoticethereasonfor rejection.

If theapplicationis approved,it maybe advisableto notifytheapplicant.Theappraisalrecords,taxroll, andtaxstatementshould all reflect the fact that theproperty is receivingthisvaluation.In this way, in theeventof achangein theuseof theproperty,or a lapsein thedeedrestriction,eachtaxingunit’sassessorwill knowto mail astatementto collectrollback taxes.

SECTION III. PRACTICAL APPLICATION of Public AccessAirport Property Valuation.

It should bepointedout initially, thatthesestatutesmustberead in harmonywith Article VIII, Section 1 of the TexasConstitutionwhichstatesin part: “Taxationshall beequalanduniform. All realpropertyandtangiblepersonalproperty,inthis state,whetherownedby naturalpersonsor corporations,otherthanmunicipal,shallbe taxedin proportionto its value,which shall beascertainedasprovidedby law.”

The courts of Texas have long held that value undertheConstitutionis marketvalue.Accordingly,whenvaluingdeedrestrictedpublicaccessairportpropertytheappraisermusttakeinto considerationtheeffectof theuserestrictiononthemarketvalue of the land. The proceduresdiscussedin this sectionwould be applicableto themarket valueappraisal of suchrestrictedland, whetherornot applicationfor appraisalunderthis subchapteris made.

Market value

Thedefinition of marketvalueis thehighestpricein termsof

moneywhich a propertywill bring if exposedfor salein theopenmarketfor a reasonabletime, with both thebuyerandsellerawareof all its uses,andwith neitherthebuyernor thesellerunderany stressor duressto buy or sell.

Ownershipin realestateis anownershipin abundleof rightsin theproperty.Theserightsareinherentin theownershipofrealpropertyandguaranteedby law. They includetheright touserealproperty,to sellit, toleaseit, toenterit, to give it away,andtheright to refuseto exerciseanyof theserights. However,theserightsmaybediminishedby adeedrestrictionthat limitsthe usesto which thisreal propertymay beput.Thesefactorsmust be consideredby the appraiserwhen appraisingthemarketvalueof deedrestrictedpublic accessairport property.

Market valueappraisalsrequireapplicationof theprinciplethatpropertyshouldbeappraisedonthebasisofitshighestandbestuse.Highestandbestuseis definedastheusewhichat thetimeof theappraisalis mostlikely to producethegreatestnetreturnoveraperiodof time. Thisuse,however,maybelimitedby a deedrestriction.

Public Access Airport Property 5

FACTORS INFLUENCING VALUE

Restrictionson theuseof theland,whethervoluntary,asbywritten instrument,or•governmentalas by zoning,will affectthevalueof theproperty.Also, theappraisermustcarefullystudy thesubjectpropertyandtheareain which it is locatedtodetermineany other factors which might •affect themarketvalue.Suchfactorsmayincludelocation~climate,access,traveldistancefrom the likely sourceof clientele,topography,andsoil conditions.

Effect of restrictions on valueThe marketvalue of land is determinedby at least three

distinctmarketinfluences:

1. The productionmarketinfluenceis basedon the incomegeneratedfrom theuseof the land.

2. The investment market influence is based on theappreciationpotentialof theproperty.

3. The consumption market influence is based on thesatisfactionderivedfrom theownershipof land.

When theownerof publicaccessairportpropertyimposesa

deedrestrictionuponthatproperty,thatrestrictionaffectsthemarketvalueof that propertyby limiting oneor more of the•aforementionedmarketinfluences.

The placing of a deedrestrictionon public accessairportpropertydoesnotnormallyaffecttheconsumptivevalueof that•property.In somecasesit canaffectthepotentialappreciationfrom aninvestmentpointof view, aswell aspossibilylimitingtheincomestreamthat would bederivedfrom productionontheproperty.

Section23.93(b)providesthattheappraisermaynotconsideranyfactor,otherthanthoserelatingto thevalueof theairportproperty, as restricted. It further prohibits the use ofcomparablesales of property, which are not similarilyrestricted,in making theappraisal.

Theinformationneededto estimatethemarketValueof deedrestrictedpublicaccessairportpropertyis basicallythesameasfor other types of• property. In addition to general dataregardingthe region,thecity, andtheneighborhood,specificdatawill be requiredwith respectto landsize,characteristics,andcomparablelandsales.

APPROACHES TO VALUE

Therearethreegenerallyacceptedapproachesusedto arriveat an opinion of themarket value for a particularproperty.Thesethreeapproachesare(1) themarket-dataapproach,(2)thecostapproachand(3) the incomeapproach.In an idealsetting, • all three approachesare used to develop threeindependentestimatesofvalue,andthesearethencorrelatedtofind afinal estimateof value.Theappraisermustusehis besteffort and judgment to apply all threeapproaches,but theweighthe.givesto eachapproachin his final estimateof valuewill alwaysdependon. theamountandqualityof theavailabledata.In orderto performagoodappraisalitis critical that theappraiserhavea-goodworking knowledgeof eachapproach.The-arbitrary•exclusion.ofoneor two of the••threeapproachesmay invalidatetheappraisal.

Market data approach

Themarket-dataapproachmaybedefinedasanyapproachthat is basedupondirectevidenceof theopinionof buyersandsellersof themarketvalueof property.Of thethreeapproachesused to arrive at an indication of value, the market dataapproach relies most heavily upon the principle ofsubstitution.Theprincipleof substitutionstatesthatthevalueof anypieceof propertyis governedby thecostof acquiringasubstituteor comparableparcelof property.

Using thecomparable-salesmethod underthemarket-dataapproach, the appraisercollects a sampleof all availablepropertiesthathaverecentlysoldandaresimilar to thesubjectproperty(propertybeingappraised).He thenmakesanyvalueadjustmentsnecessarybecauseof thedifferencesbetweenthesamplepropertiesandthesubjectproperty.Theappraiserusesadjustedsamplepropertiesto arriveat an indicatedvalue forhis subjectproperty.

As previouslynoted,whenvaluing deedrestrictedproperty,adjustmentmust-be made in the marketvalue of thesalespropertyto reflecttheeffectof anysignificantdifferencesin therestrictions.SubchapterGstrictly forbidscomparablelandnot

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deedrestrictedto be usedto determinethevalueof restrictedland.

Thereareseveralfactorsthat tendto limit theusefulnessofthecomparable-salesmethod:

1. Certain typesof propertiesareseldom sold. Therefore,inorder to secureenoughsalesto be useful, theappraisermay desireto obtainsaleson propertyof similar useandcircumstanceswithout regardto location.

2. In somecasestheinformationasto theconditionsof asalemay not be available.As discussedin themarketvaluesection of the State Property Tax Board’s GeneTalAppraisalManual, salespriceis not alwaysthesame,asmarket value. Not knowing the conditionsof a saleshouldresultin thesalenot beingusedfor oomparativepurposes.

3. In appraisingasubjectpropertyatagiventime, it is all butimpossibleto find salesdatathatareexactlythesameandthatweresold on thesamedate.As a generalrule themoreadjustmentsthatmustbemade,thelessreliabletheindicatedvalueof your subjectpropertyis goingto be.

Themarket-dataapproachis themostcommonmethodusedin propertyvaluationandis generallyconsideredby appraisersto bethemostapplicablemethod.Its usehoweveriscontingentupon obtaininga sufficient numberof comparablesalesandfactorsinvolved in suchsales.Thevalueof propertyrestrictedto aspecificuseis oftenaffectedmoreby theeconomicnatureoftheuseratherthan by generalmarketconditions.Therefore,under certain conditions it is possibleto considersalesofsimilarly restricted properties from other locations ascomparables.

Another market-dataapproach that may be usedwhenattemptingto appraiseatypeof propertythatrarelysells is thestockanddebtmethod.This methodis basedon thetheorythatthemarketvalueof a unit may beobtainedby computingthevalueof all the items thatmakeup the liability andcapitalsectionsof thebalancesheet.

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Cost approach

The costapproachin a marketvalueappraisalis similar tothemarket-dataapproachin that it is basedon theprincipleofsubstitution.Thisprincipleholdsthatarationalpersonwouldnot pay more for a property than what it would cost for asatisfactoryand timely substituteproperty.

The historical-cost method is the most frequently usedtechnique,especiallyin those instanceswhere thepropertybeingappraisedis relativelynewandconstructioncostsarestillavailable.This approach,however,producesa progressively

• lessreliableestimateof value as thepropertyages.The replacement-cost-newmethod is thecostof replacing

thesubjectpropertywith onethat is comparablein termsof theutility•which will be provided.

The reproduction-cost-newmethodis thecostof producingan exactreplica of thesubjectproperty.It is not beingwidelyusedsincemostpropertieswould notbereproducedexactlyasthey weredevelopedoriginally.

One way in which deed-restrictedpublic accessairportpropertycan be•v~l~~dusingthereplacement-costmethodis toconsider the land as if it were vacant and available fordevelopmentasanairport. Theappraiseranalyzesrecentsalesandofferingsof comparablesites andcomparesthesewith the

~subjectxitewithrespecttodifferences4nlocati0n~jz~ andshape,topographyandotherphysicalcharacteristics,zoning,as well asdeedrestriction,andthedemandfor similar landinthelocal real estatemarket.

After estimatingthebasevalue for the land, theappraiserestimatesthecostsassociatedwith theconstructionof variousImprovementsnecessaryfor its use. This approachassumesthatthecontributoryvalueof theimprovementsto thelandcan

• be measuredby their costs.The basecostof thelandandcostsfor establishmentof improvementsis addedto obtainaninitialindication of costfor theproperty.

An important portion of thecostaPproachto value is theestimateof depreciation.Depreciationin theappraisalsenseiscustomarilydefinedasall lossesof utility thatresultin lossesofvalue. To • appraisers,however, a more useful definition ofdepreciation is the difference between replacement orreproduction,cost new (RCN) and the presentvalue ofimprovements.Depreciation is the measureof the valueinferiority of the subject improvement compared to ahypotheticalnewandsimilar improvement.It is desirabletoverify depreciationestimatesby salesandincomeanalysis.

Theaccountant’sdefinition of depreciationis quitedifferentfrom that of the appraiser.The accountant’sdepreciationchargeconsistsof writing off or amortizingsomepreviouslyincurredoutlays that could not properly be written off in asingleaccountingperiod. Theacccountant’sactionis usuallyinfluencedby incometax laws.

All causesof depreciationdecreaseutility. Thedecreaseinutility occursin two different ways.First, andprobablymoreimportant, the remaining life of theproperty is shortened.Insteadof yielding benefits for, say 10 or more years, thepropertymay haveonly eight yearsof serviceleft becauseofdepreciation.Second,depreciationdecreasestheamount ofeach net benefitby either yielding smaller total benefits oryielding thesametotal benefitsat a highermaintenancecost.Hence,depreciationdecreasestheremaininglife efficiencyandprofitability of property.

Therearethreegenerally,recognizedcausesof depreciation:physicaldeterioration,,functional obsolescenceandeconomicobsolescence.

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Physicaldeteriorationis alesseningof valuebecauseof somephysical changein thestructurethat lowers its utility. Theactions of man, pests,or elementscausethis depreciation.Virtually all structuresdeterioratewith age.Goodmaintenancewill lessenthis factor,while lackof maintenancewill increase-the amountof physical deteriorationto property. Physicalfactorsseta maximum possiblelife for anystructure.

It is often difficult to determine whether • functionalobsolescenceis causedby changein tastesor innovations.Functionalobsolescencehashistoricallybeenthemajorfactorin limiting theeconomiclife of structures.As buildingsagetheybecomeout of style.All structuressuffersomefunctionalobsolescencewith thepassageof time.

Economicobsolescenceis a lesseningof valuebecauseofadversefactorsoutsidethesubjectproperty that decreasethedesirability of the neighborhoodin which the property islocated.It occursbecauseof theimmobility of realestate.

Lossesin value that arecalled economicobsolescenceareusuallybeyond thepower of any oneindividual to influence.This causeof depreciationaffectsbothlandandimprovements.Not all propertieswill suffereconomicobsolescenceduringtheir economiclives.

When using thecost approachin valuing deedrestrictedpublic accessairport property, theappraisermust rememberthe eftect of that restriction on the value of the property.Extremecareis necessaryin theapplicationof this appr6ach.

Income approach

Theincomeapproachto valuemaybedefinedasanymethodof appraisingthatconvertstheincomeexpectedto beproducedby aproperty into an estimateof propertyvalue.Theincomeapproachis sometimesreferredto as thecapitalizationmethodbecauseit is theprocessby whichanincomestreamis convertedinto anindicatedvalue.

The income approachto value is a useful, but sensitive,appraisalapproach.If usedproperly, this approachhas theability to detectthepresenceof physicaldepreciationaswell asfunctionalandeconomicobsolescencein apropertybecauseofits decreasedearningability.

Economicdatafor theincomeapproachshouldbeobtainedfrom theoperationsof other public accessairport property,from thesubjectproperty,andfrom anyotherreliablesource.Extremecaremustbe usedin adjusting this datato takeintoaccounttheindividual characteristicsof thesubjectbecauseasmall error in net income will producea largeerror in theappraisal.

The basic assumptionof the income approachis that aperson purchasesproperty for the income it will yield. Adifferent way of stating this assumptionis that thevalueof aproperty dependsupon the income it produces.This is animportant assumption,and in casesin which it doesnot•correspondwith the facts, the validity of the approachisreduced.

Thelogicalwayto look at incomeis asaflowof benefitsovertime. In orderto usetheincomeapproach,thebenefitsmustbeexpressedas, or convertedinto, moneyincome.The relevantincome that should-be usedin the incomeapproachis theexpectedfuture income. Pastincomeis not aconsideration,except insofaras it may be a guide to future income.Whenproperty is transferred,thebuyerdoesnot acquirethe incomethatit hasalreadyyielded.Heis insteadbuying theright to theincomethat it will yield after he acquiresit.

The most importantstepin applying theincomeapproach

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to value is theselectionof thecapitalizationrate.Thereare

three methods of estimating the capitalization rate:

summation,band-of-investment,andmarket.

The summation method is highly subjective,frequentlyunreliabileandalwaysdifficult to use.Themarketmethodand

the band-of-investment methods both require that the

appraiserhaveaccessto somemarketdata.A more detailed

explanationof themethodsusedto arriveat acapitalizationrate may befound in theStatePropertyTax Board’s GeneralAppTaisalManual.

The next stepin estimatingtheunit value by the incomemethod is to divide the projected total income by the

• capitalization rate found by one of the aforementionedmethods.Whenthis is accomplished,theresultis anindicationof valuevia theincomeapproach.

SPECIAL CONSIDERATIONS IN APPRAISAL OF RESTRICTED LAND

Under certain conditions the remainingterm of thedeedrestrictioncan influence themarketvalueof thepropertyasrestricted.This will occurwhentherestrictionis to expireorcan be voluntarily removedwithin thenearfuture.

If this is thecase,thenabuyermight bewilling to purchasethe property in excessof its current restrictedvalue withknowledge that the property can be resoldas unrestrictedpropertyuponexpiration of therestriction.

The procedurefor theestimationof this potential valueiscommonlyreferredto asthevaluationofareversionaryinterest.

Theestimationofareversionaryinterestis appropriatewhenthe reversionaryvalue will exceedthecurrent usevalue, asrestricted.In otherwords, themarketvalue of. thepropertyis

Th~7Iii~jher ot either thecurrentusevalueas - or th~valueof the reversionto a nonrestricteduse.

The current value of a reversion may be estimatedbyprojectingthefuturevaluewhich thepropertymaybesoldfor,after therestrictionis removedanddiscountingthevalueto itspresentvaluebasedupon an appropriatediscountrate.

This procedureis referredto asmeasuringthepresentvalueof afuturesum.Themajority of appraisalandfinancial textscontain tableswhich can be usedfor this purpose.

Theappraiserwill desireto determinetheremainingtermoftherestriction.As apracticalmatter,if theremainingtermof

therestrictionexceedsten years,thevalueassociatedwith thereversionwill probablynot exceedthecurrentrestrictedvalue.Thereasonfor this is that,thecurrentvalueof afuturesumtobe receivedtenyearsor longer into thefuture is significantlyreduceddueto thediscountfactor. Forexample,thecurrentvalueof onedollarto bereceivedtenyearsinto thefuturebasedupona 14 percentdiscountrate is only 27 cents.Thereforeinmost circumstancesthe value of reversion on longer termrestrictionswill not exceedthecurrentusevalueasrestricted.

As theremainingtermof therestrictionbecomesshorterthevalueof the reversionincreasesandmay exceedthecurrentrestrictedvalue.

Theapplicationof this appraisalconsiderationcanbestbe‘iustratedhyanexarrn-~1~~. -

Assumethataspecificpropertyis subjectto theexpirationorvoluntary removal of a• deedrestriction within two years.Furtherassumethecurrentusevalue,asrestricted,is estimatedto be$100,000andthat it is projectedthatthepropertycouldbesold for $150,000at theendof twoyearswhentherestrictionisremoved.

If thediscountedrateis estimatedto be14 percent,thecurrentvalueof the reversionis $150,000x .77 or $115,500.

In this situation,thevalueof thereversionexceeds-thevalueof thecurrentuse,as restrictedandprovidesa moreaccurateindication of themarketvalueof theproperty.

II.

.

CORRELATION AND VALUE CONCLUSION

The cost, income capitalization, and market-data

approacheseach produceindependentestimatesof marketvalue.For sometypesof property,all threeapproachesmayapply.For other types,becauseof inappropriatenessor lackofdata, only one or two approachesmay apply. Since theseindependentindicatorswill. seldomproduceidenticalvalues,acorrelationof values is normally made to reach the final

estimateof marketvalue.

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Theessenceof thecorrelationis anattemptby theappraiserto explain or reconcilethedifferencesthat mayexist betweenthedifferentindicatorsof value.It is anopportunity to reviewbriefly eachapproachto value.Thefinal procedureis to makeasubjectiveallowancefor the value influences that are notalreadyreflectedin theindicators.At this point theappraisermustcome to avalueconclusion.It neednot beequalto anyoneof thevalueindicatorsbut it shouldnot beoutsideof theirrange.

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SUMMARY

Market valueis therequiredstandardfor thevaluationofdeedrestrictedproperty.Ho.wever theappraisermusttakeintoconsiderationtheeffect of theuse restrictionon themarketvalueof theland.All threetraditionalapproachesto value,themarket data approach, the cost approach,and the incomeapproach,maybeapplicablein theappraisalof deedrestrictedproperties.

When valuing public accessairportproperty,theappraisershouldbeginwith ascompleteadescriptionaspossible,bothofthephysical facts andof the generalcircumstances.To theextentallowedby quantityandaccuracyof theavailabledata,all threeapproachesto valueshould be used.I. The market-dataapproachis dependentupon haying an

• adequatenumber of sales.Sincesalesof public accessairport property are limited, it will be necessarytoconsiderabroadarea.Appropriateadjustmentsshould

• be made to accountfor theways in which thesubjectpropertydiffers from thesalesproperties.

2. Thecostapproachis thesummationof thecostof all of theindividual elements that constitute the property.Depreciation must be applied to reflect currentconditions. This data should be sought from personswhoareactiveasdesignersor buildersof suchfacilities,andfrom publicationsdirectedat themandat thosewhooperatesuchfacilities.

3. Theincomeapproachis aneffortto estimatethenetprofit ofthe facility, andto convertthis estimateto valueby theuse of one of thestandardcapitalization techniques.Income and expensesshould be obtained from theoperationsof thepropertybeingappraised,comparablefacilities, or industry sources.

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