In July 2004, the Elkhart Independent School District (Elkhart ISD), located in southern Anderson County was identified as one of 54 school districts in the state meeting the criteria that initiate an Appraisal Standards Review (ASR) of the county appraisal district that served them. In October 2004, the Comptroller's Property Tax Division (PTD) began an Appraisal Standards Review (ASR) of the Anderson County Appraisal District (Anderson CAD).
Appraisal Standards Reviews
The 78th Legislature, Regular Session, directed the Comptroller's office to conduct appraisal standards reviews of county appraisal districts if the Comptroller finds in its annual Property Value Study (PVS) that the appraisal district has one or more "eligible" school districts. Eligible school districts are those that meet all of the following conditions:
- the district's values are invalid in the most recent property value study;
- the district's values were valid in the two studies preceding the most recent study; and
- the district's local value is above 90 percent of the lower threshold of the margin of error.
In Texas, public education is paid for by a combination of state and local funds. Local funding comes from local property taxes. The chief appraiser of each county appraisal district (CAD) determines local property values, and school districts set tax rates that determine the amount of local tax revenue. Appraisal districts are required by law to appraise property at market value. Market value, in simple terms, is the price for which a property would sell under normal conditions. State funding is based on the total taxable property value within each school district as determined by the PVS.
The PVS independently estimates the taxable property value in each school district to ensure that state values reflect market value, which in turn ensures that school districts have approximately the same number of dollars to spend per student, regardless of the school district's property wealth or lack of property wealth. School districts with less taxable property value per student receive more state dollars for each pupil than districts with more value per student. The state's fair distribution of school funding depends largely on the Comptroller's taxable value findings.
By conducting appraisal standards reviews, the Comptroller's office helps school districts to understand the reason for the invalid finding so they can effectively work with the appraisal district to correct the problems and achieve market values in future tax years. The purpose of an ASR is to identify problems and recommend changes in procedures or methods to improve appraisal accuracy.
An ASR examines and evaluates a county appraisal district's (CAD) appraisal practices including appraisal planning, appraisal procedures and methodology, and application and adherence to appraisal standards. The Tax Code and Comptroller rules are the major criteria used to measure an appraisal district's performance. The evaluation of the appraisal district's appraisal methods are based on a comparison of local methods and procedures to those generally accepted by the mass appraisal industry in Texas and those practices mandated by state law or Comptroller Rule. The Tax Code dictates certain appraisal procedures or standards such as the Uniform Standards of Professional Appraisal Practice (USPAP), specifically Standard 6: Mass Appraisal and Standard 7: Personal Property. Also the International Association of Assessing Officers (IAAO) Standards on Assessment are used as guidelines on the operation of an assessment office.
The two principal focuses of an ASR are to determine why a school district was deemed eligible and to make recommendations to improve appraisal practices so the school district's taxable values can be determined valid in future studies. The review evaluates five broad functional areas of CAD operations, including information processing systems, district staffing, property mapping and discovery, appraisals and appraisal standards.
The review methodology includes a self-assessment completed by the CAD, staff interviews, reviews of written policies, procedures, plans, financial and management audits, and assessments of manual and automated records systems.
As the result of the review process, the Comptroller is issuing this report of its findings that includes recommendations for change. The appraisal district is required by law to comply with the recommendations within one year of the release of this report. If the Comptroller determines that the appraisal district board of directors failed to take remedial action within one year after the issuance of the review, the Comptroller shall notify the district judges serving in the county, who shall appoint a five-member board of conservators to implement the recommendations. The board of conservators shall exercise supervision and control over the operations of the appraisal district until the Comptroller determines under Section 403.302, Government Code, that in the same year the taxable value of each school district for which the appraisal district appraises property is the local value for the school district. The appraisal district shall bear the costs related to the supervision and control of the district by the board of conservators.
The reviewer found the Anderson CAD employees to be knowledgeable, dedicated and hardworking; however, Anderson CAD is facing a number of challenges in achieving and maintaining consistent valid value findings, including:
- conducting effective market analyses;
- documenting procedures and appraisal methods; and
- planning for reappraisals.
Key Findings and Recommendations
Conduct Effective Market Analyses
Use ratio studies to effectively adjust land schedules. Anderson County Appraisal District periodically conducts ratio studies within property use categories, taxing jurisdictions and the entire appraisal district. While the district's ratio studies are helpful in identifying general market trends, actual sales prices of similar-sized land tracts throughout the county are not always consistent. The appraisal district needs to perform market analyses to define its real estate markets and conduct ratio studies of each market. The appraisal district needs to begin to study land sales based on matching individual property characteristics rather than by school district location. Future ratio studies should stratify sales (or independent appraisals) based on common features of individual properties rather than just location.
Establish written procedures for gathering and analyzing sales. Anderson County does not have access to the local multiple listing service (MLS) for real estate professionals, making the gathering of sales data a difficult process. To obtain market data from sales, the appraisal district staff request sales information from local appraisers, realtors and by researching deed recordings to identify property transactions. The district sends sales confirmation letters to buyers and sellers to confirm and verify the transaction and the amount of the transaction. Appraisal district staff also researches building and sewer permits to gather information about new construction or construction on existing property. While the district's confirmation and verification procedure is one that is commonly used by appraisal districts without access to a MLS, the appraisal district's procedure for gathering and analyzing sales and market data is not written or contained in a procedures manual. Written procedures ensure that market analyses are done consistently, regardless of changes in personnel. Knowing what analysis needs to be done, when to perform the analysis, and how to actually perform it is the key to maintaining continuity and a high level of appraisal performance.
Document Procedures and Appraisal Methods
Develop a policies and procedures manual. The district does not have a comprehensive policy and procedures manual for appraisal district staff to follow. Written policy and procedures are essential to effectively managing day-to-day operations. Procedure manuals outline step-by-step the methods and activities of all the key functions of the district. A policy and procedures manual is also necessary for training new employees and as a reference guide for current employees.
Expand the appraisal manual. Section 23.01, Tax Code, mandates that property is to be appraised by applying generally accepted appraisal methods and techniques and that appraisal districts comply with the Uniform Standards of Professional Appraisal Practice (USPAP). CADs must use similar appraisal methods and techniques and apply these to the same or similar properties, while taking care to account for the contributions of individual property characteristics on value. The Anderson CAD appraisal manual contains property class descriptions and building cost tables but it does not include important reference materials. The manual lacks directions and procedures for usage and does not include an explanation of how the appraisal district developed its cost schedules. An expanded manual can be a useful tool as evidence during appraisal review board hearings and in demonstrating that the district complies with its own policies.
Plan for Reappraisals
Adopt and execute a detailed reappraisal plan. In accordance with the requirement of Section 25.18, Tax Code, local policy requires a reappraisal every three years. The appraisal district differentiates a reappraisal from appraisal maintenance since a reappraisal involves adopting new appraisal schedules. A good reappraisal plan, however, not only provides for reappraisal of all real property in a district at least once every three years, but also can be a roadmap for performing the work. It is also a communication tool that shows the appraisal district board of directors how the appraisal district staff plans to accomplish its appraisals and allows the board to direct the appraisal activities by amending the plan as presented by the chief appraiser. The appraisal district should develop a comprehensive reappraisal plan.
Develop an implementation plan including a timeline to complete the integration of the district's appraisal software and geographic information systems. Anderson CAD has a geographic information system (GIS) that includes detailed property maps capable of property data overlays but the district has not integrated the GIS with its appraisal system. Integrating the systems will enable the district's appraisers to thoroughly analyze all property characteristics when making appraisal decisions. The district needs to complete this project as soon as possible and should develop a plan and a timeline for completing the integration project.
The reviewer identified some commendable practices in Anderson CAD that other county appraisal districts may do well to review and implement where appropriate.
The district has a comprehensive personnel handbook that informs employees of their rights and responsibilities. Anderson CAD has a well-written and comprehensive personnel policy handbook. It explains the district's policy as an at-will employer. The handbook covers appraisal district employment policies relating to behavior and conduct and employee benefits and compensation. The handbook also describes the appraisal district's performance evaluation process and includes employee forms used in administering the district's human resource system.