In July 2006, the Texas Comptroller of Public Accounts (Comptroller) identified Bellville Independent School District (Bellville ISD), located in Austin County, as one of 28 school districts meeting the criteria to initiate an appraisal standards review (ASR) of the appraisal district that serves them. In November 2006, the Comptroller's Property Tax Division (PTD), with assistance from contractors, began its review of the Austin County Appraisal District (Austin CAD).
School Districts, the Property Value Study and Appraisal Standards Reviews
Texas funds public education with state and local funds. Local funding comes from property taxes assessed by a school district's board of trustees. The state bases its funding on the local funds raised based on the total taxable property value within each school district. The state's funding formula sends more money to districts that raise less money locally due to insufficient taxable property value.
Each school district in the state is served by a county appraisal district charged with appraising its property at market value. The appraisal district's chief appraiser determines the property values that – after approval by the Appraisal Review Board – its school districts will use to set tax rates, which allocates the tax burden among taxpayers.
PTD conducts an annual property value study (PVS) that assigns a value to all taxable property within each school district for state funding purposes. The PVS, an independent estimate required by the Texas Legislature, is designed to ensure equitable school funding. The PVS ensures equity by detecting inaccurate school property values and adjusting them to market value in the state's funding formula.
The Comptroller's values do not directly affect local values or property taxes. However, when study statistics give the Comptroller a high degree of confidence that the aggregate local value for property categories tested in the study is lower than the state's estimate of the correct value, and that aggregate local value is more than 5 percent below the state's estimate, the school district may receive less state funding than expected. Districts can contest the state values though an appeals process. But understanding the reasons for the differences in valuations nevertheless can be critical for school districts and the appraisal districts that serve them.
The Texas Legislature enacted a law to grant a two-year grace period for school districts whose state funding is adversely affected by PVS findings. During the two-year grace period, school districts can work closely with the appraisal district to correct any inaccuracies or inconsistencies, before state funding is lost. The Comptroller's ASR provides the appraisal district and the local taxing units, including the school districts, with an independent assessment of the appraisal district's operation.
By law, to be eligible for this grace period, a school district must have an invalid local value that does not exceed the state value; valid local values for the two preceding years; and a current aggregate local value for tested property categories that is at least 90 percent of the lower limit of the margin of error.
Appraisal Standards Reviews
The Comptroller's office performs appraisal standards reviews when a school district is eligible for the grace period. By conducting ASRs, the Comptroller's office helps school districts understand the reason for the invalid finding so they can work with their appraisal districts to correct problems and ensure that all properties in the district are valued fairly and accurately. ASRs help appraisal districts identify problems and recommend changes in procedures or methods to improve appraisal accuracy and compliance with state law and appraisal standards.
In conducting an ASR, the Comptroller's office examines and evaluates appraisal practices including planning, procedures and methodology, and the application of and adherence to appraisal standards. The Property Tax Code and Comptroller rules are the major criteria used to measure appraisal district performance.
The two focuses of the ASR are determining why the local value is invalid and recommending improvements to appraisal practices. The review evaluates five areas of operations: governance and management; generally accepted appraisal practices; resources and management; information processing and data collection; and assessment administration.
Upon completing the review process, the Comptroller issues a report of findings that includes commendations for exemplary appraisal practices and recommendations for improvements. The law requires appraisal districts to comply with these recommendations within one year of the report's release.
If the CAD fails to comply with the recommendations and the Comptroller finds that the CAD's board of directors failed to take remedial action within a year of the report's issuance, the Comptroller must by law notify the judge of each district court in the county. The district judge, in turn, must appoint a five-member board of conservators to implement the recommendations. This board of conservators supervises and controls the CAD's operations until each school district has valid local values in an annual PVS. The CAD must bear the costs for this supervision and the board of conservators.
While the review team identified commendable practices implemented by appraisal district employees, Austin CAD faces several challenges in achieving and maintaining current market valuations.
Key Findings and Recommendations
- Develop and use a local modifier to adapt construction estimating data to accurately reflect construction values. Austin CAD does not adapt the cost information from its cost estimator service to reflect local conditions needed to accurately estimate its construction values. Not adapting the construction estimates contributed to Bellville and Sealy ISD's single-family residences being appraised at values other than market value and endangering full state funding for both ISDs. By using a local modifier, the CAD can help ensure that CAD staff performs accurate cost approach appraisals and that property owners receive equitable value.
- Revise the biennial reappraisal plan to include information required by the Property Tax Code. Austin CAD's written reappraisal plan does not have sufficient information to meet Property Tax Code, Uniform Standards of Professional Appraisal Practice (USPAP) or International Association of Assessing Officers (IAAO) requirements. Lack of a detailed plan has resulted in property reappraisals occurring every four to six years and has contributed to invalid ISD findings. A complete reappraisal plan provides a framework for staff to consistently and accurately reappraise all CAD property every three years as required by statute.
- Revise the appraisal manual to include complete procedures for conducting fieldwork activities, applying depreciation and performing the cost approach in valuing properties. Austin CAD's appraisal manual does not have sufficient procedures to guide staff in consistently and uniformly performing appraisal activities.
- The CAD should work with its software vendor to create a formal trend analysis procedure to assist the CAD with reappraisal planning. The CAD does not perform a trend analysis of its ratio studies to forecast market trends. Without trend analysis, the CAD may delay needed adjustments, which can cause the CAD's values to fall outside accepted PVS ranges. In a CAD with significant growth such as Austin CAD, a trend analysis of ratio study results that is performed on a scheduled basis such as quarterly or semi-annually, allows the chief appraiser to more quickly forecast market movements; thereby allowing the chief appraiser to responsively determine whether or how much to adjust or modify local schedules.
The review team identified commendable practices in Austin CAD that other county appraisal districts should adopt as appropriate.
- Austin CAD improved accuracy and appraiser productivity by changing its appraisal record update process. The chief appraiser eliminated the practice of appraisers entering their own updates of appraisal information; a data entry clerk now enters all updates and appraisers check the updates for accuracy. The process has improved quality and consistency of the updates and appraiser productivity. The chief appraiser estimated the CAD has gained about one day per week of appraiser time to focus on performing appraisals, rather than data entry.
- Austin CAD improved residential appraisal accuracy by strengthening sales data gathering practices. The chief appraiser attributed the lack of accurate sales data as the primary reason for Austin CAD's 2005 single-family residence PVS values falling outside the accepted PTD confidence levels in Bellville ISD and Sealy ISD. To improve sales data collection, the chief appraiser sent letters to buyers and sellers to obtain sales information; developed and improved relationships with appraisers and agents; collected sales information through the informal and formal protest processes; and updated land schedules to reflect market value. As a result of these changes, the difference between the CAD's market value and the actual sales price has significantly narrowed for single-family residences.
- Austin CAD's computer use policy ensures appropriate use of its computer systems and equipment by employees. The CAD's policy, developed and implemented in January 2002, defines appropriate use and prohibited activities related to general computing, e-mail and voice mail and network security. The policy provides the foundation for the appraisal district to secure its network and systems against unauthorized access or use. The chief appraiser views it as an important tool for the CAD to enforce compliance and take corrective action if staff inappropriately uses CAD computer assets.
In addition to the recommendations directly linked to the appraisal process, the report makes the following management-related recommendations for the CAD's consideration. Several of these recommendations include compliance with existing laws. As Texas governmental entities, appraisal districts are required to comply with all applicable existing laws.
- Comply with Property Tax Code requirements by expanding the adopted budget format to include staff benefit costs by position and itemized lists of capital expenditures and by submitting budget allocations with the adopted budget to the taxing entities.
- Develop and implement required local board policies to comply with statutory requirements and to guide the appraisal district in effectively managing operations.
- Develop a well-defined written performance evaluation tool and use it to evaluate the chief appraiser annually.
- Develop and implement comprehensive business operations procedures.
- Update personnel policies annually and include a review of the personnel manual against current employment law as part of the update process.
- Review personnel file contents annually for completeness and maintain confidential information in separate files stored in locked cabinets that provide access only to those with an actual need to know.
- Develop and implement a comprehensive disaster recovery plan that specifies backup and recovery activities and uses fireproof and waterproof storage options.