In July 2005, the Texas Comptroller of Public Accounts identified Bandera Independent School District (ISD), located in Bandera County, Texas, as one of 34 Texas school districts meeting the criteria that initiate an Appraisal Standards Review (ASR) of the appraisal district that serves them. In March 2006, the Comptroller's Property Tax Division, with the assistance from contractors, began its review of the Bandera County Appraisal District (Bandera CAD).
School Districts, the Property Value Study and Appraisal Standards Reviews
Texas public education is funded by a combination of state and local funds. Local funding comes from property taxes assessed by a school district's board of trustees. State funding is based on the amount of money that can be raised locally on the total taxable property value within each school district. Each school district in the state is served by a county appraisal district that is charged with appraising property in the school district at market value. The chief appraiser of each appraisal district with Appraisal Review Board (ARB) review and approval determines the property values that are used by the district to set tax rates, which allocates the tax burden among taxpayers.
The Comptroller's Property Tax Division (PTD) annually conducts a Property Value (PVS) that assigns a value to all taxable property within each school district for state funding purposes. The PVS, an independent estimate mandated by the Legislature, is designed to ensure equitable school funding. The PVS ensures equity by detecting instances where school property values are inaccurate, and adjusting property values 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 if that aggregate local value is more than 5 percent below the state's estimate of the correct value, the school district could receive less state funding than expected. Through an appeals process, a district can contest the state values, but understanding the reasons for the differences in the valuations is critical for school districts and the appraisal districts that serve them.
In 2003, a new law, recommended by the Comptroller's Property Tax Division Technical Advisory Committee, was enacted to grant a grace period for schools negatively impacted by PVS findings. The Comptroller does not believe that schools should be punished for the actions or inaction of their appraisal districts. The grace period permits schools to receive full state funding while ASRs are performed by the Comptroller.
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; have valid local values for the two preceding years; and have 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
Appraisal standards reviews of CADs are conducted by the Comptroller's office when one or more school districts within the CAD is eligible for the grace period. By conducting ASRs, the Comptroller's office helps school districts understand and ensure that all properties in the district are fairly and accurately valued. ASRs identify problems and recommend changes in procedures or methods to improve appraisal accuracy and compliance with state law and appraisal standards.
An ASR examines and evaluates appraisal practices including planning, procedures and methodology, and the application of and adherence to appraisal standards. The Texas Property Tax Code and Comptroller Rules are the major criteria used to measure appraisal district performance.
The Property Tax Code dictates certain appraisal procedures or standards such as the Uniform Standards of Professional Appraisal Practice (USPAP), specifically Standard 6: Mass Appraisal. The International Association of Assessing Officer's (IAAO) Standards on Assessment Practice also is used as the professional and industry standard.
The two principal focuses of the ASR are to determine why the local value is deemed invalid and to recommend improvements in appraisal practices. The review evaluates five functional areas of operations: governance and management; generally accepted appraisal practices; resources and management; information processing and data collection; and assessment administration.
Upon completion of the review process, the Comptroller issues a report of findings that includes commendations for exemplary appraisal practices and recommendations for change. The appraisal district is required by law to comply with the recommendations within one year of the release of the report.
By law, if the CAD fails to comply with the recommendations in the report and the Comptroller finds that the board of directors of the CAD failed to take remedial action within a year from when the report was issued, the Comptroller is required to notify the judge of each district court in the county for which the CAD is established. The district judge is required to 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 CAD until each school district is determined to have a valid local value in an annual PVS. The CAD shall bear the costs related to the supervision and control of the CAD by the board of conservators.
While the review team found a commendable practice implemented by dedicated and hard-working appraisal district employees, Bandera CAD also faces a number of challenges in achieving and maintaining valid values.
Key Findings and Recommendations
- Complete, adopt and implement a reappraisal plan, as required by the Property Tax Code Sections 6.05(i) and 25.18. Bandera CAD lacks a comprehensive written reappraisal plan. The absence of a comprehensive reappraisal plan may have contributed to an invalid finding for Bandera ISD in the 2004 PVS and invalid findings for Bandera, Medina and Utopia ISDs in the 2005 preliminary PVS. By completing and implementing a written reappraisal plan, the CAD may help ensure that values in each school district are valid in the PVS, thereby avoiding the possibility of a school district receiving less than the expected amount of funding from the state.
- Develop complete appraisal manuals for use in performing commercial and personal property appraisals. Bandera CAD lacks documented procedures to perform commercial and personal property appraisals as provided by Texas Property Tax Code Section 5.05(a). Lack of annual inspections and independent valuation may result in inaccurate and inequitable appraisals. By adopting an appraisal manual, the CAD can assist appraisers in being uniform and consistent in classifying properties.
- Prepare and analyze ratio studies frequently to identify areas of concern and take corrective actions to mitigate issues of value. Bandera CAD's market analysis and ratio studies have been insufficient to address valuation issues adequately in a changing market. These limited efforts to perform ratio studies may have contributed to CAD values falling below the confidence interval for Bandera ISD. By preparing and analyzing ratio studies for all property types and all market areas, the CAD can determine if appraised values no longer reflect the market and can then consider available sales data to determine the market adjustment factor it will use to adjust its appraisal schedules to reflect current market values.
Bandera CAD has a commendable practice that might prove useful for other county appraisal districts.
- Bandera CAD's board and chief appraiser initiated and undertook actions to address long-standing problems in the CAD. Bandera CAD initiated effective long-term planning policies and procedures that address strategic issues facing the organization in a timely manner. The new chief appraiser found that the CAD was sales chasing, which artificially keeps the CAD within the values of the confidence interval limits of the PVS, but can result in unequal taxation for property owners. The chief appraiser took a number of steps to improve the accuracy of appraisals, including working with each field appraiser to determine the appraiser's current level of knowledge; increasing cost schedules based on market analysis and ratio study results; and discussing the PVS and its issues with the board during monthly board meetings, as well as with various civic groups. Because of the steps taken by the chief appraiser and the board, Bandera CAD now has a better grasp of the challenges it faces and has begun to address strategic needs in its long-term planning. The board documented areas for improvement as goals for the following year and is reviewing personnel needs of the CAD in light of a growing population and increasing demands on the CAD.
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.
- Improve budget planning to comply with all aspects of the Property Tax Code and provide taxing entities and the public a complete financial picture.
- Ensure taxing entities receive credit or refunds of any excess fund as required under Property Tax Code Section 6.06 (j).
- Improve petty cash fund procedures to address and strengthen internal controls and assure full and proper reporting of this fund.
- Evaluate the chief appraiser on an annual basis.
- Develop a long-term strategy to provide the CAD with an adequate number of staff and a salary structure that is comparable to and competitive with other public sector organizations in the area.
- Make the test Web site permanent, assure it includes useful and accurate content and designate someone to keep it up-to-date.
- Develop and implement a disaster recovery plan that provides for frequent backup of all information and off-site storage of tapes to ensure the security of information.