Executive Summary
In July 2006, the Texas Comptroller of Public Accounts (Comptroller) identified Liberty-Eylau Independent School District (Liberty-Eylau ISD) and Red Lick Independent School District (Red Lick ISD), located in Bowie County, as two of 28 Texas school districts meeting the criteria that initiate an Appraisal Standards Review (ASR) of the appraisal district that serves them. In September 2006, the Comptroller's Property Tax Division (PTD), with assistance of a contractor, began its review of the Bowie County Appraisal District (Bowie CAD).
School Districts, the Property Value Study and Appraisal Standards Reviews
Texas funds public education with a combination of 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 amount of money that a school district can raise locally on the total taxable property value within each school district. The state's funding formula sends more money to districts that are less able to raise money locally because of insufficient taxable property value.
A CAD charged with appraising its property at market value serves each school district in the state. The chief appraiser of each appraisal district determines the property values that, after approval by the appraisal review board, its school districts will use to set tax rates and allocate the tax burden among taxpayers.
PTD conducts an annual Property Value Study (PVS) that estimates the value of all taxable property within each school district for state funding purposes. The PVS is an independent estimate required by the Legislature to ensure equitable school funding. The PVS ensures equity by detecting instances in which overall school property values are above or below market value, 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, which local authorities set. When local values are more than 5 percent less than state values, however, the school district may receive fewer state dollars because the state bases funding formulas on state values. Through an appeals process, a district can contest the state values, but it is critical that school districts and the appraisal districts that serve them understand the reasons for any differences in their valuations.
In 2003, the Legislature enacted a law, to grant a grace period for school districts whose state funding is adversely affected by PVS findings. During the two year grace period, school districts are given an opportunity to work closely with the appraisal district to correct any identified inaccuracies on inconsistencies, before state funding is lost. To aid in that process, the Comptroller's ASR provides the appraisal district and the local taxing units, including the school districts, 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 ASRs 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 that 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 for improving 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 an appraisal district's performance.
The Property Tax Code dictates the use of certain appraisal procedures or standards such as the Uniform Standards of Professional Appraisal Practice (USPAP), specifically Standard 6: Mass Appraisal as well as the International Association of Assessing Officer's (IAAO's) Technical Standards.
The two principal 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: generally accepted appraisal practices; governance and management; resources and management; information processing and data collection; and assessment administration.
Upon completing the review process, the Comptroller issues a report of findings that may include commendations for exemplary appraisal practices and recommendations for improvements. The law requires appraisal districts to comply with the recommendations for improving appraisal performance within one year of the report's release.
If the CAD fails to comply with those 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 law requires the Comptroller to 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 found several commendable practices implemented by dedicated and hard-working appraisal district employees, Bowie CAD faces challenges in achieving and maintaining current market valuations as listed in the key findings.
Key Findings and Recommendations
- Revise the reappraisal plan to include specific details on items such as the properties involved in the reappraisal, costs, staffing, management and other details necessary to complete a successful reappraisal. Bowie CAD's reappraisal plan does not have the information necessary to perform appraisal duties effectively as outlined in Standard 6 of the Uniform Standards of Professional Appraisal Practice or to conform to IAAO recommended appraisal practices. Lack of an accurate reappraisal plan can inhibit staff from fully executing a successful reappraisal. A comprehensive reappraisal plan, if executed properly, helps ensure that the CAD appraises properties on a timely basis, allocates appropriate resources and keeps up with market changes.
- Establish comprehensive, written ratio study procedures that allow for generally accepted appraisal practices for reappraisal and maintenance planning as recommended by the IAAO Standard on Ratio Studies. Bowie CAD lacks detailed ratio study procedures and policies that outline and define the CAD's analysis and implementation of ratio study results as recommended by IAAO standards. By continuing to apply ratio study results in inconsistent or inappropriate manner, the CAD runs the risk of not properly recognizing and adjusting schedules for market changes and unequally valuing market areas. By developing more formal ratio study policies and procedures, the CAD could improve consistency among the staff appraisers when analyzing sales; developing schedules and adjustment factors; modifiers; or depreciation factors.
- Appoint, with the board's consent, an agricultural advisory board consisting of local experts, to assist staff with agricultural valuations and guidance. Bowie CAD does not have an agricultural advisory board. The CAD's lack of an agricultural advisory board may have contributed to its falling out of the confidence interval. An agricultural advisory board provides CAD staff with expert advice in the calculation of productivity values and oversight to ensure productivity calculations are evenly spread among land classifications.
- Develop and implement a plan and timeline for completion and integration of maps into the GIS. Bowie CAD does not have a written timeline or implementation plan for converting paper maps to a computerized or integrated geographic information system (GIS). By not developing timelines and implementing procedures for development and utilization of a GIS, the CAD runs the risk of falling behind in technology as well as sacrificing the efficiencies a GIS can provide relating to CAD appraisal activities. A GIS can contribute to a timely and more efficient reappraisal and help maintain consistent property valuation.
Other Recommendations
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.
- Develop a board policy manual that incorporates the policies required by the Property Tax Code Section 6.04, as well as other matters that will enhance board performance in the delivery of services and management of the CAD.
- Provide proper notice of proposed budgets as required by Property Tax Code Section 6.062.
- Conduct a complete analysis of office organization and facility needs, including the advisability of keeping two offices, to establish appropriate organization and workflow and implement the results of the study.
- Develop, adopt and use a job description for the chief appraiser and an instrument for hiring and annually evaluating the chief appraiser.
- Develop and maintain adequate standards of practice, including administrative policies, procedures and manuals to guide day-to-day operations.
- Develop and implement a comprehensive, written disaster recovery plan for Bowie CAD.