In July 2004, the Hedley Independent School District (Hedley ISD), located in Collingsworth County, Texas, 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 March 2005, the Comptroller's Property Tax Division (PTD) began an Appraisal Standards Review of the Collingsworth County Appraisal District (Collingsworth 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, under most circumstances, are required by law to appraise property at or near 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. ASRs 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 the 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. The Tax Code dictates certain appraisal procedures or standards such as the Uniform Standards of Professional Appraisal Practices (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 the review are to determine why a school district served by the CAD was deemed eligible and to make recommendations to improve appraisal practices so the school district's values can be determined valid in future studies. The review evaluates five broad functional areas of CAD operations: 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 and commendations for exemplary district appraisal practices. 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 pursuant to the annual Property Value Study, 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.
While the review team found several commendable practices implemented by dedicated and hardworking district employee, Collingsworth CAD is facing a number of challenges in achieving and maintaining consistent valid findings, including:
- documenting procedures and appraisal methods; and
- reappraising regularly.
Key Findings and Recommendations
Document Procedures and Appraisal Methods
Revise the professional appraisal services contract to include delivery dates and develop a contract monitoring process and include it in future contracts. The district contracts with Pritchard & Abbott, Inc. for its professional appraisal service, but does not have a provision for the dates when appraisal services will be delivered. In addition, the district does not have a contract monitor. P&A does the appraisal for almost all property in Collingsworth CAD. The chief appraiser appraises less than 150 properties. The contract describes the services that the appraisal contractor will deliver but it does not give any dates as to when those services will be delivered to the district. In order to get the appraisal roll ready each year, the appraisal district should have a deadline for all of the appraisal information to be completed and in the appraisal district computer system before the appraisal notices are run. A contract monitor is needed to ensure the services are delivered on time and that the quality and quantity are in accordance with the contract
Develop a written policy and procedures manual for district operations. 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 necessary for training new employees and as a reference guide for current employees. The manual can also help the public understand how the district functions and accomplishes its tasks
Establish written procedures for gathering and analyzing sales and develop appraisal manuals. Collingsworth County does not have a multiple listing service (MLS) for real estate professionals, making the gathering of sales data a difficult and slow process. To obtain market data from sales, the appraisal district researches 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. The chief appraiser also verifies sales through local banks, realtors and abstract companies. While the district's confirmation and verification procedure is one that is used by appraisal districts without an 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.
Adopt a detailed reappraisal plan. A general reappraisal plan is contained in the 2003 Through 2005 Contract for Appraisal Services between Pritchard & Abbott, Inc. and Collingsworth County Appraisal District. Collingsworth CAD's reappraisal plan is presented in general terms and indicates reappraisals are to be performed in one-third increments for each of the three years of the contract. A slightly different reappraisal plan is actually followed in the field, which divides appraisal work by category type. Specifically, rural properties were reappraised in 2004, commercial properties will be appraised in 2005 and residential properties in 2006. Section 25.128, Tax Code, requires appraisal districts to implement a plan for reappraisal. A good reappraisal plan 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 chief appraiser plans to accomplish its appraisals and allows the board to direct the appraisal activities by amending the plan as presented by the chief appraiser
Physically inspect all business personal property accounts each year and develop an independent verification and valuation of the business personal property. The district relies mainly on rendition forms in valuing business personal property. Some of the rendition forms will be reviewed for reasonableness and physical inspection conducted if needed. The district also trends and depreciates computer equipment when sufficient information exits. Section 23.01 of the Property Tax Code requires all property to be appraised at market value, taking into consideration the individual characteristics of each property. Annual inspections are necessary to identify changes in the character of the accounts, as well as changes in ownership and location of property. Independent verification, inspection and valuation of inventories, fixtures and equipment ensure that accounts reflect market value.
The review team identified some commendable practices in Collingsworth CAD that other county appraisal districts may do well to review and implement where appropriate
Collingsworth CAD has a comprehensive ratio study system that allows proper reappraisal and maintenance planning. The Collingsworth CAD's computerized appraisal system allows the appraisal district to analyze its appraisals through ratio studies within and among property classifications. Ratio studies are conducted continuously and results are used to evaluate cost schedules. Sales used in the ratio studies are verified by local realtors, abstract companies and appraisers. Statistical measures included in the ratio study process include range, mean, median, absolute deviation and coefficient of dispersion. Appraisal districts use ratio studies to plan appraisal maintenance programs. The ratio study results identify those market areas, which may not reflect the market. Frequent ratio studies and the appraisal maintenance that follows enable an appraisal district to keep its values at or near the market.