In July 2004, the Lindsay Independent School District (Lindsay ISD), Callisburg Independent School District (Callisburg ISD) and the Valley View Independent School District (Valley View ISD), located in Cooke County, Texas, were identified as three 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 May 2005, the Comptroller's Property Tax Division (PTD) began an Appraisal Standards Review of the Cooke County Appraisal District (Cooke 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's office 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 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 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, 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's office 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 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.
While the review team found commendable practices implemented by dedicated and hardworking district employees, Cooke CAD is facing a number of challenges in achieving and maintaining consistent valid findings, including:
- managing financial operations;
- documenting policies and procedures; and
- evaluating appraisal activities and managing reappraisals.
Key Findings and Recommendations
Manage Financial Operations
Develop and expand the budget document that is distributed to the taxing units to include the benefits for each position. Section 6.06, Tax Code requires CAD board of directors to adopt budgets that list all positions and benefits for each position. The 2001, 2002, 2003, and 2004 adopted district budgets contain the information for employee benefits but only in total dollar amounts rather than in a breakdown by staff position as required in Tax Code Section 6.06(a). By expanding the budget, not only will the CAD be in compliance with the law but citizens and participating taxing units will better understand the need for district expenditures.
Develop procedures for responding to notes on the financial statement and management letter findings. In the Cooke CAD's 2002 Annual Financial report, there were three major findings (deficit fund balance, expenditures exceeded budgeted amounts in several categories and a theft by an employee totaling $31,045.) No procedures to correct these occurrences in the future were presented. By establishing procedures the CAD will be able to address problems identified by any financial audit quickly.
Establish written procedures for monitoring professional services contracts and revise current contracts as they expire to include venue clause, deliverables and deliverable dates. The Cooke CAD does not monitor its contracts and agreements. Monitoring contracts allows an organization to keep track of service providers and ensure services and goods are delivered on time. By developing procedures for contract monitoring, the district will ensure it receives external appraisals and other services when it needs them.
Document Policies and Procedures
Use the evaluation tool and establish an annual evaluation process for the chief appraiser. The district has had the same chief appraiser for a long period of time. The district was unable to produce any written evaluations of the chief appraiser. By developing evaluation measures, the board of directors can evaluate the chief appraiser objectively based on performance.
Develop a comprehensive written policy and procedures manual for district administrative operations. Cooke CAD lacks well-documented policies and procedures to guide the day-to-day operations of the district in areas such as payroll processing, accounting, purchasing and related functions. Written procedures help guarantee tasks are performed correctly and provide useful training tools for new employees. By having a written policy and procedures manual for district operations, the district ensures consistency in performing daily functions and the procedures act as an internal control mechanism.
Prepare and issue to each appraiser detailed appraisal procedures manuals that provide local procedures and practices for each type of property the staff appraises. The appraisal district lacks written appraisal procedures manuals for the appraisal staff. Written procedures provide detailed instructions to all appraisers and help to make sure each appraiser is appraising all property uniformly. Detailed information on local conditions helps ensure appraisers make defensible and accurate appraisals.
Evaluate Appraisal Activities and Manage Reappraisals
Adopt a detailed reappraisal plan that, at a minimum, includes the vital steps in the process, explains exactly how and when the steps will be executed, and explains how sufficient resources will be allocated to follow the plan. Cooke CAD lacks a detailed reappraisal plan to ensure the execution of timely and accurate reappraisals. The CAD's reappraisal plan does not outline staffing requirements, a detailed work plan, a budget or how the district's ratio studies will be used in establishing reappraisals. A detailed plan assures management is aware of the process that the district will use in conducting reappraisals, ensures resources are available for conducting reappraisals and provides a roadmap for completing the reappraisals.
Establish comprehensive written ratio study procedures that allow proper reappraisal and maintenance planning. Cooke CAD lacks detailed ratio study procedures. No information was given on ratio studies to the consultant. The 2003 Comptroller's Property Value Study identified some areas that the district needs to research to ensure appraisal uniformity. Ratio studies performed by the district, when thoroughly researched, are an excellent tool in identifying properties that are not being appraised at market value.
The review team identified some commendable practices in Cooke CAD that other county appraisal districts may do well to review and implement where appropriate.
The Cooke CAD is commended for its use of technology and for having the maps digitized and integrated into the system. Cooke CAD uses appraisal system technology to complete appraisals. The Cooke CAD uses computers and software that is updated. The chief appraiser has a desktop and a laptop and the other employees have desktops.