In July 2006, the Texas Comptroller of Public Accounts identified Culberson-Allamoore Independent School District (Culberson-Allamoore ISD), located in Culberson County, as one of 26 Texas school districts meeting the criteria that 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 Culberson County Appraisal District (Culberson 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 can be raised 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.
Each school district in the state is served by a county appraisal district charged with appraising its property at market value. The chief appraiser of each appraisal district, with the review and approval of the district's Appraisal Review Board, determines the property values 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 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 instances in which school property values are inaccurate 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 through an appeals process. But understanding the reasons for the differences in valuations can nevertheless be critical for school districts and the appraisal districts that serve them.
The 2003 Texas Legislature granted 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 are given an opportunity to work closely with the appraisal district to correct any inaccuracies or 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, with an independent assessment of the appraisal district's operations.
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. Then 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 appraisal district 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 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 including 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 report's 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 found several commendable practices implemented by dedicated and hard-working appraisal district employees, Culberson CAD faces several challenges in achieving and maintaining current market valuations.
Key Findings and Recommendations
Develop an appraisal manual that includes detailed procedures for conducting fieldwork activities, developing appropriate values and timely updating of property schedules. Culberson CAD does not have an appraisal manual that provides detailed procedures to guide staff in consistently performing appraisal activities. Lack of detailed appraisal procedures manuals may cause inconsistent appraisals and result in property values that deviate from market value. By providing comprehensive, written guidance to the appraisal staff, the CAD can help ensure consistency and accuracy in the appraisal process.
Develop agricultural land schedules using methodologies from the Property Tax Code and Manual for the Appraisal of Agricultural Land and develop written agricultural use guidelines. Culberson CAD does not have written guidelines for using of agricultural schedules. A lack of written agricultural use guidelines may have contributed to the CAD having an overall ratio productivity value in D1 of 0.86 and a ratio of 0.91 for native pastureland in the 2005 PVS. By maintaining agricultural use schedules and developing and using written agricultural use guidelines, the CAD can provide confirmation of correct productivity values, explain how the agricultural qualifications are applied and help ensure that actual productivity values and net-to-land calculations are used for assessing taxes.
Reinstitute the agricultural advisory board and recruit qualified members to serve. Culberson CAD has not established an agricultural appraisal advisory board (ag board). By not using an ag board, Culberson CAD fails to take an opportunity to increase communication with the ranching community and to use this valuable source of information to develop accurate agricultural land use schedules. Having an ag board may also help the CAD achieve better D1 ratios in future PVSs.
Develop a reappraisal plan that includes consistent changes in local market activity, helps ensure values are equitable and consistent with the market, defines the role of the outside appraisal services firm and meets the requirements of the Property Tax Code Section 25.18. Culberson CAD's written reappraisal plans do not ensure that all properties are identified and appraised in a timely manner, which may affect values in the CAD. The lack of a detailed plan resulted in property appraisals occurring on an as-needed basis and contributed to invalid property value findings. By adopting a well-executed reappraisal plan the CAD ensures all parcels are identified and each parcel is appraised in a timely manner, the school districts receive their appropriate amount of state funding and taxpayers receive fair and uniform treatment.
Perform ratio studies in a timely manner to forecast trends and adjust market values. The CAD does not perform ratio studies on a consistent basis and cannot document their use in the development of property schedules. Without this analysis, the CAD may delay needed adjustments, which can cause some values to fall below market value, resulting in inequitable treatment of taxpayers and reduced resources for the CAD's school district. By applying ratio study results at least annually, the CAD can help ensure property valuations that are closer to current market levels.
Implement a mapping system that complies with Comptroller Rule 9.3002 to ensure timely appraisals. Culberson CAD relies on a series of paper maps that date back to 1988. These maps have properties that are not completely delineated by lot lines or property lines, do not include identifying numbers, lack letters or names for all delineated lots or parcels and have not been updated annually. Outdated maps make it difficult to locate property and can make the reappraisal process less accurate. By updating its mapping system, the CAD will be able to ensure all property in the CAD is on the appraisal roll and can be appraised on a timely basis.
The review team identified a commendable practice in Culberson CAD that other county appraisal districts should adopt as appropriate.
Culberson CAD's organized review of CAD records helps the CAD reduce the amount of storage needed and makes records readily accessible. Culberson CAD has an effective records retention process that uses a Local Government Records Control Schedule. The CAD, working with an outside vendor, conducted an organized review of its existing records, which enabled it to eliminate unneeded records, reduce the amount of storage and make records more accessible. By using the records control schedule, the CAD is now able to free up valuable office space once used for storage of old records by using off-site record storage, which also provides increased security for confidential and sensitive documents and information.
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.
Expand the adopted budget format to comply with Property Tax Code requirements by including staff benefit costs by position and itemized lists of any capital items budgeted.
Evaluate the chief appraiser annually using a formal evaluation tool that sets specific performance goals and board expectations.
Develop and implement comprehensive business operations procedures.
Develop job descriptions for all positions and perform annual evaluations to ensure that CAD staff perform minimum job duties and meet board expectations for the position.
Develop and implement a comprehensive disaster recovery plan that confirms the disaster recovery plans of the software vendor and specifies backup and recovery activities for the maps and financial records that are maintained locally.