In July 2004, the San Diego Independent School District (San Diego ISD), located in Duval 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 April 2005, the Comptroller's Property Tax Division (PTD) began an Appraisal Standards Review of the Duval County Appraisal District (Duval 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 ASRs, 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: 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 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 the district to be staffed by dedicated and hardworking employees, Duval CAD is facing a number of challenges in achieving and maintaining consistent valid findings, including:
- reappraising consistently and regularly;
- establishing and documenting procedures.
Key Findings and Recommendations
Reappraise Consistently and Regularly
Develop and implement a detailed reappraisal plan. The district has no written reappraisal plan. Section 25.18, Tax Code, requires appraisal districts to implement a plan for reappraisal. A random selection of appraisal cards showed some properties had not been appraised in five years. 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's board of directors how the appraisal district staff plans to accomplish its appraisals.
Annually calculate productivity values for land designated for agricultural use as required by Section 23.41 and Section 23.51 of the Property Tax Code. The Duval CAD's method of determining productivity values for land designated for agricultural use does not comply with Section 23.41 and Section 23.51 of the Property Tax Code. Sections 23.41 and 23.51 state that land designated for agricultural use should be valued based on the land's capacity to produce agricultural products. The land's productivity value is found by capitalizing the average net income the land would have yielded under prudent management during the five years preceding the current year. The Comptroller found the school district's productivity values to be low - clearly a result of the appraisal district's lack of current data.
Establish and Document Procedures
Develop an appraisal procedures manual. The Duval CAD has not developed an appraisal procedures manual that the appraisal staff can reference in completing their appraisals. The CAD uses the Comptroller's 2001 Field Appraiser guide, which was updated in 2003, and was not developed for local conditions in Duval County. Section 23.01, Tax Code, mandates that property is to be appraised by applying generally accepted appraisal methods and techniques and that appraisal districts comply with the Uniform Standards of Professional Appraisal Practice (USPAP). CADs must use similar appraisal methods and techniques and apply these to the same or similar properties, while taking care to account for the contributions of individual property characteristics on value.
Establish written procedures for gathering and analyzing sales. To obtain market data from sales, the appraisal district researches deed recordings to identify property transactions. The district does send sales confirmation letters to confirm and verify the transaction and the amount of the transaction. Written procedures ensure that market analysis 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.