Findings of the Appraisal Standards Review
This chapter of the report addresses the findings, commendations and recommendations from the appraisal standards review of the El Paso CAD in five sections:
2.1 Governance and Management 2.2 Generally Accepted Appraisal Practices 2.3 Resources and Management 2.4 Information Processing and Data Collection 2.5 Assessment Administration
The quality of the property tax system depends largely on the appraisal district's board of directors (board). The board provides knowledge, judgment and expertise in establishing policies and procedures for the district's organization and operation.
El Paso CAD's board of directors consists of nine members (Exhibit 9). The board has seven working committees, including ARB (Appraisal Review Board), Budget, Building, Employee Benefits, Finance, Technology and Pension.
El Paso CAD Board of Directors Members
Board Member Entity Member Represents Start Date Committees Michael Portillo, Chairman Ysleta ISD 1998 Serves as ex-officio member on all committees. Melina Castro City of El Paso 2005 Building, Finance Betti Flores El Paso County 2003 Budget, Building, Technology Charles Hecker,Vice-Chairman Upper Valley Entities (Anthony ISD, Town of Anthony and Canutillo ISD) 1998 Budget, Building, Pension Sal Mena Jr. El Paso ISD 1990-1997; 2005 ARB, Budget, Employee Benefits Vicente Ordonez Lower Valley Entities (Clint ISD, Town of Clint, Fabens ISD, Town of Horizon City, San Elizario ISD, Socorro ISD, Town of Socorro, Tornillo ISD) 2003 Finance, Technology, Pension Presi Ortega Jr. City of El Paso 2005 Employee Benefits, Pension Craig Patton Lower Valley Entities 1998 ARB, Employee Benefits Lisa Colquit-Munoz, Secretary El Paso ISD 2003 ARB, Finance, Technology Source: El Paso CAD, August 2005.
Melina Castro and Presi Ortega Jr. are members of the El Paso City Council. Betti Flores is an El Paso County Commissioner. Lisa Colquit-Munoz and Sal Mena Jr. are El Paso ISD trustees. Craig Patton is a Socorro ISD trustee.
The CAD board has the following primary responsibilities:
- establish the CAD's appraisal office;
- adopt the CAD's annual operating budget;
- approve appraisal contracts;
- appoint a chief appraiser;
- appoint a taxpayer liaison officer (CADs in counties having a population of over 125,000);
- appoint appraisal review board members; and
- make general policy on the CAD's operation.
The Comptroller's office asked the board to complete a written survey about its activities. Five of the 9 board members responded. The survey was broken down into board policies and procedures; chief appraiser and staff; property appraisals; appraisal review boards; and budgeting and financial management. Board members who responded gave El Paso CAD high marks in every area of operations. Two board members observed that the CAD's board meetings are televised on the local public access channel.
The Texas Tax Code § 6.06 requires an appraisal district to list in its budget:
- each proposed position, including salary and benefits;
- each proposed capital expenditure; and
- an estimate of the amount of the budget allocated to each taxing unit.
El Paso CAD has complied with the required formats and has provided proper notice and held hearings as required by the Texas Tax Code. Exhibit 10 presents El Paso CAD's 2004-06 adopted budgets in summary form. Additional budget details show individual salaries and benefit calculations for each position.
El Paso CAD Adopted Budgets
2004 Budget Percent of Budget 2005 Budget Percent of Budget 2006 Budget Percent of Budget PERSONNEL Salaries & Wages $ 4,330,616 44.9% $4,574,371 45.6% $4,773,252 46.7% Taxpayer Liaison 41,797 0.4% 43,041 0.4% 44,326 0.4% Provision for Salary Adjustments (5%) 222,540 2.3% 230,871 2.3% 245,879 2.4% New Positions (2) 78,382 0.8% - 0.0% 100,000 1.0% SUB TOTAL $ 4,673,335 48.4% $4,848,283 48.3% $5,163,457 50.5% 31 .88% Benefit - 2003/2004 1,489,859 15.4% 0.0% 0.0% 36.69% Benefit - 2004/2005 1,778,835 17.7% 0.0% 31.42% Benefit - 2005/2006 0.0% 1,622,358 15.9% TOTAL Personnel $ 6,163,194 63.8% $6,627,118 66.0% $6,785,815 66.4% OPERATING EXPENSES Software - Support & Licensing $ 256,650 2.7% $ 178,619 1.8% $ 237,595 2.3% Vehicles Lease - 0.0% - 0.0% 4,800 0.0% Insurance 8,513 0.1% 8,513 0.1% 8,857 0.1% Gas/Oil/Maintenance 36,960 0.4% 33,000 0.3% 29,040 0.3% Building Mortgage Payments 234,015 2.4% 243,646 2.4% 194,489 1.9% Utilities 162,396 1.7% 176,227 1.8% 173,751 1.7% Maintenance 68,129 0.7% 71,953 0.7% 64,092 0.6% Janitorial 42,900 0.4% 42,900 0.4% 47,190 0.5% Improvements 103,576 1.1% 64,859 0.6% 2,000 0.0% Furniture & Equipment Purchase 306,484 3.2% 309,985 3.1% 274,051 2.7% Lease 2,717 0.0% 28,069 0.3% 15,148 0.1% Maintenance 64,998 0.7% 86,024 0.9% 73,494 0.7% Paper, Supplies, Printing & Advertising 273,916 2.8% 252,783 2.5% 235,544 2.3% Postage and Mailing 198,229 2.1% 206,554 2.1% 229,618 2.2% Seminars, Conferences, Education, Dues, Registration & State Required Schools 68,720 0.7% 68,660 0.7% 124,230 1.2% Bonding/Insurance 17,176 0.2% 15,839 0.2% 17,642 0.2% Audit Fees 12,000 0.1% 12,000 0.1% 14,000 0.1% District Representation/Chief Appraiser Education 8,000 0.1% 8,000 0.1% 8,000 0.1% Board of Directors Education, Expenses and District Representation 17,600 0.2% 18,000 0.2% 18,000 0.2% Resource and Reference Publications 27,462 0.3% 33,715 0.3% 34,019 0.3% Legal Services 400,000 4.1% 400,000 4.0% 400,000 3.9% Appraisal Review Board 189,850 2.0% 189,950 1.9% 191,600 1.9% Professional Services 509,600 5.3% 496,500 4.9% 548,600 5.4% Supplemental Help - Work - study., etc. 79,200 0.8% 83,600 0.8% 147,224 1.4% Interest 83,477 0.9% 73,263 0.7% 34,358 0.3% TOTAL Operating Expenses $ 3,172,568 32.9% $3,102,659 30.9% $3,127,342 30.6% Contingency Fund $317,257 3.3% $310,266 3.1% $312,734 3.1% GRAND TOTAL $ 9,653,019 100.0% $10,040,043 100.0% $10,225,891 100.0% Allowance for Projected Interest and Misc. Income $ (90,000) $ (60,000) $ (60,000) Budget amount billable to Taxing Entities $ 9,563,019 $ 9,980,043 $10,165,891 Source: El Paso CAD.
The El Paso CAD has a well-written policies and procedures manual for managing district operations.
This manual consists of personnel policies and operational procedures that detail the employee roles and responsibilities in the district. Included in this manual is a detailed organizational chart describing interactions of the board of directors, administration, appraisal, comptroller and technology departments. These major divisions each have separate work areas with accompanying specific job descriptions contained in the manual.
The Quality Control Monitor, under the direction of the chief appraiser, with input from the division directors, updates the manual as necessary and especially following legislative years.
Each division has a time action workflow schedule detailing the process as it is performed each year. One example of this manual pertains to the acceptance or rejection of specialized application forms, deeds, property information, market information, appraisal review board actions, appraisal notices and their specific forms. This manual is made available to every employee in its most current form via the district's central server. It is under constant use, review and revision. The procedures are not on the Web.
El Paso CAD has a well-written policies and procedures manual for district operations.
The chief appraiser has not been evaluated in writing by the board of directors in more than five years, although a written evaluation process exists. The chief appraiser, unlike her staff, is appointed directly by the board of directors and reports directly to the board.
The chief appraiser has been in her position since the inception of the El Paso CAD in October, 1980. She said that over the past 25 years, each board has dealt with her evaluations in a different manner, but the process has not been routine.
There is an evaluation instrument and a 3-page job description for the chief appraiser's position. According to the written evaluation instrument, the chief appraiser is evaluated on six criteria: job description (job duties); relationship with the board; accomplishment of goals and priorities; community relations; staff relations; and leadership in the tax appraisal field. Each area has subcategories that the chief appraiser is evaluated on. The chief can receive a rating of outstanding, satisfactory or unsatisfactory on each subcategory.
According to the chief appraiser, when the chief had been evaluated in writing, the board chairman has distributed the job description, evaluation instrument, instructions on what the board members should do and a stamped envelope addressed to the chairman to all board members at a meeting of the board. The board members were given a deadline to evaluate the chief appraiser in writing using the instrument and return the evaluations to the chairman. The chairman would then review the returned evaluations and compile them into a composite evaluation. The composite was then reviewed with the chief appraiser either in Executive Session with the full board, or in a private meeting with the board chairman - depending on that particular board's choice. According to the chief appraiser, the completed evaluation instruments were then kept by the board chairman.
The chief appraiser said she has not been evaluated in writing in more than five years. However, the chief appraiser said that the line of communication with the board is a constant and ongoing process which impacts the operations in a positive and regular manner.
According to the chief appraiser, the El Paso CAD board and chief appraiser have successfully implemented the use of board committees to keep the lines of communication strong between management and the board. The chief appraiser said this effort ensures the board receives progressive information from an objective as well as professional perspective. The chief appraiser said that over the past 25 years the budget development, monthly financial statements and monthly chief appraiser progress reports made to the board, including the use of board subcommittees, have proven to be the most effective tools for setting and monitoring the goals and performance of the chief appraiser. The responses to the board surveys gave the chief appraiser high marks for performing her duties.
Regular setting of goals and evaluating the chief appraiser on those goals allows the board to clearly communicate what it wants the chief appraiser to accomplish and provides for a formal mechanism of evaluating the chief appraiser. Having an objective, written evaluation system in place ensures that the board and the chief appraiser are in agreement on what is expected of the chief appraiser, and eliminates performance evaluations that may be subjective. Communication between the chief appraiser and the board is important to the success of the CAD. A written evaluation system provides for an objective set of measures and allows the board to evaluate the chief appraiser for his or her job performance.
In Nueces CAD, for example, the chief appraiser receives an annual performance evaluation on the anniversary date of his/her hire. The Nueces CAD board uses a separate evaluation instrument for the chief appraiser than is used for other district staff. The instrument allows for input from all board members, and affords the chief appraiser an opportunity to address his/her own goals and objectives during the evaluation period. In addition, the evaluation sets up measurable goals and objectives for the next twelve months.
A good performance evaluation system outlines the behaviors expected of the chief appraiser and what the board expects the chief appraiser to accomplish each year.
Use the district's written evaluation process to evaluate the chief appraiser annually.
The appraisal district's disaster recovery plan does not identify all key business processes, such as appraisal systems and practices, operations, and mapping, is limited in scope, does not identify who will do what in the event of a disaster and has not been tested. Disaster recovery, and business recovery, planning has become a major concern for governments as well as private firms in the wake of 9/11 attacks and the most recent storm devastation in Texas, Mississippi and Louisiana from Hurricanes Katrina and Rita.
The El Paso CAD's disaster recovery plan was last revised in June, 2004. The disaster recovery plan does not identify all key business processes, such as appraisal systems and practices, personnel management, and geographic information systems. There is a 4-page policy document, as well as blueprints, layouts, data specs that focuses on the recovery of computer and data recovery and states the district will need to acquire goods and services if disaster strikes. According to district staff, all office equipment, furniture, computer equipment and software is listed in detail and updated yearly. Though not a written policy, the El Paso CAD does also have an established practice in place to contact all personnel in the event of emergency. This system is based on an employee contact listing that is maintained and updated each time there is a change in staff information, that is, name, address, and phone number(s). It's not clear, however, who is responsible for calling whom during a disaster or right after.
The plan does not outline the roles of staff during and after a disaster and does not explain, step-by-step, how the district will bring up each computer system and resume business operations in a timely manner. The plan has not been tested.
Disaster recovery plans not only address recovery, but also address disaster prevention. The El Paso CAD has an offsite storage facility for daily back up tapes. These tapes are interchanged daily, with an additional set of tapes being stored onsite in a fireproof safe. The CAD has several hand-held fire extinguishers in place in the computer room and data storage area. These measures are inadequate in the event of a major fire. As a result of this assessment, El Paso CAD has requested a proposal from a vendor for installing an Aero-K Fire Suppression System to better protect its computer room.
Appraisal districts are the only government entity authorized to appraise property for tax purposes in each county in Texas. At any time, appraisal district offices have critical and unique information that local governmental entities depend upon to raise revenue, which is used to pay for government services. Likewise, the appraisal process is year-round as appraisers and appraisal district administrative personnel continuously update the district's database, which guarantees taxing units have the most current information on which to levy and collect taxes.
Key processes may be determined by statute or be based on those things local taxing units cannot function without. Appraisal districts may also identify key processes by identifying the ramifications and losses in case a disaster causes a disruption of the appraisal district's normal business routine.
A good disaster recovery plan provides detailed instructions to staff on how to recover all business processes, outlines the order of recovery and details what goods and services need to be procured in the event of a disaster. Effective planning also requires that the plan be tested annually. By expanding the CAD's disaster recovery plan, and testing it, the CAD can more effectively prepare to recover its business operations in the event of a disaster.
Expand the district's disaster recovery plan to include all critical business processes in the disaster recovery plan, test the plan annually and update the plan according to the results of the test.
The district acquires various goods and services through written contracts, but has no written formalized contract monitoring procedures. El Paso CAD Operations, Policies and Procedures Manual, Policy Reference 714 provides detailed administrative procedures for purchasing and accounts receivable. The district uses a complex, documented requisition and purchase order process for acquiring goods and services. According to the CAD, the procedures comply with the independent auditors' Generally Accepted Accounting Practices for separation of tasks for the purpose of internal controls. The district also has a two page procedure called contract monitoring which details how invoices are reviewed and how checks are reviewed and signed off on by management. CAD management has placed strong controls on the payment process. The process does not detail other steps typical in contract monitoring, however.
District contracts are outlined in Exhibit 11.
El Paso CAD Professional Service Contracts
Contract Contractor Date Amount of Contract (annually) Signed <Yes or No> Building Financing of 5801 Trowbridge SANWA General Equipment Leasing August 29, 1995 $298,380 Yes Building Maintenance Contract Kistenmacher & Company, Inc. December 11, 1996 $7,800 Yes Janitorial Contract Ali Cleaning Services October 30, 1996 $30,300 Yes Waste Removal Contract El Paso Disposal November 8, 1996 $1,980 Yes Ground Maintenance Contract Green Scene, Inc. January 7, 2000 $3,018 No Elevator Maintenance Contract Dover Elevators October 1, 1995 $4,696 Yes HVAC Maintenance Contract Southwest Trane April 9, 2004 $7,656 Yes Security System Maintenance Contract Honeywell Security Monitoring January 13, 2005 $3,650/one time and $5,976 Yes Security Guard Services Pinkerton May 10, 2000 $36,400 Yes Phone System Southwestern Bell October 22, 1999 $17,333 Yes Equipment Maintenance/Lease, Various Copy Machine Inc. December 21, 2004 $8,686 Yes Central Records Record System Cartridge Western Office Systems January 19, 2005 $3,755 Yes Off Site Records Storage Commercial Records Center, Inc. March 10, 1998 $4/container for first 20; $0.50 over that Yes Accounting Software License Lauterbach Technology Group September 16, 1999 Various hourly rates Yes Time Clock Maintenance TimeCentre, Inc. August 4, 2004 $1,750 No Professional Appraisal Services Contract Capital Appraisal Group, Inc. October 28, 1988 $339,200 Yes Marshall & Swift License Agreement Marshall & Swift March 18, 2003 $4,784 Yes Computer Hardware Maintenance Agreement International Business Machines Corporation January 17, 2004 $9,217 Yes CAMA Contract/Application Support Contract/Software Contract Critical Control Solutions, Inc. April 5, 2005 $199,304/six months Yes GIS Consultant Services Eastcan Geomatics Limited February 15, 2001 $106,880 Yes ARCInfo Maintenance ESRI, Inc. January 3, 2003 $28,568 Yes Workers Compensation Insurance Texas Municipal League October 1, 2004 $5,2043 No Liability Insurance
- Errors and omissions
Texas Municipal League October 1, 2004 $19,653 No Property Insurance
Texas Municipal League October 1, 2004 $3,416 No Aggregate and Specific Excess Loss Insurance Gerber Life Insurance Company October 1, 2004 $604,937 Yes Annual Total* $1,522,217 Source: El Paso CAD, October 2005. *Records management costs and accounting software costs not included.
The CAD's comptroller is responsible for accounting, general ledger, accounts payable, reception, security, budget and purchasing. The CAD's comptroller said that all contracts are in writing and are filed. There are oral procedures for reviewing contracts, but no formal written process. The CAD's comptroller did say the CAD was working on a contract monitoring process concerning cash flow at the time of the site visit. The CAD's comptroller said that she and her staff review invoices for accuracy. All invoices are matched to a corresponding purchase order. The chief appraiser reviews and approves each invoice. All goods are delivered to the CAD's comptroller's office and the deliveries are checked for accuracy and inventoried as appropriate.
The district is represented by Perdue Brandon Felder Collins & Mott, LLP for legal services. Legal services are provided on a billable, hourly basis. Only the chief appraiser and the board of directors are authorized to contact the law firm with questions. The firm handles appraisal litigation for the CAD as well.
All goods and services for more than $15,000 go through a formal bid process and are advertised. Purchases for less than $15,000 are not typically advertised, but the CAD solicits a minimum of three written quotes for the good or service. For purchases under $100 the CAD solicits oral quotes only.
The El Paso CAD's current CAMA contract, which is a contract for assessment services, was written by legal counsel and contains scope of work, delivery dates, timetable and payment schedule and is monitored on a weekly basis.
The industrial and utilities appraisal contract has a listing of accounts to be worked that is updated and approved by the board annually. This contract also has payment schedules and is monitored prior to payment which is based on deliverables. The chief appraiser and the director of valuation both noted that they do not approve any payments until appraisals are received by the district. The directors are responsible for reviewing and approving all payments to vendors in their areas of responsibility. The chief appraiser is responsible for approving all payments.
IAAO's Standard on Contracting for Assessment Services, Section 4, requires contracts have specific provisions, including the timeframes when services or goods will be delivered, payment provisions, required documentation and termination rights. Contract provisions establish the legal obligations of all parties with respect to any project.
Good procedures identify the contract monitor and the duties that the contract monitor is to perform for each contract. Without contract monitoring, the district cannot make a decision on the quality of services rendered by the contractor.
IAAO's Standard on Contracting for Assessment Services, Section 5, requires monitoring contract performance to ensure goods and services are delivered timely and that all contract requirements are met.
Establish written procedures for monitoring professional services contracts.
There are three general appraisal methods or approaches-cost, income and market-that a chief appraiser must consider in determining the market value of property. The chief appraiser must choose the most appropriate method to appraise a particular property.
Additional information about the approaches to determining or appraising value may be found in appraisal textbooks. Appraisers usually determine the value of producing mineral deposits-such as oil, gas and coal-and the value of many utility and commercial properties by using the income approach to value. Most appraisal districts contract with consultants to appraise mineral and utility properties.
El Paso CAD has a well-written policies and procedures manual for managing the district's appraisal function.
Like the district operations manual, this manual consists of several individual yet cohesive pieces that exist for appraisal policies and procedures that detail the inner workings of this district. Included in this manual is a detailed organizational chart describing interactions amongst the various departments regarding appraising.
The appraisal manual contains a section on USPAP and clearly defines the three approaches to value; cost, market, and income. The section is strategically placed in the manual to indicate its common application.
The El Paso CAD Procedures and Operations Manual has sections on residential appraisal, commercial/industrial/personal property, mapping and central records and land.
Residential Appraisal. This section sets out the treatment of sales, re-sales, school or neighborhood variances, statistical analysis, cost tables and sold/unsold comparisons. The development of this data into usable mass appraisal tables is done with close attention to quality control. The large number of properties to be appraised by this group of appraisers, with a legally mandated completion deadline each year, leads to the oversight of a small percentage of details with little or no affect on any individual property. Due to the ongoing quality control monitoring these items are constantly sought out and corrected.
Commercial/ Industrial/Personal Property. This section sets out the use of cost, market and income approaches to value in this highly specialized arena. The development and use of specific market and location information obtained from renditions or other reliable sources assist in the creation of spreadsheets that enhance the ability to appraise large numbers of properties fairly and equally in this market value.
Mapping and Central Records. This section sets out very strict guidelines covering the acceptance, path and specific work location of each document that enters the district, with a quality control monitoring process built-in. The mapping division is charged with creating a system capable of handling a large volume of data and maintaining metes and bounds detail.
Land. Land appraisal is handled by the Residential and Commercial Departments. Residential appraises all non-commercial land including agricultural land in order to maintain equity and uniformity across these categories of properties. The Commercial Department appraises all commercially zoned land within the cities as well as land used for commercial purposes within the County. Both departments review land values and improvement value for quality control and accuracy for total combined property value to cost, income or market value approach.
The El Paso CAD Procedures and Operations Manual allows district staff to meet the challenges presented in performing mass appraisals.
El Paso CAD operates on a three-year reappraisal cycle with residential property being inspected once every four years.
Texas Tax Code, § 25.18 (b), requires appraisal districts to implement a plan for reappraisal once every three years. El Paso CAD and local appraisal schedules are revised every three years, but inspections only occur once every four years. The 2005 Legislature amended § 6.05 to require a board approved plan starting in September 2006 that would be updated every two years, covering a three year appraisal plan. The CAD is in the process of developing its new reappraisal plan. The Legislature also amended § 25.18 to define "reappraisal." One of the components of reappraisal is property inspection. While IAAO Standards also require a minimum review of property every four to six years, Tax Code § 25.18 requires a plan for reappraisal of all real and personal property in the district at least once every three years. The plan shall provide for identifying properties to be appraised through physical inspection or by other reliable means of identification, identifying and updating relevant characteristics of each property, defining market areas in the district, identifying property characteristics that affect property in each market area, developing an appraisal model, applying the conclusions reflected in the model to the characteristics of the properties being appraised and reviewing the appraisal results to determine value.
According to the CAD, physical inspections are made on existing as well as new construction reported on building permits, as well as areas "flagged" during the previous year's appeals process. The El Paso CAD, as required by Tax Code § 25.18 (b), has a reappraisal plan with a three year cycle for reappraisal.
Residential property appraisers in El Paso CAD appraise agricultural property as well as residences. At the time of the fieldwork for this review, the El Paso CAD had four residential property appraiser vacancies. These vacancies have affected the district's ability to inspect all residential property within the same time frame as its reappraisal cycle. Values are updated annually according to changes in the real estate market. The appraisal district accomplishes its annual updates by conducting annual ratio studies to determine the percentage change in market values. The appraisal district then adjusts local values according to changes in each market area. This is an acceptable procedure; however, it also requires current data about the condition of each property in order to produce accurate results.
According to Texas Property Tax Code, § 23.01 (b), similar properties are to be appraised using similar techniques. Appraisers, however, need to consider the individual characteristics of each property in determining its appraised value. Frequent physical inspections are necessary to insure that each property is appraised according to its condition as of January 1. To appraise a property without conducting a physical inspection requires the appraiser to assume the property is in the same condition and is the same size as at the last inspection. In effect, appraisers are applying current market adjustment factors to properties as they existed four years prior to the current year.
Conduct physical inspections of all residential properties at least once during the reappraisal cycle.
El Paso CAD did not time-adjust older sales included in ratio studies for commercial properties in 2005.
The appraisal district's automated appraisal system allows it to conduct ratio studies on demand. The ratio studies that the review team examined were conducted in 2005 for the 2005 tax year. The studies included sales from 2003 but the sale prices included in the ratio study report were not adjusted for time. These non-time adjusted sales received the same weight in the ratio study as current year sales. The 2003 sales were far from the majority of the sales included in the studies but not adjusting the sales prices to the date of assessment for the tax year results in inaccurate ratios for those properties; assuming local appraised values approximate market value, these older sales may yield lower individual ratios in an escalating market and yield higher individual ratios in a declining market.
The director of valuation said the CAD typically time-adjusts sales. The director said CAD staff has to adjust sales manually and enter them into the system. The director said the CAD's Comparative Market Analysis (CMA) program also can time-adjust sales. However, the CMA program is PC-based and cannot be generated within the current appraisal system. The CAD indicated the new computer appraisal system will contain this feature.
Appraisal districts conduct ratio studies to determine the amount of change and rate of change in local real estate markets. Appraisal districts also use ratio studies to determine whether their appraisal schedules can accurately produce market value with an acceptable tolerance and thereby determine the need for a reappraisal. In addition, an appraisal district may use a ratio study to verify whether a reappraisal was successful in producing market value. Failing to adjust older sales included in a ratio study may result in unreliable outcome.
Evaluating appraisal performance is one of the most important aspects of an effective tax appraisal program because it indicates when reappraisal activity is necessary. The major aspects of appraisal performance evaluation are the appraisal level and measuring appraisal uniformity. The appraisal level refers to the percentage that local appraised values represent of market value. Appraisal uniformity refers to the degree to which properties are appraised at equal levels. Uniformity is typically represented by a statistic called the coefficient of dispersion (COD). The COD measures the average variation in appraisal levels from property to property or among property types. Tax appraisers can best determine both the appraisal level and uniformity through ratio studies. In the simplest definition, ratio studies compare the market value of individual properties in a representative sample of similar properties to the local appraised value for each property in the sample. The level of appraisal is determined by dividing the local appraised value by the market value. The COD is calculated from a statistical formula that incorporates the ratios for individual properties in a sample of properties.
Texas Tax Code, § 23.01, requires all property to be appraised at market. Ratios that measure the percentage of appraised values to market values show whether appraised values are consistent with the statutory requirement that property be appraised at market value. The COD shows whether appraisals between properties and among property types are uniform. Strong appraisal uniformity guarantees each property owner pays his fair share of taxes and no ore or less than others.
Adjust sales for commercial properties included in local ratio studies to take into account adjustments to value as a result of aged sales data.
El Paso CAD does not calculate the net-to-land value according to Tax Code §23.41, §23.51, §23.52 and the Comptroller's Manual for Appraisal of Agricultural Lands.
Productivity value ratios in the 2004 Property Value Study show low ratios in all school districts in El Paso (Exhibit 12). Typically ratios of 0.95 to 1.05 are within the confidence interval.
School District Productivity Value Ratios
2004 Property Value Study
School District Ratio Total Local Value Clint ISD .8615 $4,171,888 El Paso ISD .8396 $315,256 Fabens ISD .8733 $11,978,118 San Elizario ISD .8339 $3,395,905 Ysleta ISD .8409 $836,474 Anthony ISD .8586 $649,796 Canutillo ISD .8471 $2,230,354 Tornillo ISD .9081 $6,850,615 Socorro ISD .8460 $3,000,872 Source: 2004 Property Value Study and 2004 ISD Self-Reports.
Tax Code §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.
Tax Code §23.51(4) states that the chief appraiser shall calculate the average net income by considering the income that would have been due a land owner under cash lease, share lease, or whatever lease is typical for the area. Expenses directly attributable to the land's agricultural use are to be deducted and the resulting net income is to be capitalized using a rate established annually by the Farm Credit Bank of Texas (rate plus 2 and one half percent) or 10 percent whichever is greater (§23.53 Tax Code).
According to the CAD, 2005 row crop (irrigated land) productivity value was calculated using cash lease information provided by ten farmers. Between 1999 and 2003, net to land value for row crops had a low of $58.39 to a high of $65.53. However, none of the detailed information is included the CAD's residential appraisal manual, which includes information on agriculture.
Values did not change between 2004 and 2005, with row crops being estimated at $620 per acre in both years. The information from landowners on which the district is basing expenses is limited. The district did not have any survey information for expenses for 2002 and 2003, the most current years included in determining average net-to-land. There were two responses for 2001, four for 2000, and one for 1999.
A major expense of producing irrigated crops in El Paso County is taxes and user fees levied by irrigation districts. The Lower Valley Irrigation District has a tax rate of $0.24439 per $100 valuation. Based on this rate and $620 per acre valuation, the expense would be $1.51. The district also has several leases for row cropland. These documents indicate that the owner is responsible for the taxes and the tenant is responsible for excess water usage, an expense which can be significant. The district is using a total expense for 2001 of $72.81. The total taxes on an acre valued at $620 would be approximately $16.00 for school district, county, hospital, and irrigation district tax rates in El Paso County. According to the landowner surveys, the only other expense borne by the landowner is water. It would be difficult for the district to support a water expense of $57.00 particularly when there is evidence that excess water charges by irrigation districts are an expense of the tenant.
Values for pecan orchards, native pastureland and feeding facilities also did not change between 2004 and 2005.
The CAD disagreed with this finding.
Expand agriculture appraisal procedures to conform with the Manual for Appraisal of Agricultural Lands.