On May 17, 2005 the El Paso City Council unanimously approved a motion to request that the Comptroller's office conduct a performance audit of the El Paso Central Appraisal District (El Paso CAD). The El Paso County Commissioners Court approved a similar order, without dissent, on May 23, 2005. The Comptroller's office subsequently initiated a review of the El Paso CAD appraisal standards and methods.
After collecting and analyzing preliminary data submitted by the CAD, in October 2005, the Comptroller's Property Tax Division (PTD) began its onsite review of the El Paso CAD, using Appraisal Standards Review (ASR) protocols the Comptroller's office has developed.
The El Paso City Council requested the review because many property owners were complaining that the CAD was not appraising properties consistently and that property values were too high. During the course of a run-off election for mayor in May 2005, El Paso CAD mailed out, as required by law, notices of appraised value to local property owners. Notices reflected an overall increase in property values and many property owners filed protests. The city council responded to local community concerns by requesting the review by a third party to determine how well the El Paso CAD performs its appraisals and whether the CAD complies with generally accepted appraisal practices.
Contributing to the perception that property values are rising too quickly is the fact that the economy is improving. Although the unemployment rate in El Paso County in September 2005 was high at 7.4 percent, this rate is a significant improvement over the 2003 rate of 9.1 percent. The average annual individual wages of $27,991 is a 10.4 percent increase over the previous five years. The median income in the county, as of 2003, was $20,875, a 16.7 percent increase over a five-year period.
Home sales in El Paso County have been steadily increasing during the last five years. From 2000 to 2004, annual home sales increased 14.3 percent and the average price of these sales has increased 15.6 percent. Property values in El Paso County rose 15.9 percent during the same period. Residential properties saw a 20.5 percent increase from 2000 to 2004. The Department of Defense has announced plans to expand Fort Bliss, adding, the chief appraiser estimates, an additional 70,000 new residents to the community, which will place pressure on local builders to meet the housing needs for these new residents.
The Comptroller's ASRs are designed to identify problems and recommend changes to improve appraisal accuracy, while also identifying best practices that other appraisal districts may adopt. Because, according to the Comptroller's Property Value Study, El Paso CAD's overall values are within acceptable ranges, in conducting the review of the El Paso CAD, the primary focus of the review was the organization and management of the district and appraisal practices.
The Property 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. The International Association of Assessing Officers' (IAAO's) Standard on Assessment also is used for guidance.
A principal focus of the ASR is to recommend improvements in appraisal practices. The review evaluates five broad functional areas of appraisal district operations: governance and management; generally accepted appraisal practices; resources and management; information processing and data collection; and assessment administration.
The review methodology includes a self-assessment completed by the appraisal district; staff interviews; reviews of written policies, procedures and plans; financial and management audits; and assessments of manual and automated records systems.
After five months of work, the review team found that El Paso CAD has dedicated management and staff who appraise a wide variety of properties throughout one of the geographically largest counties in Texas. The review team found that this district has a number of commendable practices, including detailed appraisal manuals, yet the El Paso CAD faces a number of challenges including:
- enhancing appraisal and data quality;
- improving management practices and oversight;
- expanding disaster recovery planning.
Key Findings and Recommendations
Enhance Appraisal and Data Quality
Conduct physical inspections of all residential property at least once during the reappraisal cycle. El Paso CAD inspects residential property once every four years. El Paso CAD does inspect existing as well as new construction reported on building permits and inspects areas "flagged" on prior year appeals. Tax Code, § 25.18 (b), requires appraisal districts to implement a plan for reappraisal once every three years. Although El Paso CAD operates on a three-year reappraisal cycle, without physical inspections it is possible the CAD could omit improvements or changes concerning the property's condition. By inspecting all residential property at least once during the appraisal cycle, the CAD can be assured it has the most current information about the property available and that appraisals are accurate.
Adjust sales of commercial properties included in local ratio studies to take into account adjustments to value as a result of aged sales data. El Paso CAD did not time-adjust older sales included in ratio studies for commercial properties in 2005. The ratio studies conducted in 2005 for the 2005 tax year included 2003 sales for which values had been not adjusted for changes in the market occurring between 2003 and 2005. The director of valuation said the district usually time adjusts sales for properties. By time adjusting sales routinely, the CAD will ensure appraisal uniformity and guarantee each property owner is treated fairly.
Expedite the upgrade of the El Paso CAD's automated appraisal system to produce valuations based on income, when appropriate, to determine market values of commercial property. El Paso CAD's automated appraisal system is not designed to produce income approach values for properties. Tax Code, § 23.0101, requires appraisal districts to consider the three approaches to value: cost, income and market data comparison methods; El Paso CAD does use all three approaches. El Paso CAD commercial appraisers use an EXCEL spreadsheet to develop the income value and then must reenter the data into the district's automated system, a time consuming process that could be prone to error. The district was working towards a conversion from its existing appraisal system while the review team was onsite in October; the conversion is scheduled to be complete in September 2006. By expediting upgrading the CAD's appraisal system, the system will provide better tools for appraisers and increase the efficiency in performing appraisals based on income data.
Improve Management Practices and Oversight
Use the district's written evaluation process to evaluate the chief appraiser annually. El Paso CAD's board of directors has a written evaluation tool for evaluating the chief appraiser but does not currently use it. The chief appraiser said that although she receives informal evaluations from the board, the board has not done a formal, written review in more than five years. A formal, written review provides a record of achievement and ensures that the board and the chief appraiser are operating with the same set of goals. By the regular setting of goals and evaluating the chief appraiser on those goals, the board can clearly communicate what it wants the chief appraiser to accomplish and provides for a formal mechanism of evaluating the chief appraiser.
Establish written procedures for monitoring professional services contracts. El Paso CAD acquires goods and services through 25 written contracts, valued at $1.52 million annually, but has no written, formalized contract monitoring procedures. The CAD's comptroller said that all contracts are in writing, are filed centrally and are overseen by the respective division staff, although there are no documented procedures to ensure vendors deliver goods and services on a timely basis. The district has detailed written procedures for managing the procurement process and those procedures include detailed steps on matching invoices to purchase orders and tight control over reviewing payments to vendors. IAAO's Standard on Contracting for Assessment Services, Section 5, requires monitoring contract performance. By establishing written procedures for monitoring contracts, the CAD can ensure that goods and services are delivered on a timely basis.
Conduct a documented staffing analysis and establish staffing allocation guidelines that ensure the number and type of staff are appropriate. El Paso CAD has fewer parcels per full time employee than peer appraisal districts. Peers average one full time staff person per 3,111 parcels, while El Paso CAD has one per 2,512. IAAO Standards state that the average ratio of parcels per full-time employees for a large appraising entity is between 3,000 and 3,500. Although the sheer size of the county and the time required to drive to and from properties may make this level of staffing necessary, El Paso CAD has not conducted a formal staffing analysis to determine the appropriate level of staffing required. The CAD performs task analyses and determines staffing levels annually through the budget process. By performing an annual documented staffing analysis, El Paso CAD can determine the correct number and type of staff to conduct property inspections and appraisals, as well as manage its operations effectively.
Expand Disaster Recovery Planning
Expand the district's disaster recovery plan to include all critical business processes, test the plan annually and update the plan according to the results of the test. El Paso CAD's disaster recovery plan does not identify all key business processes, such as appraisal systems and practices, personnel management, and geographic information systems, is limited in scope and has not been tested. The district's plan focuses on the recovery of computers and states the district will need to acquire goods and services if disaster strikes; the plan also includes blueprints, data specifications, lists of equipment and layouts. Good disaster recovery plans provide detailed instructions to staff on how to recover all business processes, outline the order of recovery and detail 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.
During the review process, Comptroller staff identified a number of commendable practices in the El Paso CAD that might prove useful for other county appraisal districts.
El Paso CAD has current policies and procedures manuals due to the Quality Control Monitor function. El Paso CAD has a Quality Control Monitor (QCM) that ensures policies and procedures are well written and up-to-date. The QCM is responsible for documenting how a job is done, who does it, what the desired outcome is, when it is done and then placing all of that in understandable language. The QCM reports directly to the chief appraiser and has access to every employee of the district through the division directors. Assigning a central point of contact for managing and updating the procedures allows the district to keep procedures current and maintain consistency between appraisal manuals.
El Paso CAD has a well-written policies and procedures manual for district operations that enables staff to understand the steps the district follows to accomplish its mission. The El Paso CAD manual consists of operational procedures, which are available to all employees on the CAD's central servers, and detail the inner workings of this district, such as purchasing, accounts payable, inventory, budget, etc. Included in this manual is a detailed organizational chart describing interactions of the board of directors, the administration, appraisal functions, the CAD's comptroller and the technology department.
El Paso CAD's Procedures and Operations Manual allows district staff to meet the challenges presented in performing mass appraisals in a dynamic environment. El Paso CAD has a well-written policies and procedures manual for managing the district appraisal function. Like the district operations manual, this manual outlines the CAD's appraisal policies and procedures. Included in this manual is a detailed organizational chart describing interactions amongst the various departments regarding appraising. The manual contains a section on USPAP and clearly describes appraisal practices. The El Paso CAD Procedures and Operations Manual has sections addressing residential appraisal, commercial/industrial/personal property, mapping, deeds, hearings and appeals, research, records management, and land appraisal.