In July 2005, the Texas Comptroller of Public Accounts identified Bonham, Dodd City and Sam Rayburn Independent School Districts, located in Fannin County, Texas, as three of 34 Texas school districts meeting the criteria that initiate an Appraisal Standards Review (ASR) of the appraisal district that serves them. In December 2005, the Comptroller's Property Tax Division (PTD), with assistance from contractors, began its review of the Fannin County Appraisal District (Fannin CAD).
School Districts, the Property Value Study and Appraisal Standards Reviews
Texas public education is funded by a combination of state and local funds. Local funding comes from property taxes assessed by a school district's Board of Trustees. State funding is based on the amount of money that can be raised locally on the total taxable property value within each school district. Each school district in the state is served by a county appraisal district that is charged with appraising property in the school district at market value. The chief appraiser of each appraisal district determines the property values that are used by the district to set tax rates and allocate the tax burden among taxpayers.
The Texas Comptroller's Property Tax Division (PTD) annually conducts a Property Value Study (PVS) that assigns a value to property within each school district for state funding purposes. The PVS, an independent estimate mandated by the Legislature, is designed to ensure equitable school funding. The PVS ensures equity by detecting instances where school property values are inaccurate, and adjusting property values to market value in the state's funding formula. The state's formula sends more money to those districts that are less able to raise money locally because of insufficient taxable property value.
The Comptroller's values do not directly affect local values or property taxes, which are set by local authorities. However, when local values are more than 5 percent below state values, the school district could receive fewer state dollars because the formulas will use state values to calculate funding. Through an appeals process, a district can contest the state values, but understanding the reasons for the differences in the valuations is critical for school districts and the appraisal districts that serve them.
In 2003, a new law, recommended by the Comptroller's Property Tax Division Technical Advisory Committee, was enacted to grant a "grace period" for schools negatively impacted by PVS findings. The Comptroller does not believe that schools should be punished for the actions or inaction of their appraisal districts. The "grace period" permits schools to receive full state funding while ASRs are performed by the Comptroller.
By law, to be eligible for this state funding "grace period," a school district must have an invalid local value in the current year, valid local values in the two preceding years, and an aggregate local value in the current year that is not less than 90 percent of the lower limit of the margin of error.
If the aggregate local value is less than 90 percent of state value, the school district is not eligible for a grace period and the state value will be used to determine financial aid.
Appraisal Standards Reviews
Appraisal standards reviews are conducted by the Comptroller's office 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, so they can work with the appraisal district to correct problems and determine accurate taxable values. ASRs identify problems and recommend changes in procedures or methods to improve appraisal accuracy and compliance with state law and appraisal standards.
An ASR examines and evaluates appraisal practices including planning, procedures and methodology and the application of and adherence to appraisal standards. The Texas Property Tax Code and Comptroller Rules are the major criteria used to measure appraisal district performance.
The Texas 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) Standards on Assessment Practice also are used as the professional and industry standard.
The two principal focuses of the ASR are to determine why the local value is deemed invalid and to recommend improvements in appraisal practices. The review evaluates five functional areas of operations: governance and management; generally accepted appraisal practices; resources and management; information processing and data collection; and assessment administration.
Upon completion of the review process, the Comptroller issues a report of findings that includes commendations for exemplary appraisal practices and recommendations for change. The appraisal district is required by law to comply with the recommendations within one year of the release of the report.
By law, if the CAD fails to comply with the recommendations in the report and the Comptroller finds that the board of directors of the CAD failed to take remedial action within a year from when the report was issued, the Comptroller is required to notify the judge of each district court in the county for which the CAD is established. The district judge is required to appoint a board of conservators consisting of five members to implement the recommendations. The board of conservators shall exercise supervision and control over the operations of the CAD until each school district is determined to have local value in an annual PVS. The CAD shall bear the costs related to the supervision and control of the CAD by the board of conservators.
In December 2005, PTD began its ASR of the Fannin CAD. While the review team found a number of commendable practices implemented by hardworking and dedicated employees, Fannin CAD faces a number of challenges in the following areas:
- maintaining stability in CAD leadership and operations;
- improving appraisal accuracy; and,
- improving budget and contract practices.
Key Findings and Recommendations
Maintain Stability in CAD Leadership and Operations
Maintain stability in CAD leadership and operations by completing succession planning and chief appraiser hiring practices procedures. Fannin CAD has had five chief appraisers in five years, until June 2004 when the current chief appraiser was appointed. The chief appraiser position's high turnover caused prevalent CAD instability and work interruption, as other staff hired by the chief appraisers such as office managers and receptionists also departed when or soon after the respective chief appraisers left. Developing detailed job descriptions, hiring procedures and succession planning aids in minimizing transition impacts when employees depart. By completing and documenting succession planning and other adopted board practices, Fannin CAD's board and leadership can plan for risks such as inevitable staffing and operational changes while minimizing widespread negative transition impacts on appraisal district operations and taxpayers.
Formally evaluate and adjust Fannin CAD staffing levels annually to meet industry standards and property account changes. The chief appraiser successfully engages in operational planning through the budgeting process but has not yet expanded this process to include a formal staffing level analysis in light of industry standards and anticipated growth in real estate market activity. Although there has been significant improvement since 2003 despite a growing parcel count, the CAD's parcel to staff ratio in 2005 is still more than twice the recommended level leaving the CAD vulnerable to not appraising all identified properties in a given year. By monitoring staffing and parcel counts and making adjustments as needed, successful appraisal districts ensure adequate county coverage while maintaining appraisal accuracy.
Improve Appraisal Accuracy
Perform comprehensive computerized ratio studies to evaluate appraisal uniformity and identify reappraisal needs. Fannin CAD was unable to perform useful ratio studies due to its poor quality appraisal data. Instead, the CAD conducted manual ratio studies or spot checks to evaluate cost schedules, which are limited; and the absence of good data was a contributing factor in the invalid PVS findings. Evaluating appraisal performance through ratio studies is one of the most important aspects of an effective appraisal program because it indicates when reappraisal activity is necessary.
Attempt to inspect all business personal property accounts regularly and use the personal property appraisal module to perform independent valuations. Fannin CAD is mainly using only one part of the recommended industry process, rendered values from the property owner, to value business personal property. Lacking annual physical business personal property inspections and an independent valuation method leads to inaccurate and inequitable appraisals. By physically inspecting all business personal property accounts, successful appraisal districts meet or exceed appraisal industry standards to ensure accurate valuations as a basis for taxpayer assessments.
Improve Budget and Contract Practices
Amend the budget format to comply with the Tax Code while seeking an Attorney General's opinion concerning the Health Insurance Portability and Accountability Act of 1996 provisions in question. Fannin CAD's budget lacks the detail necessary to comply with Section 6.06, Tax Code. From the 2004 to the 2006 budget, Fannin CAD is moving farther away from Tax Code compliance: no listing of budgeted positions, no listing of individual salaries for budgeted positions and no listing of benefits with costs for each budgeted position. With 56 percent of the 2006 budget going to wages and benefits, both taxing units and the public need the detail required by state law to be assured the number of CAD staff is sufficient to perform the work and that the staff is correctly compensated.
Continue to require and execute a written professional appraisal services contract that includes provisions required by the IAAO Standard on Contracting for Assessment Services. Until spring 2006, Fannin CAD's procurement processes for outside appraisal services did not require or include a written contract document. The lack of a formal written signed agreement leaves each party vulnerable if deadlines and deliverables are not met and does not meet industry standards. By entering a written agreement defining the legal obligations of each party for the services to be provided, all parties are protected and risk is minimized with the legal framework in place to resolve any disputes.
Fannin CAD has some commendable practices that might prove useful for other county appraisal districts.
Fannin CAD developed and implemented a timely remediation plan, successfully eliminating multiple year appraisal data errors. In summer 2004 the chief appraiser developed and implemented a three year remediation plan that was completed nine months ahead of schedule, resulting in the physical inspection of all county property, remedying significant multiple-year appraisal data errors. The higher growth or development areas of Bonham, Dodd City and Sam Rayburn ISDs were most affected by the combined errors, received invalid findings and were certified as eligible school districts in the final 2004 PVS. The chief appraiser anticipates having the corrected notices of appraised value mailed by mid-2006.
Fannin CAD's chief appraiser developed a technology plan that meets CAD appraisal goals within budget constraints and policy guidelines and has resulted in purchasing technology tools for increased appraisal efficiency. For 2006, the district signed a contract with True Automation for a new geographic information system that will integrate with the CAD's appraisal system providing an efficient means of displaying spatially oriented data. In 2004, the chief appraiser purchased global positioning system equipment; in 2005 digital photography equipment was purchased. The CAD has acquired digital document scanning equipment which is providing an effective means of record preservation and management and the chief appraiser also contracted for multiple listing system (MLS) sales for the CAD starting in January 2006.
Fannin CAD is successfully using a performance-based compensation plan in hiring, retaining and developing staff. The CAD has struggled to hire and retain employees due to some poor public image issues that have recently been addressed and better paying employment opportunities with other appraisal districts and some local and regional employers. To remedy the comparatively lower salary levels, since 2004 the chief appraiser has received board approval through the budget process for an annual cost of living adjustment for all staff based on the consumer price index. In addition, the chief appraiser implemented a performance based compensation program which rewards employees for professional development and education, which in turn benefits the CAD.
The chief appraiser improved public relations and re-established public trust by identifying and replacing ineffective status quo activities with successful public outreach practices. This effective public relations outreach and monitoring program has promoted stability and benefits the CAD and taxpayers through increased operating efficiencies and enhanced communications that have led to increased public trust. Extreme leadership instability and resulting loss of credibility with the public led the current chief appraiser to identify existing status quo practices that weren't working and change practices to focus on public relations and public service as a high priority. Tangible benefits to the CAD include reduced protests, decreased misinformation, and increased public access to property tax information, all leading to increased public trust.
Fannin CAD has added a successful communication practice giving board members advance notice of pending issues and actions needed at monthly board meetings. The added key communication tool is the Chief Appraiser Report, which is given to each board member at least one week prior to monthly board meetings. This addition has helped to establish and maintain clear and open communications with the board by clarifying key items and actions needed up front and in a concise format. The advance notice also allows board members to request topics not listed, reprioritize discussion topics and request additional information or analysis to be brought to the meeting. Since the chief appraiser and the board have made strategic planning and goal setting a priority, the Chief Appraiser Report is an action tool that ensures key issues are brought before the board monthly, promoting timely decision-making towards meeting operational goals and objectives.