In July 2005, the Texas Comptroller of Public Accounts identified Collinsville and Tom Bean Independent School Districts, located in Grayson County, Texas, as two of 34 Texas school districts meeting the criteria that initiate an Appraisal Standards Review (ASR) of the appraisal district that serves them. In March 2006, the Comptroller's Property Tax Division (PTD), with assistance from contractors, began its review of the Grayson Central Appraisal District (Grayson 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 "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 is 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.
According to Section 5.102 (d), 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.
While the review team found several commendable practices implemented by dedicated and hard working district employees, Grayson CAD is facing several challenges in achieving and maintaining consistent valid findings, including:
- improving operations and planning;
- documenting and improving procedures; and
- reappraising consistently and effectively.
Key Findings and Recommendations
Improve Operations and Planning
- Revise contracts for professional appraisal services to include dates for deliverables and properties to be appraised. Grayson CAD's contracts for professional services do not reference or define deliverables. Specifically, neither contract includes dates for when appraisals should be completed and submitted to the CAD, and the P&A contract does not list the properties to be appraised. Without specific dates for when services must be rendered, the CAD could have difficulty enforcing the contract. By revising contracts to include dates and deliverables, the CAD will clearly define its needs and protect both parties by detailing rights and responsibilities.
Document and Improve Appraisal Procedures
- Revise the appraisal manuals to include IAAO standards for appraisal of real property, replace documents as needed to broaden the manual's scope and improve the timeliness of the data, and develop a schedule for regular review and update of the manual. Grayson CAD's appraisal manual appears to be outdated, and the absence of clear guidelines that are followed by all field appraisers is contributing to the inconsistencies in appraised values within property categories. By revising the appraisal manual, the CAD can have an invaluable tool for insuring consistent appraisal of all categories of property and for training inexperienced appraisal and clerical staff members.
- Establish written procedures for gathering and analyzing land sales. Grayson CAD has not developed written procedures for gathering and analyzing sales for updating land tables. Rural properties in Collinsville and Tom Bean ISDs were not appraised at market value, which contributed to the schools' invalid findings in the 2004 PVS. By developing and using written procedures for gathering and analyzing sales data the CAD can know what analysis is required and maintain continuity and a high level of appraisal performance.
Reappraise Consistently and Effectively
- Adopt and implement a written reappraisal plan that complies with USPAP and the Tax Code. At the time of the review, the board had not yet adopted a written reappraisal plan as required by USPAP and by the Tax Code, beginning September 2006. The CAD had two eligible school districts in the 2004 PVS; although these districts are eligible for the grace period, in the third year they can lose significant state funding. By adopting and implementing the required reappraisal plan as scheduled, the CAD will help ensure timely and accurate reappraisals.
- Compute productivity values annually using methods for all land classes as outlined in the Manual for the Appraisal of Agricultural Land. Grayson CAD is not following the required appraisal methods for computing productivity value for all of its land classes. The CAD received ratios ranging from 1.1858 to 1.3127 in 2004 and 1.3923 to 1.5012 in the 2005 PVS for this category. By using the required methods to compute productivity values annually, Grayson CAD can achieve and maintain appraisal accuracy and equity, benefiting school districts and taxpayers.
The review team identified some commendable practices in Grayson CAD that other county appraisal districts may do well to review and implement where appropriate.
- Grayson CAD has well-written job descriptions for staff members and a systematic approach for annual performance evaluations. In order to have an effective tool for evaluating staff, Grayson CAD developed written job descriptions and an evaluation system for all staff members. The job descriptions and annual work plans submitted by the staff members serve as the basis for objective and systematic performance evaluations. The evaluations include staff member comments and include goals and objectives agreed upon by the employees and supervisors.
- Grayson CAD developed an excellent Web site for providing customer service to taxpayers. Due to pride in good customer service, the CAD developed its own Web site, http://www.co.grayson.tx.us/, which is informative and user-friendly. Taxpayers can view appraisal data, print applications and forms, view and print maps, view tax rates, and get access to links to other tax-related sites. The CAD also collects customer surveys, soliciting comments from taxpayers on ways to improve customer service.
In addition to the recommendations made above, the review team identified certain management and operational issues that may not be directly related to the appraisal process, but can have an indirect impact on the ability of the district to accurately and consistently carry out its mission of property appraisal. The CAD is not obligated to implement these recommendations, but they are provided here for the CAD's consideration as additional ways to enhance its operational effectiveness and efficiency.
- Develop and test a disaster recovery plan.
- Develop administrative policies and procedures to guide day-to-day operations.