FINDINGS OF THE APPRAISAL STANDARDS REVIEW
This chapter of the report addresses the findings, commendations and recommendations from the appraisal standards review of the Hamilton CAD in five sections:
The quality of the property tax system depends on the appraisal district's board of directors. Individuals serving on the board of directors bring to the board knowledge, judgment and expertise in establishing policies and procedures for the district's organization and operation.
The district board of directors consists of five members. Members of the board are listed in Exhibit 4.
Board of Directors Members
Board Member Represents Starting Date Marion Striegler, Chair Hamilton County January 2002 Karen Craig Hamilton ISD and City of Hamilton January 2000 Billy Lasater Hamilton ISD January 2002 Tim Eby Hico ISD & City of Hico January 2002 Franklin Sprague Hamilton ISD January 2004 Source: Hamilton CAD March 2005.
Billy Lasater is a Hamilton ISD board of trustee and Tim Eby is a Hico ISD board of trustee and both are elected officials.
Board of directors members are nominated every two years (during odd years). At the first meeting, following their election, the board elects its officers.
The Board of Directors has the following primary responsibilities:
- Establish the appraisal district's appraisal office;
- Adopt the appraisal district's annual operating budget;
- Contract for necessary services;
- Hire a chief appraiser to act as the chief operating officer of the district;
- Hire a taxpayer liaison officer (districts in counties having a population of over 125,000);
- Appoint appraisal review board members; and
- Make general policy on the appraisal district's operation.
The board of directors received a written survey about board activities. Four of the five 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. The board generally gave itself, the chief appraiser, and staff high marks for running the district. On the majority of questions, the board agreed or strongly agreed that the district was operating effectively. All four board members agreed with the statements that "the board maintains a comprehensive set of policies and procedures to guide the operation of the appraisal district; and "all board policies in my district are reviewed and updated at least every two years." Two board members felt they did evaluate the chief appraiser annually, and felt they did have a written job description and a performance plan for the chief appraiser; while the board chairman disagreed. Four board members agreed with the statement that "the external audit contract is periodically bid and the auditors are rotated periodically." One member strongly agreed and the others agreed with the statement "the board regularly monitors the performance of contracts after a contract is signed."
Hamilton CAD's budget lacks the detail necessary to comply with Section 6.06 of the Tax Code. Copies of the budgets for 2003, 2004 and 2005 were reviewed. The budgets contain a listing of each proposed staff position showing its proposed salary; however, the benefits allocated to each position are shown as category totals rather than itemized for each proposed position. Capital expenditures were also not clearly defined. The district's appraisal and collections budget were not broken out separately. After the onsite visit the chief appraiser supplied a copy of the 2006 Hamilton CAD budget. The budget listed employee positions and salaries, but employee benefits were not broken down per employee position. The 2006 budget did provide a better breakdown of capital expenditures and Hamilton CAD is splitting out the appraisal and collection budgets.
Section 6.06 requires a list of each proposed position, including the salary and benefits for the position, a list of each proposed capital expenditure and an estimate of the amount of the budget allocated to each taxing unit. Taxing units are also required to maintain a copy of the budget for public inspection at their principal administrative offices.
The board of directors is required by law to hold a public hearing on the budget. The CAD advertised the board budget meeting for 2003, 2004, and 2005 in the local newspaper. The hearing for the 2003 budget was held on July 29, 2002. The 2004 budget hearing was held on July 15, 2003 and the hearing for the 2005 budget was held on August 10, 2004.
Exhibit 5 shows the budgets for 2003 through 2005.
The budgets summarized on the following page do not give sufficient details for a member of a taxing unit or a member of the public to understand how the money is spent. Specifically, it is difficult to determine what types of capital expenditures are proposed. In addition, with over 60 percent of the budget going to wages and benefits, the taxing units and the public need the details required by state law to be assured the number of staff in the district is sufficient to perform the work and the staff is correctly compensated.
Expand the detail of the budget presented to the board of directors for adoption to include the benefits for each position and a detailed list of each proposed capital expenditure.
Hamilton CAD 2003, 2004 and 2005 Budgets
Expenditure 2003 2004 2005 Chief Appraiser $46,240 16.68% $47,627 15.39% $47,627 15.37% Office Manager/Bookkeeping/Data $31,241 11.27% $32,178 10.40% $33,145 10.70% Clerk and Data $22,765 8.21% $23,448 7.58% $24,627 7.95% Clerk and Appraiser $22,765 8.21% $23,448 7.58% $24,627 7.95% Appraiser $22,765 8.21% $23,448 7.58% $24,627 7.95% Mapper $18,922 6.82% $19,490 6.30% $20,075 6.48% Salary Total $164,698 59.40% $169,639 54.82% $174,728 56.39% Workman's Compensation and Liability $1,750 0.63% $1,772 0.57% $1,835 0.59% Social Security/Medicaid Contribution $12,650 4.56% $12,980 4.19% $13,367 4.31% Public Official Liability Insurance $900 0.32% $900 0.29% $900 0.29% Supplies $7,000 2.52% $7,000 2.26% $7,000 2.26% Postage $4,500 1.62% $5,000 1.62% $5,000 1.61% Service Contracts $20,000 7.21% $27,500 8.89% $27,500 8.87% Notice and Advertisement $1,000 0.36% $1,000 0.32% $1,000 0.32% Membership and Dues $800 0.29% $1,000 0.32% $1,000 0.32% Legal Services $1,000 0.36% $5,000 1.62% $5,000 1.61% Books and Subscriptions $100 0.04% $100 0.03% $100 0.03% Appraisal Review Board Expenses $1,000 0.36% $1,000 0.32% $1,000 0.32% Appraisal District Travel $2,000 0.72% $2,000 0.65% $1,500 0.48% Seminars and Education $2,000 0.72% $2,000 0.65% $1,500 0.48% Utilities $8,000 2.89% $8,000 2.59% $8,000 2.58% Bonds $450 0.16% $450 0.15% $450 0.15% Petty Cash (Fuel, film, toiletries, etc.) $1,000 0.36% $1,000 0.32% $1,000 0.32% Employee Health Insurance $17,785 6.41% $17,785 5.75% $18,368 5.93% Building and Contents Insurance $350 0.13% $350 0.11% $350 0.11% Computer and equipment Insurance $400 0.14% $400 0.13% $400 0.13% Appraisal Firm Asst. (Utilities and Minerals) $9,000 3.25% $13,400 4.33% $13,400 4.32% Audit and Bookkeeping Services $3,500 1.26% $3,500 1.13% $3,500 1.13% Repairs $2,500 0.90% $2,500 0.81% $2,500 0.81% Retirement Plan for Employees $9,880 3.56% $10,178 3.29% $10,484 3.38% Computer Upgrade $5,000 1.80% $15,000 4.85% $10,000 3.23% Miscellaneous $0 0.00% $0 0.00% $1,000 0.32% Total $277,263 100.00% $309,454 100.00% $310,882 100.00% Source: Hamilton CAD 2003, 2004 and 2005 budgets.
Note: According to the "Notice of Public Hearing on Hamilton County Appraisal district Budget" for 2003 through 2005, Hamilton CAD's budget for 2003 was $24,270 less than 2002. In 2004 the CAD requested an increase of $32,281 over 2003.
Until recently, the board did not have a written process for evaluating a chief appraiser or a written job description. No evidence of any formal review process for assessing chief appraiser performance was supplied during the onsite visit. Subsequent to the onsite visit, the district provided a copy of an evaluation tool the board of directors will use to evaluate the chief appraiser and a copy of the chief appraiser duties and responsibilities. The evaluation tool has 12 areas that include: the Boards Goals and Objectives,: Organization: Problem Solving; Leadership; Relationship with Board; Personnel; Duties/Responsibilities; Business and Finance of Appraisal District; Communication; Relationship with Community; Development; and Personal Attributes. The chief appraiser is rated from one to ten and there is a small space for comments. There is not an area for the chief appraiser's signature to confirm that he or she has seen the evaluation and agrees or disagrees with the contents.
According to the evaluation tool, each board member individually evaluates the chief appraiser's performance and then the chairman compiles the results and gives the chief appraiser the composite scores of the board's individual evaluation. The chief appraiser did not indicate when he would be evaluated using the new instrument.
Chief appraisers are responsible for ensuring that competent staff is hired, procedures are documented, appraisals are performed, employees are evaluated, and all other functions performed by an appraisal district. Having a qualified chief appraiser is important to effective district operations.
Without written guidelines for the chief appraiser to follow, an objective evaluation of the chief appraiser's performance is impossible. Without an objective system in place to ensure that the board and the chief appraiser are in agreement as to what is expected of the chief appraiser, performance evaluations may be subjective and based on emotion rather than actual performance.
In Nueces CAD, for example, the board has developed a well-defined job description for the chief appraiser and constructed an objective evaluation tool for measuring the chief appraiser's job performance. The chief appraiser's job description contains the statutory responsibilities set forth in Section 6.05 of the Tax Code, as well as specific goals and expectations required from the board. The job description clearly defines the role of the chief appraiser and lays the groundwork for an objective evaluation. The chief appraiser receives an annual performance evaluation on the anniversary date of his/her hire. The board uses an instrument that 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 goals and objectives for the next twelve months. Having an objective evaluation system in place ensures that the board and the chief appraiser are in agreement as to what is expected of the chief appraiser, and eliminates performance evaluations that may be subjective and based on emotion rather than actual performance.
Develop board procedures to evaluate the chief appraiser, insert a line for the chief appraiser's signature on the evaluation tool and use the newly developed tool to evaluate the chief appraiser annually.
Hamilton CAD's Agreement for Appraisal Services (Agreement) with Capital Appraisal Group, Inc. (CAG) does not fully specify dates, deliverables or performance conditions. The district has a two year contract with CAG to perform appraisals and product valuations of oil and gas well, public utilities, telephone companies, pipelines, railroad systems and industrial properties. CAG also agrees to make available to Hamilton CAD copies of all appraisals.
In the Agreement, Hamilton CAD is obligated to pay CAG a fee of $13,400 for 2004 and 2005. The calendar year term contract provides for Hamilton CAD to pay CAG for their services in four quarterly payments beginning January 1, 2004 and continuing on April 1, July 1, and October 1 of each year.
Without clearly defined contract services and deliverables tied to vendor deadlines that correspond with appraisal district target function dates, the district is not alerting the vendor to critical deadlines and without dates for specific deliverables, the district would have not recourse to compel the vendor to perform the services within a prescribed timeframe.
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.
Revise the mineral, utility and industrial appraisal services contract to comply with IAAO standards.
In organizing and administering an appraisal district, the chief appraiser is responsible for hiring, firing, and training personnel, for ensuring compliance with a wide range of legal requirements and for the maintenance of policies and procedures for effective appraisal district office operations. The district is also required to comply with Comptroller rules concerning application forms and appraisal records.
The chief appraiser is required by law to prepare and certify an appraisal roll for each taxing unit participating in the district. Certification of the appraisal roll for the 2003 tax year by the district was completed according to the law.
Hamilton CAD lacks well documented policies and procedures to guide the day-to-day operations of the district in areas such as payroll processing, accounting and purchasing.Instead, employees of the district have a series of memos, notes or long term memory to guide them through the day-to-day processes. Policies adopted by the board are recorded in board minutes, but it is unclear how certain policies are translated into practice in the district, nor is it clear that the chief appraiser, or any other employee, is responsible for monitoring day-to-day operations to insure that policy decisions of the board are carried out.
A policy tells a person, department, or group of individuals what they must do, whereas as procedure enumerates how it can be accomplished.
Well-written and organized procedures:
- implement and assure compliance with board policies as well as documenting the intent of those policies;
- protect the institutional knowledge of an organization, so that as experienced employees leave, new employees have the benefit of the others' years of experience;
- provide the basis for training new employees; and
- offer a tool for evaluating employees based on their adherence to procedures.
In the absence of well documented procedures and policies, the work of the appraisal district may come to an abrupt stop if key personnel leave a position as a result of sudden illness, death or other personal tragedies. Other examples abound of whole departments without trained back-ups for critical positions like payroll, and of poor training techniques that show new employees how to perform a task, but not why.
To be effective, policy and procedure manuals should be updated and kept current at all times. This means setting up a system for regular updates and distribution, as well as periodic reviews to ensure that all old policies are removed when no longer needed.
For example, the Jefferson CAD, recently reviewed by the Comptroller's office, maintains a current and comprehensive policy and procedure manual detailing procedures for payroll, accounting, purchasing, budget, travel, bank reconciliations and similar procedures.
Develop a comprehensive written policy and procedures manual for district operations.
Appraisal districts use information technology to provide detailed records that are easily accessible to staff and the public. Information technology systems allow staff to effectively manage large amounts of data on individual properties and make the appraisal process more efficient.
The district has an established process for backing up and storing appraisal data. The system is backed up daily and the backups are stored in the CAD's vault. Every seven days the data is back upped and stored in a bank vault. The district has been able to supply an electronic copy of the appraisal roll to the Comptroller's office.
The information processing system is a Unix system provided to Hamilton CAD by the Software Group, Inc. of Plano, TX. The system handles: entry of new appraisal information; updating or changing of already established records; sales and costs of improvements information; land sales data; income data; collections data; and exception data. It has a module for the appraisal of Real Property and Personal Property. The system allows for more than one year of appraisal history to be on-line. It has an adequate security system; the staff has access to the system and the data that is stored on it. The Software Group, Inc. handles the electronic submission of data to the Comptroller's office.
Appraisal cards are kept in paper form and the information is also kept on the system. All appraisal cards contain the information that is required by the Comptroller. Currently the appraisal roll is available only in paper form at the CAD.
The granting or denying of exceptions and special appraisals are all recorded and are available for review. The printout indicated that the District is in compliance with Comptroller rules.
Hamilton CAD backs up appraisal data and stores it in a secure location.
Personnel and human resources management are a critical function of appraisal districts. Successful management of personnel includes efficient recruiting, hiring, classification and compensation, benefit administration, training and development, and performance evaluation. Compliance with equal employment opportunity statutes and other applicable federal and state laws and the establishment of fair and workable policies, procedures and training are important for the recruitment and retention of competent staff.
The Hamilton CAD staff is organized as outlined in Exhibit 6.
Hamilton County Appraisal District
Positions, Certifications, Years with Hamilton CAD and Salaries
Years with Hamilton CAD Salary Chief Appraiser RPA, RTA 23.00 $47,627 Office Manager/
RTA 23.00 $33,145 Clerk/Data Entry RTA 11.00 $24,627 Appraiser/Clerk RPA 11.00 $24,627 Appraiser * 0.25 $18,500 Mapper N/A 5.00 $20,075 *Registered with Board of Tax Professional Examiners (BTPE).
Source: Hamilton CAD, April 2005.
All appraisal district staff who appraise property are required to be Registered Professional Appraisers (RPA) or to be working towards certification as an RPA. Staff must be certified within five years of their hire date. Interim certifications include Class II and Class III. In addition, RPAs must re-certify five years from the date of first certification and every five years while registered.
Hamilton CAD's personnel manual is currently being updated. A new personnel manual is ready for the board of director's approval, but has not been implemented. Hamilton CAD's board by-laws are used as the personnel policy manual that explains the district's policy as an at-will employer and the district's mission. The handbook also describes guidelines for employee behavior in dealing with customers. It does not address policies concerning sexual harassment, the Americans with Disabilities Act, the Family Medical Leave Act or any of the many changes in personnel law over the last decade.
Having an outdated or narrowly written personnel policy that fails to adequately inform employees of their rights and responsibilities places both the employee and district at risk.
Continually update and review the personnel manual against current employment law.
At the time of the onsite visit, the Hamilton CAD did not evaluate personnel. The district did not evaluate staff in writing nor did it evaluate staff informally. The district's personnel manual does not have any information on employee evaluations.
Subsequent to the onsite visit, the district began work on an employee evaluation instrument. The draft instrument lists 11 areas where district staff are evaluated:
Staff are rated on a scale of 1 to 10. The scale is not defined, however, nor is there any explanation for what each of the rated areas means. The district did not provide any procedures for using the draft evaluation instrument, nor did the district provide copies of changes to the personnel manual on how employee evaluations need to be conducted or how often employee evaluations need to be performed.
IAAO's Property Appraisal and Assessment Administration in Chapter 16, "Administration," states, "Although employees may improve their skills by their own efforts and the help of peers, managers have organizational responsibility for employee development. They use training, education, counseling, and performance reviews to identify talents and help employees grow."
The employee's performance of assigned duties and other job-related criteria provides the basis for an annual (at a minimum) employee evaluation. Employees need to be informed of the criteria on which they will be evaluated. A detailed job description is essential. Evaluation and performance appraisal ratings are based on the evaluation instrument and cumulative performance data gathered by supervisors throughout the year. The district was unable to provide detail written job descriptions for each staff position.
Each employee typically has at least one evaluative conference annually to discuss the written evaluation and may have as many conferences about performance of duties as the supervisor deems necessary. Evaluation records and forms, reports, correspondence and memoranda may be placed in each employee's personnel records to document performance. All records that support appraisal ratings need to be maintained for at least two years. Official appraisal records are then maintained throughout a person's employment with the district and for two years after an employee ceases to be employed with the district. All employees need to receive a copy of their annual written evaluation.
A proper personnel evaluation process is essential to employee development and high morale. The district was unable to provide any recent performance appraisals of staff.
Complete the draft evaluation instrument, develop policies and procedures for evaluating staff, update the personnel manual to reflect the new personnel evaluation policies and procedures and begin evaluating staff annually.
There are three approaches to value-cost, income, and market-that a chief appraiser must consider in determining the market value of property. The chief appraiser must consider all three and use the method most appropriate in appraising a particular property.
Hamilton CAD's Residential Appraisal Manual was adopted in 2004 and later updated in 2005. It was developed locally by the chief appraiser and appraisal staff. The manual was written to the meet the standards and be in compliance with USPAP and the Tax Code and is found in a large three ring binder in the office. It is easy to make modifications to the manual because of its format (3 ring binders). All appraisers have a smaller version of the manual that they bring into the field when they are doing appraisals. All necessary steps are presented for real, personal, and commercial property appraisals.
Capitol Appraisal Group contracts for the appraisal of utilities. Utilities are appraised using the unit value technique. The unit value technique is a technique that requires the appraiser to determine the market value of the entire utility company. The utility company value is then apportioned to each taxing unit based on an agreed measure of the company's presence in the taxing unit such as miles of track, historical cost or number of meters. The unit valuation is widely accepted as the preferred income technique for appraising utility properties. Industrial properties are appraised using cost and/or income approaches to value.
Hamilton CAD lacks a detailed reappraisal plan to ensure the execution of timely and accurate reappraisals.Hamilton CAD's reappraisal plan does not give details as to the steps to be performed, staffing levels, workflow or the costs associated with plans and goals. The plan does not list specific procedures for determining how sales are to be used in reappraising property in each market area, or how the district's internal ratio study is used to determine the need for reappraisal in each market area. The plan does not discuss how market areas might be grouped to provide sufficient sales for appraisal model analysis and development.
The reappraisal plan does not link the appraisal district's budget, training, contracting, market analysis, field inspections and data processing in one document. The appraisal district board of directors has not adopted a plan that includes documentation of how the appraisal district staff will implement the reappraisal plan. In addition, the board has not adopted or reviewed the work plan the staff would follow to accomplish the reappraisal policy. The chief appraiser states that all properties are reappraised annually based on sales data, with physical inspections of all properties every three years. The chief appraiser stated that annual inspections are done on all new properties and properties with physical changes.
Lack of a detailed reappraisal plan could cause the execution of the plan to go awry, and result in property values that deviate from market value. This market value deviation could cause any of Hamilton County's school districts to receive an invalid finding in the state's property value study.
Section 25.18, Tax Code, requires appraisal districts to implement a plan for reappraisal. The plan for reappraisal shall provide for reappraisal of all real property in the district at least once every three years. A reappraisal plan is a roadmap for performing the work. It is also a communication tool that shows the appraisal district board of directors how the appraisal district staff plans to accomplish its appraisals, and if the board chooses to require the chief appraiser to submit the plan for approval, the board can direct the appraisal activities by amending the plan.
According to USPAP Standard 6, a functional reappraisal plan includes the following activities:
- identifying properties to be appraised;
- identifying and updating in the appraisal records the relevant characteristics of each property to be appraised;
- defining market areas;
- identifying property characteristics that affect property value in each market area;
- developing an appraisal model that reflects the relationship among the property characteristics affecting value in each market area;
- calibrating the model to determine the contribution of the individual property characteristics affecting value;
- applying the conclusions reflected in the model to the characteristics of the properties being appraised; and
- reviewing the appraisal results.
A reappraisal plan also provides for a physical inspection of the properties being appraised. Alternatively, the plan can include reliance on reliable sources of property information instead of physical inspections. Such sources include deeds or other legal documentation, aerial photographs, land-based photographs, surveys, maps and property sketches. A complete plan would indicate instances or types of properties that will be appraised using sources of information other than physical inspection.
The primary function of every appraisal district is to appraise all taxable property equally and uniformly at market value. The chief appraiser and appraisal district staff are responsible for the day-to-day operations of the appraisal district, but the board of directors must adequately plan to accomplish these objectives and establish policies that serve as clear directives to the chief appraiser and staff. As representatives of the member taxing units, the board of directors is responsible for ensuring that the appraisal district produces an appraisal roll that reflects market value for all taxable properties.
A thorough reappraisal plan discusses in detail how and when the district plans to perform each of the activities mentioned above. A detailed reappraisal plan, if executed properly, would help ensure that values in each school district are valid in the PVS, thereby avoiding the possibility of a school district receiving less than the expected amount of funding from the state. A detailed and properly executed plan would also ensure that taxpayers are treated uniformly in the payment of property taxes.
Adopt and implement a detailed reappraisal plan.
Hamilton CAD is not effectively using ratio studies to produce appraisal maintenance programs.
According to IAAO's Property Appraisal and Assessment Administration, a ratio study is a study of the relationship between appraised or assessed values and market values. Indicators of market values may be either sales or independent "expert" appraisals. Of common interest in ratio studies are the level and uniformity of the appraisals or assessments.
The chief appraiser reported he currently does the ratio studies manually and does not keep hard copies. With the CAD's recent purchase-a new computerized appraisal system that allows appraisal analysis through ratio studies within and among property classifications-the lack of available current and historical ratio study data is eliminated.
Another way to measure the effectiveness of the appraisal maintenance programs is through PVS results: the 2003 PVS results indicate that Hamilton CAD's appraisal maintenance programs for at least one of its school districts did not achieve the desired result of identifying market areas whose values no longer reflect the market, so adjustments can be made. Cranfills Gap ISD was identified as an eligible school district because its tested appraised values fell outside the 2003 PVS statistical margin of error. Eligibility was primarily attributed to under valuing rural residences (subcategory D2). Subcategory D2 represents about 36 percent of the district's value. Although the productivity value of qualifying acres (subcategory D1) only represents about 11 percent of value within the CAD, PVS results indicate that Hamilton CAD consistently over-valued dry crop and improved pasture while consistently under-valuing native pastureland in the eligible school district. Single-family residence properties (category A) were inconsistently valued from as low as 44 to a high of 197 percent of market value according to the 2003 PVS.
Since no ratio study copies were kept by the CAD, the reviewers were unable to evaluate how the ratio studies were used in developing the appraisal maintenance programs. It is not clear if flawed ratio studies were produced and effectively integrated in the appraisal maintenance programs, or if quality ratio studies were produced and then poorly integrated with the appraisal maintenance programs, or if both functions are flawed. All these scenarios produce ineffective appraisal maintenance programs.
Ineffective appraisal maintenance plans and plan implementation do not identify areas of market value deviation, leading to inconsistent appraisals and flawed property values. If the level of appraisal (percentage of market value) varies from school district to school district, or from taxpayer to taxpayer, some taxpayers could be bearing more than their fair share of the local tax burden.
Appraisal districts use ratio studies to plan appraisal maintenance programs. The ratio study results indicate those market areas in the appraisal district whose values no longer reflect the market. Frequent ratio studies and the appraisal maintenance that follows enable an appraisal district to keep its values at or near the market.
Develop and implement effective appraisal maintenance programs based on ratio studies to identify and correct market value deviations.