Páginas en español | Contact Us

Quick Start for:

• Citizens
• Business
• Government

Chapter 2
Findings of the Appraisal Standards Review

This chapter of the report addresses commendations, findings and recommendations from the ASR of Harris CAD in the following three sections:

2.1
Commendable Practices

As part of its review process, PTAD identifies best practices used by each CAD under review. These commendable practices improve efficiency, address past operational weaknesses and give other appraisal districts ideas for improving their own operations.

FINDING
In 2007, 1.4 million parcels required a three-year review, but with only 254 qualified appraisers, it was difficult to meet the three-year inspection requirement without an innovative approach.

Property Tax Code Section 25.18 (b) (1) requires reappraisal of all real and personal property at least once every three years. In 2007, the CAD had 254 appraisers qualified to perform the review of 1.4 million parcels. The CAD contracted for the services of three appraisal firms to assist with the reevaluation of real and personal property. These appraisal firms appraised 26,957 of the 1.4 million parcels.

According to Harris CAD's director of appraisal operations, the volume of properties makes it difficult for appraisers to re-evaluate and physically inspect properties. Due to the increase in residential protests, the CAD assigns staff resources typically allocated to re-inspections to informal meetings and ARB hearings.

In 2006, to overcome this challenge, Harris CAD started using street-level imaging and aerial photography produced by Pictometry International to update information on property records. Pictometry patented an image capturing process for geo-referenced, aerial, oblique image libraries and software. It is widely used by geographic information system (GIS) planning and assessing professionals around the country. Pictometry captures images obliquely, or from an angle, and creates a more natural-looking three-dimensional view, so users can see land features and structures clearly and in their entirety. Aircraft take multiple photographs and fly in a pattern that captures oblique views of structures from north, south, east and west. Harris CAD integrates the Pictometry images with its computer assisted mass appraisal (CAMA) system and uses them during the re-inspection effort to identify potential valuation or data issues.

The 2008 IAAO Standard on Mass Appraisal of Real Property Section 3.3.5, Alternative to Periodic On-Site Inspections, provides that jurisdictions may use certain types of photography in place of cyclical field inspection of properties. Among the types of photography specifically referenced is:

Low level oblique images capable of being used for measurement verification (four cardinal directions, minimum 6" pixel resolution in urban/suburban and 12" pixel resolution in rural areas, updated every 2 years in rapid growth areas or, 6-10 years in slow growth areas).

For the 2007 tax year, Harris CAD inspected 18,048 parcels using Pictometry. The oblique, or 3-D, images provide the CAD the ability to perform a virtual inspection of a parcel's structures and land features. Appraisers are able to measure the square footage of a structure without the time and cost associated with an on-site inspection. This means more productivity at a lower cost because there is no traffic downtime and no expense for mileage reimbursement. Data verification of property characteristics, available on the office desktop, is used for re-inspection and quality assurance, as well as affording the appraiser the option to verify data during a hearing instead of having to recess the hearing and send the account for a field inspection. Pictometry images also provide an efficient means of identifying missing improvements that the CAD might not otherwise have reported to a jurisdiction's tax roll.

The cost of the imagery was $100,000 in 2006 and $365,000 for 2008. Costs during the base year were 40 cents per dollar per parcel and in subsequent years, 20 cents per dollar per parcel. Harris CAD is presently negotiating to fly over the county to assess damage from Hurricane Ike.

COMMENDATION
By using aerial photography with Pictometry to gather property data, Harris CAD is able to overcome the challenge of reappraising 1.4 million parcels in the statutorily required three-year cycle.

FINDING
The complexity of operations requires critical coordination between departments to carry out appraisal operations.

IAAO Standard on Administration of Monitoring and Compliance Responsibilities recommends that collaboration facilitates better decision-making and more cost-effective operations and allocation of resources.

Since 1998, Harris CAD has used software workflow tools to manage documents and photo images. The CAD's computer software runs on a relational database that integrates with other applications outside the base system, including document imaging and GIS.

The assistant chief appraiser for support services provides overall direction for CAD support services staff and is responsible for the daily facilitation of the workflow. The assistant chief appraiser uses a workflow management program that tracks and logs appraisal records that support Harris CAD operations, data storage, bar coding of appraisal evidence hearings and records retention.

The director of appraisal operations is responsible for approving all system changes and ensuring all divisions are included in the discussion on any change. The changes, known as work packs, are created and assigned to supervisors for staff distribution through a system workflow process. This workflow tracks the status, including file inspection, data entry, quality assurance and value review.

The CAD accomplishes this critical coordination between departments by keeping all key personnel within the CAD abreast of change requests via computer software programs that generate workflow schedules, document each change and make the changes available in electronic format.

COMMENDATION
Harris CAD effectively uses state-of-the-art integrated workflow management software to keep affected staff abreast of changes required to improve the appraisal processes.

FINDING
Protest filings increased from 180,757 in 2003 to 374,860 in 2007.

In 2004, the CAD saw a need to address the volume of filings. The CAD was one of the first appraisal agencies in the nation and the first in Texas to allow filing of property protests via the Internet. The CAD calls this online system for filing protests iFile.

Harris CAD uses iFile for three processes:

• filing a protest;
• viewing protest evidence; and
• filing renditions.

Filing protests via iFile has significant benefits to the CAD. The property owner receives an immediate confirmation that the CAD has received his or her protest. There is no labor required to enter these protests into the CAD's computer system. It enables Harris CAD to handle significantly more protests without any increase in clerical costs. Manual protests require more time to process and can take weeks to resolve, but iFile is nearly instantaneous. Protests can be scheduled and heard much sooner.

In 2007, property owners filed 100,105 protests using iFile, approximately 33 percent of the 374,860 total protests.

In addition to iFile, the CAD also encourages tax agents with large inventories of properties to file property owner protests electronically on compact disk (CD). Tax agents filed 124,118 protests on CD in 2007. The number of protests filed electronically in 2007 was 224,223 or 60 percent of all protests (Exhibit 2).

Exhibit 2
Harris CAD Protest Volume, 2003-07

Description	2003	2004	2005	2006	2007
Protests via iFile	0	24,998	27,380	34,369	100,105
Protests from agent on CD	0	40,273	61,635	90,230	124,118
Protests in person	180,757	116,391	129,038	134,441	150,637
Total Protests	180,757	181,662	218,053	259,040	374,860

Source: Harris CAD 2007 Comprehensive Annual Financial Report.

Protests via iFile increased from its inception in 2004 from 24,998 to 100,105, or 300 percent, in 2007. During the same period, agent protests via CD also increased dramatically, from 40,273 to 124,118, or 208 percent. Protests filed in person, meanwhile, decreased by 16.7 percent from 2003 to 2007.

The iSettle system allows Harris CAD to review protests, evidence and trends in reductions in value in surrounding property. If, after this review, iSettle calculates a value that falls within certain parameters, the system sends a new market value via e-mail to the property owner. The CAD calls this part of the electronic system iSettle, which it implemented in July 2007 as a pilot program. The CAD developed this online settlement process as a means to expedite the hearings process for both the property owner and the CAD, and, to the extent possible, make the appeals process less burdensome.

The CAD selected many of the residential property owners who filed an electronic protest using the iFile system at http://www.hcad.org/iFile for an online settlement offer through iSettle. The iSettle pilot involved the computerized analysis of the CAD's hearing evidence, including but not limited to, the Comparable Sales Analysis and the Comparable Property Analysis. The CAD established parameters to validate the credibility of the property's comparables in order to ensure that it selected appropriate indicators of market value. If the CAD's evidence indicated the property warranted a value reduction, it sent a settlement offer via e-mail. The computerized iSettle analysis for 2008 is similar to the 2007 process mentioned previously.

The appraiser's reasoning for making an iSettle offer is based on his or her judgment, developed through education, training and experience, the same as an offer made in a face-to-face meeting. The appraiser's iSettle review mimics reviews performed in the informal hearing by using the following information and tools:

• comparable sales analysis;
• comparable property analysis;
• neighborhood sales transaction reports;
• property owner comments submitted in the iFile protest;
• Pictometry digital imagery, which allows the appraiser to visually inspect the property and verify exterior measurements; and
• facet technology street-level images, which allows the appraiser to verify certain exterior property characteristics, such as grade and condition.

The iSettle system has similar benefits to iFile in cost reduction and expediency.

The iSettle system is only available for non-agent-represented residential property, and the owner must elect to participate in iSettle when filing a protest online. In 2008, 80,000 to 90,000 residential protests were filed electronically and 36,000 were settled using iSettle. The property owner has 10 days in which to log on to the iFile Web site and indicate whether he or she agrees and is satisfied with the new market value placed on their property. If the property owner agrees with the new value, the CAD updates the records and sends the taxpayer a confirmation via e-mail and regular mail. If the property owner does not accept the new market value or does not respond, the program automatically schedules a formal hearing with the ARB.

The CAD determined the pilot was a success when protesters accepted 58 percent of the nearly 20,000 offers it e-mailed to property owners.

COMMENDATION
Harris CAD improved efficiencies in handling protests by developing and implementing electronic means, including online systems called iFile and iSettle, that allow property owners to file protests via the Internet, and a system that permits tax agents to do the same via compact disc.

FINDING
In 2005, almost 65,000 businesses failed to file required personal property rendition forms and were subject to monetary penalties.

Property Tax Code Section 22 requires a property owner to render tangible personal property used for the production of income. Personal property renditions, which are confidential by law, provide information that assist the appraisal district in calculating an accurate Jan. 1 market value for a firm's tangible personal property. If the CAD does not receive information from a business owner, the appraisal district must estimate the personal property value.

In most cases, a business must file its rendition by April 15. Businesses that file late or fail to render property are subject to a 10 percent penalty. In the case of a fraudulent rendition, the penalty is 50 percent plus possible criminal prosecution.

Harris CAD conducts workshops for business owners to educate them about filing the required forms and to reduce the number of business owners subject to a rendition penalty. The workshops also encourage business owners to use iFile to file renditions via the Internet.

COMMENDATION
Harris CAD conducts workshops to educate and assist businesses about property rendition requirements and provides businesses with a convenient way to file renditions electronically via the Internet.

FINDING
The appraisal district's size and complexity requires effective, experienced leadership capable of implementing long-range goals to ensure continuous and consistent appraisal operations.

The CAD has a highly experienced, credentialed executive leadership team to oversee the day-to-day management of its operations. On average, the executive leadership team has more than 20 years of experience with Harris CAD and nearly all of them had appraisal district or real estate experience prior to joining the CAD. In addition to the leadership team's vast professional experience, almost all have acquired appraisal certifications, and some leadership team members serve in executive roles for organizations dedicated to the appraisal profession (Exhibit 3).

Exhibit 3
Harris CAD Executive Leadership Team

Position	Years with Harris CAD	Credentials
Chief Appraiser	23	Registered Professional Appraiser (RPA) Certified Fraud Examiner (CFE)
Chief Deputy/General Counsel	16	Doctor of Jurisprudence (JD) RPA
Assistant Chief Appraiser/Operations	21	RPA Certified Instructor – USPAP Certified Instructor – IAAO President of IAAO
Assistant Chief Appraiser/Support Services	19	RPA
Director of Information Systems	19	RPA
Director of Administration	27	Bachelor of Science in Business Services Technology

Source: Harris CAD, 2008.

In 2003, the Harris CAD board and management team established and met six strategic goals to move the CAD forward through 2008 (Exhibit 4).

Exhibit 4
Harris CAD's Strategic Goals and Accomplishments, 2003-08

Goal	Status
1. Locate, purchase and move to CAD-owned facility.	CAD completed successful relocation to new facility ahead of schedule while lowering operating costs (ownership versus higher lease payment).
2. Move from the existing mainframe computer to the new system.	CAD entered into a development contract with a software provider to modify its custom CAMA system to meet CAD needs. The CAD maintained property ownership records in a new system parallel with the mainframe. The CAD delayed some portions of the project due to data conversion difficulties and diversion of resources during the design of the computer systems for the new building. Ownership record maintenance began in 2004. Implementation of real property occurred in 2005 and personal property in 2006.
3. Equip field staff with personal computers.	The CAD field-tested the devices in a number of pilot projects; acquisition in 2007 was not possible because of the need to fund ARB hearings and litigation activities. The CAD acquired devices in spring 2008 for implementation in fall 2008. Some equipment is already in use.
4. Acquire imagery for each property in the county.	The CAD conducted pilot projects both for oblique and for street level imagery in 2004-05. It acquired the first set of Pictometry (oblique imagery) in 2006, ahead of schedule and acquired first set of street level imagery in 2007. It acquired the first update of Pictometry in 2008. By implementing projects earlier than anticipated, costs were much lower and the CAD was able to fund all of the imagery from savings.
5. Improve efficiency of hearings process.	The CAD implemented paperless appraisal hearing processes (iFile and iSettle) concurrently with the move to the new building. Improvement and updating of these processes is an ongoing goal.
6. Improve efficiency of field appraisal operations.	Harris CAD completed reorganization in 2004, including elimination of separate field operations division. It aligned field activities with the division responsible for appraising property by type.

Source: Harris CAD Strategic Planning Status Summary, July 2008.

COMMENDATION
Harris CAD has experienced, credentialed executive leadership that assists the board of directors in establishing and completing critical long-range goals to ensure continuous progress within its appraisal operations.

2.2
Key Findings and Recommendations

As part of the review process, PTAD makes recommendations to address challenges identified during its review of a CAD. Below are recommendations that address key challenges with Harris CAD's appraisal performance.

Generally Accepted Appraisal Practices

CADs must consider the three general appraisal methods or approaches – cost, income and market – in determining the market value of property.

Appraisal textbooks and the IAAO Technical Standards provide additional information about the approaches to determining or appraising value. Appraisers usually determine the value of producing mineral deposits, such as oil, gas and coal, and the value of much utility and commercial property by using the income approach to value. Most appraisal districts contract with consultants to appraise mineral and utility property. The chief appraiser can provide information that helps the contractor decide the proper method to use to appraise mineral and utility property.

FINDING
The percentage of value loss because of administrative protests is greater in the commercial category than other categories of property appraised by Harris CAD.

Commercial property is more complicated to appraise and more complicated for ARBs to determine the value of for several reasons:

• values are based primarily on the income approach, and it is difficult for appraisal districts to gather information such as income, expense, occupancy and capitalization rates on a consistent basis;
• there is no sales disclosure law in Texas, creating difficulty in obtaining enough sales to verify income models; and
• the range of market value is wider for commercial properties than for residential properties because commercial properties tend to have less consistency in characteristics.

For these reasons, commercial values are difficult to defend during the protest process, and it is understandable that value loss could be greater than in other categories.

Another issue complicating matters is that Texas law requires that appraisal districts value commercial properties on a fee simple basis. Fee simple is not a well-defined approach to value. As a result, novel, innovative and varied approaches to value are used by property owners or their agents during protests before ARBs and ultimately the judiciary. These alternate approaches to value are often accepted by ARBs, and thereby become the taxable values shown on appraisal rolls and studied by PTAD.

One of the primary reasons that caused Harris CAD to fail the 2005 PVS has to do with the ratios assigned to one type of commercial property-office buildings. As stated previously, appraisal districts are required to appraise property based on a fee simple approach to value. They are also required to appraise similar property uniformly. Sales of this type of property, however, represent a leased fee value. PTAD appraises property for use in the PVS by considering these sales, thus creating a disparity in appraisal methodology used by the parties.

Exhibits 5 and 6, based on 2007 Harris CAD data, tend to support the finding that the value loss due to administrative protests is greater in the commercial category. The exhibits also reflect the difficulties for the CAD to appraise this category of property and for the ARB to determine market value and appraisal equity during protest hearings based on the evidence presented by the property owners or their agents and Harris CAD.

Exhibit 5 shows the appeal process is yielding greater value losses in the commercial category, 18 percent, than in the residential properties, 7.9 percent. Figures in Exhibit 6, which covers only Houston ISD, show similar results.

Exhibit 5
Analysis of Harris CAD Appeals for 2007

Values Assessment	Residential	Commercial	All Others	Total
Original Value of 345,670 Protested Properties	$57,492,604,329	$80,980,556,244	$51,028,426,666	$189,501,587,239
Informal Reductions	($2,506,716,750)	($5,699,232,917)	($2,569,516,867)	($10,775,466,534)
Percent Granted through Informal Meetings with CAD	-4.4%	-7.0%	-5.0%	-5.7%
ARB Reduction	($2,031,685,375)	($8,912,526,794)	($394,165,559)	($11,338,377,728)
Percent ARB Reduction	-3.5%	-11.0%	-0.8%	-6.0%
Total Reductions	($4,538,402,125)	($14,611,759,711)	($2,963,682,426)	($22,113,844,262)
Total Percent Reduction	-7.9%	-18.0%	-5.8%	-11.7%

Source: Harris CAD Hearings Settled Summary 2007, Formal + Informal Breakdown for 2007.

Exhibit 6
Analysis of Houston ISD Appeals for 2007

Values Assessment	Residential	Commercial	All Others	Total
Original Value of 119,373 Protested Properties	$19,450,764,151	$29,072,626,244	$13,289,743,477	$61,813,133,872
Reductions	($1,405,719,094)	($5,767,707,118)	($2,076,586,361)	($9,250,012,573)
Percent Reduction	-7.2%	-19.6%	-15.6%	-15.0%

Source: Harris CAD Report Value Loss (Real) 2007, Houston ISD.

The discrepancy in the manner in which appraisal districts must appraise property; the manner in which ARBs are reducing values as a result of protest hearings; and the manner in which PTAD tests values of commercial property are being studied by PTAD and appraisal district staff in an effort to develop a solution to the discrepancy.

RECOMMENDATION 1
Due to the size of the Harris CAD, and the large number of protests filed each year, the informal and formal protest procedures of the CAD and the ARB should be reviewed on a regular basis to ensure that market value and equity appraisal determinations are made properly. This regular review of procedures is particularly important because of the increasingly innovative and novel approaches to value that are presented by property owners or their agents and accepted by ARBs.

FINDING
From the review of sample properties, it appears property sales are not adjusted for time.

IAAO's Property Appraisal and Assessment Administration, Chapter 5, directs "When price levels are changing significantly, sales prices must be adjusted for time." This procedure accounts for changing market conditions so the sales price will reflect the value on the appraisal date (Jan. 1 of the relevant tax year).

Harris CAD uses several sources to capture sales data, including local market data, deeds, sales questionnaires, hearing evidence, CoStar and property information. The CAD reviews sales to determine if they are valid and coded accordingly. The CAD individually verifies commercial sales. The CAD contacts grantors, grantees, agents, vendors and various media sources during the verification process. Residential sales are reviewed through sales mailers, sales validation field projects and by an analyst when reviewing sales in an individual neighborhood. The CAD maintains a separate sales database that includes a snapshot of the property characteristics at the time of the sale.

Harris CAD indicated that it performs a statistical analysis before starting residential valuations to determine if it can observe and measure time-related trends. Based on this analysis, the CAD said it incorporates monthly time adjustments in the estimates of value and applies them uniformly. Because of the low volume of commercial sales, the CAD said it primarily uses cost and income approaches to develop value estimates. When available, however, it pairs sales or conducts a resale study to determine the percentage of appreciation or depreciation that is occurring in the market.

Based on a review of the sample properties, PTAD reviewers found some residential and commercial property sales information that is more than three years old and has not been adjusted to reflect market conditions. Comparable sales do not appear to be consistently adjusted for changing market conditions (Exhibit 7).

Exhibit 7
Sample Properties and Most Recent Sales Dates Used

Harris CAD Account Number	Most Recent Sales Date Used	Sales Price	Harris CAD Final Value in 2007
044-092-000-0140	11/12/2004	$10,000,100	$8,200,600
045-064-000-0284	06/30/2004	$182,093	$61,852
007-056-043-0007	10/01/2004	$715,000	$680,000
041-033-005-0018	02/07/2003	$6,150,000	$4,731,800
093-369-000-0043	08/04/2004	$1,800,000	$1,650,000

Source: Harris CAD CAMA system, 2007.

In January 2008, Harris CAD met with its software vendor to begin discussions concerning time adjustments in the Sales Ratio Analysis (SRA) tool. The first step was to allow for sales prices to be time adjusted within the SRA tool. Time adjustments were entered into a Sales Period Adjustment table, and then organized by property use code and neighborhood. This became available to the CAD in July 2008.

Since Harris CAD has more than 7,000 neighborhoods, the CAD concluded that it would be burdensome to maintain time adjustments at the neighborhood level; instead the CAD would add an alternative neighborhood group. The software company completed this in November 2008. The CAD is currently waiting for the release that incorporates these changes and will begin testing the changes when they are available. The CAD plans to implement the changes for residential and commercial valuation in 2010.

Using unadjusted property sales in the model may produce final appraised values that are dated, not compatible to the market and do not comply with standard appraisal practices.

RECOMMENDATION 2
Complete revisions to software and verify, edit and time-adjust sales data for changing market conditions as necessary to help ensure accurate property values.

FINDING
Commercial Income/Cost/Review Manual tables for land valuation are not populated. The data in the tables is often overridden, and explanations for the overrides are not consistently provided.

According to IAAO's Standard on Mass Appraisal of Real Property Section 4.5, an appraisal district should document the method for developing land values so anyone would be able to arrive at the same logical conclusions as to value.

A review of sample properties indicates that Harris CAD appraisers often override commercial land values in cost and related tables in the CAD's Commercial Income/Cost/Review Manual. Using undocumented values may appear subjective, and if market data does not support the values, they can be confusing and may be considered noncompliant with USPAP Standard 6.

To use the commercial land tables in the CAD's software, neighborhoods must be delineated by dividing commercial land in the county into geographical areas that have the same economic influences. The creation of neighborhood boundaries is the most important step in this process. These boundaries may be physical, economical, governmental or social. Neighborhood delineation is complete when the neighborhoods are grouped and assigned a name.

The next step is determining values for these neighborhoods by collecting and analyzing sales. When neighborhood values are determined, the process of creating automated tables can begin. Within Harris County, market areas range from urban to rural. The CAD must take different approaches to build tables for the various areas. Urban and suburban areas may be easier to automate due to the abundance of a representative sample of sales. Rural areas may be more difficult to automate based on a scarcity or lack of sales. In rural areas:

• land sizes vary from small to large;
• shape or configuration of the tracts is different and somewhat atypical; and
• influences for easements, topography, size, excessive frontage and/or restrictive or non-conforming use are more common.

The CAD points out developing tables for rural areas may be more difficult.

The CAD added that school districts such as Laporte, Deer Park and Tomball have zoning requirements appraisers can use to perform highest and best use analysis. Business parks, which primarily consist of fewer land uses, are more susceptible to automated land pricing. Typically, once a unit value is determined, this rate is applied to all subjects without consideration for location differences.

Certain mixed residential/commercial neighborhoods made up of properties with similar sizes and various uses ranging from residential, warehouses, nurseries and automotive salvage yards are ready for tabling with a low degree of difficulty. Based on land sales in the area, the discernable differences, whether residential or commercial, the unit value is very similar.

The CAD says the degree of difficulty increases when valuing urban and suburban areas. These areas may be more difficult to value due to a representation of varying property types. A good example is a neighborhood that may consist of apartments, office buildings, warehouses, retail, hotels/motels and vacant land. When valuing an area of this nature, the CAD may need to group similar land uses and apply a single unit value for the grouped use codes. Property use and location factors are critical for valuing these areas.

The CAD has placed this process on hold since the 2005 system conversion because it has had to allocate staff to protest hearings, but plans to start the delineation process in 2009. Once implemented, automated land pricing can enable appraisers to reallocate and focus more of their time on field sales validation and market scrutiny. Land tables can provide more consistency in valuation of land if used.

According to IAAO Standards, Assessment Practices: Self-Evaluation Guide, Chapter 6: Land Evaluation:

Land is best appraised by the sales comparison approach. In mass appraisal, this involves developing land rate schedules based on the appropriate unit value (for example, sales price per square foot) and then adjusting if necessary for such things as size, shape, slope, frontage, view and so on, by analyzing sales data.

RECOMMENDATION 3
Develop and use land tables consistently in commercial land valuations, and provide explanations for any overrides to support the value in the property record.

FINDING
Cost and income approaches to market value do not take advantage of the most current methods of calibration.

According to the IAAO's Standard on Automated Valuation Models, Section 3, calibration involves a repetitive process including the following steps:

• specifying a model;
• testing the specified model with calibration;
• adjusting to model specification;
• testing new specification with calibration; and
• repeating the process until statistically significant improvement is minimized.

A CAD can separately calibrate and apply building and improvement attributes to a model structure representing the cost, sales comparison and income approaches, as applicable.

Harris CAD currently has 46 employees (16 residential, 30 commercial) who are responsible for specifying and calibrating its 18 valuation models. Field appraisers have full access to the CAMA system through laptop computers.

Calibration of the Harris CAD's complex cost and income approaches requires improved methods of model specification and calibration. The complex valuation process provides challenges for the Harris CAD appraisal staff. Annual or three-year reappraisal cycles require sophisticated models for market analysis. Improved market analysis can reduce the complexity of the calculation and presentation of both the cost and income valuation approaches.

Modern CAMA systems have cost, income and market (sales comparison and direct market models) approach program modules. However, most CAMA systems address production with limited market analysis. A CAD updates the cost approach for land and building schedules directly against the market by using sales and property characteristics in direct market model statistical software.

IAAO identifies several model specifications, including the hybrid model, as methods to develop adjustments for the cost approach. The hybrid adjustment method uses both dollar amounts and percentage adjustments, and more accurately reflects the behavior of the market. The benefit of the hybrid model is that its structure replicates the standard cost approach structures, but derives unit values directly from market transactions.

A best practice is to calibrate the models (cost, sales comparison and income approaches) directly against market transactions.

RECOMMENDATION 4
Calibrate cost and income approaches using non-linear regression in addition to existing process.

The CAD may accomplish this by expanding the use of statistical software and increasing the capacity to its CAMA system to specify and calibrate all three approaches to market values.

FINDING
The Commercial Income/Cost/Review Manual table limits the amount of depreciation on older buildings to 60 percent, and evidence from the local market does not support the cost tables, which could cause incorrect values.

According to IAAO's Standard on Automated Valuation Models (AVMs) Section 3.2.1, if a third party provides the cost tables, it is the responsibility of the AVM market analyst to calibrate the cost tables to the local market to provide a valid indicator of value by the cost approach.

The CAD uses Marshall & Swift published depreciation schedules with minor adjustments for consistency among various tables. The CAD obtains the cost index from the Marshall & Swift national average cost information for equipment, as published in October each year. The CAD revises the depreciation schedule annually using the cost index information from the national guide by Marshall & Swift.

The age/life schedules in the Commercial Income/Cost/Review Manual's depreciation table reflect a maximum of 60 percent depreciation. This means economic life of older structures from M10 to M70 will have the same depreciation. This converts to percent good of 40 percent. For example, Exhibit 8 shows that for buildings age 35 and older, the depreciation remains at 60 percent for categories M10 through M35.

At 68 years, the depreciation is 60 percent for all tables up to M70. The depreciation table for the years 69 to 99 is 60 percent depreciation for age/life M10 to M70. Harris CAD's depreciation consideration is exhausted at 60 percent due to commercial improvements that are typically still viable and generally still have contributory value. In cases where an older improvement has little or no contributory value, the CAD may apply physical and functional obsolescence. This practice does not provide for depreciation of any building below 40 percent of its replacement cost new values.

Since 2009 is not a general reappraisal year, the CAD will use this time to review its commercial depreciation table. The CAD plans to conduct a thorough study utilizing the market extraction method to estimate its overall depreciation for commercial properties. This method combines physical, functional and external causes of depreciation. The Appraisal of Real Estate, 13th Edition, describes this method as consisting of the following steps:

The CAD will test the updated depreciation table in 2009 and implement it during the 2010 reappraisal.

RECOMMENDATION 5
Complete the planned review of the commercial depreciation table and update and test it to ensure correct values.

2.3
Other Recommendations

During the review process, PTAD identified certain management and operational issues not directly related to the appraisal process, but which could indirectly affect the CAD's ability to conduct appraisals accurately and consistently. Harris CAD is not obligated to implement these recommendations, but PTAD provides them here for the CAD's consideration as additional ways to enhance operational effectiveness and efficiency. Some of these recommendations, however, may involve compliance with existing laws. Appraisal districts, as Texas governmental entities, are required to comply with all applicable laws.

Governance and Management

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.

Harris CAD's board of directors consists of six members (Exhibit 9).

Exhibit 9
Harris CAD Board of Directors

Board Member	Occupation	Entity Member Represents	Start Date	Standing Committees
Glenn Peters, Chairman	Engineer	Conservation and Reclamation District	1999	Insurance/Benefits and Legal
Paul Bettencourt, Secretary	Tax Assessor/ Collector	Harris County	1999	Budget/Audit and Legal
Edward Heathcott, Member	Retired Mayor/Small City	Cities and Towns, except City of Houston	2008	Budget/ Audit and Insurance/Benefits
Toni Trumbull, Member	Retired Tax Assessor/ Collector	School Districts, except Houston ISD	2006	Budget/Audit
Gary Stein, Member	Business Owner (Steel)	City of Houston	2006	Insurance/ Benefits and Legal
Lawrence Marshall, Member	Retired Educator	Houston ISD	2002	Budget/ Audit and Insurance/Benefits

Source: Harris CAD Management and Board Member Interviews.

The Harris CAD board has three standing committees: Budget/Audit, Insurance/Benefits and Legal. The board has the following primary responsibilities:

• adopting the appraisal district's annual operating budget;
• contracting for necessary services;
• hiring the chief appraiser and assigning responsibilities to the position;
• making general policy regarding the operation of the appraisal district;
• appointing appraisal review board members; and
• appointing the taxpayer liaison officer.

The Comptroller's office asked the board to complete a written survey about its activities. Four of the six board members responded. The survey covered the following sections: board policies and procedures, chief appraiser and staff, property appraisals, appraisal review board and budgeting and financial management. Board members who responded gave Harris CAD high marks in every area of operations. Two board members responded that board policy does not specify board member training requirements.

FINDING
Several of Harris CAD's executive leadership team could leave the CAD for a variety of reasons, and during this review the CAD initiated steps to address this issue.

Succession planning is the process an organization uses to identify and prepare candidates for high-level executive and other management positions vacated by retirement, resignation, new business opportunities or death.

Harris CAD has a highly experienced/credentialed executive leadership team to oversee the day-to-day management of its operations. On average, the executive leadership team has more than 20 years experience with Harris CAD, and nearly all of them had relevant appraisal district or municipal appraisal/real estate experience prior to joining the appraisal district.

In addition to the leadership team's vast professional experience, almost all have relevant appraisal credentials and some leadership team members serve in executive roles for organizations dedicated to the appraisal profession (Exhibit 3).

While Harris CAD does not have a mandatory retirement age, the following retirement options are available to employees:

• after 30 years of service at any age;
• age 60 with eight years of service; or
• rule of 75 (combination of age and service to equal 75).

Although Harris CAD only had one executive leadership team member retire within the last three years, four of the six current members of the leadership team are eligible to retire.

In November 2008, the CAD began preparing a district wide succession plan. The chief deputy asked all department directors to designate a backup person for each supervisory, management and unique technical position within the department. The backups will not necessarily be the individuals who will fill the position, should it become vacant, but will provide interim leadership or technical skills until a successor is chosen. This list was to be submitted to Human Resources by Jan. 30, 2009.

After backups are designated, the CAD intends to provide them opportunities to work and train with the person whom they are backing up. In most cases, during extended absences, the backup will actively fill the position of the incumbent and exercise the general duties of the incumbent under appropriate supervision.

Succession planning considers forecasting, career planning and development and performance appraisal to ensure an organization retains adequate institutional knowledge to continue to progress and flourish. Best management practices dictate that successful organizations have a succession plan.

In a report to Congressional Requesters, the United States General Accounting Office provided the following insight on succession planning:

Leading organizations engage in broad, integrated succession planning and management efforts that focus on strengthening both current and future organizational capacity. As part of this approach, these organizations identify, develop and select their human capital to ensure an ongoing supply of successors who are the right people, with the right skills, at the right time for leadership and other key positions.

Effective work force and succession planning involves several steps. The U.S. Office of Personnel Management offers a structured work force-planning model to help organizations formalize the process. The five-step model includes:

• setting a strategic direction;
• analyzing work force;
• developing action plan;
• implementing action plan; and
• monitoring, evaluating and revising.

Many employers work to identify successors and prepare for the organization's future by ensuring continuity of service and employee development opportunities.

RECOMMENDATION 6
Complete the development and implementation of an executive-level succession plan to ensure critical institutional knowledge and skills are retained when key personnel leave the CAD.

FINDING
Several areas of the agency have grown rapidly over the last two years, and the span of control for some managers in these areas may be too great.

Span of control refers to the number of persons/subordinates who directly report to a manager and that one manager can effectively supervise. According to IAAO's Property Appraisal and Assessment Administration, Chapter 16, an appraisal office achieves the greatest efficiency by dividing work into specialized tasks.

The Harris CAD chief appraiser has three assistants, including the chief deputy/general counsel who reports directly to the chief appraiser and two assistant chief appraisers that report to the chief deputy/general counsel. One assistant chief appraiser oversees Harris CAD's support services department, which includes information and assistance, ARB support operations and jurisdiction support divisions. The other assistant chief appraiser heads the Harris CAD's appraisal department, which has 363 employees (increased to 368 in 2009) or more than half of the CAD's total staff. The directors of information systems and administration also report directly to the chief deputy/general counsel as does a special audit division.

The director of appraiser operations, manager of complex property and the division director of review appraisal report directly to the assistant chief appraiser for appraisal administration. The director of appraisal operations oversees the work of the division directors for residential; commercial and business; and industrial. Exhibit 10 shows the organizational structure for the appraisal department.

Of the 363 employees in the appraisal department, 334 employees are in appraisal operations; seven are in complex property, and 22 are in review appraisal divisions. The residential division in appraisal operations has 170 employees; the commercial division has 72; and the business and industrial property division has 84.

An important task in structuring a large organization is determining the most effective span of control for managers. Although the optimal span of control is dependent upon a number of factors, according to the Small Business Encyclopedia, the rule of thumb is that managers cannot effectively control more than three to six employees. The state of Texas has a management-to-staff ratio, used to determine an agency's span of control, of one manager or supervisor for every 11 employees. Exhibit 11 shows the number of direct reports for each management/supervisory position in Harris CAD's appraisal department.

Exhibit 11
Number of Direct Reports per Management Position

Position	Number of Direct Reports
Assistant Chief Appraiser (for appraisals)	4
Review Appraisal	22
Complex Property	7
Director of Appraisal Operations	3
Director of Residential Division	7
Supervisor Appraiser II	14
Supervisor Appraiser I	9
Supervisor Appraiser IV	14
Supervisor Appraiser IV	0
Residential Valuation Supervisor	15
Residential Field Supervisor	12
Zone 1 Field Group Supervisor Appraiser 1	16
Zone 2 Field Group Supervisor Appraiser 1	11
Zone 3 Field Group Supervisor Appraiser 1	9
Zone 4 Field Group Supervisor Appraiser 1	6
Zone 5 Field Group Supervisor Appraiser 1	7
Zone 6 Field Group Supervisor Appraiser 1	10
Zone 7 Field Group Supervisor Appraiser 1	10
Zone 8 Field Group Supervisor Appraiser 1	8
Zone 9 Field Group Supervisor Appraiser 1	8
Director Business & Industrial Property	5
Manager, Industrial Section	11
Support Supervisor IV	7
Support Supervisor III	22
Manager, Personal Property Section	3
Supervisor Appraiser I	8
Personal Property Field Appraiser	16
Supervisor Appraiser I	9
Director Commercial Property	7
Manager Complex Property	6
Support Supervisor IV	4
Commercial Field Supervisor	20
Manager Commercial Property	14
Support Supervisor IV	10
Land Valuation Analyst V	8
Manager, Ag Valuation	4

Source: 2008 Harris CAD Departmental Organizational Charts.

Three contract appraisal firms also report to the division director of business and industrial property. Of the 36 management/supervisory positions, the span of control for 10, or nearly a third, exceed the state's standard for span of control. Five supervisors in the information and assistance division also have subordinates that exceed the state's standard.

Managers with broad spans of control tend to have an overload of work, have trouble making decisions and lose consistent control over their subordinates. Best practice dictates that an effective organizational structure improves the working efficiency within the organizational unit.

RECOMMENDATION 7
Periodically review the span of control for managers to ensure an adequate span of control.

The structure should balance reporting relationships and ensure good decisions about degree of specialization, assignment of tasks and the number of employees each manager supervises. It should also take into account employees' skills and management style, computer facilities, types of property assessed and statutory responsibilities.

FINDING
In addition to the large number of parcels they must appraise, the demands of appraisal protests present Harris CAD's appraisers with a challenge to accomplish appraisals effectively.

IAAO's Property Appraisal and Assessment Administration, Chapter 16, Staffing Patterns, states that the typical staffing in larger jurisdictions is a workload average of 3,000 to 3,500 parcels per employee.

Due to its size, Harris CAD has no peers, and comparisons to others may not be statistically unassailable. For purposes of analysis, Exhibit 12 provides comparative data on parcels, full-time appraisers and parcels-to-employee ratio for Harris CAD and five of the largest CADs in the state. The exhibit also provides a comparison to Montgomery and Fort Bend CADs; while not as large as the others, these CADs neighbor Harris CAD and attract Harris CAD appraisers.

Exhibit 12
Harris CAD Parcels per Appraiser Compared to
Other Urban CADs and Neighboring CADs

Urban CADs

CAD	Number of Parcels	Number of Full-Time Equivalent Appraisers	Number of Parcels Per Appraiser
Dallas	853,680	96	8,893
Tarrant	624,643	76	8,219
Bexar	596,483	67	8,903
El Paso	370,242	39	9,493
Travis	368,299	41	8,983
Average Urban CADs	562,669.4	64	8,898

Neighboring CADs

CAD	Number of Parcels	Number of Full-Time Equivalent Appraisers	Number of Parcels Per Appraiser
Fort Bend	265,869	63	4220
Montgomery	255,102	29	8,797
Average	260,486	46	6,509

Harris CAD

CAD	Number of Parcels	Number of Full-Time Equivalent Appraisers	Number of Parcels Per Appraiser
Harris	1,211,888	132	9,181

Source: State Comptroller 2005 Complete Operations Survey.

Harris CAD had the second-largest number of parcels-to-appraisers (excluding the chief appraiser), or 9,181 parcels-per-appraiser compared to an average of 8,881 parcels-per-appraiser for the urban CADs and 6,509 for neighboring CADs. Since 2005, the CAD has hired additional appraisers, and the parcels per-appraiser average has improved. However, the volume of protest hearings affects the availability of appraisers during peak periods, which take precedence over fieldwork. For example, of the current 182 appraisers, 161 are involved with appeals during the protest period, and only 21 are exclusively working in the field.

According to the director of administration and director of human resources, salaries for appraisers at Harris CAD are generally lower when compared with the market. Harris CAD conducted a salary comparison with Dallas CAD, Bexar CAD and Houston Compensation Association. Entry salary levels for appraisers are lower at Harris CAD than in Dallas and Tarrant CADs (Exhibit 13).

Exhibit 13
Average Salaries for Harris CAD Appraisers Compared to
Salaries at Other Urban and Neighboring CADs

Urban CADs

CAD	Lowest salary in the 2008 annual salary range for full-time appraisers	Highest salary in the 2008 annual salary range for full-time appraisers
Dallas	$36,000	$67,620
Tarrant	$36,061	$85,331
Bexar	$30,470	$63,384
El Paso	$24,106	$96,500
Travis	$26,166	$61,610
Average Urban CADs	$30,560.60	$74,889

Neighboring CADs

CAD	Lowest salary in the 2008 annual salary range for full-time appraisers	Highest salary in the 2008 annual salary range for full-time appraisers
Fort Bend	$29,400	$72,800
Montgomery	$27,000	$55,000
Average	$28,200	$63,900

Harris CAD

CAD	Lowest salary in the 2008 annual salary range for full-time appraisers	Highest salary in the 2008 annual salary range for full-time appraisers
Harris	$35,847	$70,181

Source: State Comptroller, 2007 Annual Report.

When compared to the private sector, appraiser salaries at Harris CAD are generally lower. In 2005, Harris CAD hired a professional, full-service, San Antonio-based human resource management-consulting firm to conduct the Harris County Property Appraisal District Wage and Benefit Survey. The firm specializes in compensation system analysis and design, customized wage and benefit surveys, and publishes annual surveys including the San Antonio Area Wage and Benefit Survey. The overall results of the 2005 survey, based on limited analysis, reported that Harris CAD maintained a competitive pay system and that the pay system needed to be fine-tuned to remain competitive in the relevant labor markets.

Harris CAD currently offers the following incentives to attract and retain employees:

• compressed workweek ("9/80" Plan);
• competitive benefits package;
• enhanced retirement plan;
• more relaxed dress code;
• flex plan option to benefits;
• recognition program; and
• service award at 25 years.

RECOMMENDATION 8
Annually review the appraisal staffing requirements and conduct a compensation analysis to ensure the number of appraisal staff is appropriate and salaries remain competitive.

Information Processing and Data Collection

Computers have become a necessity for all appraisal districts. They allow the CAD to amass large amounts of data, perform complex tasks that otherwise would take hundreds of staff hours to perform manually and more accurately analyze trend data to ensure accurate valuation of similar property.

Technology infrastructure is the underlying system of cabling, phone lines, hubs, switches, routers and other devices that connect the various parts of an organization through a wide area network (WAN) and a series of local area networks (LANs). Maintaining a strong infrastructure and integrating the various systems is critical to increased staff productivity, the avoidance of costly data errors and better customer service to users, community members and taxing units dependent on the appraisal district for critical information.

Technology is a critical part of managing large amounts of data effectively, and appraisal districts use appraisal systems and mapping or geographic information systems to improve appraisal accuracy and uniformity.

Harris CAD has 33 servers, as well as backup, GIS and e-mail servers and 712 personal workstations. The CAD has an old mainframe for the old CAMA system that it will phase out in 2009. Additionally, Harris CAD has 70 high-speed scanners and seven network printers. The CAD maintains data security and system integrity through a series of firewalls and unique user logins and passwords.

The CAD's GIS has live data integration. The data in the GIS describes features on the surface of the earth. Spatial data features such as parcels, facets, district boundaries, highways, hydrology and flood plains are stored in the Harris CAD GIS. The CAD can execute spatial queries against the data to get pertinent information to make decisions that are more intelligent, and make data relationships visible through mapping the GIS. The Pictometry GIS application is an oblique photo viewing and measuring tool with live links to parcels. Certain aspects of the Harris CAD GIS allow the end user to design maps and reports in addition to performing analysis on the data.

FINDING
The disaster recovery plan does not include all potential emergencies.

Harris CAD developed an emergency plan for natural and man-made disasters. The current emergency plan was an update of plans that originated when the CAD consolidated operations into a single office in the mid 1980s. The CAD updated the plan following Tropical Storm Allison in 2001and significantly updated it concurrently with the move to the new building and with the transition to the new computer system in 2004. The CAD updated the plan again after Hurricanes Rita and Katrina, and at the start of the 2008 hurricane season. The CAD is planning further updates because of Hurricane Ike.

The emergency plan provides a contact phone list if a disaster occurs and focuses on the maintenance and recovery of the CAD in the event of a disaster or emergency. For the purposes of the plan, a disaster or emergency event is "an occurrence inflicting widespread destruction and/or distress which causes interruption, damage or demolition that directly effects the operations of Harris CAD and/or Harris County, Texas."

In the event of a disaster, the CAD's information systems department will conduct recovery of its information systems hardware, software and data. The following are the major purposes of the plan:

• minimize downtime, so Harris CAD can assist emergency officials with damage assessments;
• detail and describe the procedures to follow before, during and after an event;
• ensure the Emergency Managers Weather Information Network (EMWIN) in Southeast Texas, hosted at the Harris CAD facility, is operational during a disaster;
• provide estimates for property damages immediately after an emergency event;
• maintain database systems on-line and ready for analysis immediately after an emergency event;
• provide adequate backup of data and systems critical to restoring the CAD post emergency, including storing all rotating monthly and weekly tape backup media off site at Iron Mountain Data Protection Services in Houston; and
• maintain copies of critical software installation disks, security access lists, software keys, manuals, emergency plan documentation, and emergency contact numbers off site.

The loss of the appraisal system in a disaster could result in confusion for property owners and taxing units and make it difficult, if not impossible, for the CAD to perform its responsibilities. The following is a list of disruptive events that can have an adverse affect on CAD operations and that responsible organizations should consider when preparing a disaster recovery plan:

• hard drive meltdowns;
• building fires;
• floods;
• power failures;
• Internet failures;
• data line failures;
• hurricanes;
• epidemic illness, which would cause a sudden and significant decrease in staffing, including those employees who hold vitally important positions;
• transport shut downs due to weather, strike or other serious events that could cause serious staffing problems; and
• terrorist attacks.

This list is not exhaustive and does not include many of the specialized issues the CAD faces on a routine basis.

Hurricane Ike damage to the CAD facilities was minimal. There were three panes of broken glass, wind-driven water leakage, debris damage to a vehicle and flooding in one of the storerooms. The principal unanticipated challenge was the duration and uncertainty of the power outage following the hurricane. Because of diversion of diesel supplies by the state, Harris CAD had difficulty obtaining a steady supply of generator fuel, and it was impossible to obtain any solid information about when the electric utility would restore power to the building. The CAD was without power for nine days; unlike during Hurricane Rita, when the power loss was only two days. The telephone and Web service were not operable and the CAD had no means of communicating with its staff. Similarly, the property owners with scheduled hearings could not access information from the CAD for scheduled hearing cancellations and resumptions.

Harris CAD conducted an in-depth analysis of lessons learned following the resumption of normal operations; the CAD anticipates the following changes as a result:

• expand storage capacity of diesel fuel supply to five days;
• contract for redundant fuel sources and explore the cost of a natural gas generator;
• source Web site from a remote host;
• equip all management-level staff with broadband capable laptops;
• contract with an automated telephone announcement service to more easily communicate with staff and ARB members; and
• develop a paper-based damage assessment system that could be used by appraisers in the field in the event broadband communications with the main office are unavailable.

Best practices for disaster recovery plans include the following:

• identifying and establishing alternate office locations and communications;
• recreating appraisal and mapping systems;
• ensuring services for property owners and the taxing units continue uninterrupted; and
• training staff involved in the disaster recovery process.

RECOMMENDATION 9
Annually review the comprehensive disaster recovery plan and test and update it to ensure it meets the CAD's needs.

• Texas.gov
• Statewide Search from the Texas State Library
• State Link Policy
• Texas Homeland Security
• Texas Transparency
• Report Fraud

Susan Combs, Texas Comptroller  • Window on State Government • Contact Us

• Privacy and Security Policy
• Accessibility Policy
• Link Policy
• Public Information Act
• Texas Veterans Portal
• Compact with Texans