In July 2004, Waskom Independent School District (Waskom ISD), Hallsville Independent School District (Hallsville ISD), Harleton Independent School District, (Harleton ISD) and Elysian Fields Independent School District (Elysian Fields ISD), located in Harrison County, Texas, were identified as four of 54 school districts meeting the criteria that initiate an Appraisal Standards Review (ASR). In November 2004, the Comptroller's Property Tax Division (PTD) began an Appraisal Standards Review of the Harrison County Appraisal District (Harrison CAD).
Appraisal Standards Reviews
The 78th Legislature, Regular Session, directed the Comptroller's office to conduct appraisal standards reviews of county appraisal districts if the Comptroller finds in its annual Property Value Study (PVS) that the appraisal district has one or more "eligible" school districts. Eligible school districts are those that meet all of the following conditions:
- the district's values are invalid in the most recent property value study;
- the district's values were valid in the two studies preceding the most recent study; and
- the district's local value is above 90 percent of the lower threshold of the margin of error.
In Texas, public education is paid for by a combination of state and local funds. Local funding comes from local property taxes. The chief appraiser of each county appraisal district (CAD) determines local property values, and school districts set tax rates that determine the amount of local tax revenue. Appraisal districts, under most circumstances, are required by law to appraise property at or near market value. Market value, in simple terms, is the price for which a property would sell under normal conditions. State funding is based on the total taxable property value within each school district as determined by the PVS.
The PVS independently estimates the taxable property value in each school district to ensure that state values reflect market value, which in turn ensures that school districts have approximately the same number of dollars to spend per student, regardless of the school district's property wealth or lack of property wealth. School districts with less taxable property value per student receive more state dollars for each pupil than districts with more value per student. The state's fair distribution of school funding depends largely on the Comptroller's taxable value findings.
By conducting appraisal standards reviews, the Comptroller's office helps school districts to understand the reason for the invalid finding so they can effectively work with the appraisal district to correct the problems and achieve market values. ASRs identify problems and recommend changes in procedures or methods to improve appraisal accuracy.
An ASR examines and evaluates a county appraisal district's (CAD) appraisal practices including appraisal planning, appraisal procedures and methodology, and application and adherence to appraisal standards. The Tax Code and Comptroller rules are the major criteria used to measure the appraisal district's performance. The evaluation of the appraisal district's appraisal methods are based on a comparison of local methods and procedures to those generally accepted by the mass appraisal industry in Texas. The Tax Code dictates certain appraisal procedures or standards such as the USPAP, specifically Standard 6: Mass Appraisal and Standard 7: Personal Property. Also the International Association of Assessing Officers (IAAO) Standards on Assessment are used as guidelines on the operation of an assessment office.
The two principal focuses of the review are to determine why a school district served by the CAD was deemed eligible and to make recommendations to improve appraisal practices so the school district's values can be determined valid in future studies. The review evaluates five broad functional areas of CAD operations: information processing systems, district staffing, property mapping and discovery, appraisals and appraisal standards.
The review methodology includes a self-assessment completed by the CAD, staff interviews, reviews of written policies, procedures, plans, financial and management audits, and assessments of manual and automated records systems.
As the result of the review process, the Comptroller is issuing this report of its findings that includes recommendations for change and commendations for exemplary district appraisal practices. The appraisal district is required by law to comply with the recommendations within one year of the release of this report. If the Comptroller determines that the appraisal district board of directors failed to take remedial action within one year after the issuance of the review, the Comptroller shall notify the district judges serving in the county, who shall appoint a five-member board of conservators to implement the recommendations. The board of conservators shall exercise supervision and control over the operations of the appraisal district until the Comptroller determines under Section 403.302, Government Code, that in the same year the taxable value of each school district for which the appraisal district appraises property is the local value for the school district. The appraisal district shall bear the costs related to the supervision and control of the district by the board of conservators.
While the review team found several commendable practices implemented by dedicated and hardworking district employees, Harrison CAD is facing a number of challenges in achieving and maintaining consistent valid findings, including:
- Updating procedures and appraisal methods; and
- Improving reappraisal methodologies.
Key Findings and Recommendations
Update Procedures and Appraisal Methods
- Update the current policy and procedures manual for district operations. The district has a policy and procedures manual for appraisal district staff to follow; however, it appears that the manual is not updated on a regular basis. The reviewer noted that names of staff members were used in some of the procedures however some of these staff no longer work for the appraisal district. From the dates listed on the forms and form letters in the manual it appears that the manual was first used in 1993 and some of them are now outdated. Up-to-date written policy and procedures manuals are essential to effectively managing day-to-day operations in an appraisal district. Procedure manuals outline, step-by-step, the methods and activities of all the key functions of the district. A policy and procedures manual is also necessary for training new employees and as a reference guide for current employees.
Improve Appraisal Methodologies
- Develop and establish a comprehensive reappraisal plan. The district has a one-page reappraisal plan that is insufficient for guiding district reappraisals of property. A lack of an effective plan requiring review and reappraisal contributed to the four school districts being identified eligible districts. Section 25.18, Tax Code, requires appraisal districts to implement a plan for reappraisal. A good reappraisal plan not only provides for reappraisal of all real property in a district at least once every three years, but also should be a roadmap for performing the work to keep values at market value every year. It is also a communication tool that shows the appraisal district's Board of Directors how the appraisal district staff plans to accomplish its appraisals and allows the board to communicate with the taxing units they represent on the appraisal activities of the appraisal district.
- Use ratio studies to make effective reappraisal decisions. The district's computer system allows it to produce extensive ratio studies in order to plan and complete the reappraisal process. The ratio study can be used to update schedules and to check the validity of those appraisals. The district did not use the ratio study data for the 2003 tax year, even though they ran a ratio study on Categories A and D. Not utilizing ratio studies to update appraisal schedules may have caused Categories A and D to be lower than the actual market value, since the studies would have indicated areas where values were below market value.
The review team identified some commendable practices in Harrison CAD that other county appraisal districts may do well to review and implement where appropriate.
- The district has adopted a personnel handbook that informs employees of their rights and responsibilities. The Harrison CAD has a well-written and comprehensive personnel policy and personnel handbook that explains the district's policy as an at-will employer. The handbook also describes guidelines for employee behavior in dealing with customers and guidance on the use of district equipment including telephones and workstations.