In July 2004, the Texas Comptroller of Public Accounts identified Malakoff Independent School District (ISD) and Mabank ISD, located in Henderson County, as two of 34 Texas school districts meeting the criteria that generate an Appraisal Standards Review (ASR) of the appraisal district that serves them. In January 2006, the Comptroller's Property Tax Division (PTD), with the assistance of contractors, began its ASR of the Henderson County Appraisal District (Henderson CAD).
School Districts, the Property Value Study and Appraisal Standards Reviews
Texas funds public education by a combination of state and local funds. Local funding comes from property taxes assessed by a school district's board of trustees. The state bases its funding on the amount of money school districts can raise locally on the total taxable property value within each school district. The state's funding formula sends more money to districts that are less able to raise money locally because of insufficient taxable property value.
A county appraisal district serves each school district in the state by appraising its property at market value. After the Appraisal Review Board (ARB) approval, the chief appraiser of each appraisal district determines the property values its school districts will use to set tax rates, which allocates the tax burden among taxpayers.
The Comptroller's PTD conducts an annual property value study (PVS) that assigns a value to all taxable property within each school district for state funding purposes. The PVS, an independent estimate required by the Texas Legislature, is designed to ensure equitable school funding. The PVS ensures equity by detecting instances in which school property values are inaccurate and adjusting them to market value in the state's funding formula.
The Comptroller's values do not directly affect local values or property taxes. However, when study statistics give the Comptroller a high degree of confidence that the aggregate local value for property categories tested in the study is lower than the state's estimate of the correct value, and that aggregate local value is more than 5 percent below the state's estimate, the school district may receive less state funding than expected. Districts can contest the state values though an appeals process. But understanding the reasons for the differences in valuations nevertheless can be critical for school districts and the appraisal districts that serve them.
In 2003, the Texas Legislature enacted a law to grant a grace period for school districts affected by PVS findings. During the two-year grace period, school districts are given an opportunity to work closely with the appraisal district to correct any identified inaccuracies or inconsistencies, before state funding is lost. To aid in that process, the Comptroller's ASR provides the appraisal district and the local taxing units, including the school districts, an independent assessment of the appraisal district's operation.
By law, to be eligible for this grace period, a school district must have an invalid local value that does not exceed the state value; valid local values for the two preceding years; and a current aggregate local value for tested property categories that is at least 90 percent of the lower limit of the margin of error.
Appraisal Standards Reviews
The Comptroller's office performs appraisal standards reviews when a school district is eligible for the grace period. By conducting ASRs, the Comptroller's office helps school districts understand the reason for the invalid finding; so they can work with their appraisal districts to correct problems and ensure all properties in the district are valued fairly and accurately. ASRs help appraisal districts identify problems and recommend changes in procedures or methods for improving appraisal accuracy and compliance with state law and appraisal standards.
In conducting an ASR, the Comptroller's office examines and evaluates appraisal practices including planning, procedures and methodology, and the application of and adherence to appraisal standards. The Property Tax Code and Comptroller rules are the major criteria used to measure performance of an appraisal district.
The Property Tax Code dictates the use of certain appraisal procedures or standards such as the Uniform Standards of Professional Appraisal Practice (USPAP), specifically Standard 6: Mass Appraisal as well as the International Association of Assessing Officers (IAAO's) Technical Standards.
The two principal focuses of the ASR are determining why the local value is invalid and recommending improvements to appraisal practices. Upon completing the review process, the Comptroller issues a report of findings that includes commendations for exemplary appraisal practices and recommendations for improvements. The law requires appraisal districts to comply with these recommendations within one year of the report's release.
By law, if the CAD fails to comply with the recommendations and the Comptroller finds that the CAD's board of directors failed to take remedial action within a year of the report's issuance, the law requires the Comptroller to notify the judge of each district court in the county. The district judge, in turn, must appoint a five-member board of conservators to implement the recommendations. This board of conservators supervises and controls the CAD's operations until each school district has a valid local value in an annual PVS. The CAD must bear the costs for this supervision and the board of conservators.
While the review team found several commendable practices implemented by dedicated and hard working district employees, Henderson CAD faces a challenge in achieving and maintaining current market valuations.
Key Findings and Recommendations
Establish written procedures for gathering and analyzing sales. The CAD does not have written procedures for gathering and analyzing sales. Mabank ISD and Malakoff ISD received invalid findings in the 2004 PVS due in part to the CAD's failure to accurately reflect the market in its appraised values. Written procedures for analyzing sales to determine where increases or decreases are actually occurring benefits the CAD by promoting appraisal uniformity.
Conduct more in-depth analyses of ratio studies to eliminate unequal levels of appraisal within categories of property and to ensure all categories of property are being appraised at current market value. Henderson CAD is not using its ratio studies to effectively adjust appraisal practices. These statistical factors indicate uneven levels of appraisal that contributed to the invalid findings of Mabank and Malakoff ISDs. A comprehensive ratio study system enables an appraisal district to keep its values at or near the market.
Henderson CAD has some commendable practices that might prove useful for other county appraisal districts.
The CAD has developed appraisal manuals for local procedures and practices that comply with USPAP to promote appraisal consistency within property categories. Henderson CAD has a good set of appraisal manuals for appraisal staff that were developed to promote consistency in appraisal among appraisers. The appraisal manuals contain market-based building schedules that are updated annually based on sales information. Photos of typical local residences and written explanations of their attributes promote consistency among appraisers in the way they classify properties. Use of similar appraisal methods and techniques on the same or similar properties, while taking care to account for the contributions of individual property characteristics to value helps ensure that uniform standards and requirements are attained.
The CAD developed and adopted a personnel manual that informs employees of their rights and responsibilities and helps CAD management operate efficiently. The Henderson CAD has a well-written and comprehensive personnel manual. The manual explains the CAD's policy as an at-will employer and covers federal employment guidelines dealing with the Federal Medical Leave Act and Affirmative Action. The manual also describes guidelines for employee behavior in dealing with customers and guidance on the use of CAD equipment including telephones and Internet access. Good policy and procedure manuals protect both management and staff from arbitrary practices and provide procedures to help manage conflicts that may arise from day to day operations.
In addition to the recommendations directly linked to the appraisal process, the report makes the following management-related recommendations for the CAD's consideration. Several of these recommendations include compliance with existing laws. As Texas governmental entities, appraisal districts are required to comply with all applicable existing laws.
Develop a job description, modify the evaluation form to include performance period dates, tie the form to the job description and establish an annual written evaluation process for the chief appraiser.
Develop and adopt a budget in accordance with the Property Tax Code and provide the detailed budget to the taxing entities.
Develop a timeline for completing the documentation of administrative policies and procedures.
Develop a plan and timeline for making the CAD's automated appraisal system fully functional for all property types.
Develop, implement and test a disaster recovery plan.
Develop a plan and timeline for completing a records control schedule.