In July 2005, the Texas Comptroller of Public Accounts identified Industrial Independent School District, located in Jackson County, Texas, as one of 34 Texas school districts meeting the criteria that initiate an Appraisal Standards Review (ASR) of the appraisal district that serves them. In February 2006, the Comptroller's Property Tax Division, with the assistance from contractors, began its review of the Jackson County Appraisal District (Jackson CAD).
School Districts, the Property Value Study and Appraisal Standards Reviews
Texas public education is funded by a combination of state and local funds. Local funding comes from property taxes assessed by a school district's board of trustees. State funding is based on the amount of money that local governments can raise on the total taxable property value within each school district. Each school district in the state is served by a county appraisal district that appraises property in the school district at market value. The chief appraiser of each appraisal district determines the property values the school district uses to set tax rates, which allocates the tax burden among taxpayers.
The Texas Comptroller's Property Tax Division (PTD) annually conducts a property value study (PVS) that assigns a value to all taxable property within each school district for state funding purposes. The PVS, an independent estimate mandated by the Legislature, is designed to ensure equitable school funding. The PVS ensures equity by detecting instances where school property values are inaccurate and adjusting property values to market value in the state's funding formula. The state's formula sends more money to those school districts that are less able to raise money locally because of lower taxable property value.
The Comptroller's values do not directly affect local values or property taxes, which are set by local authorities. However, when local values are more than 5 percent below state values, the school district could receive fewer state dollars because the state formulas use the Comptroller's values to calculate funding. Through an appeals process, a school district can contest the Comptroller's values, but understanding the reasons for the differences in the valuations is critical for school districts and the appraisal districts that serve them.
In 2003, the Legislature enacted a new law, recommended by the Comptroller's Property Tax Division Technical Advisory Committee, to grant a "grace period" for schools negatively impacted by PVS findings. The Comptroller does not believe that schools should be punished for the actions or inaction of their appraisal districts. The "grace period" permits schools to receive full state funding while the Comptroller's office performs ASRs.
By law, to be eligible for this state funding "grace period," a school district must have an invalid local value in the current year, valid local values in the two preceding years, and an aggregate local value in the current year that is not less than 90 percent of the lower limit of the margin of error.
If the aggregate local value is less than 90 percent of state value, the school district is not eligible for a grace period and the state will use the Comptroller's valuations to determine financial aid.
Appraisal Standards Reviews
The Comptroller's office conducts appraisal standards reviews of CADs when one or more school districts within the CAD is eligible for the grace period. By conducting ASRs, the Comptroller's office helps school districts understand the reason for the invalid finding, so they can work with the appraisal district to correct problems and ensure that the CAD fairly and accurately values all properties in the school district. ASRs identify problems and recommend changes in procedures or methods to improve appraisal accuracy and compliance with state law and appraisal standards.
An ASR examines and evaluates appraisal practices including planning, procedures and methodology and the application of and adherence to appraisal standards. The Texas Property Tax Code and Comptroller rules are the major criteria the Comptroller's office uses to measure appraisal district performance.
The Texas Property Tax Code dictates that CADs use certain appraisal procedures or standards such as the Uniform Standards of Professional Appraisal Practice (USPAP), specifically Standard 6: Mass Appraisal and Standard 7: Personal Property. The state uses the International Association of Assessing Officer's (IAAO) Standards on Assessment Practice as the professional and industry standard.
The two principal focuses of the ASR are to determine why the local value is deemed invalid and to recommend improvements in appraisal practices. The review evaluates five functional areas of operations: governance and management; generally accepted appraisal practices; resources and management; information processing and data collection; and assessment administration.
Upon completion of the review process, the Comptroller issues a report of findings that includes commendations for exemplary appraisal practices and recommendations for change. The appraisal district is required by law to comply with the recommendations within one year of the release of the report.
By law, if the CAD fails to comply with the recommendations in the report and the Comptroller finds that the CAD's board of directors failed to take remedial action within a year from when the report was issued, the Comptroller must notify the judge of each district court in the county for which the CAD is established. The district judge must appoint a board of conservators consisting of five members to implement the recommendations. The board of conservators exercises supervision and control over the operations of the CAD until the state determines each school district to have a valid local value in an annual PVS. The CAD shall bear the costs related to the board of conservators supervising and controlling the CAD.
In February 2006, PTD began its ASR of the Jackson CAD. While the review team found a number of commendable practices implemented by hardworking and dedicated employees, Jackson CAD faces a number of challenges in improving appraisal accuracy.
Key Findings and Recommendations
Improve Appraisal Accuracy
- Acquire needed mass appraisal core components to assist in appraising all property types. Jackson CAD lacks some of the mass appraisal core components needed to appraise all property types adequately, such as data on neighborhoods and interpolation of tables. Because of the countywide appraisal deficiencies, Jackson CAD school districts received an invalid finding in the 2004 and 2005 PVS. By obtaining and maintaining all key mass appraisal system components, the CAD can ensure that resources are in place to produce accurate property appraisals.
Jackson CAD has commendable practices that might prove useful for other county appraisal districts.
- Jackson CAD's leadership established and successfully implemented a process that changed the CAD's fire losses into improved resources for more effective and efficient appraisal office operations. After a January 2004 fire destroyed the CAD's office and equipment, Jackson CAD established a timely action plan and decision-making process that resulted in improved facilities, computers, equipment and an upgraded computerized appraisal system. The CAD established committees to define short and long-term facility needs and locating options, appraisal system and mapping needs and communication needs. Jackson CAD leadership made a concerted effort to research and purchase better hardware, software and other technology to improve appraisal office processes and operations, meeting or exceeding the recommended criteria in the IAAO Standard on Facilities, Computers, Equipment and Supplies.
In addition to the recommendations directly linked to the appraisal process, the following optional related management level recommendations are presented here for consideration by the CAD:
- Use written contracts as appropriate and monitor compliance with contract terms.
- Develop staff job descriptions and evaluate staff using a written evaluation process that includes measurable criteria corresponding with the detailed job descriptions.
- Develop, adopt and use a complete reappraisal plan in compliance with Tax Code Sections 25.18 and 6.05 and industry standards.
- Expand the budget detail to comply with the Tax Code, Section 6.06 (a).