In July 2004, the Hamshire-Fannett Independent School District (Hamshire-Fannett ISD), located in Jefferson County, Texas, was identified as one of 54 school districts in the state meeting the criteria that initiate an Appraisal Standards Review (ASR) of the county appraisal district that served them. In October 2004, the Comptroller's Property Tax Division (PTD) began an Appraisal Standards Review of the Jefferson County Appraisal District (Jefferson 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 Uniform Standard of Professional Appraisal Practices. (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, including 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, Jefferson CAD is facing a challenge in:
- appraising properties at market value.
Key Findings and Recommendations
Appraise Properties at Market Value
Investigate the hunting activities in the district and use the results to adjust local assessed values to market values. The appraisal districts agricultural use valuations are inconsistent with the findings of the 2003 Annual Ratio Study. The overall ratio for agricultural properties in the 2003 annual ratio study indicated ratios in the low 80 range. While some individual category ratios ran above 100 the category with the most property in it, Irrigated Cropland was extremely low which indicates that the information used in the five year averages used by the district may be incorrect when compared with actual practice in the county.
Reexamine all Category A property sales in Hamshire-Fannett to ensure that sales included in ratio studies are market value sales and include these sales when developing or updating schedules. The 2003 Property Value Study showed residential property in the lower two strata of Category A, Residential Property, were undervalued. Category A was divided for study purposes into four strata, or groups, with like valued properties grouped together and studied. Properties in the $22,200 to $83,690 range had appraised values with low ratios in the Property Value Study. Low ratios typically means there is a wide margin between appraised value of property and the sale price of property. The chief appraiser said he excluded some sales from his ratio studies because he felt they were not indicative of the Jefferson county market. An analysis of appraisal data indicated that while the residences in this category were likely being appraised at or near market value, the land that residences were located on was undervalued.
The review team identified some commendable practices in Jefferson CAD that other county appraisal districts may do well to review and implement where appropriate.
District staff use a comprehensive, detailed appraisal procedures manual to conduct appraisals uniformly. The Jefferson CAD has developed an appraisal procedures manual that the appraisal staff can reference in completing their appraisals. Appraisers have access to the Marshall Valuation guide and the district's appraisal manual is based on the Marshall & Swift/Boekh concept. The district has a comprehensive policy and procedures manual for appraisal district staff to follow. Written policy and procedures are essential to effectively managing day-to-day operations. 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. Jefferson CADs policy and procedures manual is a model for other districts to follow.
The appraisal procedure manual is also useful as evidence during appraisal review board hearings and for demonstrating that the district is complying with its own policies. Section 23.01, Property Tax Code, mandates that property be appraised by applying generally accepted appraisal methods and techniques and that appraisal districts comply with the Uniform Standards of Professional Appraisal Practice (USPAP). The effective use of the manual allows different appraisers to appraise property consistently throughout the district.
Jefferson CAD adopted a detailed reappraisal plan that explains exactly how and when reappraisals take place, and explains how sufficient resources will be allocated to follow the plan. The district has a comprehensive reappraisal plan that is sufficient for guiding district reappraisals of property. The Board of Directors has adopted the plan and it has been entered into the district policy and procedures manual. 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 can be 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 allows the board to direct the appraisal activities by amending the plan as presented by the chief appraiser.
Jefferson CAD has a comprehensive ratio study system that allows proper reappraisal and maintenance planning. The appraisal district's automated appraisal system will produce ratio studies on demand. The appraisal district staff input the sales information and identifies the market area to be studied. The ratio study produces indicators such as average mean and median ratios. Of common interest in ratio studies are the level and uniformity of the district's appraisals in an area or neighborhood. These standard ratio study findings are useful in analyzing the district's appraisal performance.