In July 2004, Cleburne Independent School District (Cleburne ISD) and Venus Independent School Districts (Venus ISD), located in Johnson County, Texas, were identified as two 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 March 2005, the Comptroller's Property Tax Division (PTD) began an Appraisal Standards Review of the Johnson County Central Appraisal District (Johnson CCAD).
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 Standards of Professional Appraisal Practice (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 pursuant to the annual property value study, 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, Johnson CCAD is facing a number of challenges in achieving and maintaining consistent valid findings, including:
- documenting budgets and formally monitoring contracts;
- supporting appraisal accuracy.
Key Findings and Recommendations
Document Budgets and Formally Monitoring Contracts
Expand the budget format to comply with the Tax Code. The district's budget lacks a breakdown of benefits for each staff position. The budget contains the information for employee benefits but only in total dollar amounts rather than in a breakdown by staff position as required in Tax Code Section 6.06(a). Complying with budget requirements ensures the public and participating taxing units receive enough information to be assured adequate staffing exists and staff are being compensated fairly
Adopt a formal contract monitoring process. Numerous service and/or vendor contracts are a standard part of Johnson CCAD operations but the district does not have a formal; written contract monitoring process. Contract monitoring is informal and essentially limited to a written contract status report submitted monthly by the chief appraiser to the board of directors. By following IAAO's standard for monitoring contract performance, the district would ensure that staff monitors are assigned so that critical vendor deadlines are met and deliverables are received and paid for timely.
Support Appraisal Accuracy
Research and document sales data for all property types based on periodic ratio studies. Johnson CCAD does not perform or have procedures to ensure adequate market research and data documentation are being gathered for all property types. Not having adequate market data led to inaccurate residential appraisals and was a contributing factor in receiving invalid findings in the 2003 PVS for residential property. Results improved in the 2004 PVS due to the chief appraiser's increased focus on gathering market sales data. By strengthening its focus on continued market research and data documentation for all property types, the district can prevent appraisal inaccuracy and ensure achieving market value assessments for all its school districts
Call at least three meetings of the Agricultural Appraisal Advisory Board annually. Johnson CCAD's Agricultural Appraisal Advisory Board only met once in 2004. The Tax Code requires that this board meet at the call of the chief appraiser at least three times a year. This advisory board's purpose is to advise the chief appraiser on the appraisal and use of agricultural land. By calling only one of three required meetings, the chief appraiser has not been advised on agricultural land valuation as prescribed and intended by the Tax Code. Conducting the required annual meetings also aids the district in improving its appraisal and classification of agricultural land since a majority of the productivity values have been held constant, not reflective of market conditions.
The review team identified some commendable practices in Johnson County Central Appraisal District that other county appraisal districts may do well to review and implement where appropriate
Johnson CCAD identified and implemented ways to improve appraisal accuracy through staffing and procedural changes. Following the 2003 reappraisal in which Cleburne and Venus ISDs failed to receive local value and met the three qualifying criteria for receiving an appraisal standards review, procedural and staffing changes were implemented in the manner in which sales information was gathered, recorded and reported in periodic ratio studies. With one person responsible for gathering sales information, recording and distributing that information gained proficiency and facilitated management
Johnson CCAD has an effective and successful process for discovering and recording real and business personal property. The district gathers information through construction permits received from member cities, septic permits from the County and temporary electric service permits in rural areas and records them in the appraisal records. This allows CAD field appraisers to discover and inspect new property from a select list of properties requiring inspections created by recording permit information to the appraisal records. Using this process resulted in almost doubling the number of renditions received from 2003 to 2004, from 33 percent to 64 percent, respectively. Final numbers for 2005 renditions are not yet available but results to date are ahead of 2004
Johnson CCAD maintains an excellent multipurpose graphic information system (GIS) integrated with mapping technology while minimizing costs. The district is actively involved in a multipurpose GIS, working with local governments, the county engineer, the 9-1-1 coordinator and the sheriff's department as local participants to eliminate duplication and minimize costs. In March 2005 the chief appraiser was investigating competitive management information system vendors in the interest of ensuring the CAD has the most suitable information technology available to meet district needs. The detailed planning has established a completion goal as well as month-by-month feedback for the staff, chief appraiser and directors
Johnson CCAD provides a systematic approach to property appraisal with its well written district policy and procedures manuals and other written guides. The policies and procedures manuals are made up of two volumes, identified as Book One of Two and Book Two of Two, Policies and Procedures. Other materials include a reappraisal plan and a summary outline of Uniform Standards of Professional Appraisal Practice. The reappraisal document references Section 25.18 of the Tax Code as the guiding cause for reappraisals. Standards for property inspections are outlined for both real property and business personal property. The reappraisal plan also includes a memorandum signed by the chief appraiser identifying staff assignments for the reappraisal activities.