In July 2004, the Lexington Independent School District (Lexington ISD), located in Lee County, Texas, was identified as one of 53 school districts in the state meeting the criteria that initiate an Appraisal Standards Review (ASR) of the county appraisal district that served them. In September 2004, the Comptroller’s Property Tax Division (PTD) began an Appraisal Standards Review of the Lee County Appraisal District (Lee 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 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. For a more detailed explanation of the review, objectives and methodology, see Appendix 11.
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 appraisal district 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, Lee CAD is facing a number of challenges in achieving and maintaining consistent valid findings, including:
- Stabilizing district leadership and management functions;
- Documenting procedures and appraisal methods; and
- Reappraising regularly.
Key Findings and Recommendations
Stabilize District Leadership and Management Functions
- Develop a job description for the chief appraiser position to be used in hiring, tie the job description to its evaluation form and begin evaluating the chief appraiser according to its new procedures. The district has had six chief appraisers or acting chief appraisers since September 2001. The district was unable to produce a job description for the chief appraiser position, nor any written evaluations of any of the chief appraisers. The instability of the chief appraiser creates disruptions, which impact the district’s performance. Late in the review process the board did adopt a detailed evaluation form for use in evaluating the chief appraiser. By developing a written job description and using its evaluation form to evaluate the chief appraiser’s performance, the Board of Directors can hire a qualified candidate for chief appraiser that meets the board’s expectations and evaluate the chief appraiser objectively based on performance.
- Expand the detail of the budget presented to the Board of Directors for adoption to include the benefits for each position and a list of each proposed capital expenditure with sufficient detail to allow comprehensive decision making by the CAD board and taxing units. Section 6.06 Tax Code requires CAD Board of Directors to adopt budgets that list all positions in the district, individual staff salaries and all proposed capital purchases, including computer hardware and software. The 2004 and 2005 adopted district budgets did not break out the individual capital expenditures, while the 2005 budget lacks a benefits section, which is included in the 2004 budget. By doing this, not only will the CAD be in compliance with the law but citizens and participating taxing units will better understand the need for district expenditures.
- Develop procedures and use the recently developed personnel evaluation form to evaluate district staff. The district did not have a written personnel evaluation process for evaluating staff in 2003 and 2004. In a February 25, 2005 meeting the board of directors adopted the Lee CAD Personnel and Performance Program. The Property Appraisal and Assessment Administration in Chapter 16, “Administration,” states, “Although employees may improve their skills by their own efforts and the help of peers, managers have organizational responsibility for employee development. They use training, education, counseling, and performance reviews to identify talents and help employees grow.” The district has developed an employee evaluation form for evaluating staff. The district needs to create procedures to manage the evaluation process and should begin using the evaluation form to provide staff feedback on their performance as soon as possible.
Document Procedures and Appraisal Methods
- Develop a written policy and procedures manual for district operations. The district does not have 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. Procedures 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.
- Develop an appraisal procedures manual for the appraisal staff. The Lee CAD has not developed an appraisal procedures manual that the appraisal staff can reference in completing their appraisals. Appraisers have access to the Marshall & Swift Valuation guide but the appraisal district only has one copy. Rather than employing a procedures manual for appraisers to reference, the appraisal district relies on chief appraiser-led training in the field. The most recent chief appraiser directed all of the appraisers periodically in an attempt to ensure consistency among the appraisers in the way they classified property and gathered property data. Procedures manuals are also useful as evidence during appraisal review board hearings and for demonstrating that the district is complying with its own policies. Section 23.01, Tax Code, mandates that property is to be appraised by applying generally accepted appraisal methods and techniques and that appraisal districts comply with the Uniform Standards of Professional Appraisal Practice (USPAP). CADs must use similar appraisal methods and techniques and apply these to the same or similar properties, while taking care to account for the contributions of individual property characteristics on value.
- Establish written procedures for gathering and analyzing sales. Lee County does not have a multiple listing service (MLS) for real estate professionals, making the gathering of sales data a difficult and slow process. To obtain market data from sales, the appraisal district researches deed recordings to identify property transactions. The district sends sales confirmation letters to buyers and sellers to confirm and verify the transaction and the amount of the transaction. Appraisal district staff also research building and sewer permits to gather information about new construction or construction on existing property. And, according to the current chief appraiser, the staff rely on area realtors and real estate appraisers for sales information. While the district’s confirmation and verification procedure is one that is used by appraisal districts without an MLS, the appraisal district’s procedure for gathering and analyzing sales and market data is not written or contained in a procedures manual. Written procedures ensure that market analyses are done consistently, regardless of changes in personnel. Knowing what analysis needs to be done, when to perform the analysis, and how to actually perform it is the key to maintaining continuity and a high level of appraisal performance.
- Develop and establish a 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 contributed to the Lexington ISD being declared an eligible district. 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 assess overall appraisal district operations and supports the chief appraiser’s budget request.
The review team identified some commendable practices in Lee CAD that other county appraisal districts may do well to review and implement where appropriate.
- The district addressed findings in its 2002 financial audit in a timely manner. Section 6.063 of the Tax Code requires districts to have annual financial audits. In 2002 the district’s auditor found that invoices for Appraisal Review Board member travel and per diem and invoices for janitorial services were unsigned. The district adopted a policy of having all invoices signed and the audit finding was not noted in the district’s 2003 audit.
- The district has adopted a personnel handbook that informs employees of their rights and responsibilities. The Lee CAD has a well-written and comprehensive personnel policy and personnel handbook that explains the district’s policy as an at-will employer and covers federal employment guidelines dealing with the Federal Medical Leave Act. The handbook also describes guidelines for employee behavior in dealing with customers and guidance on the use of district equipment including telephones and Internet access.
- Lee 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 identify 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.