Findings of the Appraisal Standards Review
This chapter of the report addresses findings, commendations and recommendations from the appraisal standards review of the Matagorda CAD in five sections:
2.1 Governance and Management 2.2 Generally Accepted Appraisal Practices 2.3 Resources and Management 2.4 Information Processing and Data Collection 2.5 Assessment Administration
The quality of the property tax system depends largely on the appraisal district's board of directors (board). The board should provide knowledge, judgment and expertise in establishing policies and procedures for the appraisal district's organization and operation.
The Matagorda CAD's board consists of six members (Exhibit 6).
Board of Directors Members
Board Member Entity Member Represents Start Date Occupation Elected Official(Yes or No) Malcolm Romine, Chairman Matagorda County 1996 Turf Grass Farmer No Stephen Zapalac, Vice Chairman Tidehaven ISD 2000 First Ag Credit Loan Officer No Bobbie Shreve, Secretary Palacios ISD 2001 Retired school tax assessor/collector No Dr. Warren Criswell Bay City ISD 1990 Veterinarian No Vic Kahlich Palacios ISD 2002 Retired principal No Cristyn Hallmark, non-voting Matagorda Tax Office 2001 County Tax Assessor/Collector Yes Source: Matagorda CAD, January 2006.
The board has the following primary responsibilities:
- establish the appraisal district's appraisal office;
- adopt the appraisal district's annual operating budget;
- approve appraisal contracts;
- hire a chief appraiser;
- appoint appraisal review board members; and
- set general policy on the appraisal district's operation.
The Comptroller's office asked the board to complete a written survey about its activities. A copy of the questionnaire is included in Appendix 8. Three of the current six board members and one past member responded. The survey is broken down into board policies and procedures; chief appraiser and staff; property appraisals; appraisal review boards; and budgeting and financial management. Board members who responded gave Matagorda CAD high marks. Two members, however, disagreed that board member training requirements are stipulated in board policy and that board members complete the required annual training.
Matagorda CAD does not have a policy calling for the periodic solicitation of external audit services.
The CAD retains an external auditor to conduct an annual financial audit and prepare the annual financial statement. The CAD does not put this job out for bid; instead, it has renewed its agreement with the current audit firm each year for at least the past five years. According to the chief appraiser, the current auditing firm is the only firm in Matagorda County that performs governmental auditing. The board received only one other bid when it solicited bids from out of county, and the board thought it cost prohibitive.
The CAD has no formal contract with the auditor but instead uses an annual engagement letter. The engagement letter for the last three years indicates a cost for the audit of $4,000 and places a deadline on the final audit report for March (2002 and 2003) or April (2004) of the year following the end of fiscal year being reviewed. The 2004 audit report was not presented to the board until July 2005, two months after its due date.
No adverse findings or recommendations were issued in the 2003 and 2004 audits. According to the chief appraiser, each taxing entity receives a copy of the annual audit report.
Tax Code, Section 6.063 requires an appraisal district to have an audit of its affairs performed at least once each year by an independent certified public accountant or a firm of independent certified public accountants. A copy of the report must be delivered to the presiding officer of the governing body of each taxing unit eligible to vote on the appointment of district directors, and a reasonable number of copies shall be available for inspection at the appraisal office.
While state law exempts asking for competitive bids for professional services, such as auditing, using the same external auditor year after year does not offer the CAD a "fresh eyes" perspective. Familiarity may be helpful in identifying recurring problems, but it can also create a business relationship that is simply too comfortable for all involved. Extended business relationships can turn into personal relationships as auditors and CAD officials become familiar with one other after years of working together. In addition, these personal relationships could affect the auditor's objectivity, and may encourage CAD officials to pressure the auditor for favorable results.
The Government Finance Officers Association (GFOA) recommends that state and local governments obtain independent audits of their financial statements in accordance with appropriate professional auditing standards. While professional services such as independent audits are exempt from statutory competitive bidding requirements, GFOA still recommends that governments use a competitive process to select auditors. According to GFOA, the independent auditor ideally should be replaced at the end of each audit contract (GFOA recommends a contract period of five years), as is often the case in the private sector.
GFOA also recommends that governments choosing an external auditor actively seek the participation of all qualified audit firms, including the current one, assuming its past performance was satisfactory.
The CAD's long-standing relationship with its auditors does not violate any laws or professional guidelines but may create a perception in the public's mind that they lack independence. State and federal laws do not require requests for proposals for external audit services, but they are desirable, since they allow CADs to compare the expertise of different firms and select the one that can provide the best and most professional service.
Auditors must maintain independence so that the public will know their opinions, conclusions, judgments and recommendations are impartial. An audit rotation policy ensures that a CAD receives the best price for the audit and that established business relationships do not affect it.
Implement a rotation policy for selecting external auditors and regularly review the contract.
Matagorda CAD board of directors routinely approves the chief appraiser's employment contract without conducting a written performance evaluation.
The board has a contractual agreement with its chief appraiser that sets forth the chief appraiser's duties as follows: establish, operate and maintain an Appraisal District; hire staff members; enter into contracts necessary to equip and operate the Appraisal District office and such other contracts and commitments as shall be approved and ratified in writing, provided that any individual expenditures or obligations not specifically budgeted, in excess of $10,000 shall require prior approval of the board or it's designee; all duties that may be required by the express and implicit terms of the contract; and such other duties as are customarily performed by one holding such position in other, same or businesses or enterprises.
The contract states that the chief appraiser is guided and charged with the responsibility of following the Texas Property Tax Code and all applicable laws both state and federal in performance of assigned duties.
Matagorda CAD has also developed a job description for the chief appraiser that requires the chief appraiser to coordinate with other employees "to promote efficient, effective, fair and equitable services for the tax paying public within the policies set by MCAD, statutes, and regulatory agencies." In this regard the chief appraiser shall:
- report regularly to the board upon programs, staff and other district problems;
- direct the appraisal and assessment of all real and personal property in the CAD;
- rule on all exemption applications;
- direct the maintenance of complete records as required by statues, regulatory agencies and CAD policy;
- supervise the work of contracted services;
- prepare the budget in a workable, complete and understandable form;
- direct the preparation of material required by the Appraisal Review Board;
- promote positive relations with the public, taxing entities and news media;
- delegate to other staff such tasks as he/she may deem necessary, but the responsibility rests with the chief appraiser;
- expedite goals, plans and directives of the board of directors;
- provide firm and definite recommendations to the board of directors;
- give accurate and honest evaluations of the personnel;
- understand the role of the board of directors in policy making;
- bring major issues before the board of directors for evaluation and study;
- perform as leader of the CAD;
- hold regular staff meetings;
- administer the CAD general policies fairly and equally;
- act on own discretion if action is necessary to any matters not covered by the CAD policies, reports action to the board of directors;
- participate in educational/in-service programs that relate to the position; and
- respect confidence of the Matagorda CAD.
The minimum requirements for the chief appraiser are that he or she has a high school diploma or Graduate Equivalent Degree (GED). A college degree is preferred. The chief appraiser is required to have at least five years experience in tax or appraisal work and must be certified by the Board of Tax Professional Examiners (BTPE).
The current chief appraiser was hired in 1988. The chief appraiser has a degree from Texas A&M University in Agricultural Economics. Before coming to Matagorda CAD, the chief appraiser worked for the Smith County Appraisal District for four years. The chief appraiser has a Class 4 Registered Professional Appraiser license from BTPE and is a licensed real estate broker.
The chief appraiser's employment contract is for one calendar year and may be terminated by either party on a 60-day written notice. The contract has been routinely renewed annually for at least the last five years. In December 2002 the board went into executive session to discuss the chief appraiser's contract and emerged to approve its renewal. In subsequent years, board minutes do not reflect an executive session discussion but merely note approval of the contract. The minutes do not include the terms of the contract.
The contract does not specify that the board will conduct performance evaluations of the chief appraiser. According to the board chairman, contract renewal indicates board support and satisfaction with its chief appraiser.
There are occasions when the chief appraiser's performance needs a formal review. As the chief executive officer of the appraisal district, a chief appraiser's performance affects the CAD's success.
In 2002 none of the CAD's school districts received local value in Comptroller's preliminary value study. The chief appraiser recommended the board hire legal counsel to appeal the PVS results. Three school districts successfully appealed the values but two, Bay City and Matagorda still received state value.
In July 2004, the state's value study indicated that three school districts did not receive valid local value findings. Two, Van Vleck and Palacios, qualified for a grace period and were given local value but Matagorda ISD did not qualify for a grace period and was assigned state value. Palacios and Van Vleck find themselves in a grace period for the second year, according to the preliminary PVS finding for 2005.
If the board of directors does not have an evaluation instrument and a regular schedule for evaluating the chief appraiser, it has no way of determining how the chief appraiser is performing or whether the requirements of the board, the law, the participating taxing entities and the property owners are being met.
Chief appraisers are responsible for ensuring that competent staff is hired, procedures are documented, appraisals are performed, employees are evaluated and all other functions are performed by an appraisal district. Having a qualified chief appraiser is important to effective district operations.
A good performance evaluation system outlines the behaviors expected of the chief appraiser and what the board expects the chief appraiser to accomplish each year.
The IAAO points out chief appraisers "have responsibilities beyond appraisal that require a university-level education or equivalent experiences in human resource management, planning, budgeting and project management." They must also have the ability to communicate with the board, employees, elected officials, appraisal professionals, the business community, the media and the public.
Without a written evaluation based on measurable performance criteria neither the chief appraiser, board or public has any documentation or indication of performance progress the chief appraiser is achieving the CAD's goals or whether the chief appraiser and the board are operating with the same set of goals. An annual performance review for a chief appraiser provides a tool that the board can use in the event they have a situation of a chief appraiser that is unsatisfactorily performing duties. A periodic performance evaluation facilitates the board's ability to take corrective steps. A periodic evaluation necessitates a written job description for the chief appraiser duties other than what is included in the contract for service.
By conducting a formal annual performance evaluation of the chief appraiser, the board will be able to assure the chief appraiser is performing the requirements of the board, the contract, the law, the participating taxing entities and the taxpayers.
The Nueces CAD board, for example, has developed a well-defined job description for the chief appraiser and constructed an objective evaluation tool for measuring the chief appraiser's job performance. The job description contains the statutory responsibilities set forth in the Tax Code, as well as specific goals and expectations required from the board. The job description clearly defines the role of the chief appraiser and lays the groundwork for an objective evaluation.
The chief appraiser receives an annual performance evaluation. The board uses a separate evaluation instrument for the chief appraiser than is used for other district staff. The instrument allows for input from all board members, and affords the chief appraiser an opportunity to address individual goals and objectives during the evaluation period. In addition, the evaluation sets up goals and objectives for the next twelve months. Having an objective evaluation system in place ensures that the board and the chief appraiser are in agreement as to what is expected of the chief appraiser, and eliminates performance evaluations that may be subjective and based on emotion rather than actual performance.
Perform an annual, written performance evaluation of the chief appraiser and base the renewal of the chief appraiser's contract on this evaluation.
Matagorda CAD does not observe all of the requirements of the Tax Code as it relates to adoption of its annual budget.
Copies of the budgets for 2004, 2005 and 2006 were reviewed (Exhibit 7).
Matagorda CAD Adopted Budgets
2004 through 2006
Percent Percentage Increase
Chief Appraiser $63,320 10.0% $65,220 10.1% $65,220 9.9% 3.0% Executive Secretary 36,639 5.8% 37,738 5.8% 37,738 5.7% 3.0% Office Manager 44,315 7.0% 45,645 7.1% 45,645 6.9% 3.0% Appraiser 33,990 5.4% 35,010 5.4% 35,010 5.3% 3.0% Appraiser 29,428 4.6% 30,311 4.7% 30,311 4.6% 3.0% Appraiser 33,041 5.2% 34,032 5.3% 34,032 5.2% 3.0% Head Clerk 26,614 4.2% 27,413 4.2% 27,413 4.1% 3.0% Clerk 21,357 3.4% 21,998 3.4% 21,998 3.3% 3.0% Part-time Clerk -0- 0.0% -0- 0.0% 9,000 1.4% * Total Salaries $288,704 45.5% $297,367 46.0% $306,367 46.4% 6.1% Employee Retirement 25,000 3.9% 25,000 3.9% 25,000 3.8% 0.0% Employee Insurance 54,000 8.5% 54,000 8.4% 54,000 8.2% 0.0% Medicare Tax 4,500 0.7% 4,500 0.7% 4,500 0.7% 0.0% Unemployment Tax 1,500 0.2% 1,500 0.2% 1,500 0.2% 0.0% Car Allowance 22,800 3.6% 22,800 3.5% 22,800 3.5% 0.0% Increase Health Coverage 5,000 0.8% 5,000 0.8% 5,000 0.8% 0.0% Total Benefits and Taxes $112,800 17.8% $112,800 17.5% $112,800 17.1% 0.0% Retirement Fees 850 0.1% 500 0.1% 500 0.1% (41.2%) Board Meetings 200 0.0% 200 0.0% 200 0.0% 0.0% Seminars and Workshops 6,000 0.9% 6,000 0.9% 6,000 0.9% 0.0% Office Supplies 9,500 1.5% 10,000 1.5% 10,000 1.5% 5.3% Printing Cost 4,000 0.6% 4,000 0.6% 4,000 0.6% 0.0% Computer Supplies 7,000 1.1% 5,000 0.8% 5,000 0.8% (28.6%) Dues and Memberships 4,500 0.7% 4,500 0.7% 4,500 0.7% 0.0% Books and Subscriptions 2,000 0.3% 2,000 0.3% 2,000 0.3% 0.0% Pritchard and Abbott 67,410 10.6% 68,900 10.7% 69,900 10.6% 3.7% Appraisal Review Board 3,000 0.5% 3,000 0.5% 3,000 0.5% 0.0% Equipment Maintenance 15,000 2.4% 15,000 2.3% 15,000 2.3% 0.0% Legal and Advertising 4,000 0.6% 5,000 0.8% 5,000 0.8% 25.0% Workers Compensation Insurance 5,000 0.8% 5,000 0.8% 5,000 0.8% 0.0% Audit 4,500 0.7% 4,500 0.7% 4,500 0.7% 0.0% Legal Counsel 25,000 3.9% 25,000 3.9% 25,000 3.8% 0.0% Insurance/ Liability Coverage 11,000 1.7% 11,000 1.7% 11,000 1.7% 0.0% Postage Lease/Microfiche 2,000 0.3% 2,000 0.3% 2,000 0.3% 0.0% Computer System Maintenance 25,000 3.9% 25,000 3.9% 25,000 3.8% 0.0% Postage 8,000 1.3% 10,000 1.5% 15,000 2.3% 87.5% Telephone 8,000 1.3% 8,000 1.2% 8,000 1.2% 0.0% Office Maintenance 6,000 0.9% 6,000 0.9% 6,000 0.9% 0.0% Utilities 8,000 1.3% 8,000 1.2% 8,000 1.2% 0.0% Janitorial Service/Supply 5,000 0.8% 5,000 0.8% 5,000 0.8% 0.0% Office Furniture/Fixtures 2,000 0.3% 2,000 0.3% 2,000 0.3% 0.0% Total Operation Expenses $232,960 36.7% $235,600 36.5% $241,600 36.6% 3.7% Total Expenses $634,464 100.0% $645,767 100.0% $660,767 100.0% 4.1% Source: Matagorda CAD Approved Budgets, 2004, 2005 and 2006.
The chief appraiser is charged in his contract with preparing the annual budget. The chief appraiser indicated that preliminary budgets are given to the taxing entities for review by June 15, as required by the Tax Code. The CAD board holds a public hearing and adopts the budget before the September 15 deadline to adopt the budget. Tax Code Section 6.062 requires the CAD:
Not later than the 10th day before the date of the public hearing at which the board of directors considers the appraisal district budget, the chief appraiser shall give notice of the public hearing by publishing the notice in a newspaper having general circulation in the county for which the appraisal district is established. The notice may not be smaller than one-quarter page of a standard-size or tabloid-size newspaper and may not be published in the part of the paper in which legal notices and classified advertisements appear.
In the most recent two years, the CAD has failed to observe this requirement. The notice for adoption of the 2005 CAD budget appeared in the newspaper on September 12, 2004, one day before the budget hearing was to be held. The newspaper advertisement was 1/8 page, less than the required quarter page. The 2006 budget notice was advertised on September 7, 2005 and the budget hearing took place on September 13, 2005. It too was considerably less than a quarter-page in size.
The Texas Tax Code Section 6.06 mandates that an appraisal district list in its budget:
- each proposed position with associated salary and benefits;
- each proposed capital expenditure; and
- an estimate of the amount of the budget allocated to each taxing unit.
The CAD's budget is presented in several pages. The first page shows a recap of income and expenses. This is followed by line item presentation of the income and expenses. The third part of the budget is a payment schedule listing all the taxing entities served by the district and each entity's estimated levy for two years previous to the budget; percent of levy for each entity; the estimated payment for each entity; and the quarterly amount to be paid by each entity. Exhibit 8 shows the estimated payments for 2004 through 2006, as reflected in this exhibit.
Estimated Local Support Revenues
2004 through 2006
Estimated Payments Taxing Entity 2004 2005 2006 Matagorda County $89,099.29 $90,342.49 90,089.00 Port of Bay City Authority 6,249.44 6,484.82 6,734.00 Matagorda County Navigation District #1 5,166.85 5,022.56 4,576.00 Matagorda County Conservation and Reclamation District 1,090.67 1,144.38 1,111.00 Palacios Area Seawall Commission District 5,067.42 5,467.60 4,773.00 Coastal Plains Groundwater Conservation District 1,474.73 1,525.84 1,504.00 Matagorda County Drainage District #1 16,596.82 16,657.10 17,390.00 Matagorda County Drainage District #2 3,365.23 3,560.30 3,530.00 Matagorda County Drainage District #3 2,889.19 3,178.84 3,203.00 Matagorda County Drainage District #4 1,103.72 1,144.38 1,177.00 Caney Creek Municipal Utility District 1,610.21 1,970.88 2,288.00 Matagorda County Water Control and Improvement District #2 293.33 317.88 392.00 Matagorda County Water Control and Improvement District #5 387.17 381.46 392.00 Matagorda County Water Control and Improvement District #6 392.77 445.04 458.00 Beach Road MUD 518.30 572.19 588.00 Matagorda County Health District 41,527.47 45,393.76 58,185.00 Bay City Independent School District 137,460.38 141,585.31 146,182.00 Boling Independent School District 1,987.44 1,970.88 2,027.00 Matagorda Independent School District 12,762.38 15,067.68 16,998.00 Palacios Independent School District 179,465.75 173,310.08 164,030.00 Tidehaven Independent School District 46,212.68 49,271.94 53,544.00 Van Vleck Independent School District 36,917.45 38,400.33 40,795.00 City of Bay City 21,697.79 23,586.96 24,189.00 City of Palacios 8,127.51 8,964.31 9,612.00 Total $621,464* $635,767* $653,767 *May not total due to rounding.
Source: Matagorda CAD Estimated Payment Schedules, 2004, 2005 and 2006.
The line item presentation lists each position's salary but does not break out benefits per budgeted position as called for in the Tax Code. According to the chief appraiser, the manner in which the CAD prepares its budget has the approval of its independent auditor.
The CAD does not include a section in the budget labeled Capital Improvements. The CAD included $2,000 in the budget for office furniture and fixtures for each year under review. In 2003, however, the external audit indicates that it spent $5,433 in this line item. The minutes of the board for November 9, 2004 indicate that the chief appraiser was recommending the expenditure of $4,247 for a computer server storage area. No mention is made as to whether this was carried out.
The budget lacks detail. Medicare costs, for example were the same each year reviewed even though salaries showed an increase each year. The rate for Medicare is 1.45 percent, which would have resulted in an expenditure of $4,186 in 2004; $4,312 in 2005; and $4,442 in 2006 based on the budgeted salaries. The CAD merely allocated $4,500 for each year. Unemployment insurance is also a percent of salaries but the CAD merely used a $1,500 figure for each year, regardless of salary amounts. The chief appraiser said the CAD takes into account that not all of the employees currently are subject to Medicare tax and that the district participates in an insurance pool that reduces the amount of unemployment insurance paid. The chief appraiser budgets these items in this manner so that if the district hires a new employee the money is available to pay the tax. Another reason for this approach is that if the current insurance company no longer offers this pool or if the CAD decides to go back to paying unemployment insurance without participating in the pool, the amount in the budget will cover these eventualities.
The CAD annually signs an engagement letter calling for a maximum payment of $4,000 for audit services but each year budgets $4,500 for the audit.
Personnel expenses compose the largest portion of most CAD budgets and are an important part of information which the public is entitled to have. Taxing entities often use salary information for benchmarking. A genuine public interest exists in assuring that the appraisal district is paying adequate salaries when compared to other districts and other local governments. By the same token, local governments have a responsibility to its employees and taxpayers to assure that appraisal district salaries are not excessive. Failing to provide complete personnel information inhibits or may deny interested parties the right of oversight.
The Comptroller's publication, Appraisal District Director's Manual, is a helpful resource in meeting this legal requirement. The Manual suggests other items to list in the budget, including:
- reimbursement for reasonable and necessary appraisal district director expenses;
- per diem or actual expense reimbursement for appraisal review board members;
- compensation for attorneys hired for the appraisal district, appraisal review board or both;
- reimbursement of appraisal office staff for reasonable and necessary expenses;
- payment of tuition and fees incurred for courses or educational programs;
- funds for appraisal review board proceedings and operations; and
- other items necessary for appraisal district operations.
Jefferson CAD uses a model budget document that contains all of the necessary details required by Tax Code Section 6.06. The budget lists categories of capital expenditures such as office furniture and equipment and computer equipment and software, and each one listed each proposed purchase. The budget also has a listing of the benefits for each staff position. The budget provides enough detail to allow a member of a taxing unit or a member of the public to understand how and where the money will be spent.
Improve budget planning to insure that the budget complies with all aspects of the Tax Code and provides taxing entities and the public a complete financial picture.
Matagorda CAD has not credited taxing entities excess funds it has been holding since prior to 2002.
The CAD provided worksheets indicating it made refunds to taxing units in 2002, 2003 and 2004. The audited financial statements, however, show that the CAD's fund balance has not decreased.
In March 2002, the external auditor presented the CAD board the audit report for 2001 stating that the district could "no longer retain surplus budget funds." The 2001 budget resulted in a surplus of $46,699, which the auditor told the board should be refunded "to the local jurisdictions on the third quarter payment."
According to the independent audit for the period ending December 31, 2003 the CAD started the year with a fund balance of $142,241 carried over from 2002. Year 2003 ended with the same amount in the fund balance, which included $45,249 as a designated fund and $96,982 in an unreserved or undesignated category. Accountants sometimes report a designated portion of unreserved fund balance to indicate that the governing body or management have tentative plans concerning the use of all or a portion of unreserved fund balance. The external auditor commented that:At the December 10, 2002 board meeting, the Board of Directors voted to designate the excess revenues over expenditures for the 2002 year for future legal costs related to unsettled lawsuits. At December 31, 2003 only current budgeted legal costs were incurred none of which were related to those unsettled lawsuits. Therefore, the designated balance remains at $45,259.
The December 10, 2002 minutes indicate that the chief appraiser asked the board to consider earmarking excess funds from the 2002 budget to cover legal fees that could occur because of the "Celanese lawsuit." The chief appraiser suggested that legal fees for this lawsuit could total $300,000. The minutes indicate that the board voted to use excess 2002 funds for a "legal fee reserve." No lawsuit materialized from the Celanese issue. In April 2003, the board voted to settle with Celanese to avoid a lawsuit.
In May 2004, the auditor indicated to the board that the CAD would be refunding the unused portion of the budget to the taxing entities. At the end of 2004, however, the entire $142,241 fund balance still remained in the CAD's financial audit. The audit once again indicated that $45,259 was in a designated fund for future legal costs and the balance of $96,982 represented undesignated funds. The auditor added the caveat that this undesignated fund was:Accumulated prior to 1992 when the Texas Legislature amended the Property Tax Code requiring Appraisal Districts to refund or credit excess amount to the participating taxing units in the subsequent year.
The Legislature did not meet in 1992. The change in this aspect of the law occurred pursuant to actions of the 1989 Legislature in Regular Session. The law did not grandfather funds prior to the change. In fact, an example used in the August 1989 issue of Statement, PTD's newsletter at the time, suggests that appraisal districts credit any 1989 budget surplus to the taxing entities.
A fund balance changes character from one year to the next. Simply because the fund balance may have existed prior to a change in law does not mean that it is de facto reserved.
In a letter opinion (LO 94-067), the Attorney General said:The Tax Code requires the chief appraiser of an appraisal district to credit against each participating taxing unit's allocated payments for the following fiscal year any funds that exceed the amount the district actually spent or obligated to be spent.
Not crediting taxing entities with the proportionate share of excess funds could be in violation of the Tax Code. It is important that the CAD budget accurately reflect expenditures and financial obligations in order to calculate excess funds (if any) and taxing unit credits or refunds.
Tax Code Section 6.06(j) provides:If the total amount of the payments made or due to be made by the taxing units participating in an appraisal district exceeds the amount actually spent or obligated to be spent during the fiscal year for which the payments were made, the chief appraiser shall credit the excess amount against each taxing units' allocated payments for the following year in proportion to the amount of each unit's budget allocation for the fiscal year for which the payments were made.
If a unit is no longer part of the budget, the chief appraiser must refund to the unit its proportionate share of the excess funds by the 150th day after the end of the fiscal year in which it made payments.
Obligate all existing surplus funds, either at the beginning of the year or via budget amendment, for specific purposes.
If at the end of the fiscal year the budget amount is not spent, credit a proportionate share of the unspent funds against each taxing unit's allocated payments for the following year.
Matagorda CAD's contracts do not include needed terms in conformity with IAAO Standard on Contracting for Assessment Services.
Exhibit 9 presents a summary of Matagorda CAD's services arrangements.
Professional Service Agreements
Professional Service Provided In Writing (Yes or No) Key Terms and Conditions 2003 2004 2005 Budget1 Actual Budget Actual Budget Actual Pritchard & Abbott, Inc. (Appraisal Services) Yes For appraisal of mineral, utilities and industrial properties; renewed annually; paid quarterly $64,257 $64,256 $67,410 $66,500 $68,900 $69,150 True Automation, Inc. (Appraisal Software and Support) Yes For property appraisal system hardware, software and maintenance; annual cost are for maintenance and is paid quarterly $25,000 $20,471 $25,000 $20,855 $25,000 $21,272 Peter William Low (Legal Services) No Legal counsel to board and ARB; billable hourly for services and travel $13,933 $11,200 $15,000 $12,590 $19,000 $5,655 Sliva and Reed, P.C. (Audit Services) No Annual financial audit not to exceed $4,000 annually as per engagement letter $4,500 $4,000 $4,500 $4,000 $4,500 $4,000 Vince Mahoney (Chief Appraiser Services) Yes Perform duties of chief appraiser; renewed annually with provisions for annual salary and car allowance $66,600 66,599 $63,320 $63,320 $65,220 $65,220 1 Budget figures are taken from Matagorda CAD's December 31 Profit & Loss Budget vs. Actual for 2003, 2004 and 2005. The beginning year budget amounts differ from the budget amounts in the financial statements.
Source: Matagorda CAD, January 2006.
The contract for professional appraisal services with Pritchard & Abbott, Inc. (P&A) does not include the dates when services are to be delivered. P&A is to provide appraisals on mineral, utility, industrial and associated personal property located in the county. In addition to appraisals, P&A is required to present testimony to the Appraisal Review Board. Exhibit 10 shows increases to the P&A contract over five years.
Pritchard & Abbott Contract
2003 $62,600 N/A N/A 2004 $66,500 6.2% 6.2% 2005 $68,900 3.6% 10.1% 2006 $69,900 1.5% 11.7% 2007 $70,900 1.4% 13.3% Source: Matagorda CAD board minutes.
The CAD renewed its contract with P&A in April 2003 for two years with increases of 6.2 percent in 2004 and 3.6 percent in 2005. In September 2005 the board agreed to annual increases of $1,000 for 2006 and 2007, resulting in contracts $69,900 in 2006 and $70,900 in 2007 for these services. These increases were attributed to "higher costs of doing business."
Payments under the contract are made on a quarterly basis. As a "portion of the basis used to establish this contract fee," the contract includes three exhibits that list the number of properties appraised in each of the following categories; industrial, utilities and industrial personal. Additionally, the contract calls for the appraisal of mineral properties in the county. The number of mineral properties to be appraised for the contracted amount is not specified. In the most recent three years oil and gas properties in the CAD have numbered from a low of 3,364 in 2004 to a high of 4,844 in 2005. The contract is not based on hours of work or specified parcels appraised. It does not have an escalation clause; instead the increases are proposed by P&A and approved by the CAD board at its regular meetings.
Any additional work will be performed at a per diem rate of $750 plus out of pocket expenses. Additional work must be approved by the chief appraiser. The chief appraiser said he is responsible for monitoring the contract and paying invoices.
In order to prepare its appraisal roll each year, the CAD must have all of the appraisal information complete and in the appraisal district system before the appraisal notices are printed. Section 25.19 of the Tax Code states that appraisal notices must be printed and mailed in May of each year. Without dates for specific deliverables, the CAD has no recourse to compel P&A to perform the services within a prescribed timeframe.
In 2001, Matagorda CAD signed a contract with True Automation, Inc. under which the CAD was provided with hardware and software for a property appraisal system designed to automate the functions of the CAD in compliance with Tax Code requirements. The hardware and software were installed in 2001 at a cost of $89,230. Subsequent to the installation of the system, the contract provides for an annual maintenance fee of $18,296, paid on a quarterly basis. The contractor is to maintain the system in compliance with changes to the Tax Code. The fee also includes telephone technical support and document imaging. The maintenance agreement renews annually automatically, unless the CAD gives notice of its intent not to renew. Thus far no such notice has been tendered. The maintenance fee can be increased by the vendor by providing the CAD 120 days notice.
While the installation of the system provided timetables, provision of maintenance services does not. There is no mention in the contract, for instance, on how soon after legislative changes to the Tax Code go in effect, the system will be updated to reflect those changes. The contract does not provide performance measures to gauge the cost effectiveness of the contract. The contract, for example, does not specify the number of hours of technical support the CAD is entitled to for the fees. It does not indicate the level of document imaging that is covered by the fee.
IAAO's Standard on Contracting for Assessment Services, Section 4, requires contracts have specific provisions, including the timeframes when services or goods will be delivered. Contract details establish the types of service to be performed, any deliverables that result from the services, the timeframe in which the services will be performed, and outline the parties' rights and obligations.
IAAO recommends that payment schedules be based on performance and that an amount be held in escrow to protect the CAD against substandard work. The CAD needs guarantees that the work will be performed. This can be achieved by tying payments to deliverables or progress made on a mutually agreed work plan.
The CAD has a responsibility to monitor contracts to insure that it is getting what it is paying for and in a timely manner.
Revise and amend the CAD contracts to reflect the guidelines in the IAAO Standard on Contracting for Assessment Services and develop contract monitoring procedures.
All services contracts should include dates when services will be performed, specifics on the deliverables expected and payment schedules that relate to performance and delivery of services. The CAD should require that every professional contract be in writing. Finally, the CAD should implement a structured monitoring plan to assure that contracts are being fulfilled.