In July 2005, the Texas Comptroller of Public Accounts identified Palacios and Van Vleck Independent School Districts (ISDs), located in Matagorda County, Texas, as two of 34 Texas school districts meeting the criteria that initiate an Appraisal Standards Review (ASR) of the appraisal district that serves them. In January 2006, the Comptroller's Property Tax Division (PTD), with the assistance from contractors, began its review of the Matagorda County Appraisal District (Matagorda 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 can be raised locally on the total taxable property value within each school district. Each school district in the state is served by a county appraisal district that is charged with appraising property in the school district at market value. The chief appraiser of each appraisal district determines the property values that are used by the district to set tax rates and allocate 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 property within each school district for state funding purposes. This study, an independent estimate mandated by the Legislature, is designed to ensure equitable school funding. The study 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 districts that are less able to raise money locally because of insufficient 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 formulas will use state values to calculate funding. Through an appeals process, a district can contest the state 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, a new law, recommended by the Comptroller's Property Tax Division Technical Advisory Committee, was enacted 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 ASRs are performed by the Comptroller.
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 value will be used to determine financial aid.
Appraisal Standards Reviews
Appraisal standards reviews are conducted by the Comptroller's office when a school district 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 determine accurate taxable values. 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 used to measure appraisal district performance.
The Texas Property 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. The International Association of Assessing Officer's (IAAO) Standards on Assessment Practice also is used 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 board of directors of the CAD failed to take remedial action within a year from when the report was issued, the Comptroller is required to notify the judge of each district court in the county for which the CAD is established. The district judge is required to appoint a board of conservators consisting of five members to implement the recommendations. The board of conservators shall exercise supervision and control over the operations of the CAD until each school district is determined to have local value in an annual PVS. The CAD shall bear the costs related to the supervision and control of the CAD by the board of conservators.
While the review team found the district to be staffed by dedicated and hardworking employees, Matagorda CAD faces a challenge in the following areas:
- improving appraisal practices; and
- assessing staff performance.
Key Findings and Recommendations
Improve Appraisal Practices
Improve efforts to use ratio studies as a tool for reappraisal, maintenance planning, developing accurate market adjustment factors and measuring appraisal performance. Matagorda CAD in-house ratio studies are ineffective and deficient. The ratio studies conducted by the CAD indicate a great degree of disparity in appraisals in most property categories and the actions taken to address the disparities have not corrected the problem. This, coupled with a volatile real estate market involving waterfront property, makes it very difficult for the CAD to maintain appraised values that reflect current market values. Not adequately performing ratio studies could cause school districts to continue to receive invalid findings in the PVS and consequently lose state funding. By improving the manner in which it performs ratio studies, including adopting IAAO recommended standards for reappraisals and additional stratification, the CAD will be able to isolate problems and will eliminate these kinds of disparities and inequities in appraisal values.
Adopt and implement a biennial reappraisal plan that complies with USPAP and the Tax Code. Matagorda CAD's reappraisal plan does not give any detail as to the steps to be performed, staffing levels, workflow or the associated costs. The plan does not list specific procedures for determining how the sales are to be used in reappraising property in each market area, or how the CAD's internal ratio study is used to determine the need for reappraisal in each market area. Lack of a detailed reappraisal plan prevents staff from fully executing a successful reappraisal and can lead to disparities in appraisal. By implementing a comprehensive reappraisal plan, the CAD will have a roadmap to insure reappraisal work is done timely and can serve as a communication tool that shows the appraisal district board of directors how the appraisal district staff plans to accomplish its appraisals.
Activate the Agricultural Advisory Board and ask them to provide input for staff to develop written local guidelines for administering 1-d-1 open space agricultural evaluations. Matagorda CAD does not have written local guidelines for administering 1-d-1 open space agricultural evaluations, relying instead on the mandated guidelines set forth by the Tax Code and its agricultural advisory board is inactive. The appraisal review board does not always uphold the CAD's agricultural use determinations when taxpayers file appeals. Not providing an agricultural advisory board and having it meet at least three times a year places the CAD outside the requirements of Tax Code Section 6.12. By adopting written agricultural guidelines the CAD will provide consistency in administration and help eliminate subjectivity in the decision-making process.
Assess Staff 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 board of directors routinely approves the chief appraiser's employment contract without conducting a performance evaluation. Without a written evaluation based on measurable performance criteria neither the chief appraiser, board or public has any documentation nor indication of performance progress of the chief appraiser achieving the CAD's goals or whether the chief appraiser and the board are operating with the same set of goals. By conducting a formal annual performance evaluation of the chief appraiser, the board of directors 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.
Require appraisal manager to comply with Occupations Code Section 1151.151 Board of Professional Tax Examiners (BTPE) registration requirements. Matagorda CAD's appraisal manager is not registered with the BPTE, nor does she possess a Class III designation from BPTE. This is in violation of Occupations Code Section 1151.151 a. (1) (2) as well as being non-compliant with the CAD's job description for the position she holds. By securing the required BTPE registration, the CAD will be in compliance with the law as well as with the manager's job description thus adding to the credibility of the CAD's value judgments in dealings with taxpayers, in appearances before the Appraisal Review Board and possible hearings during court actions.
Return to performing written annual employee performance evaluations. The CAD does not perform annual employee performance evaluations as required by its employee policy; instead, the chief appraiser verbally evaluates and counsels employees as needed, but not necessarily annually. The lack of a performance evaluation system means that Matagorda CAD employees are not receiving written performance feedback and may not have a clear idea whether they are performing their jobs in a satisfactory manner. By conducting written annual performance evaluations, the CAD can ensure employees are clear on the standards of performance expected of them and employees will receive specific and regular guidance on how to improve performance and productivity.
Matagorda CAD has some commendable practices that might prove useful for other county appraisal districts.
Matagorda CAD makes use of the latest electronic technology to ensure staff and the public has access to the latest forms, applications and notices. The CAD was unable to provide current Comptroller tax forms in a timely manner. In 2001, in order to facilitate the need for current Comptroller required tax forms, the CAD entered into a contract for computer software and hardware that provides electronic access to these forms. Matagorda CAD's Web site contains a link to the Comptroller's Web site to ensure that the CAD is able to provide the public the latest forms and applications.