Executive Summary

In July 2006, the Texas Comptroller of Public Accounts identified Brady Independent School District (ISD) located in McCulloch County, Texas, as one of 28 Texas school districts meeting the criteria that initiate an Appraisal Standards Review (ASR) of the appraisal district that serves them. In February 2007, the Comptroller's Property Tax Division (PTD), with assistance from contractors, began its review of the McCulloch County Appraisal District (McCulloch CAD).

School Districts, the Property Value Study and Appraisal Standards Reviews

Texas funds public education by a combination of state and local funds. Local funding comes from property taxes assessed by a school district's board of trustees. The state bases its funding on the amount of money school districts can raise locally on the total taxable property value within each school district. The state's funding formula sends more money to districts that are less able to raise money locally because of insufficient taxable property value.

A CAD serves each school district in the state by appraising its property at market value. After the Appraisal Review Board approval, the chief appraiser of each appraisal district determines the property values its school districts will use to set tax rates, which allocates the tax burden among taxpayers.

PTD conducts an annual property value study (PVS) that assigns values to property within each school district for state funding purposes. The PVS, an independent estimate required by the Legislature, is designed to ensure equitable school funding. The PVS ensures equity by detecting instances in which school property values are inaccurate, and adjusting them to market value in the state's funding formula.

The Comptroller's values do not directly affect local values or property taxes, which are set by local authorities. When study statistics give the Comptroller a high degree of confidence that the aggregate local value for property categories tested in the study is lower than the state's estimate of the correct value, and that aggregate local value is more than 5 percent below the state's estimate, the school district may receive less state funding than expected. Districts can contest the state values though an appeals process. Understanding the reasons for the differences in these valuations still is critical for school districts and the appraisal districts that serve them.

In 2003, the Legislature enacted a new law to grant a grace period for school districts affected by PVS findings. During the two year grace period, school districts are given an opportunity to work closely with the appraisal district to correct any identified inaccuracies or inconsistencies, before state funding is lost. To aid in that process, the Comptroller's ASR provides the appraisal district and the local taxing units, including the school districts, an independent assessment of the appraisal district's operation.

By law, to be eligible for this grace period, a school district must have an invalid local value that does not exceed the state value; valid local values for the two preceding years; and a current aggregate local value for tested property categories that is at least 90 percent of the lower limit of the margin of error.

Appraisal Standards Reviews

The Comptroller's office performs appraisal standards reviews 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 that they can work with their appraisal districts to correct problems and ensure all properties in the district are valued fairly and accurately. ASRs help appraisal districts identify problems and recommend changes in procedures or methods for improving appraisal accuracy and compliance with state law and appraisal standards.

In conducting an ASR, the Comptroller's office examines and evaluates appraisal practices including planning, procedures and methodology, and the application of and adherence to appraisal standards. The Property Tax Code and Comptroller Rules are the major criteria used to measure performance of an appraisal district.

The Property Tax Code dictates the use of certain appraisal procedures or standards such as the Uniform Standards of Professional Appraisal Practice (USPAP), specifically Standard 6: Mass Appraisal, as well as the International Association of Assessing Officer's (IAAO's) Technical Standards.

The two principal focuses of the ASR are determining why the local value is invalid and recommending improvements to appraisal practices. Upon completing the review process, the Comptroller issues a report of findings that includes commendations for exemplary appraisal practices and recommendations for improvements. The law requires appraisal districts to comply with these recommendations within one year of the report's release.

If the CAD fails to comply with the recommendations and the Comptroller finds that the CAD's board of directors failed to take remedial action within a year of the report's issuance, the law requires the Comptroller to notify the judge of each district court in the county. The district judge, in turn, must appoint a five-member board of conservators to implement the recommendations. This board of conservators supervises and controls the CAD's operations until each school district has a valid local value in an annual PVS. The CAD must bear the costs for this supervision and the board of conservators.

While the review team found commendable practices implemented by dedicated and hard-working appraisal district employees, McCulloch CAD faces a number of challenges in improving appraisal accuracy.

Key Findings and Recommendations

Develop appraisal manuals that provide local procedures and practices for each type of property the staff appraises. McCulloch CAD lacks written appraisal procedures manuals for the appraisal staff. Lack of detailed appraisal procedures manuals could cause inconsistent appraisals and result in property values that deviate from market value. Developing complete and detailed appraisal manuals will complement the field training of new employees and ensure more consistent appraisal practices among all the staff.
Develop a manual and local procedure for the appraisal of agricultural land that includes intensity standards and other elements for qualified land for productivity appraisal and apply standards reasonably and flexibly. McCulloch CAD lacks written local guidelines for appraising agricultural land. By not clearly defining prudent management factors for the area and the minimum standards that meet the degree-of-intensity requirements, CAD staff will be denied valuable information needed to understand agricultural valuations. Local agricultural guidelines provide consistency and uniformity in calculating productivity values and help in the decision-making process.
Appoint an agricultural appraisal advisory board, with advice and consent of the CAD board of directors, as required by Property Tax Code Sections 6.12(a) and 6.12(b). The CAD's agricultural appraisal advisory board is inactive. Lack of expert advice from an agricultural advisory board or other sources could lead to inaccurate income and expense data from unreliable secondary sources and compromise the appraisal of land in agricultural use. The agricultural advisory board can be one of the most important sources of information for the chief appraiser.
Establish written procedures for gathering and analyzing sales. McCulloch CAD does not have written procedures for gathering and analyzing sales. Without written procedures on how to gather and evaluate sales data, the CAD could compromise the sales database with inaccurate or non-arms-length sales resulting in misguided market evaluations and appraisals. Establishing written processes and procedures will help ensure the CAD performs market analyses consistently, regardless of changes in personnel.
Evaluate value ranges as a stratification component in the ratio study process and measure the level, uniformity and reliability of ratio data through statistical analysis. McCulloch CAD does not use statistical measures and does not evaluate value ranges as a stratification component in its ratio studies. Failure to use statistical measures and stratification in ratio studies deprives the CAD of valuable tools that can help it adjust appraisal values to ensure that they are appraising equally and at market value. By evaluating value ranges in its ratio study, the CAD can direct appraisal resources to those property groups in greatest need in order to identify the measure of appraisal level, uniformity and reliability.
Apply ratio study results annually to ensure property valuations remain at current market levels. McCulloch CAD fails to apply ratio study results on an annual basis, so its values during non-reappraisal years may not reflect market values. Failing to apply ratio study results routinely to adjust cost schedules can result in valuing properties inaccurately. Frequent ratio studies and appraisal maintenance enable an appraisal district to keep its values at or near market levels.
Amend the 2007-08 reappraisal plan to include a more thorough planning and organization section, which defines critical reappraisal activities with completion dates and assigns responsibilities. The appraisal district has developed a reappraisal plan that does not fully comply with Property Tax Code Sections 6.05 and 25.18. An insufficient reappraisal plan could cause the appraisal district not to appraise some properties or to compromise the timely completion of the project. An effective reappraisal plan requires a work plan that presents tasks for executing the essential requirements of the statute.

Commendable Practices

McCulloch CAD has one commendable practice that might prove useful for other county appraisal districts.

McCulloch CAD uses a document-scanning program and its Local Government Records Control Schedule to properly maintain and dispose of records. The appraisal district has a records retention program that limits the use of costly office space and helps protect confidential information from disclosure. By scanning documents and using the records retention schedule, the CAD reduces the need to store old records and provides increased security for confidential and sensitive documents and information.

Other Recommendations

In addition to the recommendations directly linked to the appraisal process, the report makes the following management-related recommendations for the CAD's consideration. Several of these recommendations include compliance with existing laws. As Texas governmental entities, appraisal districts are required to comply with all applicable existing laws.