In July 2004, the McMullen County Independent School District (McMullen County ISD), located in McMullen County, Texas, was identified as one 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 (Month) 2005, the Comptroller's Property Tax Division (PTD) began an Appraisal Standards Review of the McMullen County Appraisal District (McMullen 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 Practices (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.
McMullen CAD is facing a number of challenges in achieving and maintaining consistent valid findings, including:
- complying with state law;
- documenting procedures and appraisal methods; and
- developing reappraisal tools and practices.
Key Findings and Recommendations
Comply with State Law
Develop and implement a plan to establish an appraisal district office in accordance with Section 6.05 of the Property Tax Code. The board of directors has not established an appraisal district office. Appraisal district records and equipment are located in several offices within the McMullen County Courthouse. The chief appraiser does not maintain an office in McMullen County. Section 6.05 of the Property Tax Code states that each appraisal district shall establish an appraisal district office
Implement procedures for engaging an annual audit of the district's financial records. Financial audits have not been prepared in accordance with Section 6.063 of the Property Tax Code. No evidence was provided to indicate that a financial audit of the district has ever been conducted
Develop, publish, and adopt a budget in accordance with Section 6.06 of the Property Tax Code. The district's budget is prepared by the county treasurer. The budget is not published in an area newspaper and a budget hearing is not held. The district's budget lacks the detail necessary to comply with the tax code. Section 6.06 of the Property Tax Code states that the chief appraiser shall prepare the budget and have it published n an area newspaper. The board of directors shall conduct a public hearing on the budget before its adoption. The budget needs to contain a listing of each proposed position including the salary and benefits proposed for each position. The budget also needs to contain a description of each proposed capital expenditure and an estimate of the amount of the budget allocated to each taxing entity
Develop a job description and set of criteria, based on statutory responsibilities found in Section 6.05 of the Property Tax Code, for evaluating the chief appraiser's job performance. Establish compensation commensurate with the job. The district does not have a written job description for the chief appraiser and was not able to provide any performance evaluations. According to Section 6.05 of the Property Tax Code, the chief appraiser is the chief administrative officer for the district with specific statutory responsibilities. His salary should be commensurate with the job function. By developing evaluation measures tied to the chief appraiser's job description, the board can evaluate the chief appraiser objectively based on performance
Negotiate a written depository contract as required by Section 6.09 of the Property Tax Code. The district maintains a single bank account with the only bank in the county. Section 6.09 of the tax code states that the appraisal district shall contract with a depository for a period of 2 years negotiating the best terms possible for the district's funds
Appoint an agricultural appraisal advisory board as required by Section 6.12 of the Property Tax Code. The district does not have an agricultural appraisal advisory board. McMullen County is primarily agriculturally based. An agricultural appraisal advisory board would benefit the district by providing the chief appraiser with their expertise in the field of agricultural.
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. Procedure 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
Establish written guidelines for administering 1-d-1 open space agricultural evaluations. McMullen CAD does not have written guidelines for administering special-use evaluations, specifically for administering 1-d-1 open space agricultural evaluations. Section 23.51 of the Property Tax Code states that to qualify for an open-space agricultural evaluation, the land must be dedicated principally to agricultural use to "the degree of intensity generally accepted in the area". Written agricultural guidelines will provide consistency in administration and help eliminate subjectivity in the decision-making process. Clearly defining what is typical for the area and what activities meet the degree of intensity requirements will greatly assist district staff and the general public
Develop an appraisal procedures manual for the appraisal staff. The McMullen CAD has not developed an appraisal procedures manual that the appraisal staff can reference in completing their appraisals. The district relies on Marshall & Swift cost guides. Procedure 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. To obtain market data from sales, the appraisal district researches deed recordings to identify property transactions. They do not mail sales questionnaires to buyers or sellers. The district also obtains sales information from realtors, fee appraisers, builders, and property owners. 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 a written personnel policy. The district does not a written personnel policy. In addition to the chief appraiser, the district has 4 part time staff. A personnel policy serves to explain an employee's rights and responsibilities, as well as the district's responsibilities to the employee
Develop job descriptions and adopt a personnel evaluation model to use in evaluating district staff performance. The district does not have a written personnel evaluation process for evaluating staff. The IAAO's 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." Without a performance evaluation model and process, the district has no ability to evaluate and document employee performance, nor make adjustments to substandard work performance.
Develop Reappraisal Tools and Practices
Develop and establish a reappraisal plan. The district does not have a written reappraisal plan. The last reappraisal occurred in 2003. The next reappraisal is scheduled for 2007. A lack of an effective plan contributed to the McMullen County 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 allows the board to direct the appraisal activities by amending the plan as presented by the chief appraiser
Develop a ratio study to allow proper reappraisal and maintenance planning. The district's ratio study procedure is not adequate for reappraisal or maintenance planning. The study does provide a ratio between the sale price and appraised value of a property, but it cannot produce results based on a property's characteristics, i.e. size, location, age, construction type, etc. Ratio studies are used to determine how well the district is appraising property
Develop and implement a plan to bring the district's maps into compliance with Comptroller Rule 9.3002. The district's maps do not comply with Comptroller guidelines. The maps do not identify parcels using property identification numbers linked to the appraisal system. The maps are not regularly updated. Maps are an integral part of any appraisal process. A poor mapping systems hinders the appraisal process making it difficult and inefficient
Provide the chief appraiser with access to the district's primary appraisal software. The chief appraiser does not have access to the district's appraisal software. Since he must work off site, the software is not available to him. He performs appraisals using his personal appraisal program. Having separate appraisal systems increases the chances for errors
Annually calculate productivity values for land designated for agricultural use as required by Section 23.41 and Section 23.51 of the Property Tax Code. The McMullen CAD's method of determining productivity values for land designated for agricultural use does not comply with Section 23.41 and Section 23.51 of the Property Tax Code. Sections 23.41 and 23.51 state that land designated for agricultural use should be valued based on the land's capacity to produce agricultural products. The land's productivity value is found by capitalizing the average net income the land would have yielded under prudent management during the five years preceding the current year. The chief appraiser was unable to provide copies of the productivity calculations for the current or prior years. In the 2003 Property Value Study, McMullen County ISD received an invalid finding due in large part to its productivity values. The Comptroller found the school district's productivity values to be low - clearly a result of the appraisal district's lack of current data.
The reviewer identified some commendable practices in McMullen CAD that other county appraisal districts may do well to review and implement where appropriate
The district has a well-written Mass Appraisal Report that complies with USPAP, Standard 6. The Mass Appraisal Report was developed to provide the district's taxpayers and general public a better understanding of the district's responsibilities and activities. It gives the reader an insight as to how generally recognized appraisal practices are applied locally within McMullen County to arrive at property values.