In July 2006, the Texas Comptroller of Public Accounts identified Daingerfield-Lone Star Independent School District (ISD), located in Morris County, as one of 26 Texas school districts meeting the criteria that initiate an appraisal standards review (ASR) of the appraisal district that serves them. In November 2006, the Comptroller's Property Tax Division (PTD), with the assistance from contractors, began its review of the Morris County Appraisal District (Morris 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 that can be raised 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.
Each school district in the state is served by a county appraisal district charged with appraising its property at market value. The chief appraiser of each appraisal district determines the property values that, after approval by the appraisal review board, its school districts will use to set tax rates, which allocates the tax burden among taxpayers.
The Comptroller's PTD conducts an annual Property Value Study (PVS) that assigns a value to all taxable property within each school district for state funding purposes. The PVS is an independent estimate required by the Texas Legislature designed to ensure equitable school funding. The PVS ensures equity by detecting instances in which school property values are too low 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. However, 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 through an appeals process. But understanding the reasons for the differences in valuations nevertheless can be critical for school districts and the appraisal districts that serve them.
In 2003, the Texas 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 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.
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 Property Tax Code and Comptroller Rules are the major criteria used to measure appraisal district performance.
The 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 the International Association of Assessing Officers' (IAAO) Technical Standards. The two principal focuses of the ASR are to determine why the local value is deemed invalid and to recommend improvements in appraisal practices.
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.
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 Comptroller is required by law to notify the judge of each district court in the county. The district judge(s), 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.
The review team identified a commendable practice in Morris CAD that other county appraisal districts could adopt.
By providing public service announcements, Morris CAD is taking a proactive role in keeping constituents informed of CAD operations. To mitigate adverse publicity for the CAD during a reappraisal year that was going to result in higher appraised values, Morris CAD made public service announcements in the area's newspaper to explain to the public that a reappraisal was in process. Taxpayers were informed early in the process that the area was experiencing rising market values and how the assessment process works, thus making the CAD operations more transparent and taxpayer friendly.
Morris CAD faces challenges in achieving and maintaining current market valuations as listed in the Key Findings and Recommendations below.
Key Findings and Recommendations
Using IAAO's Standard on Valuation of Personal Property, develop local schedules and update procedures and resources used in the valuation of personal property accounts. Morris CAD does not have local schedules for the appraisal of personal property as recommended by IAAO's Standard on Valuation of Personal Property. As a result of not developing local schedules and using rendered values, the appraisal district's coefficient of dispersion (COD) for this category in the 2005 PVS was 34.77, which reflects poor appraisal uniformity, and the level of appraisal was outside the range of reasonably accurate category ratios at 1.07 on the 2005 PVS. By developing local personal property schedules and appraisal procedure manuals, Morris CAD helps ensure more consistent, accurate appraisal results, which should result in uniform and equitable personal property appraisals.
Gather and use local sales and cost data to update commercial improvement cost and site valuation schedules according to generally accepted appraisal standards and practices. Morris CAD has not updated Commercial Real property improvement cost and land schedules as needed to reflect local trends in market value accurately. Not recognizing changing values and making appropriate adjustments to the commercial schedules contributed to the CAD's local value falling outside the 2005 PVS confidence interval. By updating land schedules, cost factors, local modifiers, depreciation factors and depreciation schedules, Morris CAD can help ensure accurate and current values for commercial real property.
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.
Develop an objective set of evaluation criteria for measuring chief appraiser performance and establish an annual evaluation process.
Comply with Texas Attorney General Opinion No. GA-0030 (2003) by allocating collection or assessment services to a separate budget from the main appraisal district budget.
Develop and incorporate into the personnel manual a method for annual written employee evaluations.
Develop, implement and test a comprehensive written disaster recovery plan.