In July 2005, the Texas Comptroller of Public Accounts identified Corsicana Independent School District, located in Navarro County, Texas, as one of 34 Texas school districts meeting the criteria that initiate an Appraisal Standards Review (ASR) of the appraisal district that serves them. In February 2006, the Comptroller's Property Tax Division, with the assistance from contractors, began its review of the Navarro County Appraisal District (Navarro 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 school district to set tax rates, which allocates the tax burden among taxpayers.
The Texas Comptroller's Property Tax Division (PTD) annually conducts a Property Value (PVS) that assigns a value to all taxable property within each school district for state funding purposes. The PVS, an independent estimate mandated by the Legislature, is designed to ensure equitable school funding. The PVS ensures equity by detecting instances where school property values are not at market value, 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 lower 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 school 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 receive 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 of CADs are conducted by the Comptroller's office when one or more school districts within the CAD 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 insure that all properties in the school district are fairly and accurately valued. 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 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 a valid 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.
In February 2006, PTD began its ASR of the Navarro CAD. While the review team found a commendable practice implemented by hardworking and dedicated employees, Navarro CAD faces challenges in achieving and maintaining current market valuations.
Key Findings and Recommendations
- Develop and adopt a complete reappraisal plan in compliance with Property Tax Code Section 25.18 and industry standards. Navarro CAD's one-page reappraisal plan adopted by its board on Jan. 17, 2001, is outdated and lacks information required by USPAP Standard 6 and Property Tax Code Section 25.18. Because of Navarro CAD's inadequate reappraisal plan, the CAD did not schedule or provide Rice ISD with the periodic three-year reappraisal as required by Property Tax Code Section 25.18 nor did it provide enough information to be able to tell if all property categories in each ISD were reappraised as scheduled or to tell which property categories or parcels were completed in Corsicana ISD's partial reappraisals. By producing an accurate written reappraisal plan, Navarro CAD can help attain consistent, accurate and timely reappraisals are scheduled and completed for all properties.
- Improve methods of using ratio studies to eliminate unequal levels of appraisal to help ensure that the CAD appraises all categories of property at market value. Navarro CAD's method of performing ratio studies is ineffective as a tool for identifying and eliminating unequal levels of appraisal. Because of the continued appraisal inaccuracies and inability to qualify as an eligible school district in the 2004 and 2005 PVS, Mildred ISD received invalid findings in both the 2004 and 2005 PVS. By improving ratio study methods, Navarro CAD will be able to make necessary adjustments to produce values at or near the market.
- Improve agricultural land appraisal accuracy by requiring the Navarro CAD Agricultural Advisory Board to meet at least three times annually and establish written local guidelines for administering agricultural land valuations. Navarro CAD lacks locally written guidelines for administering agricultural land valuations and its agricultural advisory board has not met since April 2003. Navarro CAD has inaccurately appraised Category D1, Real Property: Qualified Agricultural Land, countywide as measured by the PVS, with Mildred ISD receiving invalid findings in the 2004 and 2005 PVS. By clearly defining what agricultural activities are typical for Navarro CAD areas and the degree of intensity that is necessary to meet each area's requirements, the CAD will improve appraisal accuracy and consistency in administering the agricultural land valuations while ensuring key information is available to landowners and the public.
- Establish written procedures aligned with industry-accepted standards for gathering and analyzing sales data. Navarro CAD lacks written procedures for gathering and analyzing sales. Not using verified, accurate sales data to adjust single-family residence appraisals for local conditions, could cause Navarro CAD to produce inaccurate appraisals. By providing comprehensive, written guidance to appraisal staff, Navarro CAD can document sales data consistently as valid indicators in achieving market value.
Navarro CAD has a commendable practice that might prove useful for other county appraisal districts.
- Navarro CAD contracts for its bookkeeping function as a low-cost alternative to employing in-house staff while providing an excellent budget monitoring process tool for the board. Navarro CAD saw a need for a low-cost and efficient process to meet its bookkeeping function and determined that employing a bookkeeper would cost the CAD considerably more in salary, benefits, office equipment and supplies. The CAD compared the cost of maintaining an in-house bookkeeper to outsourcing the bookkeeping function and chose outsourcing to a CPA for a successful, inexpensive and accurate process. By outsourcing its bookkeeping function, the CAD not only saves money, it also assures that financial reports submitted to the board for review and approval are free of adverse findings.
- Solicit, award and maintain a valid written depository contract as required by Property Tax Code Section 6.09.
- Prepare and adopt required board policies to comply with Property Tax Code Section 6.04(d).
- Comply with Property Tax Code Sections 11.44, 22.21 and 23.43(f) by publicizing legal requirements and documenting procedures for administering exemptions.
- Analyze and adjust staffing levels annually as needed to maintain countywide coverage and accurate appraisals consistent with industry standards.
- Develop job descriptions and an annual evaluation system and evaluate performance of all CAD staff.
- Revise the professional appraisal services contract to include dates for performance of services tied to payments, a list of properties the contractor will appraise and accurate payment terms, and develop written procedures for monitoring contracts.
- Document procedures for daily operations.
- Develop job descriptions and an annual evaluation system and evaluate performance of all CAD staff.
- Develop and implement a plan for disaster recovery and periodically test the plan.
- Follow an up-to-date records retention schedule and file the schedule with the Texas State Library as required by law.