In July 2006, the Texas Comptroller of Public Accounts identified Mineral Wells Independent School District (ISD), located in Palo Pinto County, 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 October 2006, the Comptroller's Property Tax Division (PTD), with assistance from contractors, began its review of the Palo Pinto County Appraisal District (CAD).
School Districts, the Property Value Study and Appraisal Standards Reviews
Texas funds public education with 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, with the review and approval of the district's appraisal review board (ARB), determines the property values its school districts will use to set tax rates and allocate the tax burden among taxpayers.
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, an independent estimate required by the Texas 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.
PTD's values do not directly affect local values or property taxes. When study statistics give PTD 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. But understanding the reasons for the differences in valuations nevertheless can be critical for school districts and the appraisal districts that serve them.
The 2003 Texas Legislature granted a grace period for school districts affected by PVS findings. During this two-year grace period, school districts can work closely with the appraisal district to correct any identified inaccuracies or inconsistencies before state funding is lost. To aid this process, the Comptroller's ASR provides the appraisal district and its local taxing units with an independent assessment of the CAD'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 equal to 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. ASRs help school districts understand the reason for the invalid finding so that they can work with their appraisal districts to correct problems and ensure that 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 appraisal district performance.
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 Officers (IAAOs) 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, 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 Comptroller is required by law 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 valid local values in an annual PVS. The CAD must bear the costs for this supervision and the board of conservators.
While the review team found several commendable practices implemented by dedicated and hard-working appraisal district employees, Palo Pinto CAD faces several challenges in achieving and maintaining current market valuations.
Key Findings and Recommendations
Adopt and implement a comprehensive, written biennial reappraisal plan in compliance with Property Tax Code Section 25.18(b) and USPAP Standard 6. Palo Pinto CAD lacks a comprehensive reappraisal plan. This can lead to incomplete reappraisal efforts and property values that deviate from market value, as identified by the 2005 PVS for Category D in Mineral Wells ISD. A reappraisal plan, if executed properly, can help ensure that values in each school district are at market value.
Maintain updates of the appraisal manual for use in valuing residential and commercial properties and rural land. At the time of the onsite review, Palo Pinto CAD's appraisal manual was outdated and lacked comprehensive procedures for appraising commercial and rural property. The absence of clear guidelines for Palo Pinto CAD appraisers contributes to inconsistencies in appraised values. By maintaining updates to the appraisal manual, the CAD can have a valuable tool for ensuring consistent appraisals and training inexperienced appraisal and clerical staff members.
Analyze the results of ratio studies to identify areas of concern and take corrective actions to mitigate issues of value. Although Palo Pinto CAD performs ratio studies, it does not routinely analyze the results to support appraisal accuracy. The absence of ratio study analysis contributed to the CAD's falling out of the acceptable ratio range in commercial properties in Santo and Mineral Wells ISDs. Without using ratio studies, appraisal districts cannot pinpoint what contributes to insufficient market values in the PVS. By preparing, analyzing and applying ratio studies, the CAD can plan appraisal maintenance programs that take into account the relationship between appraised or assessed values and market values, and ensure uniform appraisals and assessments.
The review team identified three commendable practices in Palo Pinto CAD that other county appraisal districts should adopt as appropriate.
Palo Pinto CAD has one employee responsible solely for appraising personal property, which results in the category consistently remaining within the PVS confidence level. Historically, the CAD has achieved acceptable levels in the personal property category in the PVS because of the presence of a full-time appraiser, whose sole responsibility has been inspecting, analyzing renditions and performing appraisals of all personal property within the appraisal district. This position contributes to the achievement of consistent and acceptable market values in the PVS for this category.
Palo Pinto CAD has a user-friendly Web site that provides customer service to taxpayers. The CAD Web site (www.palopintocad.org) is user-friendly and provides the public with comprehensive information, including advanced searches. Taxpayers can view appraisal data, print applications and forms, view and print maps, view tax rates and access links to other tax-related sites.
Palo Pinto CAD has a state-of-the-art mapping system for viewing visual images of a property that exceeds standard guidelines recommended by IAAO. Through the chief appraiser's leadership, the CAD has developed and implemented a technology plan. In 2004, the CAD purchased a geographic information system that integrates with its appraisal and mapping systems, allowing the public to view any property, whether from a digital map or an aerial image, and its correlation to a specific parcel.
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.
Adhere to Property Tax Code Sections 6.06(a) and (b) by expanding budget and audit information to include a comprehensive listing of capital expenditures.
Improve the budgeting process by analyzing revenues and expenses, and either refund excess funds to the taxing entities or designate them for specific purchases in accordance with Property Tax Code Section 6.06(j).
Develop a comprehensive board policy manual that outlines the roles, responsibilities and duties of the board of directors and chief appraiser.
Develop and implement comprehensive operating procedures for CAD business functions and update them annually.
Develop and implement a comprehensive disaster recovery plan for all CAD operations, including systems backup, with fireproof and waterproof storage options, to ensure data integrity and security.
Maintain current property tax forms and ensure that all forms provided to taxpayers are the most current available.