In July 2005, the Texas Comptroller of Public Accounts identified Garner Independent School District, located in Parker 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 January 2006, the Comptroller's Property Tax Division (PTD), with the assistance from consultants, began its review of the Parker County Appraisal District (Parker 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 district to set tax rates and allocate the tax burden among taxpayers.
The Texas Comptroller's Property Tax Division (PTD) annually conducts a Property Value Study (PVS) that assigns a value to property within each school district for state funding purposes. This study, an independent estimate mandated by the Legislature, is designed to ensure equitable school funding. The study ensures equity by detecting instances where school property values are inaccurate, 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 insufficient 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 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 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.
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
State law requires the Comptroller to conduct an ASR of appraisal districts whose appraisal practices have resulted in invalid values and that are eligible for the two-year grace period. The ASR must be conducted within one year of the date of the determination that the district is eligible for the grace period.
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 Texas 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 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.
While the review team found several commendable practices implemented by dedicated and hard working district employees, Parker CAD is facing several challenges in achieving and maintaining consistent valid findings, including:
- maintaining current market valuation; and
- improving management practices and oversight; and
- improving information technology use and planning.
Key Findings and Recommendations
Maintain Current Market Valuations
Apply ratio study results annually. Parker CAD does not apply ratio study results on a timely basis, and thus appraisal cost schedules can be out of date. While the CAD conducts ratio studies every six months, it only changes its appraisal schedules every three years causing the schedules to trail the market by as much as three years. By failing to apply ratio study results timely to adjust cost schedules, individual properties can be mis-appraised and if enough properties are appraised incorrectly it can result in a loss of state funding to schools and inequities for local taxpayers. By applying ratio study results annually, the CAD can ensure property valuations that are closer to current market levels.
Develop a reappraisal plan that addresses local market activity. Parker CAD's reappraisal plan calls for reappraisals every three years, the last in 2005 as required, but the plan is not adequate to meet the rapidly changing market environment in Parker County. Parker County is one of the fastest growing counties in the state; reappraising only once every three years has compromised the CAD's ability to produce accurate and equitable appraisals as evidenced by Garner ISD being an eligible district in the PVS. By developing a reappraisal plan that includes more frequent reappraisals, especially in areas with rapidly changing values, the CAD will be better able to keep pace with current market values and comply with Section 23.01 of the Tax Code which requires that all taxable property be appraised at its market value. Such a reappraisal plan will ensure that reappraisal work keeps pace with growth.
Inspect business personal property accounts regularly and develop an independent valuation method as provided by law. Parker CAD does not physically inspect all business personal property annually. The CAD does inspect all new business accounts, accounts with significant value and accounts with dated rendition forms, but the smaller accounts and accounts deemed not to frequently change are only inspected on a rotating basis over a three year period. By not inspecting properties regularly and consistently, the CAD may miss property changes and could be appraising inconsistently, resulting in higher tax bills for some businesses. Physically inspecting all business personal property annually affords appraisers the opportunity to discover omitted property as well as the opportunity to make the tax roll accurate.
Develop an appraisal manual that is in compliance with Tax Code Section 23.01, that meets IAAO Standard Rule 6-3 and is updated on an annual basis. Parker CAD's appraisal manual does not include a table of contents, has no instructions, does not cover all classes of property, has no page numbers and is outdated. Without a comprehensive appraisal manual that includes standardized data collection forms, procedures and training materials that are used uniformly, the CAD cannot be assured that all appraisers are applying the three methods of appraisal uniformly. As a result of non-compliance with Section 23.01 of the Tax Code and of not appraising at market value, the schools may lose state funding. Implementing a locally developed appraisal manual that meets IAAO Standards and that is in compliance with Section 23.01 of the Tax Code will ensure that all appraisers are following generally accepted appraisal practices to be applied uniformly to the same or similar properties, ultimately resulting in consistent appraisals at current market values.
Improve Management Practices and Oversight
Adopt a written employee evaluation system. Parker CAD does not evaluate employee performance in writing. Even though Parker CAD conducts employee evaluations annually, evaluations are communicated only verbally except for evaluations of employees with recurring problems. This practice may expose the CAD to charges of disparate treatment because the CAD lacks evidence it is evaluating all employees. By developing procedures to evaluate staff performance in writing, the chief appraiser can better set employee goals, evaluate staff performance on a regular basis, improve staff morale and make well-informed decisions regarding staff development and training.
Develop a board manual that complies with the Tax Code and includes general policies covering operational aspects of the CAD. Parker CAD does not have a written locally developed board manual in accordance with the Tax Code, but instead relies on the Tax Code and the Comptroller's Appraisal District Directors Manual which is published only as a guideline to be used by CADs in developing their own local manuals to meet local issues. The lack of locally developed board policies leaves the CAD vulnerable to allegations of mismanagement of service contracts, hiring chief appraisers and the handling of public complaints. By adopting a written local board policy and procedures manual, the board can be assured that the public is well informed about how the board and CAD operates, that the CAD is in compliance with Tax Code and that the CAD is not exposed to the possibility of unfavorable public opinion.
Expand the detail of the budget presented to the board for adoption to include associated benefits for each proposed position. Parker CAD's budget does not comply with Tax Code Section 6.06 which requires a listing of all positions and benefits associated by position. The 2004, 2005 and 2006 adopted budgets include a listing of each staff position, but do not itemize the individual staff benefit costs making it difficult for taxing units to assess the full cost of each staff position. By expanding the budget detail, the CAD enables the public to determine whether CAD staff is adequately compensated for their services.
Develop a review process for all contracts to ensure compliance with IAAO Standard on Contracting for Assessment Services including service dates, key contract terms and written procedures for contract monitoring. Parker CAD's 2004-2005 contract for external appraisal services did not include service delivery dates or a list of properties to be appraised and was not in compliance with the IAAO Standard on Contracting for Assessment Services. The current contract on appraisal services does not include delivery dates or a list of properties to be appraised. The contract for delinquent tax collection and appraisal related legal services had not been renewed since an amendment was added in 2003. Without detailed contracts, the CAD has no protection in the event of a dispute. By developing a written process and monitoring contracts to conform to IAAO standards, the CAD contracts will contain standard contract clauses to protect the CAD in case of default, and the CAD will be able to enforce delivery dates for services.
Improve Information Technology Use and Planning
Develop and implement a written plan and timeline to complete and fully integrate the Pictometry aerial and GIS mapping system. Parker CAD has taken steps to replace its older stand alone map systems with a geographic information system (GIS) and aerial mapping system but does not have a written timeline showing final implementation dates for appraisal card updates and loading of all photographs as well as full integration of all systems. Having an integrated appraisal/GIS system helps capture and verify more sales information and contributes to more consistent property values and efficient reappraisals. By developing a written timeline and plan, the CAD can set goals on when it will have the maps converted and have a mechanism for tracking the project's performance.
Parker CAD has some commendable practices that might prove useful for other county appraisal districts.
Parker CAD adopted a comprehensive employee policy manual that informs employees of their rights and responsibilities. In order to ensure that management and staff understand the CAD's policy as an at-will employer and to cover federal employment guidelines dealing with the Federal Medical Leave Act, Parker CAD developed a well-written and comprehensive personnel policy manual in April 1999, with revisions in 2002 and again in 2003, that informs employees of their rights and responsibilities. Each staff member is given a copy of the handbook and is required to acknowledge receipt and understanding of its contents with their signature. This manual helps ensure that management and staff understand their roles and responsibilities.
Parker CAD has a records retention schedule that the CAD uses to limit the use of costly office space and help ensure confidential information is protected from disclosure. Parker CAD uses a Local Government Records Control Schedule that provides for proper maintenance and disposal of records. The chief appraiser is the designated records management officer and has posted the records control schedule in all departments. By using the records control schedule, the CAD is now able to reduce using valuable office space for storage of old records with offsite record storage and provide increased security for confidential and sensitive documents and information.