In July 2004, the Rains Independent School District (Rains ISD) 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 March 2005, the Comptroller's Property Tax Division (PTD) began an Appraisal Standards Review (ASR) of the Rains County Appraisal District (Rains 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 district boards set tax rates that determine the amount of local tax revenue. Appraisal districts, under the law are required to appraise property at 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 total 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 in future tax years. The purpose of an ASR is to 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 an 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 and those practices mandated by state law or Comptroller Rule. The 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. 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 an ASR are to determine why a school district was deemed eligible and to make recommendations to improve appraisal practices so the school district's taxable 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, a survey of appraisal district board of directors, 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. 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 pursuent 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.
The Rains CAD has undergone significant employee turnover since the fall of 2002. The current chief appraiser, who only began at Rains CAD in January 2003, is attempting to put a number of programs in place so the appraisal district will have a solid foundation upon which it can appraise property according to state law. However, Rains CAD is facing a number of challenges in achieving and maintaining consistent valid value findings, including:
- performing ratio studies regularly;
- documenting procedures and appraisal methods; and
- planning for reappraisals.
Key Findings and Recommendations
Perform Ratio Studies Regularly
Use ratio studies to evaluate local appraisal levels and appraisal uniformity. Rains County Appraisal District does not conduct ratio studies. Ratio studies are important appraisal tools that show where local appraised values are relative to their market values. Texas is a market value state and all property is to be appraised at one-hundred percent of market value. Ratio study results will indicate if a reappraisal is necessary to meet that mandate. If the ratio study results show appraised values no longer reflect market values, the ratio study will show the amount of variance from market value. Ratio study results will also verify whether appraisals are uniform―uniform appraisals guarantee each property taxpayer pays only his fair share of property taxes. Up to now the chief appraiser has been manually comparing land sales to appraised values to identify market trends without calculating ratios or other appraisal performance statistics. In addition, most of her attention has been on developing appraisal schedules. The chief appraiser said she was unable to locate schedules used to appraise property in previous tax years.
Document Procedures and Appraisal Methods
Develop an administrative task policies and procedures manual. The district does not have a policy and procedures manual for administrative staff to follow. The administrative staff that perform the non appraisal tasks have a combined total of three years experience at the appraisal district. Written policy and procedures are essential to effectively managing day-to-day operations. Procedure manuals outline 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. The appraisal district should develop an administrative policy and procedures reference manual for non-appraisal staff
Develop an appraisal manual. Section 23.01, Tax Code, mandates that property should 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 them to the same or similar properties, while taking care to account for the contributions of individual property characteristics on value. The Rains CAD does not have an appraisal manual that contains its stepwise procedures and directions for conducting fieldwork and completing appraisals. The appraisal district uses a compilation of cost tables and descriptions from Marshall & Swift/Boeckh as its appraisal guide. At the time of the fieldwork for the ASR, the chief appraiser was developing a land appraisal schedule. A manual is not only an important reference tool for appraisers but it can be useful as evidence during appraisal review board hearings and in demonstrating that the district complies with its own policies. The appraisal district should develop a comprehensive appraisal manual that staff can use as a reference
Develop appraisal schedules with property classes that describe and produce accurate appraised values for the type of properties in Rains County. Rains CAD uses property descriptions and cost tables from the Marshall & Swift/Boeckh valuation service. The chief appraiser decided to use this guide after she began her tenure at the appraisal district and discovered the district did not have appraisal schedules. This valuation service is a nationwide publication and its property classes and cost tables are based on data from all over the nation. Property descriptions, pictures and cost tables in it do not translate directly to the properties in Rains County. The appraisal district should use the valuation service's guide to develop property classes that fit the properties in Rains County. In addition, the appraisal district should use ratio studies to determine the appropriate cost table modifier for Rains County.
Plan for Reappraisals
Develop a detailed reappraisal plan. The district has not established a reappraisal plan that addresses the frequency of reappraisals. A good reappraisal plan, however, 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 necessary. The appraisal district should develop a comprehensive reappraisal plan
Develop an implementation plan and timeline to complete the integration of the district's appraisal system and geographic information systems. Rains CAD's has a comprehensive geographic information system (GIS) that includes detailed property maps capable of property data overlays but the district has not integrated the GIS with its appraisal system. Integrating the systems will enable the district's appraisers to thoroughly analyze all property characteristics when making appraisal decisions. The district needs to complete this project as soon as possible and should develop a plan and a timeline for integrating map data and property record data.