In July 2006, the Texas Comptroller of Public Accounts (Comptroller) identified Balmorhea Independent School District (Balmorhea ISD), located in Reeves 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 December 2006, the Comptroller's Property Tax Division (PTD), with assistance from contractors, began its review of the Reeves County Appraisal District (Reeves 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 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 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.
In 2003, the Texas Legislature enacted a 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 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 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. By conducting ASRs, the Comptroller's office helps 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 Texas 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 Officer's (IAAO's) 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 process, 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 generally accepted appraisal practice 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 bears the costs for this supervision and the board of conservators.
While the review team found a commendable practice implemented by dedicated and hard-working appraisal district employees, Reeves CAD faces challenges in achieving and maintaining current market valuations.
Key Findings and Recommendations
Document Core Appraisal Processes
Establish typical degree-of-intensity standards for qualification of local agricultural land classes and develop productivity calculations according to Property Tax Code Section 23.51 and the steps outlined in the Comptroller's Guidelines for the Appraisal of Agricultural Land. Reeves CAD does not have typical degree-of-intensity standards for qualification of local agricultural land classes and lacks written guidelines for calculating productivity values for open-space land. Where local procedures for establishing typical degree-of-intensity standards do not exist, an essential step in the qualification process could be lacking. Applying locally developed guidelines can help the CAD maintain appraisal processes if key staff is lost and can help the public understand how the CAD qualifies land for the special agricultural appraisal.
Develop written procedures based on IAAO Technical Standards for gathering and analyzing sales data and conducting appraisal maintenance. Reeves CAD does not have written procedures for gathering and analyzing sales and conducting appraisal maintenance. Without local guidelines for verifying, confirming and adjusting sales data, the CAD risks conducting appraisal maintenance with flawed sales data that inaccurately reflect current market value. By providing written directives to the appraisal staff, Reeves CAD can ensure that market-derived adjustment factors are consistently applied to Single-Family Residential parcels.
Develop, implement and distribute to appraisal staff a comprehensive appraisal manual that includes locally developed procedures for appraisals that comply with the Property Tax Code and IAAO Technical Standards. Reeves CAD does not have a comprehensive appraisal manual that includes locally developed procedures for appraisals. Should there be a change in appraisal staff, the lack of detailed appraisal manuals will compromise the continuity of appraisal uniformity and result in property values that deviate from market value. By providing each appraiser with a local appraisal procedures manual, the CAD's appraisal performance will be more efficient, and appraisal equity will improve.
The review team identified a commendable practice in Reeves CAD that other county appraisal districts could adopt as appropriate.
Reeves CAD improves staff efficiency and complies with IAAO Technical Standards and Comptroller Rules by outsourcing its mapping function. The CAD was faced with the problem of making sure its cadastral maps complied with industry standards while reducing the chief appraiser's workload, which included responsibility for updating maps. In 2004, the CAD outsourced with a private vendor for computerized mapping services, and now the chief appraiser exchanges mapping information between the CAD and vendor, which is more efficient. As a result, the CAD has reduced staff workloads, increased cadastral mapping accuracy and complied with Comptroller Rule 9.3002 regarding mapping.
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 must comply with all applicable existing laws.
Complete and document open government training for board members as required by law.
Solicit bids and designate a district depository as required by Property Tax Code Section 6.09.
Expand the budget detail to comply with Property Tax Code Section 6.06(a).
Begin the budget cycle with board-level planning and comply with the Property Tax Code by proportionately crediting unobligated surplus funds to the taxing units at the end of the fiscal year, or if necessary, amend the budget to obligate funds for specific outlays under the taxing units' approval.
Evaluate the chief appraiser annually using a written process that includes measurable criteria corresponding to a job description.
Develop accurate, up-to-date written job descriptions and an annual evaluation system and evaluate performance of all CAD staff.
Develop, implement and test a plan for disaster recovery.
Document procedures for administering exemptions.