In July 2004, the Royce City Independent School District (Royce City ISD), located in Rockwall County, Texas, 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 of the Rockwall County Appraisal District (Rockwall 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's office 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 districts set tax rates that determine the amount of local tax revenue. Appraisal districts, under most circumstances, are required by law to appraise property at or near 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 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. ASRs 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 the 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. The Tax Code dictates certain appraisal procedures or standards such as the Uniform Standards for Professional Appraisal Practices (USPAP), specifically Standard 6: Mass Appraisal and Standard 7: Personal Property. Also the International Association of Assessing Officers Standards (IAAO) Standards on Assessment are used as guidelines on the operation of an assessment office.
The two principal focuses of the review are to determine why a school district served by the CAD was deemed eligible and to make recommendations to improve appraisal practices so the school district's 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, 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's office 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 pursuant to the PVS, 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.
While the review team found the district to be staffed by dedicated and hardworking employees, Rockwall CAD is facing a number of challenges in achieving and maintaining consistent valid findings, including:
- improving management of district operations;
- automating processes to improve capabilities; and
- documenting appraisal procedures.
Key Findings and Recommendations
Improve the Management of District Operations
Conduct a staff needs analysis and establish staffing allocation guidelines that will ensure that the number and type of staffing is appropriate and annually adjusted to meet reappraisal plan goals each year based on growth. Dallas is growing east and northeast resulting in Rockwall County being one of the fastest growing counties in the state. Such growth puts an additional strain on a CAD's efforts to maintain current records and market valuations. An increase in sales volume requires that the processing of the sales keep pace. The chief appraiser is responsible for researching sales, conducting ratio studies and evaluating schedules. The chief appraiser has other responsibilities and is unable to devote full attention to these tasks. For example, the chief appraiser is only able to research approximately 50 percent of the outlying ratios. Much more time is needed to adequately evaluate the market. With the growth that the county is experiencing, Rockwall CAD needs a staff member dedicated to evaluating market data and ensuring appraisal values are accurate.
Revise the utility and industrial professional appraisal services contract to comply with appraisal industry standards. Rockwall CAD's contract for utility and industrial appraisal services does not include the dates when services will be delivered or adequate provisions for monitoring contract performance. The IAAO contract and contract monitoring standards require that contracts have specific provisions for deliverables and that contracts be monitored. By expanding the contract to clearly define services and linking deliverables to vendor deadlines that correspond with appraisal district target function dates, the district is alerting the vendor to critical deadlines the district faces and ensuring that critical deliverables are received timely.
Automate Processes to Improve Capabilities
Develop a plan with project specifications and timelines for purchasing and implementing a Geographic Information System (GIS). Rockwall CAD processes deed updates on its paper and electronic maps but is lacking an integrated mapping system that offers real time analysis capabilities and updates. Board-approved, budgeted funds for a GIS have been available for the past three budget cycles but no purchase has yet been made. By purchasing a GIS system, the district eliminates its dependence on the combination paper-electronic maps and improves its real time sales data analysis capabilities for evaluating market trends and establishing reappraisal priorities.
Establish on-line capabilities with the county clerk's office, which will enable the district to obtain deed information in a more timely and cost effective manner. The district receives deed transfer information from a deed service company. The deed service company acts as an intermediary obtaining deed transfer information from the Rockwall County Clerk's office and selling that information to the district. The district is delayed in obtaining and processing the deed information because of the intermediate step. It is critical that Rockwall CAD maintain current records and that it receive sales data in a timely and cost effective manner. Many appraisal districts across the state are on-line with their county clerk's office, which enable those districts to obtain current deed information.
Document Appraisal Procedures
Adopt a detailed reappraisal plan. Currently, Rockwall CAD's reappraisal plan is a one-page policy statement developed in 1993 that has never been updated. The reappraisal plan states that the district will do a complete reappraisal every three years, send required notices and update schedules every three years. The reappraisal plan also states that the district will reappraise the areas that have decreased or increased in value by 10 percent between reappraisal years. The reappraisal policy states the district will do a complete reappraisal every three years, but the district primarily relies on the 10 percent increase or decrease policy in conducting reappraisals. A weakness of this policy is not being able to determine if all properties within the county have been physically inspected and reappraised over a period of time. The written reappraisal policy does not give any detail as to the steps to be performed, staffing levels, workflow or the costs associated with plans and goals. The plan does not discuss how market areas might be grouped to provide sufficient sales for appraisal model analysis and development.
Establish comprehensive written ratio study procedures. Rockwell CAD's computerized appraisal system provides staff capability for ratio studies within and among property classifications, which are run three times annually by the chief appraiser. Ratio study results are used to evaluate cost schedules but there are no procedures for conducting the ratio studies or the evaluation that follows. As a result, there are no written guidelines in place to ensure that new, temporary or reassigned staff are aware of or can complete the analysis. Frequent ratio studies and the appraisal maintenance that follows enable an appraisal district to keep its values at or near the market.
Produce a comprehensive appraisal procedures manual that includes local procedures and directives for handling all types of in-house and contract appraisals. While Rockwall CAD has some excellent appraisal tools, it is lacking a written document that explains the complete in-house and contract appraisal process including how and when these tools are expected to be used. This lack could cause inconsistent appraisals and result in property values that deviate from market value. Royce City ISD received an invalid finding in the 2003 PVS, which indicates change is needed to prevent a future loss of state funding. Detailed appraisal procedures manuals would help ensure valid PVS values for each school district while also helping to ensure that taxpayers are treated uniformly in appraisal for tax purposes.