In July 2004, the Roma Independent School District (Roma ISD), located in Starr 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 ASR of the Starr County Appraisal District (Starr CAD).
Appraisal Standards Reviews
The 78th Legislature, Regular Session, directed the Comptroller's office to conduct 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 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 is 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 and commendations for exemplary district appraisal practices. 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 annual 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 several commendable practices implemented by dedicated and hardworking district employees, Starr CAD is facing a number of challenges in achieving and maintaining consistent valid findings, including:
- documenting procedures; and
- reappraising regularly.
Key Findings and Recommendations
Develop a comprehensive policy and procedures manual for district operations. The district does not have a comprehensive policy and procedures manual for appraisal district staff to follow. Written policies and procedures are essential to effectively managing day-to-day operations. Procedure manuals outline, step-by-step, 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.
Develop procedures for agriculture valuation and annually calculate productivity values for land designated for agricultural use. The Tax Code Sections 23.41 and 23.51 state that land designated for agricultural use should be valued based on the land's capacity to produce agricultural products. The district conducts an annual survey of agricultural property owners and develops agricultural productivity schedules, but has no written procedures documenting this process. Written procedures ensure consistent appraisals and help ensure the district is accurately calculating productivity values. In the 2003 PVS, Roma ISD received an invalid finding due in part to its productivity values.
Develop and adopt a comprehensive reappraisal plan. Starr CAD lacks an adequate written reappraisal plan to ensure the execution of timely and accurate appraisals. The district's reappraisal plan is a one-page document that was adopted in August 1995. For tax year 2005 a summary report is attached that discusses some policies and methods of appraisal, but does not include specifics in which areas of the county will be reappraised and when, which staff will be assigned to each area, how the county is divided for reappraisal or how the reappraisal plan is linked back to the budget. Section 25.18 of the Tax Code requires appraisal districts to implement a plan for reappraisal, which provides for the reappraisal of property within the district once every three years. A comprehensive reappraisal plan is critical to the success of the district in many ways including: budgeting, market analysis, continuity of district performance during staff changes, as well as a directive for current staff.
Inspect business personal property accounts and develop an independent valuation of the business personal property. The appraisal district does not physically inspect business personal property regularly and lacks detailed procedures for valuing personal property. The district does have a nine-page document for personal property, but it lacks data for appraising property and gives the appraiser only limited direction. No staff member is dedicated to locating and valuing personal property. The district relies mainly on rendition forms in valuing business personal property, although response rate to renditions is low. Section 23.01 of the Tax Code requires all property to be appraised at market value, taking into consideration the individual characteristics of each property. Regular inspections identify changes in the character of the accounts, as well as changes in ownership and location of property.
Develop a process for collecting income data and use the data to develop income schedules for valuing properties. According to the chief appraiser, the district does not have a process for collecting income data. The district does not collect income information on apartment buildings, retail stores, office buildings or other commonly leased or rented properties. The district also does not maintain computerized, or manually stored, data on land attributes important to the local market. The income approach to appraisal is commonly used to assess the value of commercial properties. To determine value, the appraiser will analyze comparable rental data available or the potential earnings capacity of the property, or both, to estimate the gross income potential of the property. Without a means of collecting accurate income data, the district cannot use the income approach effectively in valuing specific income generating properties.
The review team identified some commendable practices in Starr CAD that other county appraisal districts may do well to review and implement where appropriate.
The district has adopted a personnel manual that informs employees of their rights and responsibilities. The Starr CAD has a detailed personnel manual that explains the district's policies concerning leave, attendance, work performance and state and federal personnel issues. The manual also describes guidelines for employee behavior in dealing with customers and guidance on the use of district equipment including telephones and ethics, conflicts of interest, office security and drug use.