In July 2005, the Texas Comptroller of Public Accounts identified San Angelo Independent School District, located in Tom Green 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 contractors, began its review of the Tom Green County Appraisal District (Tom Green 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
Appraisal standards reviews are conducted by the Comptroller's office 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 they can work with the appraisal district to correct problems and determine accurate taxable values. ASRs identify problems and recommend changes in procedures or methods to improve appraisal accuracy and compliance with state law and appraisal standards.
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.
In 2005, Tom Green CAD took a number of steps to improve overall operational effectiveness in response to receiving an invalid finding for San Angelo Independent School District in the 2004 Final Property Value Study. Tom Green CAD improved procedures for gathering income and market data on commercial properties, developed appraisal manuals, concentrated reappraisal efforts on residential properties, and improved its use of ratio studies in appraisal and cost schedule maintenance. As a result, all school districts in Tom Green County received valid local values in the 2005 preliminary Property Value Study. The CAD should be commended for these improvements. While the review team found that these commendable practices were implemented by the dedicated and hardworking CAD employees, Tom Green CAD needs to build on its success and address some continuing challenges to achieving and maintaining consistent and valid findings including:
- expanding operational improvements; and
- improving management practices and oversight.
Key Findings and Recommendations
Expand Operational Improvements
Develop and implement a plan and timeline form completion and integration of the GIS mapping system. Tom Green CAD lacks a written timeline for converting paper maps to computerized maps as part of a geographic information system (GIS). Having an integrated appraisal/GIS system helps capture and verify more sales information and contributes to more consistent property valuation and efficient reappraisals. By developing a timeline and plan, the CAD can set goals on when it will have the maps converted and have a mechanism for tracking the projects performance.
Budget, plan and create a timeline to comply with the Electronic Appraisal Roll System (EARS). Tom Green CAD does not electronically submit appraisal rolls to the Comptroller's office. Comptroller Rule 9.3059 requires appraisal rolls be submitted to the Comptroller electronically on an annual basis. Electronically generated reports of local property value can be more accurate than hard copy reports, which are vulnerable to human error. By budgeting, planning and creating a timeline for complying with Rule 9.3059 and participating in EARS, the CAD will provide accurate data, reduce the chance for entry error and enhance the accuracy of the Property Value Study results.
Review the determination of agricultural productivity values to assure compliance with the Property Tax Code and the Manual for the Appraisal of Agricultural Lands. Tom Green CAD is not using the methodologies and definitions prescribed by Tax Code 23.41 and 23.51 and the Comptroller's Manual for the Appraisal of Agricultural Lands to determine agricultural productivity values for subcategories. As a result the CAD incorrectly assigned the productivity value for irrigated cropland, valuing its productivity higher than expected for the most common class of irrigated cropland. By using the methodologies prescribed by the Tax Code and Comptroller's Rules, the CAD can avoid inaccurate productivity values and ensure productivity values match local conditions.
Improve Management Practices and Oversight
Develop an objective set of evaluation measures for the chief appraiser position and annually evaluate the chief appraiser. The board of directors does not have written policies or procedures for evaluating the chief appraiser. While both the chief appraiser and the board chairman said the chief appraiser is evaluated informally, no documentation was provided. As a result, there is no way to ensure the goals of the board are consistent with the goals of the chief appraiser. By developing written evaluation measures, the board of directors can evaluate the chief appraiser objectively based on performance and allow the board to clarify expectations and ensure strong and consistent leadership for the CAD and make sure the goals of the board are consistent with the chief appraiser's goals for the CAD.
Develop administrative policies and procedures to guide the day-to-day operations. The CAD lacks well documented policies and procedures for its daily activities such as purchasing, budget, accounts payable and the like. In the absence of well documented policies and procedures, the work of the appraisal district may be at risk of not meeting statutory obligations. By developing administrative policies and procedures, the CAD can ensure consistency in operation and provide a useful training tool for new staff.
Develop an annual personnel performance evaluation system to evaluate all CAD staff. Tom Green CAD's employee manual does not include a systematic approach for employee evaluation. The chief appraiser said he does not evaluate staff. Inconsistencies in staff performances may lead to overall CAD operational inconsistencies such as unequal levels of appraisal within categories of properties. By developing procedures to evaluate staff performance, the chief appraiser can set employee goals and evaluate staff performance.
Develop a budget that distinguishes between appraisal and collection functions. The CAD's budget does not differentiate between appraisal and tax collection functions. Consequently, taxing entities and the public have no way to distinguish expenses or understand how each area of operation is funded, or determine if funding is adequate for each function. By separating the collections and appraisal budget, CAD officials and taxing units will be better able to make funding decisions.
The review team identified some commendable practices in Tom Green CAD that other county appraisal districts may do well to review and implement where appropriate.
Tom Green CAD took steps in 2005 to address deficiencies identified in the 2004 Property Value Study. Tom Green CAD addressed deficiencies identified in the 2004 PVS by improving procedures used to gather income and market data on commercial properties. In 2005, the CAD's reappraisal effort concentrated on improving residential values, lake property, apartments and hotels. Using sales information gathered through use of the new procedures, the CAD increased base residential buildings costs. As a result, appraised values increased in Category A, single-family residential and Category D2 rural residential and values in Category F1, commercial real, showed significant increases in 2005.
Tom Green CAD uses ratio studies and value stratification to eliminate unequal levels of appraisal within categories of property and ensure all categories of property are being appraised at current market value. Tom Green CAD is using value stratification as a tool to identify and eliminate unequal levels of appraisal and analyze appraisal performance. By grouping like valued properties together, or stratifying them, the CAD can perform more detailed ratio studies and make better adjustments to appraisal practices and schedules. As a result, the 2005 preliminary PVS showed San Angelo ISD was back within the confidence interval and had local value in the study.
Tom Green CAD has developed appraisal manuals for local procedures and practices. Tom Green CAD has a comprehensive policies and procedures manual for appraising property in the county, the Tom Green County Appraisal District Appraisal Manual. The manual thoroughly explains how the CAD appraises residential and commercial property, business personal property and land. The manual's use promotes consistency and uniformity among staff in the appraisal process. The CAD developed the manuals in 2005 as part of its revamping of procedures in response to the results of the 2004 PVS.