In July 2006, the Texas Comptroller of Public Accounts (Comptroller) identified Wills Point Independent School District (ISD), located in Van Zandt 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 Van Zandt County Appraisal District (Van Zandt 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. 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 (CAD) 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 school districts to set tax rates, which allocates the tax burden among taxpayers.
PTD annually conducts a Property Value Study (PVS) that assigns a value to all taxable property within each school district for state funding purposes. The PVS, an independent estimate mandated by the Legislature, is designed to ensure equitable school funding. The PVS 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 school districts that are less able to raise money locally because of lower taxable property value.
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.
The Texas Legislature granted a two-year grace period for school districts whose state funding is adversely affected by PVS findings. During the two-year grace period, school districts can work closely with the appraisal district to correct any identified inaccuracies on 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 operations.
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 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 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 Officers (IAAOs) 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 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 several commendable practices implemented by dedicated and hard-working appraisal district employees, Van Zandt CAD faces challenges in achieving and maintaining current market valuations.
Key Findings and Recommendations
Improve Appraisal Documentation and Practices
Develop methods for obtaining data on income-producing properties and, when appropriate, use the income approach to value for appraising commercial properties. The CAD does not fully utilize the income approach when appraising commercial properties. Because of the CAD's appraisals lower than market value in Category F1, Commercial Real, the 2005 PVS found Wills Point ISD's taxable value invalid. By developing methods to obtain reliable income and expense data and then considering the income approach to value, the CAD will use the preferred valuation approach for income-producing properties according to the IAAO.
Based on ratio studies performed by property type, conduct market trend analysis and strategic planning to help ensure that CAD resources and valuation models are appropriate for the changing local real estate market. Van Zandt CAD does not conduct trend analysis of the local real estate market nor plans for future changes in property use and valuations. Wills Point ISD's invalid taxable value in the 2005 PVS could be due either to its having the closest proximity of all county ISDs to the Dallas market expansion or to the CAD's lack of market trend analysis and planning. By conducting market trend analysis and then developing strategic plans, the CAD can better anticipate future market shifts and their effect on the local appraisal process.
Correct the unit value of native pastureland and conduct valuation of open-space land according to the requirements of the Comptroller's Guidelines for the Appraisal of Agricultural Land. The results of the CAD's agricultural appraisal process overstate the unit value of native pastureland in Van Zandt County when compared to the 2005 estimates of the state and surrounding counties. The CAD valuation of open-space land is not conducted according the requirements of the Comptroller's Guidelines for the Appraisal of Agricultural Land. By meeting with the agricultural advisory board at least three times a year to obtain more board input and following statutory classification and valuation guidelines, the CAD can help ensure documented and consistent appraisal processes and open-space land valuations that reflect local practices.
The review team identified commendable practices in Van Zandt CAD that other county appraisal districts should adopt as appropriate.
The Van Zandt CAD chief appraiser hired an experienced appraiser for the appraisals director position to improve commercial real appraisal processes and procedures, which resulted in improved appraisal performance in 2006. In response to the 2005 PVS finding that indicated Commercial Real property may have been systematically underappraised–in Wills Point ISD, sample ratios of Commercial Real parcels tested with a weighted mean ratio of 0.6618–Van Zandt CAD's chief appraiser used a process management approach to efficiently and cost-effectively improve the CAD's commercial valuation processes. By applying the staff appraisers' experience in data collection, the new director conducted a reappraisal of neighborhood businesses and the CAD rebuilt the Commercial Real land schedules for 2006 using sale price per front foot as the unit-value comparison, which is helpful for appraising commercial sites that benefit from visibility to drive-by and other types of traffic. In 2006, the Wills Point ISD sample ratios for Commercial Real parcels tested with a weighted mean ratio of 0.9703, which represents a significant improvement in the category's level of appraisal within in the school district.
The chief appraiser upgraded the employee's benefits package to attract and retain the most qualified employees. The chief appraiser did not want Van Zandt CAD to become a training school for employees who leave to work at appraisal districts paying higher salaries and benefits. The chief appraiser's analysis of salaries and benefits in similar appraisal districts showed that an increase in Van Zandt CAD's salary and benefits was needed. This information was presented to the board of directors, and adjustments were made to the CAD's salary and benefit levels in 2004. By ensuring a competitive compensation structure, the CAD was able to hire an experienced appraisal director in 2006.
The CAD has developed job descriptions that identify qualifications, skills and responsibilities for each position. Because job duties and responsibilities were outdated and changed, the CAD updated job descriptions for all 16 employees in 2005. Developing or revising CAD job descriptions began when each employee listed the duties and responsibilities of his or her position. By involving the employees in the development of job descriptions, the supervisors were able to evaluate the employee's knowledge of the position as well as obtain content for revising job descriptions.
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 are required to comply with all applicable existing laws.
Expand the proposed budget to include the benefits for each position.
Revise the chief appraiser evaluation form to include the duties listed in the job description, develop benchmarks and goals for those duties and establish a board policy for the annual evaluation of the chief appraiser.
Develop a board policy manual that includes general policies covering board functions.