In July 2004, the Cranfills Gap Independent School District (Cranfills Gap ISD), located in Hamilton 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 April 2005, the Comptroller's Property Tax Division (PTD) began an Appraisal Standards Review of the Hamilton County Appraisal District (Hamilton 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 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: 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 property value study, 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, Hamilton CAD is facing a number of challenges in achieving and maintaining consistent valid findings, including:
- improving the management of office operations;
- documenting procedures; and
- enhancing reappraisal tools and appraisal methods.
Key Findings and Recommendations
Improve the Management Office Operations
Expand the detail of the budget presented to the board of directors for adoption to include the benefits for each position and a detailed list of each proposed capital expenditure. The district's budget lacks the detail necessary to comply with Section 6.06 of the Tax Code. The budget does not outline each set of benefits associated with each employee position. With 60 percent of the CAD's budget going to salaries, it's important for taxing units to understand where the money is being spent and ensure the district hires sufficient staff to perform appraisal functions.
Develop board procedures to evaluate the chief appraiser, insert a line for the chief appraiser's signature on the evaluation tool and use the newly developed tool to evaluate the chief appraiser annually. The board has not historically evaluated the chief appraiser in writing. After the onsite visit by the review team, the district developed an evaluation tool to allow the board to collectively evaluate the chief appraiser. The chief appraiser had not been evaluated with this tool. Setting annual expectations and evaluating the chief appraiser allows the board to communicate more effectively with the chief appraiser. The district should develop procedures to support the evaluation of the chief appraiser and begin annually assessing the chief appraiser's performance using the new tool.
Develop a comprehensive written policy and procedures manual for district operations. Hamilton CAD lacks well-documented policies and procedures to guide the day-to-day operations of the district in areas such as payroll processing, accounting, purchasing and related functions. Written procedures help guarantee tasks are performed correctly and provide useful training tools for new employees. By having a written policy and procedures manual for district operations, the district ensures consistency in performing daily functions and the procedures act as an internal control mechanism.
Continually update and review the personnel manual against current employment law. Hamilton CAD's personnel manual is currently being updated and is ready for the board of director's approval. The current manual is the board's by-laws and lacks information on the American with Disabilities Act and the Family Medical Leave Act, among more recent personnel law changes. An updated personnel manual protects management and staff from arbitrary employment practices and guarantees CAD employees are aware of their rights and responsibilities.
Enhance Reappraisal Tools and Appraisal Methods
Adopt and implement a detailed reappraisal plan. Hamilton CAD lacks a detailed reappraisal plan to ensure the execution of timely and accurate reappraisals. The CAD's reappraisal plan does not outline staffing requirements, a detailed work plan, a budget or how the district's ratio studies will be used in establishing reappraisals. A detailed plan assures management is aware of the process that the district will use in conducting reappraisals, ensures resources are available for conducting reappraisals and provides a roadmap for completing the reappraisals.
Develop and implement effective appraisal maintenance programs based on ratio studies to identify and correct market value deviations. The 2003 PVS results indicate that Hamilton CAD's appraisal maintenance programs for at least one of its school districts did not achieve the desired result of identifying market areas whose values no longer reflect the market, so adjustments can be made. Cranfills Gap ISD's 2003 PVS eligibility was primarily attributed to under valuing rural residences while other property categories were inconsistently valued, or consistently over- or under-valued. Appraisal districts use ratio studies to plan appraisal maintenance programs. The ratio study results indicate those market areas in the appraisal district whose values no longer reflect the market. Frequent ratio studies and the appraisal maintenance that follows enable an appraisal district to keep its values at or near the market.
The review team identified commendable practices in Hamilton CAD that other county appraisal districts may do well to review and implement where appropriate.
Hamilton CAD backs up appraisal data and stores it in a secure location. The district has an established process for storing daily backed up appraisal data. In the event of a disaster, the district would be able to get back to work quickly because its records are stored offsite and only a small amount of data would be potentially lost.