Critiquing Texas Appraisal Review Boards
Presented to Texas Association of Property Tax Professionals
By Paul Pennington
Appraisal Districts and Appraisal Review Boards (ARBs) should be acutely sensitive of the public perception of their distinct and separate functions. The Appraisal Review Board Manual promulgated by the Texas Comptroller’s Office which is used as a training tool for ARB members tells us “…The ARB is a quasi-judicial entity with the responsibility to resolve disputes between property owners and appraisal districts. The ARB is a separate entity from the appraisal district and serves a different function.” Unfortunately, many property owners, some in The Texas Legislature, and independent property tax professionals, do not see the ARB in that light. They view ARBs as an extension of the appraisal districts, fraught with bias and not independent. There is always room within the Texas Property Tax System to refine and improve and the ARBs are no exception. Some professionals would prefer a system where the appraisal district and appraisal review boards were physically separated to insure impartiality. The concept on the surface seems to be one which any reasoned person could not argue with. However, upon closer examination there are issues which arise relating to cost, administration and logistics which suggest the separation of the ARB may not be practical in all cases. That doesn’t mean constructive criticism couldn’t improve the Texas ARB system.
What contributes to the ARBs apparent appearance as an institution overly influenced by appraisal districts? What could be done to correct current perception?
Appraisal Review Board (ARB) member selection process:
- Board members are selected by the Board of Directors of the appraisal district.
To insure impartiality the selection of ARB members should be taken out of the hands of the appraisal district board of directors. This notion has been previously discussed. This year the Texas Legislature passed HB 1030 which, among other things, provides that in Harris and Fort Bend Counties, “ARB members are appointed by the local administrative judge”.
- Others might argue that anyone other than the appraisal district board of directors might bring local politics into the current system.
Who compensates ARB members?
- Board members are generally paid by the day and reimbursed for expenses. The appraisal district directors set the amount of payment in the budget. However, some appraisal districts do not budget to reimburse ARB members for their expenses.
- Consider: Human nature would suggest impartiality is affected when ARB members receive compensation from the appraisal district. Therefore board members should not be compensated by appraisal districts.
Who can serve on an ARB?
- If you lived in the county for at least two years before becoming a member.
- No special qualifications required.
- Property tax professionals recognize the difficulty of recruiting citizens to serve. Thus a large number of ARB members consist of retired individuals from various fields. Counties should consider increased compensation for qualified members serving on the ARB.
Who can not serve?
- A current appraisal district director;
- A current employee or chief appraiser of the appraisal district;
- A current board member, employee or officer of a taxing unit served by the appraisal district; or
- A current employee of the Comptroller of Public Accounts.
Appraisal districts with a population of 100,000 or more, the following restrictions apply:
- You served for all or part of three previous terms as a board member or an auxiliary board member on the ARB;
- You were a former appraisal district director;
- You were a former employee or former officer of the appraisal district;
- You appeared before the ARB for compensation; or
- Until the fourth anniversary of the date you ceased to serve as a member or officer of a taxing unit for which the appraisal district appraises property.
- Consider using property tax professionals (property tax consultants, attorneys, corporate tax agents, etc.) as potential ARB members after the fourth anniversary of the date they cease ARB appearances for compensation.
How is an ARB member removed?
- Under certain circumstances, appraisal district directors may remove board members by majority vote.
- Consider removing this authority of the appraisal district directors.
Who trains ARB members?
- The appraisal district trains the board and the Texas Comptroller’s Office produces a manual which is also used as a training tool.
- The appraisal district should not be involved in the training of the ARB.
- In 2009 the legislature passed HB 2317;”… which provides a training curriculum for ARB members and requires that it be completed.”
Where is an ARB located?
- Generally, an ARB may reside in any office it chooses, limited only by its budgetary constraints. Most ARBs meet at the appraisal district office.
- To insure that the ARB is perceived as an independent entity, they should be separate and distinct from the appraisal districts. Obviously this might not be practical with most appraisal districts. In fact the concept may only be practical for the five largest appraisal districts (The Big 5).
Why separate the ARB from the appraisal district?
- Property owners and tax professionals perceive the ARB as an extension of the appraisal district and not as a separate independent and impartial entity.
What are the Pro’s and Con’s of the physical separation of the ARB and Appraisal District?
- Con: Appraisal Districts could argue that the concept of separation is cost prohibitive. Issues such as staffing, rent, fixed assets, salaries, etc. would make the idea of “separation” a non-starter or would it?
- The chart listed below shows the 2010 budgets for the “Big 5 Appraisal Districts” (Bexar, Dallas, Harris, Tarrant and Travis Counties).
Number of Employees
ARB Budget 2010
Legal Services Budget 2010
Dallas Central Appraisal District
Harris Central Appraisal District
$2,450,000$6,000,000Tarrant Appraisal District
$617,599$1,099,250Bexar Appraisal District
$577,000$492,000Travis Central Appraisal District
- Con: For example The Dallas Central Appraisal District (DCAD) spends roughly $2,000,000 on their ARB and legal services. So, the question is what would the cost of an independent DCAD ARB be versus the current system? The argument could be made that the number of lawsuits theoretically would be reduced with a revamped ARB system. If the DCAD’s Legal Services Budget were reduced due to less litigation would it be sufficient to cover the cost of an ARB located outside the premises or would it at least be revenue neutral? Some could argue that, with all things considered, separation would cost more than the current DCAD ARB system. Further, no one would expect the number of lawsuits to drop to zero even with significant changes to the ARB.
- Pro: The Harris County Appraisal District’s (HCAD) 2010 ARB and Legal Services Budget is set at $8,450,000. With all things considered can anyone make a valid argument that it would not be cost effective to separate the ARB from HCAD? These figures suggest that an argument to the contrary would be difficult to make. Even if one becomes the devil’s advocate and blames HCAD’s excessive ARB and legal services budget on property tax consulting firms who historically file massive numbers of appeals and litigation. The HCAD 2010 budgeted figures lose creditability due to the recent actions of the Texas Legislature (HB 2591 (1) and Texas Attorney General’s Office designed to reign in such disruptive and unwarranted appeals by owners agents.
(1)HB 2591 deals property tax consultants educational requirements and “enumerates prohibited acts.”
- Con: Appraisal districts are under pressure to keep values high to be in compliance with the Comptroller’s school district property value study (2). A truly independent ARB could jeopardize the appraisal district’s outcome on the Comptroller’s study. This year the legislature passed HB 8 which created new guidelines for the study. Namely the study will become “biennial — rather than annual.” During the off year the Comptroller’s office will be auditing the appraisal district’s methods, procedures, governance and taxpayer assistance.
- Con: Separation could lengthen the appeal process thus tax rolls might not be certified on a timely basis. This argument implies that there are efficiencies created with the ARB and appraisal district being located in the same building.
- Pro: Technology could allow the process to run at the same pace even with separation facilities.
- Pro: The over-riding logic for ARB separation is not an issue of cost but it is to insure impartiality of board members.
The Texas Comptroller’s Office Appraisal Review Board Manual explains that “….the ARB may need the services of an attorney. The ARB may hire its own attorney if the appraisal district budget provides funds for one. If not, the ARB may use the services of the county attorney.”
- Consideration should be given to require the ARB to use the services of the county attorney or use other legal services of a firm not contracting with the appraisal district. The ARB should have access to independent counsel and legal opinions.
The ARB Process:
Listed below are the seven steps of the ARB system during a typical tax year:
- Chief appraiser submits records to the ARB
- ARB hears taxing unit challenge
- ARB hears taxpayer’s protests
- ARB issues Orders Determining Protests
- ARB approve appraisal records
- Chief appraiser certifies tax roll to taxing entities
- Corrections after tax roll approval
For the purpose of this critique I will limit my comments specifically to issues relating to the ARB hearing taxpayers protests.
- ARB Hearing procedures
This year the legislature passed SB 771 which, among other things, increased “the penalty for ex parte communications between a CAD (county appraisal district) and ARB members.”
- Evidence / Burden of Proof:
- The appraisal district must prove by a preponderance of the evidence that their value is correct.
- Hearsay testimony is not allowed.
- The appraisal district has the burden of proof.
- Anyone may appear as a witness
- Expert witnesses
- Appraiser testimony and evidence:
- The Comptroller’s Office describes staff testimony as an informed opinion not necessarily verifiable fact.
- The ARB has the power to subpoena witnesses, books, records or other documents.
- Abuses of this power have occurred.
- Postponement of a hearing:
- The ARB must postpone a hearing if the property owner or owner’s agent is previously scheduled for an ARB hearing in another appraisal district.
- ARBs should schedule the out of town taxpayer or the owner’s agent hearings at one time. These would be obvious convenience, financial and time management factors.
- Mass appraisal:
- Establishes market value on real and business personal property.
- Appraisal districts must comply with Uniform Standard of Professional Appraisal Practices (USPAP).
- Three approaches to value:
- Income capitalization
- Sales Comparison
- ARB members should be familiar with the three approaches to value and be able to make reasoned conclusions based on this knowledge. Additionally, they need to have a solid grasp of their local economies.
- Unequal appraisal: The Texas Property Tax Code states the following in Section 41.43 Protest of Determination of Value or Inequality of Appraisal
(b) A protest on the grounds of unequal appraisal of property shall be determined in favor of the protesting party unless the appraisal district establishes that:
- the appraisal ratio of the property is equal to or less than the median level of appraisal of a reasonable and representative sample of other properties in the appraisal district;
- the appraisal ratio of the property is equal to or less than the median level of appraisal of a sample of properties in the appraisal district consisting of a reasonable number of other properties similarly situated to, or of the same general kind of character as, the property subject to the protest; or
- the appraised value of the property is equal to or less than the median appraised value of a reasonable number of comparable properties appropriately adjusted.
- The genesis of many property tax lawsuits is the failure of the ARB’s to significantly address these three tests of unequal appraisal appeals. The concept of inequality of appraisal is a fluid process which begins when the notices of valuations are mailed in May and or posted on the appraisal district website and continues through the administrative remedy. The ARB should examine the valuations of like properties “in real time” during the ARB process and make reasoned rulings based on evidence.
- Appraisal districts use high-tech media presentations to present their case and the taxpayer and/or agent is limited to verbal testimony and hard copy evidence.
- It is inherently wrong that the appraisal district controls all media devices during an ARB hearing. For example some appraisal districts have internet access in the ARB hearing rooms. During the hearings they have the ability to access on-line sales and rental information during the hearing. Taxpayers and/or their agents should have access to any media tools used by the appraisal district staff during a hearing or the right to bring their own equipment.
In conclusion, ARBs should function as a separate entity from appraisal districts. The ARB selection process, training, hearings, administrative staffing and operational budgets should function autonomously from the appraisal district. Additionally, funding for ARBs operations need to be separated from the appraisal district budgets. Where deemed cost effective the ARB should be located in separate physicality from that of the appraisal district and should be administered separately. If separation is not practical then the strongest emphasis must be made to improve and maintain the impartiality of the board members. Texas ARBs should not be influenced by The Comptroller’s ratio studies and should give significant consideration to uniform and equal appeals. These measures will vastly improve the perception the public, the legislature and owners’ agents currently have of the Texas ARB system.