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Assessments in a Kentucky County. Bureau of School Legislation

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Assessments in a Kentucky County. Bureau of School Legislation DOCUMENT RESUME ED 098 653 EA 006 490 AUTHOR Redman, John C.; Middleton, James W. TITLE Property Assessment by Machine; A Case Studyof the Application of Data Processing to RealEstate Assessments in a Kentucky County. Bureau of School Service Bulletin, Vol. 46, No. 1. INSTITUTION Kentucky Univ., Lexington. Coll. of Education. PUB DATE Sep 73 NOTE 89p. AVAILABLE FROM Bureau of School Service, College of Education, University of Kentucky, Lexington, Kentucky40506 ($1.00, postpaid) *;:7.1*RS PRICE MF-$0.75 HC-$4.20 PLUS POSTAGE DESCRIPTORS *Case Studies; *Completer Programs;Data Processing; Legislation; Models; Multiple RegressionAnalysis; Predictor Variables; *Property Appraisal;*Property Taxes; Real Estate IDENTIFIERS Equity; *Kentucky ABSTRACT In 1965 the Court of Appeals of Kentuckyruled that all property should be assessed at 100percent of fair market value. In compliance with the court decisJne the county assessors began reassessing properties in January 1966. Agreat controversy arose over the new assessment procedures and problems. Thisstudy evaluates the results of the 1966 reassessments anddevelops a way by which the assessment procedures night be improved. The studyfirst determines tha effect of the 100 percentassessment in one area of Kentucky, giving particular emphasis to how well itimproves the degree of equity among property assessments. Itthen describes the development and testing of a method that improves the100 percent assessment procedures through the use ofa regression model involving computer data processing. (Author/DN) E T-7 "%ir Property Assessment by Machine A case study of theapplication of data processing to real estate assessmentsin a Kentucky County by John C. Redman, Ph.D. Professor of Agricultural Economics University of Kentucky and James W. Middleton, Ph.D. College of Medicine University of Louisville S DEPARTMENT OF HEALTH EDUCATION a WELFARE NATIONAL. INSTITUTE OF EDUCATION 1.4kE. 14E8-'140 . x: vi ID 'ROM A .... e-) , . A:A. I7Nu:Ns . 4.' . al Pat %a og a; BUREAU OF SCHOOL SERVICE BULLETIN :-.07 Volume XLV1 September 1973 Number 1 01; College of Education University of wentucky, Lexington TABLE OF CONTENTS PAGE FOREWORDJames B. Kincheloe INTRODUCTION 5 The Method Used in the ' .valuation 6 An Alternative Proposal 6 PROPERTY TAXATION IN PERSPECTIVE 7 Property Taxes as a Source of Revenue for Kentucky State and Local Government 7 Justification of the Property Tax from the Theoretical and Applied Approaches 8 Trends in Property Taxation 10 REAL PROPERTY ASSESSMENT PROCEEDINGS IN KENTUCKY 11 A History of Property Taxation and Assessment in Kentucky 11 Fractional vs. Full. Value Assessments 12 Inequities in the Assessments Prior to the Revaluation 14 The 100 Percent Assessment 15 Public Reaction to the Revaluation 16 METHODOLOGY 18 Location of Study 18 Types of Property 18 Data Obtained on Each Observation 20 Areas Chosen for the Study 21 Coding of the Individual Research Areas 30 Data Sources 30 The Method of Data Treatment for the Analysis 34 THE ANALYSIS OF THE EFFECTS OF TIC E FULL-VALUE ASSESSMENT USING THE ASSESSMENT-SALES RATIO APPROACH 37 Usefulness of the Assessment-Sales Ratio 37 A Comparison of the Research Areas' Mean Assessment-Sales Ratio for 1964-65 and 1966-67 37 Determining the Effect of the Revaluation on the Rate of Assessment for General Categories of Residential Properties 40 Determining the Effect of the Revaluation on the Rate of Assessment for Age and Value Groupings of Residential Properties 47 The Effects of the Revaluation on the Rate of Assessment of Homes of Different Ages 49 The Effects of the Revaluation on the Rate of Assessment of Muses of Different Values 51 Editorial Staff for the Bureau of School Service Bulletin V. Pan! Street. Director. Bureau of School Service.tinversity Kentucky Assistant Editor: Ann Major. Bureau of School Syr\ ;Am, Ltiiersity of Ken- tuck Editoi ial Ad% hotCommittee: Collins lint nett, (711airmati Professor. Higher and Adult Value:dant Cordon !addl. Pnifc ssor. Eliticational Psycholog and Counseling William Peters. Assistant Professor. Cnrriln andIstrlction Paul Street. Director, Professor. Administration andSupervision Pete,Verho%en, AssistantProfessor, Health,Pill sisalEducation mid Heti ..ation Richard Varreli, (liairinan Associate Professor. Social and Philo- sohical Stmlies Second-class postage paid at Lexington, Kentucky 40506. Published quarterly by the University of Kentucky, Lexington. Kentucky. Price $1 postpaid. TABLE OF CONTENTSContinued PAGE TILE DECREE OF EQUITY ATTAINED BY TILE FULL-VALlF ASSESSMENT 54 The Ambigua:: of a True Market Value and the Consequent Difficulty of Obtaining an Accurate Assessment 51 The Patterns of Inequities in Assessmentsas Determined from the Coeffii. it of Variation for IndhiOnal Research Areas for 1964-6:i and 196ii-Ei7 55 Determining the Effect of the Revaluationon the Equity of the Property Assessment in the Research Areas 57 Determining the Effect of the Rtaliationon the Equity of the Assessments on Different-Aged Residential Properties andon Diffrent-Valud Residential Prop:tis 59 A Brief Summary of the Beneficial Effects of the ull- Value ..sessinent 60 DEVELOPING OF TILE NEW APPROACH TO MASS APPRAISING 62 The Fundamental Requirements ofa Method of Mass Appraisal 62 The Regression Model vs. Other Methods of Mass Appraisal 63 The Basis and Fundamental Rquirennlas of the Regression Model 64 The Methodology Used in Dud% ing the Regression Model andthe Data Used in the Model 65 The Regression Model 71 Analyzing the Results of the A:ie,.:ing Model's Evaluations 72 Imprming the Original Assessing Model andan Improved or Practical Assessing Model 75 Comparing the Assessments Obtained by the Practical Assessing Model to th, Assessments Obtained by the RevaluationMethods 77 Further Improvements and Research Neededin Developing the Regression Model Approach to Mass Assessments 80 Conclusions 8I BIBLIOGRAPHY 83 ABOUT TILE AUTHORS Inside Back Cover LIST OF TABLES TABLE PACE I.Coefficient of Intra-Area Dispersion in Relation to Median A.ssessment Ratios for Nonfarm Houses, Selected Areas, 1956-1961 13 II.Research Areas 31 III.1964-65 Saks-Assessment Ratios Adjusted to 100 Percent Assessment ( Ratio x 3.37) And Adjusted to the 1966-67 Mean Assessment Ratio of 91.57 ( Ratio x 3.18) 38 IV. '7" Test for Significance of Difference Between Mean 1964-65 Assessment-Sales Ratio Adjusted to 91.57 and the 1966-67 Assessment-Sales Ratio 39 V. "T" Test for Significant Difference Between the Assessment-Sales Ratio of Croup I-A and the Other Research Croups 42 VI. "T" Test for Significant Difference Between the Assessment-Sales Ratio of Group II-A and the Other Research Croups 43 VII. '7" Test for Significant Difference Between the Assessment-Sales Ratio of Croup I-B and the Other Research Croups 44 VIII. "T" Test for Significant Difference Between the Assessment-Sales Ratio of Group II-B and the Other Research Croups 45 IX.**T" Test for Significant Difference Between the Assessment-Sales Ratio of Croup III-B and the Other Research Croups 48 X. "T" Test for Significant Difference between the Assessment-Sales Ratio of Croup I-C and the Other Research Groups 47 XI. "T" Test for Significant Difference Between the Assessment-Sales Ratio of Croup and the Other Research Croups 48 XII. "T" Test for Significant Difference Betveen the Assessment-Sales Ratio of Croup II-C and the Other Research Croups 41) XIII. "T" Test for Significant Difference Between the Assessment-Sales Ratio of Age Croup A, B, and C 3 XIV. "T" Test for Significant Difference Between the AssesYment-Sales Ratio of Value Croup I, II, and III 52 XV. The Equity of the Assessments in Different Property Classes Before and after the Full-Value Assessment (Measured by the Coeffici:nt of Variation in Each Class) 56 LIST OF TABLESContinued TABLE PACE XVI. "T" Test for a Significant Difference Between theCoefficient of Variation of Individual Groups for the Periods 1964-65 and 1966-67 58 XVII. "T" Test for a Significant DifferenceBetween the Coefficient of Variation of a Property Value Group for 1964-65and 1966-67..... 60 XVIII. "I' Test for a Significant Difference Between theCoefficient of Variation of a Property Value Group for 1964-65 and1966-67 61 XIX. The Levels of Significance in Variable Coefficientsin the Original Assessing Model i 73 XX. Original Model Assessmentsvs. Revaluation Assessments 74 ma. Test for Significant Difference Between the ModelObtained Variation and the Variation in the Revaluation Assessments 75 XXII. Subdivision Model Assessmentsvs. Revaluation Assessments 76 XXIII. The Levels of Significance in Variable Coefficients Usedin the Practical Assessing Model 78 XXIV. Practical Model Assessmentsvs. Revaluation Assessments 79 FOREWORD Recent court decisions on public school financing (Serrano,Rodriguez and others) have refocused interest on the property tax andthe many problems inherent in its use as a major source of public school revenues. Although the Supreme Court of die United States did not uphold the Federal Dist:let Court's decision inthe Rodriguez Case, the interest generated by the court tests and the issues raised will have an important rerun :- on public school financing for years to come. Desdite the possibility of significant changes in financingplans, how- evr, it seems safe to assumethat the property tax will continue for the to be a major source of public school revenues. School adiistrawrs will continue to have a vita! interest in the best possible ailininktiation of this tax. One of the major problems in the administration
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