On June 20, 2008, the Oldham County
Board of Assessment Appeals reduced the assessed value of approximately
340 undeveloped lots owned by developers or builders by 25 percent. The
board, comprised of three members, also reduced the valued of a vacant
12-acre commercial property by 60 percent and lowered the assessed
valued of a lot on Rose Island Road by 44 percent.
A group of local developers,
including Bob Jones, Walt Schumm, Joe Pusateri and Jay Hall, appealed
the Oldham County Property Valuation Office (PVA) assessments of about
340 vacant lots they own to the board. This process is afforded to all
property owners who disagree with the PVA assessment on their respective
property.
Four
property owners other than the developers contested assessments on
vacant lots. Two saw their two lots’ assessment reduced, one saw her
assessment maintained, and one saw his assessment on three lots double.
The board reduced values of about 340 vacant lots owned by the
developers – a blanket reduction of 25 percent.
In all,
the developers’ assessments dropped by a combined total of more than
$6.5 million, according to news reports.
Oldham County Property Valuation
Administrator Ron Winters is appealing the changes to the state Board of
Tax Appeals, which will consider arguments from Mr. Winters and the
property owners. Mr. Winters, according to news reports, called the
decisions rendered by the board was arbitrary, standing by his original
assessments. The appeal is expected to take place early in 2009.
Each
year, the PVA office reassesses the values of properties in one section
of the county. The assessments are used to calculate property taxes.
Property owners who feel their assessments are incorrect can take their
concerns to the PVA office. If no compromise is reached, property
owners can go before the appeals board to adjudicate their case.
In an
interview with the Oldham Era, Mr. Winters said the reduction means the
developers will be shouldering a smaller share of the tax base and all
other property owners in Oldham County will have to pay slightly more
taxes for governments to make their required revenue. He is also
concerned that every developer in the county will come to him next year
and demand 25 percent off their assessment. Mr. Winters, according to
the article, believes his method of assessment is the most fair and
accurate method. He assesses a property’s value by looking at the sale
price and looking at what similar lots in the subdivision have sold for.
Mr.
Winters’ position throughout the hearing was that his assessments adhere
to the Kentucky Constitution, Section 172, as stated below. 
At
issue during the hearing was a March 2008 memorandum from David Gordon,
executive director of the Kentucky Office of property valuation, which
outlined a variety of factors that can be used in assessing the value of
vacant lots, including market conditions, profit margins, and developer
costs. Mr. Gordon explained the content and intent of his memorandum
during the morning session in order for the Board to understand how the
memorandum might be applied to the appeals to be heard later in the
day.
While
fielding a number of questions from Oldham County Attorney John Fendley,
Mr. Winters, and the Board, Mr. Gordon consistently stated that Section
172 of the State Constitution does in fact apply. The board was
interested in defining a methodology, based on the memorandum, for the
PVA to follow in determining the value of unsold development lots.
The Oldham County Board of
Assessment Appeals includes realtors Tom Cox and Herb Head and appraiser
Rusty Davis. Board members are appointed by Fiscal Court.
Several
of the developers cited high fuel costs and market conditions to justify
their appeals. Additionally, the developers argued that the fair cash
value should be based upon costs, not the listed prices of lots that
typically sell for less than the advertised price.
According to the Oldham Era, Mr. Cox said the board took into account
market conditions and agreed the assessments were too high. “There’s no
question they were assessed too high,” he said. He said developers’
records show they hadn’t sold many vacant lots in 2007. “There is only
one reason property will not sell,” Cox said, “and that is price.” The
Oldham Era reported that Mr. Cox said the board did not take into
account developer costs or profitability — only what they thought the
lots could sell for.
Moreover, according to the Oldham Era, as for the 25 percent reduction,
that was somewhat arbitrary, Cox said. “There were just too many lots to
assess each of them individually, he [Cox] said, and he [Cox] would have
liked to see them reduced by more.”
The
Oldham County PVA disagreed with the ruling and is appealing the board’s
decision to the state.
Read the Oldham Era story by John Foster
Read the Courier-Journal story by Andrea Uhde
Oldham
Ahead obtained a copy of the public hearing tapes through the Kentucky
Open Records Act. The tapes offer an interesting view in the appeals
process; arguments on both sides of the issue; development costs and
margins; and the current housing market conditions as perceived by those
who appealed assessments.
Also
discussed was the potential impact on the values of lots and homes of
occupied homes located in the subdivisions where the developers were
appealing vacant lot assessments. Several developers noted the need to
protect the values of existing values of homes while several board
members were concerned of the potential impact of the value of resident
homes in the same subdivision where developers testified that the lot
values had deteriorated to the extent that any offer would be
considered.
Video, Part 1 reflects the board’s question
of Mr. Gordon from the state PVA office and the appeals of Mr. Pusateri,
and Mr. Schumm. Viewers can contrast the roles of the two elected
officials participating in the hearings. The PVA is clearly basing his
arguments as to the validity of his assessments on the state
constitution’s guidance that the lots should be assessed at their fair
cash values. Those arguing for reduced assessments are relying on the
interpretation of Mr. Gordon’s memorandum with respect to determining a
fair cash value on unsold lots.
Video, Part 2 reflects appeals of River
Glades LLC and Oldham County Developer Bob Jones begins his appeal by
providing background to the board on his and the Kentucky Homebuilders
Association role in developing the memorandum; the current state of the
market, and other factors relating to his appeal.
Video, Part 3 continues Bob Jones’ appeal to
the board. Interesting discussions on margins; costs; and list prices
versus assessed values.
Future Potential Impacts
A
potential danger for county taxing authorities (county government,
school board, fire districts, etc) which rely heavily on local property
taxes is a significant across-the-board devaluation of property values,
and a resulting reassessment of property values by the PVA based on mass
appeals from the public. The 2006 certified assessed value of all
county residential property was $4.009 billion according to the Kentucky
Department of Revenue. While property values across the country have
decreased by as much as 20 percent, a 10 percent across-the-board
increase in Oldham County would result in $400 million less in assessed
property. The county government would realize a loss of $360,000 in
revenues per year while the school board would absorb reduced revenues
in the amount of $2.68 million per year if this scenario played out.
Because the PVA assesses individual residences in one part of the county
at a time, this scenario is unlikely, but over time could occur.
Second,
landowners may be at disadvantage in negotiating the sale of their land
to developers based on the results of the appeals board. As with
housing values during the building boom since 2000, raw land prices has
appreciated to the extent that asking prices are often in excess of
$20,000 per acre with some land available for up to $50,000 per acre.
With a blanket 25 percent reduction of assessed values, developers are
likely to argue that a similar reduction in the costs of raw land is in
order as well. The actual tax savings to the developers who appealed
their vacant lot assessments are relatively small compared to the
discounts they may now demand for raw land in the future, based on the
Board of Assessment Appeals decisions.
Commentary
While price points and rising fuel costs are variables affecting lot and
home sales in Oldham County, the impact of speculative building the past
five or six years has created a significant oversupply of lots and new
and existing homes on the market. Since 1990, the percentage increase
of the Oldham County population has remained within a relatively narrow
range while building permit percentage changes and numeric values have
varied greatly. The chart
below compares the percentage changes in population and building permits
from 1991-2007. The red line reflects the annual population percentage
increase for the county while the blue line reflects building permit
percentage changes.

Speculative building that far outpaced Oldham County's impressive
population increases, coupled with county growth policies and Fiscal
Court decisions that are favorable to the development community
contributed to both the building boom and decline. The potential impact
to residents' home values, level of county services, and level of county
school performances may well pay the price for the lack of sound
planning and execution the past
decade. Read our
fact sheet that examines the disconnect between Oldham County's
population increase and building permits since 2000.