"Failure to Plan is Planning to Fail"
November 12, 2008
Property Valuation Appeals Result in Assessment Reductions for Unsold Lots
Video Available
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.
2007 Land Use Decisions Scorecards
Land Use decisions by the Oldham County Planning and Zoning Commission and Oldham County Fiscal Court are important for the citizens of Oldham County with respect to the pace and quality of future development; infrastructure requirements and funding; environmental protection; and ultimately property taxes (see the Board of Education Facilities Plan ).
During 2007, some prominent Oldham County developers attempted to influence the selection of Planning Commissioners. As a result, Oldham Ahead began to record the land use decisions of Planning Commissioners and Fiscal Court members to provide the public transparency to the the decision making process within the county.
In general, Kentucky laws favor the development community in Planning and Zoning decisions. For development plans, Commissioners have very little latitude in their voting if the applicant meets the county's subdivision regulations and other county and state requirements. Commissioners have greater discretion in considering rezoning applications. The Planning and Zoning staff generally works very closely with developers in reviewing development plans prior to Planning and Zoning hearings in order to ensure the application comply with county regulations. As a result, the Planning Commission approved about 80 percent of rezoning and development plan applications during 2007.
The Commission approved 67 percent of rezoning applications during 2007. As a body, it displayed concern where rezoning requests involved proposals to rezoning Conservation-zoned land to residential--specifically lands that serve as buffers to watersheds and water bodies. The Commission denied a total of four rezoning requests during the year, to include high profile requests in the GlenOaks and Briar Hill subdivisions which involved land zoned Conservation (CO-1 zoning).
Whereas the Planning Commission relies on a wide body of evidence to include the application file, maps, and other technical data, Fiscal Court, in deciding rezoning actions, relies primarily on the summarized minutes from the Planning Commission meeting, and the evidence provided during the Fiscal Court hearing itself. The majority of Planning Commissioners take the time to review applications in detail and ask reasoned questions with respect to the application's impact on roads, schools, stormwater run-off, and sewers. Fiscal Court members have not versed themselves adequately to address these important issues and challenge assertions and data from the applicant. They appear easily persuaded by the applicant's attorneys and have gone on record in approving rezoning actions based upon the reputation of the developer as opposed to relying on the evidence or the requirements of the Kentucky Revised Statutes.
Fiscal Court members approve the selection of Planning Commissioners, who serve as the technical citizens' body in reviewing land use applications. Planning Commissioners develop expertise by undergoing formal training and from reviewing a number of applications during their tenure. Given the overall approval percentage of applications before the Planning Commission, there generally is a major issue or issues that preclude the Commission from approving rezoning action or a development plan. The scorecard from Fiscal Court indicates that the Court is inclined to support developer's applications regardless of the recommendations from the Planning Commission and the potential impacts upon schools, sewers, stormwater, and ultimately tax levels.
During 2007, Fiscal Court approved all six land use applications that it heard, overturning recommendations by the Planning Commission in the GlenOaks and Briar Hill cases. Both of those cases have stormwater management implications, as many rezoning requests heard in previous years have.
County officials are currently proposing new stormwater utility fees to address EPA mandated actions to mitigate construction related and other stormwater runoff problems in Oldham County. The collective chorus from the Magistrates are that these fees are "unfunded mandates" over which they have no control. Unfortunately the Magistrates have failed to recognize their land use decisions over the years that have accelerated growth in land buffering the county's watershed and are directly responsible for the EPA sanctions. Their 2007 decisions overturning the Planning Commission will further exacerbate the situation and will have a direct impact upon both property taxes and stormwater fees. The Scorecards below will allow county citizens to form their own opinions based on data collected during 2007.
Oldham County Identified as High Quality Farmland and High Development County
The map below, produced by the American Farmland Trust and included in the Kentucky Department of Agriculture Purchase of Conservation Easement (PACE) Slide Show update on its website identifies Oldham County as one of several Kentucky counties that have high quality farmland and a high development rate--factors threatening America's best farmland.
