Who Benefits from Property Underassessment in Poor Counties?

• In Event: In Honor of Ronald C. Fisher and His Landmark Text on State and Local Public Finance: Property Value Assessment

Abstract

Across the US, property assessments are generally regressive. Owners of lower-valued homes face higher assessments as a proportion of their home’s value compared to higher-values homes. At the neighborhood level, inequality in assessments is more pronounced in lower-income areas and areas with higher shares of Black residents. Yet less is known about whether this regressive relationship between property values and assessments holds at the jurisdiction level, where assessment policy is actually implemented. New research using county-level data in Kentucky suggests that assessments can be progressive across counties: poorer counties tend to underassess more compared to richer counties. However, county-level data cannot reveal who is benefiting from underassessment in poorer counties, calling into question the true progressive nature of this cross-county relationship.

We build on this work using parcel level data from Cotality in 2024 from approximately 47,000 properties in Kentucky to explore the question: Are local assessors in poorer jurisdictions giving poorer residents a break, or are richer residents the primary beneficiaries of lower assessments? We find that people living in more expensive homes are the primary beneficiaries of underassessment in poorer counties, which tend to underassess property by more overall than richer counties. In other words, underassessment is larger and regressivity is worse in poorer counties. However, this increased regressivity does not flow through to effective tax rates, suggesting a role for differences in tax rates within counties and Kentucky's homestead exemption to counteract regressivity in assessments.

Author

• Erin Troland, erin.e.troland@frb.gov