KWRRI Research Reports


Development of a large multi-purpose reservoir within the area of their jurisdiction may affect property ta.x revenue and expenditure of county governments and school districts. Privately owned land sold to a federally sponsored reservoir is not subject to property taxes because of the doctrine of intergovernmental immunity. Local officials often assume that this loss of assessment will reduce their tax revenue and thereby their fiscal ability to provide an acceptable level of government services. They may also expect the influx of construction workers or the disruption of existing facilities to increase the cost of providing these services. The study approaches the problem by proposing and then trying to substantiate through case studies the hypotheses that a gradual loss of acreage from the tax assessment rolls does not increase the severity of local property taxes; and local government expenditures are not increased by reservoir development.

The case study used three reservoirs (each one affecting two counties and two school districts) constructed during the period from 1957 to 1968. The reservoirs--Barkley, Barren, and Green--were the largest constructed in Kentucky during this period. The reservoirs were selected from this period to avoid the difficulties inherent in collecting older data and to reflect current institutional practices in reservoir development.

This study uses time trends in tax severity to determine the tax revenue effect on local governments. The severity of local property taxes is indexed by the ratio of property taxes to (1) the full-market value of the tax base and (2) the personal income of the taxpayers in the affected jurisdictions. Time changes in these two ratios yield elasticity coefficients that are interpreted in terms of increasing, decreasing, or unchanging tax severity. Coefficients are computed for each affected government for each year as well as over the entire period of reservoir development. The elasticity coefficients for the local governments and school districts are compared with those for the average of all counties and school districts in the state over the period of time encompassing reservoir development.

The two indices of tax severity show that the burden of the property tax did not increase as land was gradually removed from the local tax rolls. In comparison with the averages for all counties and all school districts, the tax severity trend in the affected jurisdictions was much less severe.

No county governments and the school districts in only one county experienced any expenditure increases causally related to reservoir development. The failure of project construction to increase expenditure is attributed to the preference of construction workers to commute from urban areas rather than live locally.

The diminished severity of property taxes in the studied areas is attributed to an accelerated rate of economic growth during land acquisition and construction, the ability of the local governments to make the necessary adjustments over the time required for land acquisition, and the receipt of federal subsidies by some of the affected school districts.

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"The Effects of a Large Reservoir on Local Government Revenue and Expenditure" is based on research performed as part of a project entitled "The Economic Impact of Flood Control Reservoirs" (OWRR Project No. A-006-KY) sponsored by the University of Kentucky Water Resources Institute and supported in part by funds provided by the United States Department of the Interior a.s authorized under the Water Resources Research Act of 1964, Public Law 88-379.