KWRRI Research Reports


Much attention has been given in recent years to the development of water resources in the United States. Large scale multi-purpose dam and reservoir projects are of particular interest. Such projects are traditionally undertaken after the resulting benefit has been found to exceed the required cost. The benefits which are most readily evaluated are primary benefits such as flood control, hydroelectric power, and navigation. The purpose of this study is to investigate secondary benefits which accrue to local economies as a result of reservoir construction. The particular secondary benefit which this study evaluates is the reservoir impact on the local property tax base.

This study tests the hypothesis that a reservoir (Lake Cumberland was studied) has affected the property tax base in the three counties in which it is located so as to increase at a more rapid rate than that in two other groups of counties in the same area. One of the two other groups consists of counties in the flood plain, downstream from the dam, the third group cons is ts of counties adjacent to the first two groups. The study also seeks to evaluate the benefits to the property tax base in the flood-plain counties.

The study uses the analysis of covariance model to test the hypothesis that the reservoir has affected the property tax base in the impact group in a significantly different manner from the other two groups. Use of the analysis of covariance model separates the rate of change in property tax base in the affected area from two other areas in the same general vicinity of the reservoir. The primary source of data are samples of rural and urban real estate transactions. Secondary data sources include assessed value of real property and estimated market value of real property.

The statistical analysis showed the property tax base to be increasing more rapidly in the counties containing the reservoir than in the other groups of counties, The greatest increase in urban property sale values was found in a town in the flood plain. Furthermore, the statistical results suggest that the initial loss in the tax base caused by land removed from the tax rolls was recovered in time through more rapid expansion in the tax base.

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Funding Information

"Covariance Analysis of Reservoir Development Effects on Property Tax Base" is based on research performed as part of a project entitled "The Economic Impact of Flood Control Reservoirs" (OWRR Project No. A-006-KY) jointly sponsored by the Water Resources Institute and the Bureau of Business Research at the University of Kentucky and supported in part by funds provided by the United States Department of the Interior as authorized under the Water Resources Research Act of 1964, Public Law 88-379.