Opinion ID: 1179468
Heading Depth: 2
Heading Rank: 2

Heading: Appropriate Measure of Central Tendency

Text: As explained above, the department calculated three measures of central tendencythe median, the mean, and the ratio of aggregatesfor each of the five strata in its study and for the study as a whole. The airlines do not challenge the department's calculation of the three measures for each individual stratum. They contend, however, that only the ratio of aggregates should be used to calculate an estimated market value for each stratum, in order to merge the data from the five strata into a final result. See 325 Or. at 560, 943 P.2d at 192 (explaining that calculation). It follows, they argue, that the final assessment ratio based upon the ratio of aggregates is the only valid result of the department's study. The department responds that the selection of the appropriate measure of central tendency is a matter of judgment, depending upon the nature of the sample used. The department further contends that the final assessment ratio based upon the median is the most representative result of its study. The Tax Court agreed. 13 OTR at 369-70. The evidence presented at trial offers some support for the contentions of each party. Gloudemans testified that the ratio of aggregates can be advantageous as a measure of central tendency because it weights each ratio based upon the estimated value of each sample account and, therefore, will reflect any systematic biases, represented by a series of extreme ratios, in either larger or smaller accounts. However, the ratio of aggregates also will be affected adversely by isolated, extreme ratios that are not reflective of a systematic assessment bias. On the other hand, according to Gloudemans, the median is not affected by extreme high or low ratios, be they isolated or reflective of a systematic bias. The median, therefore, is the more appropriate measure of central tendency if the sample is relatively small and if it contains isolated, extreme ratios. Gloudemans also testified that other jurisdictions most predominantly use the median in ratio studies, rather than the ratio of aggregates. He concluded that the median was the most appropriate measure to use in this case, for two reasons. First, the sample size was relatively small. Second, because the study was stratified into five strata based upon equal assessed values, and because he had determined that no systematic assessment biases existed within any of those strata, the advantages offered by the ratio of aggregates did not apply to the study. Bahl testified that the ratio of aggregates is the only appropriate measure to use when calculating the estimated market value for each stratum, in order to merge the data into a final result. Although Gloudemans maintained that the final assessment ratio based upon the median was the most appropriate result here, he agreed that, in many cases, it is better to use the ratio of aggregates to calculate estimated market value. The parties also offered different passages from the same IAAO text, Property Appraisal and Assessment Administration, to prove the appropriate measure of central tendency. Chapter 20 of that text, entitled Sales Analysis and Mass Appraisal Performance Evaluation, which was written in part by Gloudemans, explains the advantages and disadvantages of each measure. The airlines emphasize the following passage, which relates to the general use of the ratio of aggregates, from that chapter: The [ratio of aggregates] weights each ratio in proportion to its [audited value], whereas the mean and median give equal weight to each [audited value].      Because of this weighting feature, the [ratio of aggregates] is the appropriate measure of central tendency for estimating the total dollar value of a population of parcels. International Association of Assessing Officers, Joseph K. Eckert, Ph. D., ed., Property Appraisal and Assessment Administration, 529-30 (1990) (emphasis added). The department, however, points to an appendix to chapter 20 that describes the process of combining different groups of property from a stratified sample and states, in part: [T]he [ratio of aggregates] gives equal weight to each dollar and is appropriate if the objective is determination of full market value. If an equalization action is being contemplated, however, then the median could be used, because it is less influenced by outlier [i.e., isolated and extreme] ratios and thus tends to be the most stable measure of central tendency. Id. at 611, Appendix 20-5 (emphasis added). Finally, the parties cite case law that they claim supports their competing contentions. We do not find that case law to be directly on point. For example, two circuits have concluded that the ratio of aggregates must be used to calculate a final assessment ratio in sales ratio studies conducted in 4-R Act litigation. Those cases, however, involved merging the values of different types of property assessed in different manners, such as real with personal property or centrally assessed with locally assessed property, a task for which the ratio of aggregates is better suited than the median. See Atchison, Topeka and Santa Fe Ry. Co. v. Lennen, 732 F.2d 1495, 1505 (10th Cir.1984) (When, as here, categories of property that are subject to different methods of appraisal must be factored together to produce the assessment ratio for [the comparison class], each category should be factored in proportion to its share of the total true market value of all such property, by using the ratio of aggregates); ACF Industries, Inc. v. State of Ariz., 714 F.2d 93, 95 (9th Cir.1983) ([T]he median approach would ignore legitimate classifications which are fundamental to Arizona's tax system.). In Southern Ry. Co. v. State Bd. of Equalization, 712 F.Supp. 1557, 1568-70 (N.D.Ga.1988), the court approved using the ratio of aggregates to estimate the value of real estate in the state's ratio study. However, the court emphasized that the ratio of aggregates was most appropriate in that case because the median would ignore the state's assessment trends. Id. at 1569. The Fourth Circuit has approved the use of the median in determining final assessment ratios in two cases. However, the cases did not involve stratified samples and, consequently, are not helpful to our determination here. See CSX Transp., Inc. v. Board of Public Works, 95 F.3d 318, 324 (4th Cir. 1996) (because the properties at issue were of the same type and were assessed under the same assessment method, and due to practical variations in the assessment process and fluctuations in market values, the median was the most appropriate measure of central tendency); Clinchfield R. Co. v. Lynch, 700 F.2d 126, 130 n. 5 (4th Cir.1983) (the standard practice in sales-assessment ratio studies is to use the median). After considering all the evidence, we conclude that the department may use either the ratio of aggregates or the median to estimate the true market value of the property in each stratum, in order to merge the data and calculate a final assessment ratio. The most persuasive evidence relating to this issue is contained in the IAAO text, quoted above, which states that, in studies conducted for equalization purposes that use stratified samples, either the ratio of aggregates or the median may be used to estimate market value. In short, the evidence does not demonstrate that the ratio of aggregates, rather than the median, must be used exclusively. Consequently, we reject the airlines' contention to the contrary.