Taxpayers take note: Widespread changes coming to property tax bills
Change is coming to property tax bills in New Castle County and eventually the rest of the state, but how much your bill changes and how the process will proceed isn't certain.
New Castle County government has agreed to reassess the values used to calculate the property tax for each property in the county, resolving a judge's ruling that the current values create an unfair and unconstitutional system.
The settlement will likely be followed either by similar agreements with Kent and Sussex counties or a judge's order requiring those counties to reassess as well.
The New Castle County settlement agreement commits to a reassessment of property taxes to hit local tax bills by 2023, but leaves big questions unanswered.
This story discusses some of those questions, including:
- What will the process of reassessment look like?
- Who is likely to pay more?
- Will county officials push to delay tax increases for some?
- How does government pay to conduct reassessment?
- What about Kent and Sussex counties?
But first, how did we get here?
Delaware is one of just a half-dozen states that does not require regular, comprehensive updates to property values used for taxing purposes, allowing county officials to avoid the politically unpopular process for decades.
That process, known as reassessment, was last conducted in New Castle County in 1983, in Kent County in 1987 and in Sussex County in 1974.
Taxing officials currently use a projection of what properties would have been worth at that time to calculate a taxable value. Even newly built properties are assigned a projected value of what they would have been worth in the last year reassessment occurred.
That value is then paired with county and school district tax rates to bill individuals.
Since those last reassessments, some areas and types of properties have grown rapidly in actual value. Others have not – or even decreased – and those changes in real-world value are not properly reflected in the government-assigned value used to tax.
This creates disparities between the value residents are taxed on and the actual market value of their property. The end result can lead to odd comparisons where one person is paying a tax bill that is comparable to the real, current value of their property and others – often those who own more expensive properties – pay taxes based on a lower percentage of their property’s actual worth.
It has also caused havoc in the taxing of commercial properties, particularly in Wilmington.
It is a problem decades of state commissions and politicians have said needed to be fixed permanently. But messing with taxes is politically fraught, so the issue was repeatedly punted by county executive after county executive until the courts got involved.
A group of education activists included the property tax problem in a larger lawsuit about school funding in 2018. Later, the property tax portion of that lawsuit was split off, and then a Delaware Chancery Court judge ruled last year that property values used by each of the state's three counties constitute an unfair and unconstitutional taxing system, essentially mandating the reassessment fix.
So what now?
To remedy the court's ruling, New Castle County has agreed to conduct a reassessment that would see property values used for tax purposes more accurately reflect the real-world value of the property.
It is a multiyear process that has many variables.
The settlement agreement reached by the county commits it only to reassessing properties to fix the constitutional problem in time for tax bills in July 2023.
The details of how it gets done appear to be left to county officials with some oversight by the court and plaintiffs that brought the lawsuit.
Karen Lantz, an attorney for the American Civil Liberties Union of Delaware, which represented the plaintiffs in the case, said their oversight is simply watching to make sure the reassessment gets done.
And as of now, New Castle County Executive Matt Meyer, who agreed to the settlement that was recently approved by the court, is not answering questions about how he sees the reassessment process playing out.
He has maintained that reassessment needs to happen while still directing county attorneys to fight the lawsuit that led to the court order forcing him to do so. Reached by phone, he declined to answer questions about his priorities or the process moving forward with any specificity.
"These questions will be answered in time, obviously," Meyer said. "These questions are going to figure themselves out."
Public records show that the county recently published a request for proposals for a firm to conduct the reassessment. The 50-page document gives clues to the path forward.
The document states that the county is looking for an assessment firm with experience conducting large-scale reassessments for this project that will ultimately apply modern values to 212,000 taxed properties in the county.
The group will be responsible for hiring staff to review the physical characteristics of individual properties using both door-to-door inspections as well as aerial imaging. The group will also be responsible for building valuation models using current data like market sales and top appraisal standards.
Those valuation models will be applied to the on-the-ground data from the inspections to determine a new taxing value for individual properties, a complicated task considering the variables that go into valuing complex commercial properties.
The values will have to stand up to the same studies and standards that saw the current system ruled unconstitutional in Chancery Court.
Story continues below document:
The group will also be responsible for outreach: press releases, notices that inspectors are coming to individual's homes, notice of new valuations and informal review with property owners.
Later, employees for the contractor will be responsible for defending the valuations in response to formal appeals to the county board.
The valuation process is to be complete by February 2023 with the new tax valuations used on school and county tax bills beginning in July of that year, the document states.
Public documents indicate the county hopes to have the contractor selected no later than May. The New Castle County Council will be called on to approve the hiring.
Will my tax bill go up?
Reassessment will mean that those currently receiving an artificial property tax break – typically more expensive homes and properties – will see their bills rise, while those paying more than their fair share currently will pay a bit less.
Many who find themselves in the middle of those two categories will likely see their bills remain largely the same, according to experts who have been watching the tax assessment situation for decades.
Because of the number of variables involved in implementing a reassessment, it is impossible at this point to say with certainty that an individual's bill will rise or fall by a set amount.
But you can get a rough idea of whether you are overpaying or underpaying relative to other properties using a calculator published by Delaware Online/The News Journal.
County officials have emphasized the point of the reassessment is to bring fairness to the tax system, not raise new money to run government.
Because the current values used to tax properties are very old, the vast majority of properties will see their taxable value rise and thus the county's total tax base will be much more valuable.
But reassessment also affects the corresponding tax rate local counties and school boards apply to the property tax valuations to determine the final bill.
State law requires counties to reduce their tax rates an amount that corresponds with the overall increase in the value of taxable property so government takes in roughly the same amount of tax revenue.
The law does give counties the ability to collect 15% more revenue the year before reassessment. This is most often discussed as a one-time windfall to help cover the cost of reassessment. Meyer has previously stressed that reassessment should not yield revenue increases for county government.
Schools, which bring in a large majority of property taxes, are a little different. They also have to draw back their tax rates, but can keep 10% of any increase derived from reassessment.
Because of the corresponding rate changes, reassessment is not supposed to be a large, across-the-board tax increase, but rather is meant to distribute the tax burden more in line with the actual values of the properties being taxed, advocates say.
Inevitably, some will be paying more after the process completes.
Meyer has expressed concern that some people may no longer be able to afford their home and tax burden because of the shift. Two years ago, he discussed having provisions to blunt such increases.
It is unclear if he will seek such measures now that reassessment is a reality. The County Council will likely need to be involved.
New Castle County Councilman George Smiley, who has for years pushed local legislation seeking a reassessment, said he didn't know about the settlement until reading the news this week and said he is unsure if such relief will eventually be considered by the council.
"It is a discussion that needs to be had," Smiley said. "But you can't have it until you have more information."
Smiley emphasized that reassessment should be revenue-neutral, a decision that county politicians will have a say in during the process.
He said the county should set up a process to conduct a reassessment every few years to remove the large cost of reassessing after waiting decades and the political pressure to avoid reassessment.
Most states do rolling reassessments to avoid yearslong exacerbation of inequities.
The request document seeking a contractor to conduct the reassessment does not explicitly state that the contractor should set the county up for rolling reassessments and it is unclear whether Meyer intends to seek that end.
Who pays for the process?
Reassessment is not an inexpensive process.
Meyer has said he received estimates topping $15 million to update property tax rolls just in New Castle County.
Officials have previously discussed borrowing the money to do it, funding it at least partially through reserves or using the reassessment itself to pay the cost.
County politicians and attorneys have said that the state should have a role in funding the reassessment because schools, an arm of the state, receive the most property tax.
"The state should chip in, but I don't see that happening," said Smiley, who in recent years successfully pushed legislation creating a county tax reserve to save for the task.
That fund has only a few hundred thousand dollars in it, he said.
Gov. John Carney recently said he considered including money in his proposed state government budget to help with the cost of reassessment, but ultimately decided against it. He noted that Kent and Sussex have yet to commit to conducting a reassessment.
"I decided not to enter into the middle of that until there is greater clarity," Carney said.
He said reassessment is an "issue that ought to get done," but also called tax assessment "a county function" and did not commit to helping pay the cost.
For decades, state politicians have argued that it is the counties' responsibility to create and maintain tax rolls in a constitutional fashion and therefore it should be their responsibility to fix it.
"This has been a county obligation for decades, and they failed to stand up," said state Sen. Bryan Townsend, D-Newark. "This is on them."
Townsend also said that each county is different and acknowledged that Kent and Sussex counties with their smaller tax base may need assistance in paying the cost.
Sen. Dave Sokola, D-Newark, who leads the Democratic Senate caucus, said it is too early to tell whether the state will be able to pitch in and the county should consider paying for the cost through proceeds from the reassessment.
Both Sokola and Townsend noted that the state has other financial obligations that stem from the larger education funding lawsuit that prompted the property tax decision.
Last year, the state settled that portion of the lawsuit, committing to spending some $60 million annually by 2025 to help disadvantaged students, according to the settlement.
THE EDUCATION SETTLEMENT:What a Delaware lawsuit settlement means for education — if it gets the votes
"We have a lot on our plate right now," Sokola said. "If we had more money, I'd rather it go into schools to get us closer to where we are required to be with respect to the lawsuit."
What about Kent and Sussex?
While New Castle County has settled its portion of the property tax lawsuit, both Kent and Sussex were also defendants and have tax rolls that bear the same unconstitutional inequities.
Those counties haven't reached a settlement, but will have to reassess properties eventually. They are still involved in a court process that could lead to another Chancery Court trial to hammer out the terms of a reassessment later this year.
A spokesperson for Sussex County Administrator Todd Lawson declined to comment.
Michael J. Petit de Mange, Kent County's administrator, said attorneys representing his county are working toward a potential settlement.
"Our interest is to complete a reassessment as soon as possible," Petit de Mange said.
Both Kent and Sussex have issued a request for proposals for a firm to conduct a reassessment. The requests are similar to the one issued by New Castle County but have no hard timeline for completion of the process.
Petit De Mange said that the timing is an "open question" as his government waits for responses to the request for contractors. He said officials are unclear on the total cost but offered $5 million to $6 million as a rough estimate.
He said he is not optimistic the state will cover the cost and it will more likely have to be spread out in county budgets for years and perhaps come partially from reserves. He added that he will recommend county legislators make the reassessment a regular occurrence.
There has also been some talk about consolidating the reassessment process for the three counties into one statewide reassessment.
During a court hearing last fall, an attorney for New Castle County said officials for that county were talking to “stakeholders” about the “framework for statewide reassessment legislation,” which could govern future reassessments so the problem that led to the lawsuit does not repeat.
Sokola, the state senator, said he has not personally been involved in such discussions as of yet. Legislation seeking that had also not been introduced in the General Assembly as of Tuesday, and it is unclear if the Meyer administration is still working toward that end.
Delaware Online/The News Journal previously wrote about the property tax situation, the delay in solving it and how you can see where your property stands in the debate. Read that below:
THE REASSESSMENT DILEMMA
- Delaware's unequal, outdated property tax system on trial
- 'Death by 1,000 tax appeals': Why Wilmington is fighting for reassessment
- Why are property taxes unequal? Delaware's politicians haven't acted
- Use our calculator: Are you a winner or loser in property tax system?