A dispute over Delaware's property taxes pits Wilmington against New Castle County

Jeanne Kuang
The News Journal

In Delaware’s uneven and outdated property tax system, the one group that’s been able to bring tax assessments closer to reality is commercial landlords.

Delaware’s three counties haven’t updated property valuations used to compute tax bills in four decades. It’s created a situation where some pay taxes on a fraction of their property’s current worth and others pay taxes based on something closer to the full value.

So, property values used by the government often have little bearing on the property’s real worth.

Many have appealed, but Delaware courts have generally upheld the system and the counties’ ways of assigning even new buildings a best-guess estimate of their hypothetical worth the year of the last reassessment. 

That is until two years ago when the Delaware Supreme Court forced New Castle County to consider depreciation of commercial buildings in setting the values used for taxation.

It was the first major crack in the outdated property valuation process and opened the door for commercial property owners to get lower tax assessments based on the decades that had passed since the last reassessment.

That came as the county was settling dozens of appeals, including for several large commercial properties in the city. The situation threw the city of Wilmington’s finances into disarray, ultimately ushering the city to join a legal fight against New Castle County that may lead to the reassessment of every tax bill in the state.

PART 1 OF THIS SERIES: Delaware homeowners pay taxes that aren't based on actual value of their property

The city, like school districts, relies on county tax valuations to bill property owners.

Wilmington Mayor Mike Purzycki says the county has been derelict in assessing property accurately and, in the wake of the Supreme Court’s decision on depreciation, he accused the county of “bleeding” the city “to death by a thousand cuts or a thousand tax appeals.”

He says it’s time for a reassessment so tax bills line up with reality, and all owners are paying their fair share. That, and the loss of revenue from tax appeals in recent years, motivated the city to join education activists in the property tax fairness lawsuit.

County Executive Matt Meyer is in an awkward spot. His law department is fighting the lawsuit and has been settling tax appeals with large commercial landlords.

New Castle County Executive Matt Meyer talks about his government's defense of Delaware's broken property tax system.

At the same time, he says reassessment is necessary for fairness in the system, but just not at a judge’s order. He said diplomacy, not litigation, should have been the solution and that the lawsuit hinders his attempts to fix a complex, politically tricky situation.

“A judge banging a gavel does not solve this problem,” Meyer said. “If there is real concern by the city to address this, they can address it tomorrow by reassessing.”

Purzycki has called that notion absurd.

“He knows better than that,” the mayor said. “It would become a caricature of government stupidity to have two separate assessment valuations.”

‘Not forever young’

The fight has been in the making since 1983.

That was the last time New Castle County comprehensively updated the value of every property. With each passing year, property values diverge more from their 1983-era assessments as economic tides shape the real estate market.

Some properties have depreciated significantly, such as One Commerce Center in the city.

An 11-story office condominium complex at 12th and Orange streets, One Commerce Center opened in 1983 as the headquarters of the Delaware State Chamber of Commerce. 

One Commerce Center at 1201 North Orange Street in Wilmington, Del.

Back then, office space in Wilmington was in such high demand that developer Richard Stat more than doubled the original plans for a five-story tower, building as high as the city code would allow.

Its subsequent decline mirrors the story of other Wilmington commercial properties. It competes for tenants in an oversupplied market, and three decades later needs more frequent maintenance.

OFFICE SPACE: Bank of America's move leaves more Wilmington office space empty

That didn’t matter to the New Castle County Board of Assessment Review when Stat tried to get the taxable value lowered by about 40% for his four units in the building. 

The county taxes properties based on what they would have been worth during the 1983 reassessment. One Commerce Center happened to be brand new that year. Depreciation since then didn't matter, the board ruled. 

Stat sued. His argument was simple: “We were new then. We’re not new now."

In 2017, the state Supreme Court sided with Stat, ruling the county must consider the property's depreciation. It was a rare case of the courts finding flaws in how the county calculates taxing values.

“We’re not forever young, as they say in the music,” Stat said.

Statewide issue

This problem is not limited to commercial office space, Wilmington or New Castle County. None of Delaware's counties have reassessed since the ‘80s and properties are not assessed anywhere near their current market values.

Further, some owners are taxed closer to their market value than others. The variation largely has to do with how much properties have appreciated or depreciated since the last reassessment.

Stat said he realized some competitors had lower operating costs than his because their office buildings' tax assessments were a lower share of their value — simply because his building was new in 1983.

“It’s not fair to pretend that a property is still, relative to all the other properties, as valuable as it once was,” Stat said.

The plaintiffs in the current case say there is so much variation in what individual property owners pay compared to their property’s actual value, that the system violates the Delaware constitution’s guarantee that everyone is taxed at the same rate.

Purzycki said that is why there needs to be a reassessment to bring tax assessments back in line with properties’ actual values. Reassessment is not meant to give governments an ongoing windfall of new revenue, other than the 10% local schools can take from the process.

But the people who are currently underpaying would pay more, which would be offset by reduced tax bills for those currently overpaying. The plaintiffs argue the Supreme Court’s Commerce Center decision has the county adjusting the values of individual commercial property owners who have appealed through dozens of closed-door settlements.

“In a reassessment … there would be offsetting increases among other landowners and we would be net zero,” Purzycki said.

Meyer has said the Supreme Court case threw the county’s valuation process “into a crazy place, into the twilight zone.” He has also pointed at the need to clear a backlog of more than 400 appeals.

For example, the county agreed to lower the assessment for a parcel of the DuPont Building from $43 million to $34.6 million. The county also agreed to lower the assessed value of the office building at 1220 N. Market St., where a luxury hotel is now planned, from $7.3 million to $4 million.

Meyer has defended the settlements as a cheaper way to resolve appeals than potentially going to court.

In a two-year period that ended last May, successful appeals removed $129.5 million of taxable value off the county’s tax rolls, according to data obtained by The News Journal. 

More than 40% of that was through settlements of just 25 commercial properties. 

City Finance Director Brett Taylor testified that his department each year tries to predict losses from appeals of properties in Wilmington.

In the 2017 fiscal year, the city budgeted for a $500,000 loss in revenue. It actually lost $261,000, Taylor said. The following year, the city adjusted, budgeting for a $250,000 loss. 

It lost $1.3 million, he said. 

Whose responsibility?

Purzycki doesn’t blame the property owners — anyone with the means would try to lower their tax burden, he said.

“They decided to employ logic,” he said. 

But it causes chaos and a loss of revenue, so the city joined the lawsuit, Purzycki said.

County attorneys argued the city does not have legal standing to sue.

Mayor Mike Purzycki talks about his role in the lawsuit challenging how long New Castle County has gone without reassessing its property values.

Meyer and Purzycki have publicly sparred over whether Wilmington should take on the expensive task of creating a separate set of property values for its own purposes.

“The city has the right to do it and the mayor knows,” Meyer said.

Dover has updated property values every five years since at least the 1980s. More than a quarter of Dover's properties are tax-exempt, so regular reassessments help city revenues keep up with costs.

“It keeps property values current and keeps taxes fair and equitable to all of our entities, residential and commercial,” Dover Mayor Robin Christiansen said. “It’s unconscionable that other entities don't keep current on their assessments.”

While that may fix the revenue issue for the city itself, it does not fix the issue of inequity from taxpayer to taxpayer, Purzycki said. School districts, which collect the most property taxes of any entity in the state, still use the county’s outdated rolls, as does county government.

“It is indefensible,” Purzycki said. 

Tomorrow, The News Journal explores why it's taken so long to reassess.

Reporter Xerxes Wilson contributed to this story. Contact Jeanne Kuang at or (302) 324-2476. Follow her on Twitter at @JeanneKuang.