Why are Delaware's property taxes unequal? Delaware's politicians haven't acted
Many Delaware politicians agree there should be a reassessment of property values to bring fairness back to the system.
But when it comes time to act, few, if any, do anything about it.
It has been four decades since the leaders of Delaware's three county governments came up with the money, and political courage, to re-balance the system.
Delaware is the rare state that has no requirement to reassess every few years. So property values used to calculate tax bills have drifted further and further from the properties' actual value, in many cases unevenly from owner to owner.
Some residents are taxed on pennies of every dollar of their home's actual worth while others pay taxes based on something closer to the full value. It is a system critics say amounts to a hidden tax break for the property wealthy — a benefit paid for by those with more modest homes.
Many Delaware politicians appear, by evidence of their inaction, comfortable with the status quo. But that may be thrown out by a judge presiding over a lawsuit claiming the system is unfair.
In an interview before that lawsuit was filed, Sussex County Administrator Todd Lawson, the county government's top appointed official, said reassessment wasn't on his government's radar. People are not complaining about taxes that are low relative to other states, he said.
"Very rare do I hear, 'I’m paying too much taxes in Sussex County and the guys at the beach need to be paying more than the guys in western Sussex,'" Lawson said. "You just don’t hear it."
He said the situation is fair because county officials use the same assessment process to tie residents' properties back to the same base year, 1974 — the last year there was a general reassessment in Sussex.
New properties are assigned values based on best-guess estimates of what they would have been worth the year of the last assessment.
"In Sussex County we are playing by the same standards as if you live in Lewes or Laurel," Lawson said.
Delaware House Speaker Pete Schwartzkopf, D-Rehoboth Beach, echoed the sentiment.
"If you’re talking about reassessing for the issue of fairness, I don’t see where that is an issue," Schwartzkopf said.
The plaintiffs challenging the system argue that standardized assessment processes still lead to unfair outcomes from taxpayer to taxpayer.
"Reassessment is a matter of balancing the scales," said former State Sen. Karen Peterson. "Lots of people are overpaying and subsidizing the people that are underpaying."
Why hasn't it happened?
Why reassessment hasn't occurred can be attributed to the complicated nature of the issue and politicians' seeming unwillingness to stick their necks out without being pushed.
Since at least the 1990s, numerous government commissions, newspaper reports and expert studies have outlined growing inequity in the system.
In the same period, legislation that would have compelled regular reassessments has gone nowhere and politicians that voiced support were sometimes kicked by their colleagues.
Longtime political observers said residents haven't made it a banner issue so politicians, particularly those governing the state's three counties, haven't been inclined to risk messing with the concept.
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Wilmington Mayor Mike Purzycki's administration is beating the drum for reassessment in court. When asked if political cowardice is why government leaders haven't remedied the situation sooner, he said that he wouldn't use that "evocative" term.
"I think it’s a lack of political courage because you can’t defend it," he said.
New Castle County Councilman George Smiley has pushed failed legislation aimed at compelling a reassessment in the past and more recently sponsored successful legislation to start saving money for the task.
He said part of the political problem is residents perceive reassessment to be an across-the-board tax increase in collections for government.
But it's more complicated than that.
In general, property values across the state have appreciated since the last reassessment. But when local governments bring taxable values back to reality with a reassessment, the law says they must also reduce the tax rate so they don't bring a comparable amount in new tax revenue.
County governments are allowed to keep only a 15% windfall for one year to pay for the reassessment. Schools are allowed to keep 10% of the proceeds going forward.
The commonly repeated refrain is that one third of people who are currently underpaying will see their bills rise, one third who are currently overpaying with get a break and one third will stay the same. That could be skewed if more people are underpaying than overpaying.
"It is a fairness and equity issue," Smiley said. "It does not create a windfall of revenue to the county."
County government collects property taxes for its own coffers and for school districts. County leaders go to lengths to distinguish the two items on residents' bills.
Judge J. Travis Laster, who is presiding over the property tax lawsuit, addressed this sentiment in ruling the city of Wilmington had standing to join the challenge. He said such an argument is like telling a child they only have to follow the rules if they benefit from them.
"I personally find it profoundly disappointing to think that a government body would choose not to comply with the law unless there was some self-interested benefit involved," Laster said. "It seems to me that the government has an obligation to comply with the law. Period."
While government won't be raking in money, it is true that some people, who are currently getting an artificial tax break, would pay more. That would be offset by reduced bills for those currently paying more than their fair share.
The fact that some residents will be paying more worries some.
New Castle County Councilwoman Janet Kilpatrick said while a reassessment is necessary for fairness, she wonders how close the state is to a tipping point where people might start hopping the border to Pennsylvania.
Jason Giles, senior vice president of real estate firm Patterson Schwartz, said he agrees with the need for fairness but is nervous about the real estate market. He noted recent increases in the real estate transfer tax and said reassessment could be another drag on the attractiveness of the market.
"From a selfish perspective, anything that we do to impact the real estate market is never a good thing," he said.
How would it happen?
New Castle County Executive Matt Meyer is in a dilemma.
He says a reassessment needs to happen, but his administration's law department has been fighting the lawsuit seeking to force it. He said a judge meddling with the county's authority will lead to bad outcomes.
"I have a lot of examples from across this country to back me up on this," he said.
Meyer cited Allegheny County, Pennsylvania.
Like Delaware, Pennsylvania does not require regular property assessments. Lawsuits have forced county officials, "kicking and screaming," into reassessments, according to the Pittsburgh Post-Gazette.
In Allegheny County, which last reassessed in 2012 at the order of a judge, owners turned out in droves to appeal. Unexpected appeals by owners of commercial properties ended up blowing holes in the local school district budget, the Post-Gazette reported.
Mike Suley sat on the county's board of assessment appeals during one court-ordered reassessment in 2000, and oversaw the other in 2012. He said despite the chaos, the system was certified by professionals to be more fair after the process.
He said courts get involved when the situation has grown dire. That's what could happen in Delaware.
"My advice to [Meyer] is forget all the political rhetoric: Is it the right thing to do or not?" Suley said. "[A court order] is the penalty the government pays for not reassessing frequently, or even once in a while."
Meyer said Laster, the judge presiding over the lawsuit, "seems to have his preconceived notions about how this should be done and seems to really want to bang the gavel and tell us how to do it."
He's concerned that there will be a rush of appeals, which has been the case in the past.
Peterson, who was New Castle County Council President during the last reassessment in 1983, said there were a raft of appeals then, but the board eventually got through them and politicians were not run out of office.
Meyer said he is also concerned a judge's order won't take into account concerns for people that are currently underpaying whose taxes may jump significantly under a reassessment.
He worries about longtime homeowners whose property values have risen most and could see a significant jump in their tax bills.
He also worries about recent home buyers who felt they could afford their monthly mortgage but might be put in a bind by a higher tax bill.
Robert Inman, professor emeritus of finance and public policy at the University of Pennsylvania, said those concerns are easily remedied.
Other counties have allowed middle-class homeowners who see sudden jumps in their home values to transition into paying on the new assessment over time. That has been proposed in Nassau County, New York, where a reassessment was conducted last year after values were frozen for eight years.
"There are ways of transitioning into the new order of things that are going to give you full fairness in 10 years and a significant move toward fairness immediately," Inman said.
If Laster does rule the current system unconstitutional, attorneys for the plaintiffs and counties will likely negotiate the details and timeline of a reassessment.
Smiley, the county councilman, said he doesn't like that it takes a judge to tell local officials to do their job, but it will provide political cover to those previously unwilling.
No matter if it's politicians finally getting around to it or a judge forcing them, someone's got to foot the bill. Meyer solicited information from firms that conduct reassessments last year.
The firms gave estimates between $15 million and $27 million just in New Castle County and three years to complete.
It's that expensive because vendors say it's necessary to visit every parcel for assessors to spot changes since the building was built or since it was last reassessed decades ago. Some say technology could negate the need for such costly processes.
For decades, county politicians have pointed at state lawmakers to help foot the cost of a reassessment. State lawmakers have usually pointed back.
"I'd hope if we have to do this, we'd have to share the burden," said Kilpatrick, the New Castle County councilwoman.
P. Brooks Banta, Kent County Levy Court Commissioner-President, said "it's probably past time" for a reassessment but echoed concerns about the cost.
Meyer said a majority of property taxes goes to school boards. The state also funds schools. He said the state should have a hand in funding the effort.
Schwartzkopf, the house speaker, disagrees.
"Bottom line is: Reassessment is a county issue and the state doesn’t need to be in the middle of it," Schwartzkopf said.
In a written statement passed through a spokesman, Gov. John Carney said he believes there needs to be a reassessment but did not address how it should be funded.
Regardless of who pays for it, most agree the state should take politics out of the situation by setting up framework like most other states where reassessments occur on a regular basis.
Contact Xerxes Wilson at (302) 324-2787 or firstname.lastname@example.org. Follow @Ber_Xerxes on Twitter. Contact Jeanne Kuang at (302) 324-2476 or email@example.com. Follow @JeanneKuang on Twitter.