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Documents show settlement is near for plan to finally reassess Delaware properties after decades

Xerxes Wilson Jeanne Kuang
Delaware News Journal

Officials from Delaware’s three counties are negotiating a lawsuit settlement that would see a multiyear process for reassessing the values used to tax individual properties up and down the state – a process that is likely to render widespread changes to residents’ and businesses’ tax bills in coming years. 

Attorneys have told a judge they are working to settle, by the end of the year, a lawsuit that found the property valuations currently used by Delaware’s three counties to calculate tax bills to be unconstitutional, according to recent court transcripts and correspondence. 

Newly revealed court documents shed light on the time frame and goals being contemplated by county leaders and the education activists who sued them over the local tax systems.

Each county has submitted reassessment planning proposals that outline a four-year process beginning in January for reassessing properties, according to court documents. 

RULING: Judge rules Delaware property tax system unconstitutional; major changes to residents' bills could follow

“Our goal is to have this done and have the reassessment baked into the bills by 2024,” New Castle County attorney Nicholas Brannick told a Chancery Court judge in a recent hearing. 

Under each of the counties’ planning proposals – which are not final and subject to change – new tax bills would not be mailed before 2024. Residents, however, would be notified of new property values in 2023 and be allowed to appeal.

In an October hearing, Vice Chancellor J. Travis Laster, who is overseeing the case, said it would be “ideal” for the parties to reach a settlement by the end of November that would formalize reassessment plans.

Progress on the discussions was halted part of this year to allow the counties to evaluate their revenues during the economic downturn.

Vice Chancellor J. Travis Laster

A settlement would bring to a close litigation that began as part of a greater challenge to how Delaware pays for its public schools – and grew to a separate ruling against the state's three county governments in which Laster struck down valuations used to calculate most property tax bills in the state. 

At trial last year, the plaintiffs were able to convince Laster that all three counties calculate tax bills with property values that are so outdated, some taxpayers get an unfair discount while others pay taxes on a greater share of their property’s actual worth.

Those inequities violate the state constitutional requirement that property owners be taxed equally, Laster wrote in a 149-page ruling in May. 

Representatives for the plaintiffs and the county defendants either declined to comment or did not reply to a request for comment for this story. 

Why it matters and what may change

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. And taxing officials currently use a projection of what properties would have been worth at that time to calculate a taxable value. 

That value is then paired with counties’ and school districts’ taxing rates to bill individuals. 

Since those last reassessments, some areas and types of properties have grown rapidly in value. Others have not – or even decreased. 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 based on the full, 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.

Last year, Delaware Online/The News Journal detailed the mechanics of the problem, why Wilmington officials feel maligned by the current situation and why politicians haven’t acted on the problem for decades. 

THE SERIES: 

The solution, used in other states and being discussed for the lawsuit settlement, is to reassign property values across each county.

Because the values haven’t been updated in so long, most property owners are likely to see a hike in their assessed values. But it doesn’t necessarily mean taxes will go up: State law requires local governments and school districts to lower their tax rates a corresponding amount to prevent a massive revenue increase.

Instead, a reassessment is expected to shift the tax burden within each county, school district and the city of Wilmington toward those currently enjoying an artificial break on their property taxes. 

Wilmington mayor Mike Purzycki

Those advocating for a reassessment, such as Wilmington Mayor Mike Purzycki, say it would make taxation fairer. It would also have ripple effects in a larger reexamination of how Delaware pays for its public schools. 

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Without accurate property values, school districts have struggled to collect local property taxes that keep up with costs – and to take advantage of state dollars intended to make up for differences in tax collected between wealthier and poorer districts, according to education advocates and the state’s Equalization Committee.

Settling the lawsuit may resolve those issues in the short term, but leaves open the possibility that new property values will again become outdated in the future.

While the plaintiffs’ attorneys told Laster they had hoped to see a settlement where the counties would regularly reassess their properties, the judge indicated he was unlikely to require it.

That's because the law leaves discretion with lawmakers, Laster told attorneys last month. He added that he does not want the lawsuit parties to delay fixing the current problem by worrying about future reassessments. 

What reassessment might look like 

Recent submissions to Chancery Court give some early details on what the lawsuit parties are debating in terms of when reassessment might occur and the mechanics of how it would happen.

As part of the settlement discussions, each of the counties recruited a consultant from the International Association of Assessing Officers to come up with a time frame and general approach for conducting a reassessment. 

Court documents include New Castle County’s preliminary proposal. Officials for the Kent and Sussex counties said in court that they commissioned reports with near-identical time frames and outcome, but they declined to provide copies to reporters immediately. 

New Castle County’s proposal lays out reassessment as a four-year process. Brannick, the county attorney, said the county wants to put out a request for proposals from companies that would help conduct the reassessment in January. 

The report sets out two paths forward.

This home sold for $1.25 million in 2017 and is assessed at $207,000 -- about 16 percent of its market value.

In one, a mass appraisal company hired by the county performs all the data collection, sets up a new value modeling system, and trains county employees on operating that system going forward.

In another, the county would use or hire its own employees for the bulk of the work and purchase software for modeling the new property values. 

The report does not estimate a cost. 

[Story continues below New Castle County's Reassessment Planning Report.]

Matt Meyer, the New Castle County executive, has previously said firms that conduct reassessments quoted prices between $15 million and $27 million.

The most expensive part of the effort is training staff and sending them to each of the counties’ taxable parcels to inspect those properties' physical characteristics. 

Brannick told Laster that his team looked at the feasibility of doing the “drones and Zillow approach,” which would lean more heavily on aerial surveys and valuation projections used by the popular real estate website. 

But after investigation, officials have determined that inspectors would need to go out and view every property for additions or other changes that might affect the property’s actual value. 

“Using (Zillow’s) values would actually perpetuate errors in the existing assessments, a ‘garbage in, garbage out’ kind of problem, unfortunately,” Brannick said. 

The bulk of the work collecting data will begin next year, carry through the entirety of 2022 and be complete in spring 2023, according to the preliminary proposal New Castle County submitted to the court. 

A synopsis: A quick tour of Delaware's unequal property tax system

At the same time, workers will be using existing sales for residential properties, as well as current income and expenses for commercial properties, to create a new valuation model to be used going forward, the proposal states. 

The new information about properties' existing characteristics will be paired with that model to come up with what would be new valuations – which will then combined with local taxing rates.

That model must be scrutinized and tested as part of the process, the proposal states. 

From there, final reviews and notifications to taxpayers would go out before hearings on the new assessments take place late in 2023, according to the proposal. 

That year, property owners will be notified of new values and the county must be prepared to defend those values through a dispute resolution process. The proposal estimates that happens about two years after the reassessment process begins. 

Going forward

Brannick told Laster that the proposal is neither “aspirational or immutable.” A settlement may plot a reassessment plan that has benchmarks that can be monitored by Laster, according to discussion in court. 

Attorneys for each of the three counties told Laster last month that the parties could sort out the details of a final settlement that would determine a reassessment plan by the end of November.

The plaintiffs that sued the counties also signaled support for the proposals submitted by the counties, as well as the time frame. 

Richard Morse of the Delaware Community Legal Aid Society, representing plaintiffs in the lawsuit, told the court his colleagues were looking at alternatives that may see the revaluations done more quickly than what the county proposed. If they come up with an alternative proposal, they’ll discuss it with the county. 

Richard Morse

“If we don't have something that we think is plausibly better than what they have found, then it makes sense to go with what they have found,” Morse told Laster. 

There are other details that may complicate the situation, specifically that local county councils may want to approve requests for proposals to start the reassessment process and most likely would need to approve major expenditures to pay for it. 

The parties are due to update Laster on their progress toward a settlement on Tuesday.

Contact Xerxes Wilson at (302) 324-2787 or xwilson@delawareonline.com. Follow @Ber_Xerxes on Twitter. Contact Jeanne Kuang at jkuang@delawareonline.com or (302) 324-2476. Follow her on Twitter at @JeanneKuang.