Delaware property assessments violate state law, but no remedy in sight

A Chancery Court judge has found that Delaware's three counties are assessing property far below market value in violation of state law, but in today's COVID-19 standstill, more proceedings are needed before a remedy will be found.

“The National Association for the Advancement of Colored People-DE and Delawareans for Educational Opportunity proved at trial that when preparing their assessment rolls, the counties fail to comply with two legal requirements,” wrote Vice Chancellor J. Travis Laster in his May 8 opinion.

The two groups, which represent about 20 parents and community leaders, filed a lawsuit in 2018 to secure more funding and better teachers for struggling school districts in Delaware. The lawsuit states low-income students largely perform poorly on state achievement tests, and they live in areas that receive less funding for education than wealthier districts.

A combination of state and local funding is needed to bring low-income students up to par with their wealthier counterparts, the lawsuit states, but the latest decision only addresses the fairness of county property assessment. State equalization of funding for poor districts will be addressed in a later decision.

Laster found that all three counties in Delaware – New Castle, Kent and Sussex – are in violation of state law that requires assessing property at its true value – the True Value Statute – and also requires that taxes should be uniform within the territorial limits of the authority levying the tax, known as the Uniformity Clause.

“The Delaware Supreme Court has held that a property’s true value in money is the same as its present fair market value,” the decision reads. “The Delaware Supreme Court has held that the Uniformity Clause requires all taxpayers within the same general class to be treated the same.”

In determining the value of a property, Sussex County uses assessments dating back to 1974. New Castle County last reassessed property in 1983 and Kent County in 1987. “Making matters worse, two of the three counties do not even use their full base-year valuations. Sussex County uses 50 percent of its base-year valuations. Kent County uses 60 percent,” Laster wrote. “The NAACP-DE and the DEO proved that assessing properties using base-year valuations from three and four decades ago – much less using 50 percent or 60 percent of those valuations – is not the same as assessing properties at their present fair market value.”

Taking into consideration that only half of a decades-old property assessment is used to determine property value in Sussex County, the decision states, property assessment today is based on about 8 percent of 2020 fair market value. And in some cases, the decision states, Sussex County could be using property values from at least 1970 if a property did not exist in 1974.

“The record in this case does not reveal how much prior to 1974, but a reference in a Delaware Supreme Court decision suggests that the general assessment used a valuation date in 1970,” the decision states. “It is thus likely that Sussex County actually assesses property at 50 percent of its value in 1970. The earlier date makes Sussex County’s assessments even more stale and further undermines its system of taxation for purposes of the True Value Statute and the Uniformity Clause.”

But that's not all.

Not only are today's property values based on a percentage of 46-year-old or older assessments, the lawsuit states, low-value properties have a relatively greater tax burden than more expensive real estate. “With one exception (commercial property in Delmar) … higher-value properties are assessed at a lower percentage of fair market value than lower-value properties. Under this regressive system, owners of lower-value properties bear a greater relative share of the tax burden,” the decision states.

Sussex County assessments

Sussex County officials have declined to comment about property reassessment throughout the court proceedings. According to the decision, the Sussex County Department of Finance is responsible for determining the value of taxable property in Sussex County, preparing the county’s assessment rolls, sending tax bills, and collecting property taxes. The director of finance is responsible for ensuring that Sussex County’s tax assessments comply with Delaware law, and that a yearly tax assessment roll is presented to the Sussex County Board of Assessment Review. The board certifies the assessment roll is correct, and the department then certifies total property value in the county which is subject to taxation.

According to the decision, Sussex County officials recognize that the values of nearly all taxable properties in Sussex County have changed since 1974, and they understand that property values in different areas have changed at different rates, as have properties with different uses.

“Sussex County officials agree that in some parts of Sussex County, fair market values have increased greatly, while in other parts, fair market values stagnated,” Laster wrote. “Everyone agrees that a general reassessment would increase the total assessed value.” However, the decision states, Sussex County has no plans to update its assessments, and it intends to continue assessing properties using values from 1974.

More proceedings expected

The decision addresses only the merits of the plaintiffs’ claims, and it provides no remedy to bring Delaware's property reassessments up-to-date. Instead, the decision states, more proceedings are needed.

“Within 45 days, the parties shall submit a scheduling order to govern the remedial phase,” it reads. “The court originally bifurcated the merits determination from the remedial phase because of the need to consider carefully what the remedy would be and how it would be implemented.”

Both Delaware’s public schools and the counties depend on the current, albeit broken, system of property tax assessments, Laster wrote, but it could cause significant disruption to important public services if the administration of that system was suddenly brought to a halt.

While this decision was under submission, the COVID-19 pandemic hit. Not only was Laster's decision delayed because of the outbreak, but the economic stress placed on everyone in the state has been all-encompassing.

“One of the major consequences of the pandemic was to place many households, businesses, and local and state governments under financial strain. While the effects of the pandemic do not mean that the counties can continue indefinitely to operate a local tax system that violates the Delaware Constitution and the Delaware Code, the effects of the pandemic likely will introduce additional and significant considerations for the remedial calculus, particularly regarding the timing of a remedy,” Laster said.