Chancery judge deems Delaware's property tax system unconstitutional in educational funding case
In a 149-page decision, Vice Chancellor J. Travis Laster on Friday ruled that the property tax systems used by all three counties violate the state’s Constitution.
Laster, however, declined to rule on how the matter should be resolved. Instead, he gave the parties in the case 45 days to set up a schedule for conducting the remedy phase of the trial.
One possible outcome would be to require New Castle, Kent and Sussex counties to conduct new assessments of all properties within their boundaries. The key claim made by plaintiffs in the case was that the assessments now used by the counties are so outdated as to be unreliable. The last assessments were conducted in 1974 in Sussex, 1983 in New Castle and 1987 in Kent.
The plaintiffs – Delawareans for Educational Opportunity and the NAACP Delaware State Conference of Branches – filed suit in the Court of Chancery in January 2018 against the counties and the state, claiming that inequities in the property tax system and the overall state education financing system impaired the opportunities for disadvantaged students – those from low-income families, with special needs and English learners – to receive an adequate education. Early last year, the City of Wilmington joined the case, in part to represent the interests of students who live in the city but also to challenge the impact of the county’s actions on property taxes collected by the city government.
In late 2018, Laster split the suit into county and state tracks. Issues associated with the state’s school funding system will be addressed after the county track is resolved. (State funds account for about 60 percent of local school budgets, with property taxes bringing in about 31 percent. Federal funds make up the balance.)
Testimony during a two-day trial last July and in depositions taken beforehand demonstrated that “the counties do not assess property at present fair market value,” Laster wrote.
For example, he said, “Sussex County assesses property at 50% of the value it would have had if it existed in its present condition when Sussex County’s last general assessment became effective in 1974. The resulting assessed values have no correlation with present fair market value.” Similarly, Kent County applies a 60 percent ratio to 1987 property values. New Castle County does base its taxes on 100 percent of property values – using data from 1983.
Since those last property assessments, disparities between assessed and actual values have widened. Laster cited testimony from New Castle County’s chief finance officer that assessed value for all taxable properties in the county in fiscal year 2018 was $19.4 billion while the fair market value of those properties that year was three times higher -- $58 billion, plus or minus 10 percent.
"By continuing to use the decades-old valuations when preparing their assessment rolls, the counties treat owners of similar properties differently," Laster wrote.
Disparities occur in a number of ways. Over time all properties do not appreciate at the same rate, sometimes because of their location or because of changes in surrounding neighborhoods. Also, when new homes or commercial buildings are constructed, assessors try to estimate what the cost of that property would have been in the year of the county’s last assessment, even though new homes and buildings often contain amenities – solar paneling, for example – that did not exist 35 or more years ago.
Attorneys for the plantiffis in the case declared Laster’s opinion a victory.
"Fixing the counties' inequitable and outdated system of property tax assessment is an important step toward ensuring that education funding in Delaware is fair and adequate. Our funding system must be designed to meet the needs of all of Delaware's children, especially those who have historically been marginalized and underserved,” said Mike Brickner, executive director of the ACLU of Delaware.
Dan Atkins, executive director of the Delaware Community Legal Aid Society Inc., expressed a similar thought. "For 75 years CLASI has been advocating for Delaware's most vulnerable citizens. Today's ruling is a welcome step towards providing children living in high poverty communities with the educational opportunity everyone should want for them," he said.
School officials contacted by Delaware Public Media declined to offer an immediate reaction to Laster’s ruling. Superintendents Rick Gregg of Christina and Jeff Menzer of Colonial said they wanted to read the entire decision before offering any comment. Lawyers for the plaintiffs could not be reached for comment.
Brian Cunningham, New Castle County’s director of strategic communications, said: “Right now, County Executive Meyer is laser focused on getting every county resident tested for COVID-19 and putting our county back to work.”
Wilmington Mayor Mike Purzycki expressed satisfaction with Laster’s conclusions. “I could not be any more pleased with Vice Chancellor Laster’s decision. I have argued unsuccessfully for years that New Castle County government should meet its obligation to conduct timely reassessments of real property. Sadly, it became clear that there was no political will to make the hard decision even after 37 years. As mayor I found unacceptable disparities in the way our tax burden was being distributed throughout the city, with some residents paying two and three times their fair tax amount. We joined the lawsuit to secure fundamental tax fairness for our citizens with the confidence that our courts would right this wrong,” he said.
For a suit based on claims of inequities in education, Laster’s ruling devoted relatively little to school funding issues. Rather, he focused primarily on explaining how the systems used by the counties to assess properties – and their failure to update those assessments since the 1980s – violated various state laws and, most significantly, Article VIII Section 1 of the state Constitution, commonly known as “the uniformity clause.” That clause states that “[a]ll taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax . . . .”
At the outset of his ruling, Laster did note that “the failure to provide an adequate education for Disadvantaged Students is not just a problem for Disadvantaged Students. It affects the in-school educational environment for all students, including non-Disadvantaged Students. Ultimately, it affects the larger community of which we are all a part.”
In turning specifically to the impact of the inequities of the property tax system on school districts, Laster noted the perennial challenge faced by school districts in holding referenda when additional funding is needed.
“School districts must conduct referendums in an effort to mitigate the harm that that the counties are inflicting. The fact that school districts are forced to conduct referendums is itself part of the harm,” he wrote.
That is because the rate of inflation annually results in increases in the cost to provide the same services while the property tax base, by remaining stable, does not result in increased tax revenue to the districts.
If counties regularly updated their property assessments, he explained, not only would assessment figures be more accurate but the districts would not have to seek residents’ approval to increase tax rates every three to five years.