Residents of Kent County will be the first to experience the outcomes of a statewide reassessment of property values but the “revenue neutral” character of the process means they should not see major changes in their tax bills.
Kent residents are now receiving “tentative values” for their properties and Tyler Technologies, the company that is conducting the reassessment is holding informal hearings through mid-January for residents who question those valuations.
A similar reassessment process is underway in both New Castle and Sussex counties. The Kent reassessment is closer to completion because it has fewer properties to review than the other counties.
Changes in property values for Kent County will take effect for the tax year that begins next July 1. Changes in New Castle and Sussex will take effect a year later.
Other than the earlier timeline for Kent County, the reassessment procedures are essentially the same in all three counties, according to Mike McFarlane, Tyler Technologies’ project manager for the New Castle County reassessment.
It starts with data collectors knocking on doors, asking basic questions about the home and taking photos of its exterior. (If no one is home, they leave a form to mail in with verified data.) Data collectors rely on information on file with the county through construction records and building permits for things like square footage, number of bedrooms and baths, heating and cooling systems.
Why the reassessment
The statewide reassessment was ordered by Delaware’s Court of Chancery as part of the remedy to a lawsuit that challenged the fairness of the state’s system of financing its public schools. The Delaware chapter of the American Civil Liberties Union filed the suit in 2018 on behalf of two groups, Delawareans for Educational Opportunity and the NAACP. They alleged that funding disparities have resulted in the state providing inadequate resources for disadvantaged students.
In May 2020, Vice Chancellor J. Travis Laster Jr. ruled that the property tax systems used in the state violated both state law and the state constitution and that they were so out of date that they were unreliable. In early 2021 each of the counties agreed to conduct new property assessments. (A second portion of the suit involved the state’s school finance system and has resulted in, so far, new funding to support programs for disadvantaged students. Recommendations to overhaul the state funding system are expected to be announced later this month.)
The last reassessments prior to the filing of the suit occurred in 1974 in Sussex, 1983 in New Castle and 1985 in Kent. Legislation passed this year by the Delaware General Assembly will require counties to reassess properties every five years, so the next assessments would take effect in 2029 in Kent and in 2030 in New Castle and Sussex.
Reassessment goal
The goal of a reassessment is not to raise or lower taxes but to “more equitably distribute the tax burden,” McFarlane said. McFarlane joined New Castle County officials in mid-November in presenting a reassessment update for the Council of Civic Organizations of Brandywine Hundred (CCOBH), a regional civic group.
An accurate assessment should approximate what a property would sell for at a specified date – July 15, 2024 in New Castle County’s case, McFarlane said.
Changes in property values do not occur at the same rate in all areas of a county, and the longer the period between assessments, the larger the variations are likely to be, McFarlane explained.
The reassessments are meant to be “revenue neutral,” McFarlane said. This means that, when a county sets a new property tax rate following reassessment, it should bring in the same amount of revenue as it did in the year before reassessment.
Based on its old assessments, Kent County expects to collect $14,541,800 in property tax revenue for the current fiscal year, according to Finance Director Susan Durham. To be revenue neutral, Kent County Levy Court would have to set a tax rate in May, using the new assessments, that would bring in the same amount of revenue in the next fiscal year.
When New Castle and Sussex counties complete their reassessments, they will have to follow the same approach in setting their tax rates. This means that New Castle County would have to set a tax rate that yields about $139 million and Sussex a little more than $18.7 million, based on current revenue projections.
The “revenue neutral” concept does not apply, however, to Delaware’s school districts. Under current state law, districts are allowed to increase their property tax collections by 10 percent in the year following a reassessment. In all three counties, school taxes represent a much larger share of the total tax bill than the portion levied by the county government. In some areas of Sussex County, school taxes can account for about 90 percent of the total property tax. Two Republican lawmakers, Rep. Michael Smith of Newark and Sen. David Wilson of Milford, have introduced H.B. 42, which would eliminate school districts’ ability to impose this tax increase. No action has occurred to advance the bill.
Also, jurisdictions that set their own tax rates – cities like Wilmington, Newark and Dover, for example – will have to reset their rates based on the new valuations.
Paying for the reassessment
State law allows counties to increase their property tax rates for one year to cover the cost of conducting the reassessment. That cost is $15 million in New Castle County, $9.4 million in Sussex and $4.5 million in Kent. None of the counties is going to raise taxes to cover the assessment cost.
During the COVID-19 pandemic, New Castle County created a reserve fund to pay for the reassessment, Councilman John Cartier, D-Brandywine Hundred East, said at the CCOBH meeting. Kent County is using reserve funds, Finance Director Susan Durham said, and Sussex is using excess revenues from its real estate transfer tax, according to Gina Jennings, the county’s finance director and chief operating officer.
Property owners’ concerns
McFarlane, from Tyler Technologies, and New Castle County officials addressed many of residents’ questions during the CCOBH program last month. Most of the responses should also apply to properties in Kent and Sussex counties, McFarlane said this week.
Here is a summary of the key issues:
Differences in valuations between neighborhoods: Property values change at different rates in different parts of a county. Values are likely to rise at a higher rate in a neighborhood that has, or is near, multiple amenities, like parks and good retail stores, than in a neighborhood with fewer amenities or a less desirable location.
Differences in valuations within neighborhoods: Several factors can account for differences. A home fronting on a major road may have a lower valuation than one tucked at the end of a cul de sac in the rear of a development. If most of the homes in a neighborhood have decks or other add-ons, one that lacks those features will likely have a lower valuation.
Valuing homes built since the last assessment: These properties have the potential to experience greater relative changes in valuation. Take a home built in 2010 in New Castle County, for example. When that home was completed, assessors had to approximate what that home would have sold for in 1983, the year of the previous assessment. That requires some educated guesswork by assessors, since newer homes likely have features that were rare or nonexistent (solar panels, for example) 25 years earlier.
Improvements that assessment workers don’t notice: Assessment workers rely on records available from the county (building permits, for example) and their observations of a home’s exterior. If a homeowner finished a basement without securing permits, that improvement might not be accounted for in the reassessment because it wasn’t visible from the outside. A deck or patio built without proper permits would be more difficult to conceal from the assessment team.
Errors in assessment data: Property owners should correct any inaccuracies on Tyler’s data forms or on their tentative valuation notices so appropriate adjustments can be made. “If there’s an error on the form we mailed to you, we will correct it,” McFarlane said.
"There are 212,000 questions on this test, we’re not going to get them all right.”Tyler Technologies’ project manager Mike McFarlane on the number of residential properties in New Castle County.
Appealing assessments: The process includes “informal reviews” through Tyler and formal appeals to the county if Tyler cannot resolve the property owner’s concerns. Given the long interval between assessments in the three counties, Tyler expects a higher percentage of appeals than in other jurisdictions where it has worked – perhaps 10 to 20 percent of the total. Referring to the number of residential properties in New Castle County, McFarlane said, “there are 212,000 questions on this test, we’re not going to get them all right.”
Condominiums: These multi-family structures that look like apartment buildings are a challenge for assessors because they do not check individual units. They can inspect the building’s exterior and note significant improvements. But, unit by unit, they must rely on the declarations filed with the county that show overall size, square footage and amenities, so it is harder to draw distinctions between similar units within the same building.
Business properties: Tyler follows similar procedures to those it uses with residential sites. They are more challenging because there are likely to be greater variations between two office buildings in the same general area than between two houses on the same street. Businesses are more likely to challenge assessments, if only because the stakes on their tax bills are much higher. A significant concern for counties is that businesses often seek lower assessments if they tear down structures prior to a redevelopment of sites they own. This can result in significant tax savings for them, but potentially pushes some of the broader tax burden onto residential owners. New Castle County officials say their board of assessment holds business owners to a much higher standard than homeowners when it considers appeals for assessment reductions. Councilman Cartier, at the recent CCOBH program, did say he wants to dig more deeply into this issue.
