Most assessed property values out of whack, officials say

DOVER — On Dewey Avenue in Lewes, a house valued at $11,100 sold for much more in 2014. In fact, it went for $595,000, more than 53 times the assessed value.

It’s not a one-off either: A Rehoboth Beach home on Ocean Drive assessed at $109,750 sold for $5.5 million in 2013.

How is this possible?

In Delaware, a property’s assessed valued — which is distinct from market value, although the two are intertwined — is based off a figure determined at least 30 years ago. That creates broad inequities where, at the most extreme, someone owning a seven-figure home may be paying the same in property taxes as someone whose house would sell for a tenth of the other property on the open market.

Like the other two counties, Kent County hasn’t assessed property values in a long time. The last time it re-evaluated properties, Ronald Reagan was president, Mike Castle was governor and the population of Delaware was about two-thirds of what it is now — and Kent was the most recent county to conduct reassessment.

Currently, properties in New Castle are valued at what the market value in 1983 was, properties in Kent are priced at 60 percent of the 1987 value and Sussex properties are 50 percent of the 1974 construction value. Properties built since the last assessment in every county have their values determined based on construction costs adjusted to the date of the most recent assessment.

Reassessment has been looked at over the years, but ultimately the counties have decided not to re-evaluate properties and lawmakers have opted not to force them to do so. The subject is a complex one, but the basic issues blocking it are the cost and the fact that it will lead to higher taxes for some.

Naturally, most of the assessed values are now inaccurate — sometimes almost comically so — and can vary greatly from block to block.

“You could just go on Zillow and that’d probably be more accurate than the reassessments,” Secretary of Finance Rick Geisenberger said.

According to a report on reassessment put together by the General Assembly in 2008, “Delaware’s statewide assessed value represents just 21 percent of the market value.”

That freeze may finally be changing, however.

Time for reassessment?

After years of continued budget challenges, lawmakers and the administration of Gov. John Carney have begun intensifying efforts ways to increase efficiency and save money. One of the areas of interest is school consolidation, and with discussion on eliminating some of the 19 school districts has come talk about reassessing properties.

At public hearings on school consolidation, several people have spoken of conducting reassessment to eliminate inequity between homeowners. They’re not alone in that desire either, as some lawmakers agree it’s time for re-evaluation.

“Actually, I think about 10 years ago it was time to be done,” Senate Minority Leader Gary Simpson, R-Milford, said.

Estimates vary, but it’s clear reassessment would, at the bare minimum, cost millions per county and could be around $50 million total. That makes the counties hesitant to re-examine property values, a process that could take two to three years.

House Minority Leader Danny Short, R-Seaford, said he believes the counties would be supportive if the money is there. But with a potential gap between revenue and projected spending, state officials would likely be hesitant to hand out tens of millions of dollars this fiscal year.

Selling the increase in taxes some people would face is another battle, even though officials say the change would not impact owners’ wallets nearly as much as they might fear.

For the aforementioned Ocean Drive home, the owners paid $4,615.42 in property taxes this year. If the home was assessed at 50 percent of the market value of $5.5 million, however, those taxes would skyrocket to $115,648.50 — more than the house’s current assessed value.

In actuality, the taxes wouldn’t climb that high. The Delaware Code states that counties cannot increase their revenue by more than 15 percent as a result of reassessment. That money, state law says, would be used “presumably to cover the cost of reassessment, and once reassessment process is complete, the taxes are ‘rolledback’ to provide the same revenue as was realized prior to reassessments.” School districts, meanwhile cannot see more than a 10 percent hike.

The limit means that rates would be lowered, resulting in lower taxes for some homeowners.

The fact county governments wouldn’t see a windfall is a big factor in discouraging them from conducting a costly and time-consuming process.

“Reassessment is supposed to be a 0 sum game,” Capital School District Superintendent Dan Shelton said in a statement. “In other words, when you reassess, the tax rates also are adjusted. In the end, there may be homeowners who are winners or losers, but the districts should be 0 in the end.”

Conventional wisdom holds that one-third of homeowners would see higher taxes, one-third would see lower taxes and one-third would see no change, although there are no firm statistics on the matter.

Sussex County spokesman Chip Guy said he thinks the one-third belief has been repeated so often people take it as gospel, though he noted he has never seen numbers affirming that scenario as accurate.

Revenue source

Delawareans have among the lowest property tax burdens in the country, owing to the lack of a statewide property tax and the state’s ability to “export” costs to out-of-state residents in the form of abandoned property, incorporation fees and the lottery, all of which are major cash cows. According to the Tax Foundation, Delaware’s effective property tax rate of .55 percent between county, school and library taxes is lower than all but three states.

Re-evaluating what properties are worth would have benefits that go beyond lower taxes for some. Certain school districts would see more revenue due to changes in the equalization process, a complex formula that provides different sums of money for each district depending on property values.

After reassessment, some districts would end up losing money through equalization, however. Which districts would see changes cannot be determined at this stage due to the complexity of the process, although Sussex districts may see more money because the county’s last reassessment was longer ago than Kent or New Castle’s, creating a greater disparity down south.

According to a 2012 report by the University of Delaware’s Center for Applied Demography & Survey Research, $82.2 million in equalization funding was distributed to districts in the fiscal year ended June 30, 2014.

“The results should not be cast in terms of ‘winners and losers,’ but in the restoration of an equitable distribution” of school funding, it states.
Property taxes make up a not-insignificant portion of revenue for districts and counties. Capital School District, for instance, received $11.3 million, or about 9 percent of its total budget, from property tax payments in the most recent fiscal year, and Kent County is seeing $10.6 million of its $61.3 million budget in the current fiscal year being funded by property taxes.

Past and future attempts

Reassessment has been considered by several entities over the past 30 years but has not happened in that timespan. Lawmakers did not pass bills that would have mandated reassessment, even though then Gov. Tom Carper was behind a proposal at one point in 1997.

A 2015 vote by the General Assembly’s Joint Finance Committee was aimed at strongarming the counties into holding reassessment, but legislators ended up walking back the proposal.

Levy Court opted not to enact reassessment in the mid-2000s, against the advice of the finance director, and New Castle County Council in 2015 voted down the possibility.

The 2008 report recommended the state oversee reassessment, coordinating efforts between the three counties to increase efficiency and decrease cost. It also called for annual adjustments, with every property being physically inspected at least once every nine years. The findings called for lowering the revenue cap to lessen the effect on taxpayers as well.

However, nothing came of the report, which would have placed the cost on the counties.

The International Association of Assessing Officers recommends reassessment every year, although it says physical examination of properties could take place as infrequently as once every six years.

Many politicians are afraid that efforts to reassess property values would be misconstrued as attempts to raise taxes — seldom a winning argument with the public, especially in an election year.

“People mistakenly think that their taxes will triple or double,” Mr. Geisenberger said.

“Winners” might include some parts of western Sussex, which has struggled economically in recent decades, while “losers” could include the eastern portion of the county, where property values have grown tremendously.

That’s more of a generality rather than a hard and fast rule, as houses just a few hundred feet apart can have big differences in their assessed value, officials said.

Both Rep. Short and Sen. Simpson said they support reassessment as a way to place people on equal footing in regard to property tax bills.
“I think if people realize it’s not to raise revenue for the state or the county, they would be much more willing to do it,” Sen. Simpson said.

Rep. Earl Jaques, D-Glasgow, the main sponsor of the measure that created the task force currently studying school district consolidation, said he is unsure if reassessment would have the needed support in the General Assembly.

Jonathan Starkey, a spokesman for Gov. Carney, said in an email: “Gov. Carney addressed this issue several times at budget forums earlier this year, and does believe that property reassessment is overdue. The challenge is the funding the upfront cost of assessment. He will continue to discuss the issue with county leaders, and members of the General Assembly.”

Mr. Guy, with Sussex County, said county officials are “not hearing a hue and cry that property needs to be reassessed” and noted people don’t want higher taxes.

Regardless, whether it’s next year or in the future, reassessment will happen eventually, Mr. Geisenberger believes.

“At some point it just becomes so fundamentally unfair that the majority of people will demand it,” he said.

Reach staff writer Matt Bittle at mbittle@newszap.com

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