How a major property tax update will affect you
By Andrew Sharp
The downside of a story about property taxes is that it’s usually only interesting to people who own property, and possibly not even them.
But Delaware is in for a much bigger shakeup of property taxes than usual. It will affect every property owner in the state along with local schools, and could even be the first step in ending the need for new school referendums every few years.
The value of every property in the state will be reassessed in the next few years; the process kicks off in earnest in Sussex County in October. If you’re not a property owner, don’t have a kid in school and couldn’t care less about referendums, you might want to find a different article to read. But if you’ve heard of the reassessment and are curious how it will work and what it means for your wallet, read on.
What it's all about
A 2018 lawsuit challenged the way Delaware funded its public schools, saying it was unfair. Part of that argument included property taxes, which go to both the county and to schools. (Another part of the lawsuit was about how the state divides out funding among schools. That’s even more complicated and beyond the scope of this story, but the state settled that part of the suit and will need to make changes there too.)
In the case of property values, the lawsuit argued, the counties weren’t reevaluating them often enough.
That argument was a little bit of a legal slam dunk. Sussex County bases its taxes on property values in 1974. New Castle’s last assessment was in 1983, and Kent County was the most modern at 1987 values. If somebody bought an acre in Sussex and put a new house on it, the county would assess it at 1974 values. Needless to say, property values have changed slightly in these parts in the past four to five decades.
For comparison, counties in other states may reassess values every five years, said Paul Miller of Tyler Technologies, which has the mammoth job of reassessing every property in the state.
Tyler Technologies won the bid for the work after judge J. Travis Laster ruled in 2020 that the property tax system was in fact unconstitutional. In his decision, he called the outdated system regressive, saying people with lower property values end up paying a greater share.
How does this affect schools?
Although the lawsuit that started all this was based around school funding, the property tax element was only part of it, as noted before. So reassessment is not intended as a way to settle all school funding woes.
But it does have some effect. In his ruling, Laster noted that school districts can’t change their tax rate without a referendum. That means if the property values stay flat, it’s hard for schools to keep up with increasing costs and inflation, and they have to hold a referendum every few years. If it seems like local districts are constantly holding referendums, this is one reason why. The property values staying the same don't hurt counties in the same way, since they can just adjust their tax rates as needed without a referendum to raise extra revenue.
Delaware’s counties may end up reassessing more often now, which would reduce the need for so many referendums. But how often that will happen remains to be seen.
Schools get most of their money from state and federal sources, not property taxes: about 60 percent from the state and around 10 percent from the federal government, per recent estimates. That can vary by district, of course. In Lake Forest, for example, about 75 percent of money comes from the state because of higher poverty rates than in other districts, district CFO Kurt Kelemen said in an email, and about 7 percent is federal money.
Districts get the rest of their money from local property taxes.
Of the property taxes collected, the counties get some, but the bulk of it goes to support schools. Sussex County says about 90 percent goes to schools and 10 percent to the county.
To sum up, that means the reassessment might make the tax collection more fair as far as who is paying how much, but not change the actual school revenue a lot, although frequent reassessments could help schools keep up with inflation.
How much money schools bring in depends on the tax rate; see more on that below.
Photo by Josefina Lacroze /Unsplash
Will my taxes go up?
Maybe. They might also go down, or stay the same.
The natural fear for property owners here is that if their homes are valued at 1974 values, there’s nowhere to go but up — way, way up.
But that’s not how it works. Miller said it all depends how your property’s assessed value changes compared to other similar properties. For example, if your home is valued far less than other, similar homes in the area, you’ll probably see a tax increase. If it’s been valued too highly compared to other similar homes, you’ll probably pay less.
Yes, your home's assessed value may go from, say, $25,000 to $150,000, but everyone else’s will change too, and tax rates will be adjusted to compensate so the resulting tax payment won’t be all that different.
Miller suggested the result would be revenue neutral, or the same amount of overall taxes as before. That might be true, but both school districts and the county could tweak their rates so that they’re making more money after the new assessments. But what they can't do is just keep the tax rates the same, watch property values shoot up, and rake in huge profits. Under state law, schools can’t use reassessment to increase tax revenue more than 10 percent. Counties can’t increases revenue more than 15 percent.
If officials did make big changes, Miller said “there’d be a big protest because tax bills would just skyrocket.”
He may be right, but the final impact remains to be seen. Gina Jennings, finance director for Sussex County, said the county has not decided on new tax rates yet.
At Lake Forest, “We have not yet had any discussions about increasing the tax rate in reference to the reassessment,” Kelemen wrote, “but we know an increase will be needed sometime in the next several years due to a stagnant tax rate and increasing salaries.”
Will someone come to my house to assess the value?
Yes. There are more than 180,000 properties in Sussex County alone, and Miller said Tyler employees will go to every one of them. The company is also using aerial photos in its assessments.
“We're going to go door to door and we're going to discover every single thing we can in the property,” Miller said.
Everything, that is, outdoors. Data collectors won’t go inside houses unless homeowners want them to. For example, they might be eager to show flood damage or some other factor that would reduce the home’s value and not be apparent from the outside.
The thought of data collectors measuring everything might make homeowners a little uncomfortable if they've put in a shed or other improvement without a permit. Tyler employees will, in fact, notice these. The company says updating the records ensures everyone is paying their fair share of taxes.
As far as what the county will do when it discovers these unpermitted improvements, Sussex County Communications Director Chip Guy said in an email that the plan is to add them to county records for tax purposes.
"There are no plans to fine these property owners," he wrote. "That being said, depending on the structure and circumstance, there may be a need for additional review (e.g. building code inspection) in cases that are extreme examples, say a house or commercial structure built without a permit."
The county will handle those on a case by case basis.
Data collectors will start evaluating properties in Sussex County starting in early October. Each employee will wear a bright yellow vest and an identifying photo badge. You don’t need to set up an appointment, or even be home at the time they visit.
Surprisingly, the company is able to accomplish all this with a relatively small number of data collectors. In Kent County, for example, the company plans to hire around 10, according to project supervisor Mary Noldy.
Photo by Ralph (Ravi) Kayden / Unsplash
How do they determine value?
Tyler Technologies uses a number of factors to calculate property value, similar to when you get your home appraised for a sale. They take into account information they gather from visiting the property and compare it to similar properties and others in the neighborhood. They try to come up with the value owners would get if they sold the property.
What if they make a mistake?
Assessing property value is complicated, and Miller was frank about the fact that it won't be perfect. There are several steps to get the assessment as accurate as possible. Tyler Technologies will send owners an overview of what they’ve found out about the property, and if data collectors have made a mistake, like listing the wrong number of bathrooms for example, the owners can correct it and mail it back.
Later, the company will send owners the preliminary value they’ve established for the property, and if owners disagree they can appeal. The first step of the appeal is an informal meeting with Tyler Technologies to go over issues. Then the company will send out a final valuation. If property owners still disagree, they can file a formal appeal with the Board of Assessment Review.
“We have a very difficult job. And we have these systems in place to try and check and double check, and double check, to try and minimize (mistakes),” Miller said.
They expect thousands of appeals, partly because they’re trying to be accurate. If they didn’t get any appeals, Miller said, it would mean they had underestimated everyone’s property values. People who get a low estimate don’t tend to appeal.
The housing market is crazy right now. Will assessors adjust for that?
No. They have to get as close as possible to market value and can’t be guessing which way the market is going to go in the future, Miller said. But if Delaware moves to regular reassessments, those would catch market changes.
The tax rate will also be set based on overall values. So if everyone’s property value is through the roof because of the market, the county will have to set the tax rate lower than it would otherwise — remember, the county can’t increase profits more than 15 percent off a reassessment, and may decide to keep revenue exactly the same.
When the market changes more quickly in one area than another, “that's a good reason to do reassessments more than once every 40 years,” Miller said.
How much will all this cost?
Assessing every property in Delaware is, to put it mildly, a huge project. In Sussex alone, the price tag will be about $9 million. In Kent, the contract is $4.4 million.
Miller attributed that to the long gap since the last assessment. If assessments are done more often the cost is substantially lower, he said.
Some of that money will bolster the local economy, as Tyler Technologies will hire a number of local people to augment its staff. Miller noted, however, that like other industries right now they’ve had trouble finding workers.
What's the timeline?
As mentioned before, the data collection gets underway in early October in Sussex County. It’s expected to last until spring 2023. Taylor Technologies hopes to analyze the data in early to mid 2023, and do the value reviews and appeals in mid to late 2023. Sussex plans to begin using the new values for taxes in 2024.
For more information, go to:
Sussex: https://empower.tylertech.com/sussex-county-delaware.html
Kent: https://empower.tylertech.com/kent-county-delaware.html
New Castle: https://empower.tylertech.com/new-castle-county-delaware.html
These sites will be updated with more information as the projects move forward.
Remaining public information sessions in Sussex:
Wednesday, Sept. 29, 2021, from 6 to 8 p.m., at Millsboro Town Center, 322 Wilson Highway, Millsboro
Thursday, Sept. 30, 2021, from 6 to 8 p.m., at Seaford Volunteer Fire Department, 302 King St., Seaford.
Public information sessions in Kent:
Oct. 12, 1 p.m., Milford Senior Center
Oct. 12, 6 p.m., Harrington Fire House
Oct. 14, 1 p.m., Kent County Levy Court Chambers
Oct. 14, 6 p.m., Cheswold Fire House