It’s Time to Reassess…Our Homes

February 1st, 2012

Category: News

A recent push by the City of Rehoboth Beach to reassess properties in the sea-side community highlights a long-simmering problem with municipal finance in general and school finance in particular in Delaware: the burden of local property taxes is unequally spread from one property owner to the next. While Rehoboth Beach’s proposal would presumably only affect city taxes—and not school taxes—the proposal is another reminder of the urgent need for the General Assembly to mandate a state-wide property reassessment.

Roughly 31% of Delaware’s school funding comes from local property taxes—substantially less than the national average of 44%, but still an integral source of school funding. However, it is not how much, but how those taxes are levied that raises concerns. Properties in Sussex County have not been reassessed since 1974, when the median home price in the U.S. was less than $36,000. Properties in New Castle and Kent counties, meanwhile, have not been reassessed since 1983 and 1987, respectively.  Out-dated assessments create two, related inequities:

  1. Larger demographic and economic trends have caused different areas to experience vastly different rates of home price appreciation over the past several decades. It is unlikely that two homes that were assessed for the same amount in 1974 or 1983 would sell for equal amounts today. Thus, many home owners effectively overpay their proportionate share of property taxes, while many others underpay.
  2. Delaware’s Division III or “equalization” school funding formula—intended to correct for disparities in the tax bases of different school districts—does not accurately reflect the current market value of properties. Thus, districts with small property tax bases three decades ago—but larger ones today—may continue to receive relatively more state funding than districts with the opposite problem.

In other words, outdated assessments create highly convoluted systems of tax winners and losers—whether at the individual home owner or school district level. This is unfair to both homeowners and Delaware’s schoolchildren.

While mass reassessments are administratively expensive—Rehoboth beach officials estimate $40 per property—the biggest resistance typically comes from homeowners, who fear having to pay higher property taxes after reassessment. However, this fear is typically overblown. Higher assessments can be married with lower tax rates, resulting in the same amount or only modest increases in tax collections.  In fact, three years ago, a state task force recommended that any increase in property tax revenue incidental to a reassessment be capped at 7.5% initially and 5% as a result of subsequent reassessments.

Indeed, one of Delaware’s strategic advantages is its tax structure. A homeowner here pays a fraction—even pennies on the dollar—of what owners of comparable homes in Maryland, Pennsylvania or New Jersey pay. Coupled with the absence of a retail sales tax, Delaware is the ideal place to either raise a family or retire, and there is no reason for Delaware to lose this advantage.

Moreover, there is general agreement that properties need to be reassessed. A 2008 survey found that 71 percent of Delawareans “strongly favor” (40 percent) or “somewhat favor” (31 percent) a statewide reassessment of real property that would “ensure that everyone is paying the right amount in taxes to fund public schools.”

But the present system creates a vicious cycle—inequities in what individual home owners pay in taxes results in no one wanting to pay taxes at all. And so long as tax burdens remain inequitable within school districts, there will always be resistance to communities banding together for the common good to finance critical school infrastructure needs or basic operating expenses, ultimately resulting in better school systems for our children and higher home values as well.

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Jon Altshul