This analysis piece was published in the Delaware Coast Press. It won first place for news reporting in an Atlantic Publications competition.Property tax system -- a horse cart in the modern world
(See below for sidebar that defines "assessment")
By Terry Plowman
Mike Mock thinks your taxes are too high -- and he wants you to do something about it.
Mock, a local developer and real estate agent, has been a thorn in the side of the Sussex County Assessment Division, challenging its valuations of lots in several of his developments in the coastal Sussex area, and embracing the issue of property tax reform as his personal crusade.
A vocal critic of the county assessment system he calls "functionally obsolete," Mock says he believes that many property owners in the area are paying more taxes than they should.
A computer analysis done earlier this year by The News Journal supports his contention, concluding that 68 percent of the homes in Sussex County are incorrectly taxed. One in three Sussex County homeowners pays too much, The News Journal said.
"The present system is crazy -- it's not even computerized. It's like having a horse cart instead of a car," Mock said.
Mock has developed a formula that he wants Sussex County taxpayers to use to calculate what he says are their "correct" taxes. Mock said he hopes thousands of property owners will challenge their assessments, and by doing so, force the county council to do its first reassessment since 1974.
That would be fine with Eddy Parker, director of Sussex County's Assessment Division.
"There is a dire need to do a total reassessment," he said. "We want people to pressure the county council to take some action."
But as with any expensive public project, governments have been hesitant to commit millions of dollars to correct assessment systems throughout the state. For example:
* Rehoboth Beach's Financial Planning Task Force in 1993 advised the city that a complete reassessment is needed, but it recommended waiting until Sussex County completed its proposed reassessment. The task force recommended that the city then buy the new data from the county.
* Although the Sussex County Council has set aside about a half million dollars for a countywide reassessment, it has not even begun the massive task. It is an unpopular political issue, according to Parker, because many people equate a reassessment with a tax increase. The county council has not voted to begin the reassessment process, opting instead to wait for the state to mandate it.
* The state Assessment Practice Review Committee, formed in 1993, last year recommended a drastic overhaul of the hodgepodge of assessment systems throughout the state. The proposal, in the form of Senate Bill 217, never made it to the Senate agenda for a vote. Sen. Robert Voshell, the sponsor of the bill, said he hopes to put SB 217 on the 1996 agenda, but he admitted he has no idea of the chances of its passage. It will require an "education process" to succeed, he said.
Huge discrepancies
That huge discrepancies exist between actual market values and values assessed by county and city governments is no surprise to those who are familiar with the subject.
But to the average citizen unfamiliar with the subject, it seems as if government assessors operate in a time warp, as they continue to assess properties according to values that are 20 to 25 years old.
For example:
* The Long & Foster Real Estate building at 146 Rehoboth Ave. recently sold for $850,000, but its city assessment is just $46,250.
* The Sunview property on the Rehoboth Beach boardwalk sold in May of this year for $3.2 million dollars, but its assessed value according to the City of Rehoboth Beach is just $121,050, its 1968 valuation.
* When the Rehoboth Avenue property that formerly housed the Carousel gift shop at 67 Rehoboth Ave. sold for $911,000 in 1991, its value according to the city was (and still is) $39,600.
According to city and county assessors, until all properties are reassessed, this time warp is necessary to ensure that new properties are taxed on the same basis as older ones. This is the so-called "level playing field" that judges all properties by the same standards.
While Rehoboth Beach assessors use 1968 values, Sussex County assessors use 1974 as their benchmark.
They compare the characteristics of new developments with those of 1974 properties to determine new assessments. But the task is increasingly difficult "the farther we get from 1974," Parker said.
And to make the job of comparing even tougher, there are many new subdivisions that have amenities, such as golf courses, pools and clubhouses, which no 1974 subdivisions had.
Inequities in the system
This difficulty Sussex County assessors have in making comparable assessments is one of the things that Mock says has led to a system full of inequities.
Parker, and other assessment experts such as former Rehoboth Beach Commissioner Richard Darley, maintains that assessments are fair and even-handed, even though they are based on old property values. Mock, who has developed such subdivisions as Dove Knoll near Midway and Savannah Place near Lewes, says he believes the present system leads to arbitrary valuations.
For example, he says typical undeveloped lots in eastern Sussex County were assessed in 1974 in the $500 to $4,500 range; similar lots have been assessed at $10,000 to $40,000 in recent years, he contends.
Mock maintains that the easiest and cheapest solution to the need for reassessment is to use his fair-market-value formula. He says if the county would accept that property values have increased almost fourfold since 1974, then an equitable assessment would be one-fourth a property's fair-market value.
"The factor might be 4 or it might be 3.6, but whatever factor you use, at least every property would be assessed on the same basis -- actual market value," Mock said.
In response to the discrepancy between today's market values and the outdated appraised values, the state Assessment Practice Review Committee has recommended that assessments be based on 100 percent of fair- market value.
This would dramatically increase assessments in Sussex County, as the Rehoboth Beach examples above show.
Of course, a reduction in tax rates would accompany this dramatic increase in property assessments, so that tax bills would remain about the same. (See box on page 4 for an explanation of this complex subject.)
The end result
What will reassessment mean to the average taxpayer?
Parker predicts that reassessment would result in a tax increase for about a third of the county's taxpayers, a decrease for about a third, and no change for the other third.
Property owners would also have to pay a surcharge to cover the cost of reassessment, which Parker says will total about $3 million in Sussex County. He estimates the surcharge would cost each household about $30.
But Parker says the larger benefit would be that the current system's inequities would be leveled. In addition, the state, counties and municipalities such as Rehoboth Beach and Lewes will get a modern data base with fewer inequities.
The proposed reassessment legislation would require that the database be kept up-to-date through the use of computer technology to make annual adjustments and through reassessment by physical inspection every five years.
Meanwhile, Mock continues his crusade for property tax reform.
He said he sees no reason to wait for the state to force the county to reassess -- if enough taxpayers question their assessments it will be sort of a "reassessment by the people."
He says he recognizes that many Sussex County residents don't care about the subject because they believe their taxes are already low. "But why not save $200 a year if you can," Mock argues. "Why give money to the county if you don't have to?"
SB 217, which would mandate statewide reassessment, could be placed on the legislative agenda sometime between January and March 1996.
What is "assessment" and how is it calculated?"Assessment" is the dollar value a county or municipal government places on each property in its jurisdiction for the purpose of taxation. The government's valuation of a property does not have to be based on the property's actual market value -- assessments can be based on other benchmarks. However, proposed revisions in state law would base appraisals on full fair-market values.
Each county or municipal government decides on a tax rate, which is levied against each $100 of assessed value. In Rehoboth Beach, for example, the rate is $1.40 per $100.
To complicate the issue, some governments use less than the full value of a property to determine its tax -- for example, the cities of Lewes and Rehoboth Beach use 50 percent of a property's appraised value to determine its assessed value.
So to figure the annual bill for a Rehoboth Beach property appraised at $100,000, you would first divide that in half to get the assessed value of $50,000, then:
* Divide that $50,000 by $100, resulting in a factor of 500;
* Multiply that number by Rehoboth Beach's tax rate of $1.40, resulting in a property tax bill of $700.
Reassessment usually results in higher appraised values, and property owners worry that the increased values will automatically result in higher taxes. However, reassessment almost always goes hand-in-hand with a reduction in the tax rate so that tax bills remain about the same.
The proposals for statewide reassessment to be considered in the 1996 legislative session would require tax rates to be reduced so that the reassessment is "revenue neutral." That is, the county must take in the same amount in total taxes, even though some taxpayers might pay more and some might pay less as the assessments are leveled.
An example of this tax rate reduction to balance higher appraised values occurred when Lewes reassessed in 1991-92. The city reduced its tax rate from $1.25 per $100 to 32 cents per $100, so tax bills would remain constant.
The statewide reassessment proposal does allow for a surcharge to recover the cost of reassessment, which Eddy Parker, director of the Sussex County Assessment Division, estimates would be about $30 per household.
Although the proposed reassessment is to be revenue neutral, the ability for a government to raise taxes remains. However, politicians are usually hesitant to do so because of public opinion.