Delawareans for Educ. Opportunity & Naacp Del. State Conference of Branches v. Carney
| Decision Date | 05 October 2018 |
| Docket Number | C.A. No. 2018-0029-VCL |
| Parties | DELAWAREANS FOR EDUCATIONAL OPPORTUNITY and NAACP DELAWARE STATE CONFERENCE OF BRANCHES, Plaintiffs, v. JOHN CARNEY, Governor of the State of Delaware; SUSAN BUNTING, Secretary of Education of the State of Delaware; KENNETH A. SIMPLER, Treasurer of the State of Delaware; SUSAN DURHAM, Director of Finance of Kent County, Delaware; BRIAN MAXWELL, Chief Financial Officer of New Castle County, Delaware; and GINA JENNINGS, Finance Director for Sussex County, Defendants. |
| Court | Court of Chancery of Delaware |
Ryan Tack-Hooper, Karen Lantz, ACLU FOUNDATION OF DELAWARE, INC., Wilmington, Delaware; Richard H. Morse, Brian S. Eng, COMMUNITY LEGAL AID SOCIETY, INC; Counsel for Plaintiffs.
Barry M. Willoughby, Kathaleen St. J. McCormick, Lauren E.M. Russell, Elisabeth S. Bradley, Lauren Dunkle Fortunato, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Counsel for Defendants John Carney, Susan Bunting, and Kenneth A. Simpler.
William W. Pepper Sr., Gary E. Junge, SCHMITTINGER & RODRIGUEZ, P.A., Dover, Delaware; Counsel for Defendant Susan Durham.
Herbert W. Mondros, Helene Episcopo, MARGOLIS EDELSTEIN, Wilmington Delaware; Counsel for Defendant Gina Jennings.
Adam Singer, Mary A. Jacobson, NEW CASTLE COUNTY OFFICE OF LAW, New Castle, Delaware; Counsel for Defendant David M. Gregor.
LASTER, V.C.
The plaintiffs contend that Delaware fails to provide children from low-income families, children with disabilities, and children whose first language is not English (collectively, "Disadvantaged Students") with a meaningful opportunity to obtain an adequate education. They assert that part of the problem is an inequitable system for funding public schools. They argue that New Castle County, Kent County, and Sussex County contribute to the problem by failing to collect school-related taxes in a manner that complies with the statutory scheme created by the Delaware General Assembly.
Delaware public schools receive funds from local, state, and federal sources. The local portion contributes approximately one third of the total. The amount of local taxes that a school district collects depends on two variables: the assessed value and the tax rate.
By statute, the assessed value must reflect the property's "true value in money." The Delaware Supreme Court has held that this concept equates to the property's "fair market value." This decision refers to this statutory obligation as the "Market Value Requirement."
As clear as this mandate sounds, assessments in Delaware remain at values established thirty to forty years ago. In Count III of their complaint, the plaintiffs assert a straightforward claim: Collecting taxes based on decades-old values violates the Market Value Requirement.
To obtain relief, the plaintiffs sued the officials responsible for collecting property taxes in New Castle, Kent, and Sussex Counties. No one accuses these individuals of engaging personally in any financial impropriety. The plaintiffs have sued them as representatives of their respective offices, which are the vehicles through which the counties collect property taxes. As their preferred form of relief, the plaintiffs seek an orderthat would stop the officials from collecting taxes until the counties devise a way to comply with the Market Value Requirement.
The county officials have moved to dismiss the complaint. This decision denies their motion.
The facts are drawn from the plaintiffs' complaint. At this stage of the proceedings, the plaintiffs' allegations are assumed to be true, and they receive the benefit of all reasonable inferences.
Delaware public schools receive funding from federal, state, and local sources. In Fiscal Year 2016, 31% of their funding came from local sources.1
To generate local revenue, county officials levy taxes on owners of non-exempt real property located in the school district.2 The amount of local revenue depends on two variables: the assessed value of the property and the tax rate per dollar of assessed value.
The Delaware Code provides that "[a]ll property subject to assessment shall be assessed at its true value in money."3 The Delaware Supreme Court has held that theconcept of a property's "true value in money" is "the same as its fair market value."4 Elaborating, the high court explained that "fair market value" is "the price which would be agreed upon by a willing seller and a willing buyer, under ordinary circumstances, neither party being under any compulsion to buy or sell."5
Even though the Delaware Code mandates that property by assessed at its "true value in money," and even though the Delaware Supreme Court has held that this standard means its "fair market value,"6 property in Delaware remains assessed at values from thirty to forty years ago.
In New Castle County, assessments are based upon property values from 1983. In Kent County, assessments are based on property values from 1987. In Sussex County, assessments are based on property values from 1974. These are the magic years because they mark when each county's last general assessment became effective.
Property values have changed dramatically since the 1970s and 1980s. The plaintiffs observe that the statewide inflation-adjusted median sales price of a new home in January 1980 (measured in 2017 dollars) was $126,455. By January 2010, the median value of all owner-occupied housing in Delaware (not just new homes) was $273,000, a 116% realincrease over the 1980 figure. They also observe that the House Price Index for New Castle County, published by the Federal Housing Finance Agency, increased 340% between 1983 and 2016. Yet the counties continue to use property values from 1987, 1983, and 1974.
One can reasonably infer that during the intervening decades, property values have changed at different rates in different parts of the state. Beach property in Sussex County has appreciated differently than property further inland. Urban property in Wilmington or Dover has appreciated differently than property in the suburbs or more rural areas. Yet the counties have locked in the relative valuations that existed in 1987, 1983, and 1974.
For Delaware's public schools, the failure to comply with the Market Value Requirement creates at least three problems.
First, the tax base generates less revenue than it otherwise would. In Fiscal Year 2016, the out-of-date assessments generated approximately $640 million in tax revenue.7 At fair market value, the same rates would generate many times that figure. But even if the counties started complying with the Market Value Requirement tomorrow, tax payers need not fear that their tax bills would double or triple. The Delaware Code caps the maximum increase in tax burden from any assessment at 10%.8 That said, a 10% bump is nothing toscoff at. Many of us would appreciate a 10% raise. And here, the number is facially large—$64 million. That amount could provide a lot of services for Disadvantaged Students.
Second, the current regime allocates money inequitably among districts based on relative values from three and four decades ago rather than relative values today. Each year, the Department of Education recommends that the General Assembly authorize an aggregate state-wide appropriation based on the number of "units of pupils" in each school district.9 The General Assembly allocates appropriations in three buckets. Division I funds pay for administrators, teachers, and other personnel.10 Division II funds primarily pay for textbooks, furniture, and other classroom equipment, but can be used for any lawful purpose.11 Division III funds are budget equalization funds that are allocated based on a formula designed to provide matching funds to less wealthy districts.12 The formula is complex but essentially pegs state funding to a combination of each school district's "effort index" and "ability index."13 The effort index is the ratio by which the district's tax burdenexceeds the average tax burden across the state. The ability index is the district's aggregate property value. Because those property values remain tied to values from decades ago, they are no longer an accurate measure of the districts' relative ability. The equalization effort becomes arbitrary.
Third, the current regime forces school districts to ask voters on a regular basis to raise their own taxes. Because the counties are not complying with the Market Value Requirement, the value of a school district's tax base remains flat. But the cost of running a school district does not remain flat. Each year, inflation erodes the purchasing power of a school district's budget, requiring more dollars to achieve the same results. Even if a school district does not introduce any new initiatives and just maintains the status quo, the absence of regular and systematic assessments inevitably generates a funding gap.
The failure to adhere to the Market Value Requirement leaves school districts just with one option. The Delaware Code empowers the school board for each district to set the amount of tax per dollar of assessed value that a property owner must pay.14 Using this authority, the school board can increase the tax rate so that the same assessed value generates more revenue. But the school board cannot levy the tax unilaterally. The school board first must "call a special election to be held at the polling place or places designated by the Department of Elections conducting the election."15 The outcome of the specialelection determines whether the tax can be levied.16 Generally speaking, in Delaware, a school district needs to prevail in a referendum every three to five years.17
Frequent tax referendums generate negative reactions. Some residents object as a matter of principle to having their taxes raised. More object if they think their tax dollars...
To continue reading
Request your trial