In re Del. Pub. Sch. Litig.

• Decision Date: 08 May 2020
• Docket Number: C.A. No. 2018-0029-JTL
• Citation: In re Del. Pub. Sch. Litig., 239 A.3d 451 (Del. Ch. 2020)
• Parties: IN RE DELAWARE PUBLIC SCHOOLS LITIGATION
• Court: Court of Chancery of Delaware

239 A.3d 451

IN RE DELAWARE PUBLIC SCHOOLS LITIGATION

C.A. No. 2018-0029-JTL

Court of Chancery of Delaware, COUNTY TRACK.

Date Submitted: January 17, 2020

Date Decided: May 8, 2020

Richard H. Morse, COMMUNITY LEGAL AID SOCIETY, INC., Wilmington, Delaware; Karen Lantz, ACLU FOUNDATION OF DELAWARE, INC., Wilmington, Delaware; Saul P. Morgenstern, Peta Gordon, Jessica Laguerre, Travis W. Clark, ARNOLD & PORTER KAYE SCHOLER LLP, New York, New York; Counsel for Plaintiffs Delawareans for Educational Opportunity and the NAACP Delaware State Conference of Branches.

Gary W. Lipkin, Brian E. O'Neill, Alexandra D. Rogin, ECKERT SEAMANS CHERIN & MELLOTT, LLC, Wilmington, Delaware; Rosemarie Tassone-DiNardo, Aaron C. Baker, CITY OF WILMINGTON LAW DEPARTMENT, Wilmington, Delaware; Counsel for Plaintiff City of Wilmington.

Mary A. Jacobson, Adam Singer, Nicholas J. Brannick, NEW CASTLE COUNTY OFFICE OF LAW, New Castle, Delaware; Counsel for DefendantDavid M. Gregor, Chief Financial Officer for New Castle County.

William W. Pepper, Sr., Gary E. Junge, SCHMITTINGER & RODRIGUEZ, P.A., Dover, Delaware; Counsel for DefendantSusan Durham, Director of Finance for Kent County.

Herbert W. Mondros, Helene Episcopo, MARGOLIS EDELSTEIN, Wilmington Delaware; Counsel for DefendantGina Jennings, Director of Finance for Sussex County.

OPINION

LASTER, V.C.

The NAACP Delaware State Conference of Branches(the "NAACP-DE") and Delawareans for Educational Opportunity (the "DEO") contend that Delaware's public schools fail to provide an adequate education for students from low-income households, students with disabilities, and students whose first language is not English (collectively, "Disadvantaged Students").The failure to provide an adequate education for Disadvantaged Students is not just a problem for Disadvantaged Students.It affects the in-school educational environment for all students, including non-Disadvantaged Students.Ultimately, it affects the larger community of which we are all a part.

As one reason why Delaware's public schools fall short, the NAACP-DE and the DEO point to a broken system for funding schools.One third of the funding for Delaware's public schools comes from local taxes.When school districts levy local taxes, they are required to use the assessment rolls prepared by Delaware's three counties.If there are problems with the counties' assessment rolls, then those problems affect the school districts' ability to levy local taxes.

The NAACP-DE and the DEO proved at trial that when preparing their assessment rolls, the counties fail to comply with two legal requirements.First, under the Delaware Code, "[a]ll property subject to assessment shall be assessed at its true value in money."9 Del. C. § 8306(a)(the "True Value Statute").The Delaware Supreme Court has held that a property's true value in money is the same as its present fair market value.Second, under the Delaware Constitution, "[a]ll taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax ...."Del. Const. art. VIII, § 1(the "Uniformity Clause").The Delaware Supreme Court has held that the Uniformity Clause requires all taxpayers within the same general class to be treated the same.

It is undisputed that when preparing their annual assessment rolls, the counties use valuations from three and four decades ago.Sussex County uses valuations that became effective in 1974.New Castle County uses valuations that became effective in 1983.Kent County uses valuations that became effective in 1987.Each county refers to its valuation year as its "base year."

Making matters worse, two of the three counties do not even use their full base-year valuations.Sussex County uses 50% of its base-year valuations.Kent County uses 60%.

The NAACP-DE and the DEO proved that assessing properties using base-year valuations from three and four decades ago—much less using 50% or 60% of those valuations—is not the same as assessing properties at their present fair market value.The NAACP-DE and the DEO thus proved that the counties fail to comply with the True Value Statute.

The NAACP-DE and the DEO also proved that the counties fail to comply with the Uniformity Clause.During the thirty-three, thirty-seven, and forty-six years since the counties' base-year valuations became effective, different properties have appreciated at different rates.By continuing to use the decades-old valuations when preparing their assessment rolls, the counties treat owners of similar properties differently.Owners of the same general class of property may pay taxes at the same nominal rate per dollar of assessed valuation, but the outdated valuations mean that owners of the same general class of property pay effective rates that are quite different.Owners whose properties have appreciated more pay a lower effective rate than owners whose properties have appreciated less.The counties' outdated assessments conceal a reality of non-uniformity beneath a cloak of uniformity.

The City of Wilmington also filed suit against New Castle County.The Delaware Code gives each municipality the right to "elect to use the assessments and supplementary assessments for property in the municipality as established annually or quarterly by the [county] in which such municipality is located, subject to statutory judicial appeals, as the assessment roll of such municipality for municipal taxation."22 Del. C. § 1101.A municipality that exercises this right "shall be entitled to receive a copy of the county assessments for the properties in the municipality ...."Id.§ 1103.In addition, the pertinent county officials are obligated to "certify the total assessed valuation for properties in the municipality to each municipality ...."Id.§ 1104.By ordinance, the City chose to exercise its rights under these statutes(collectively, "the Assessment Roll Statutes").

The City of Wilmington proved that New Castle County's persistent use of property valuations from 1983 violates the True Value Statute and the Uniformity Clause, leading to inaccurate assessments and certifications.The City proved that by providing inaccurate assessments and certifications, New Castle County violates its obligations under the Assessment Roll Statutes.

This decision declares that all three counties use assessment methodologies that violate the True Value Statute and the Uniformity Clause.This decision declares that New Castle County violates the Assessment Roll Statutes by using its assessment methodology.

This decision does not reach the issue of remedy, which will require further proceedings.The court originally bifurcated the merits determination from the remedial phase because of the need to consider carefully what the remedy would be and how it would be implemented.Both Delaware's public schools and the counties depend on the current, albeit broken, system of property tax assessments.It could cause significant disruption to important public services if the administration of that system was suddenly brought to a halt.Any remedial calculus must take into account a range of equities and considerations.

While this decision was under submission, the novel coronavirus emerged, resulting in the Covid-19 pandemic.One of the minor consequences of the pandemic was to delay the issuance of this decision.One of the major consequences of the pandemic was to place many households, businesses, and local and state governments under financial strain.While the effects of the pandemic do not mean that the counties can continue indefinitely to operate a local tax system that violates the Delaware Constitution and the Delaware Code, the effects of the pandemic likely will introduce additional and significant considerations for the remedial calculus, particularly regarding the timing of a remedy.Evaluating those and other issues must await the remedial phase.

I.FACTUAL BACKGROUND

During a two-day trial, the court heard live testimony from five fact witnesses and one expert witness.¹The parties introduced ninety-six exhibits into evidence and lodged depositions from fourteen fact witnesses.²The parties reached agreement on 101 stipulations of fact.³The following facts were established by stipulation or proven by a preponderance of the evidence.

A.The Role Of Local Taxes In Funding Delaware's Public Schools

Delaware's public schools receive funding from state, local, and federal sources.PTO ¶ 3.The State of Delaware provides approximately sixty percent of the funding that Delaware's public schools receive.Id.¶ 4.Local taxes generate approximately thirty-one percent.Id.¶ 10.Federal sources make up the rest.

School districts generate local funding by levying taxes on non-exempt property located in their districts.Id.¶ 11;see14 Del. C. § 1902(a).The amount of local funding depends on two variables: the assessed value of the property and the tax rate per dollar of assessed value.PTO ¶ 16.

When levying local taxes, the school districts do not prepare their own property tax assessments.By statute, the school districts must use the assessed values that the counties establish.14 Del. C. § 1912.

B.The Counties' Obligations When Assessing Property

The counties are required to assess property for tax purposes "at its true value in money."PTO ¶ 19(internal quotation marks omitted).A property's true value in money is the same as its fair market value.Id.¶ 20.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."Id.¶ 21(internal quotation marks omitted).

The Delaware Code does not specify when or how frequently a county must conduct a general assessment to establish current and uniform values for the properties within its jurisdiction.Instead, the Delaware Code requires that each county make an annual determination of assessed value when preparing its...