Why Should Delaware Care?
Last year’s first-in-a-generation property reassessment and its lasting fallout have echoed throughout the state – and particularly New Castle County – over the past year. But as lawmakers propose more reforms and the clock winds down on this year’s legislative session, a last minute bill with the Governor’s backing raises questions about what exactly comes next in Delaware’s property tax saga.
A late-in-the-session bill that could create sweeping changes to Delaware’s property tax system has been endorsed by Gov. Matt Meyer, but it faces opposition from each of the state’s three counties as well as the financial directors of every school district in New Castle County.
In a letter to the General Assembly obtained by Spotlight Delaware, Gov. Meyer encouraged lawmakers to pass Senate Bill 350 – which would establish a framework for dividing properties in the state into four distinct classifications that could be taxed at different rates – before gaveling out for the year on June 30.
The bill, introduced by Senate President Pro Tempore David Sokola (D-Newark), would create a pathway for apartments to be considered residential property for tax purposes, potentially ending the cacophony of objections by landlords and property developers to the state’s introduction of split tax rates last summer.
But the bill, introduced with just four working days left in the legislative session, has not yet been voted out of the Senate Executive Committee. It also faced opposition from county and school district leaders during a committee hearing last week.
As lawmakers face the final working day of this year’s legislative session today, it remains unclear whether they have the time – or the political will – to enact the reforms before the clock strikes midnight.
“[Senate Bill] 350 needs work,” Sokola said after last week’s Senate Executive Committee hearing. “But we’re going to work until we’re done.”
What would SB 350 do?
Senate Bill 350 would allow Delaware’s three counties to separate properties within their jurisdiction into four separate tax classifications.
Those tax classes are outlined specifically in the bill:
- Class A: single-family, two-family, three-family and four-family residential properties
- Class B: multi-family residential properties with more than five units
- Class C: all other non-residential properties, including “commercial, industrial, utility, and institutional property”
- Class D: mixed-use properties containing both residential and non-residential uses
The bill would allow counties, school districts and vocational-technical school districts to charge different tax rates to these different property classes – with certain guardrails. It would also allow counties to create more property classes than the original four outlined in the bill.
Properties in Class B – apartments and other multi-family housing types – would now be considered residential for tax purposes. They could not be taxed more than 120% of their residential counterparts in Class A, according to the legislation.
The original split tax rates enacted last summer capped taxes on commercial properties, which included apartments, at 200% of residential properties. A new proposal looking to indefinitely extend that split in New Castle County, House Bill 462, lowers the commercial cap to 185%.
It is unclear how SB 350 would interact with other property tax reforms, like HB 462, that are being considered ahead of the close of the 153rd General Assembly.
According to the bill, a county would not be required to adopt the state’s new tax classes. County leaders could instead charge a single, uniform tax rate across all properties.
Relief for renters?
In his letter urging lawmakers to enact SB 350, Gov. Meyer called on the General Assembly to address the “gross inequity” of apartments being taxed more than single-family homes.
“We need to get this right for the Delawareans counting on us,” he said.
The higher tax bills on apartment complexes, Meyer argued, disincentivize more dense types of housing developments at a time when the state is attempting to add to its housing stock.
Meyer also seemingly took aim at HB 462, which looks to extend the current split tax rate system in New Castle County.
“Asking renters to carry a commercial tax burden and locking that treatment in permanently isn’t consistent with the values I know we hold in common,” he said.
While renters themselves do not pay property taxes, Meyer said higher tax bills on landlords can lead to other consequences like higher rents and deferred property maintenance.
It is unclear, however, if lowering taxes on landlords would directly correlate to lower rent costs.
And while Meyer has thrown his weight behind SB 350, the bill also faces opposition from county and school district leaders.
During a Senate Executive Committee hearing last week, A representative from the Delaware Association of Counties spoke against the bill. He said that all three counties have submitted “in-depth letters” detailing their opposition to SB 350.
“In short, the bill creates a myriad of significant, likely unintentional consequences,” said Lincoln Willis, the Delaware Association of Counties representative.
Chief among those consequences was the potential for tax revenue losses for counties, municipalities and school districts, Willis said.
Emily Falcon, the chief financial officer of the Colonial School District, also spoke against the legislation. Her comments in opposition, she said, were on behalf of every school district in New Castle County.
Falcon said SB 350 would further complicate an already fraught tax rate setting process for school districts as they grapple with a slew of other reforms that have already been enacted or are currently being considered by the General Assembly.
The bill, she said, would ultimately result in higher tax rates for other property types outside of multi-family homes.
Falcon also told Spotlight Delaware that school district financial officers in New Castle County were not part of the bill drafting process for SB 350, a departure from previous property tax reform bills.
Senate Bill 350 has not yet been formally voted out of committee, but that does mean it will not advance during the last day of the legislative session.
Lawmakers could theoretically vote the bill out of committee and immediately add it to the Senate agenda. It would then need to pass through the House before it could be signed into law.
The likelihood of those possibilities, though, is unclear.
None of the lawmakers sponsoring SB 350, including Sokola, Senate Majority Leader Bryan Townsend (D-Glasgow), Senate Majority Whip Elizabeth “Tizzy” Lockman (D-West Wilmington) and Rep. Cyndie Romer (D-Newark), returned requests for comment about the status of the bill on Monday.
