Tax relief is not a lost cause: Council can still correct injustices

Since 1976 when the county succeeded to the archaic and cumbersome Hawai‘i real property tax law it has been the dominant revenue source for the county.

Listening to the closing debate resulting in the defeat of Bill 2425 to increase exemptions for resident homeowners it became apparent how little some council members understand the principles of real property taxation and their authority and duties.

Under the Kaua‘i County Charter the Kaua‘i County Council has legislative and policy setting responsibility for the county, and the mayor, as chief executive officer, and his staff have the duty of carrying out and executing our laws and functions. Council duties include the setting of property tax rates.

Resident homeowners constitute about one third of all Kaua‘i taxpayers and their properties provide about one quarter of the total value of all assessments. However, because of lower tax rates than other properties and exemptions, for a good many years resident homeowners have paid only about 10 percent of all property taxes

 In general, your property taxes are the product of the assessed value of your property less exemptions and times the applicable tax rate. The Real Property Assessment Office has the duty of valuing all taxable property. In the early years of this century with property values and assessments soaring because of a buoyant economy and the council refusing to reduce rates, property taxes were escalating sharply. In the aggregate in this century the total value of real property assessed (nominally at fair market value) has varied from about $12 billion to over $20 billion, rising until 2009 and declining thereafter. There is no compelling reason why the council did not adjust rates when values rose, but apparently the council somehow believed that the taxpayers would not find the council accountable for higher taxes if rates were not changed. This myopic view has persisted and rates for resident homeowners have not changed for about 10 years.

In 2003 a citizens group, ‘Ohana Kaua‘i, initiated a proposed charter amendment to restore tax amounts for resident homeowners to 2000 levels with a 2 percent cap per year on future increases. Although the council opposed this measure, they co-opted and in 2004 adopted its 2 percent cap portion.

The homestead class benefited from the cap for several years, but since 2008 there has been a substantial drop in property values. With rates remaining unchanged during this decline, taxpayers other than the homeowners saw over $20 million in reductions in their property taxes while the homeowner group saw increased taxes each year because of the cap. In the past few years homeowner taxes increased about $3 million. These changes caused the share of property taxes paid by resident homeowners to increase and under the mayor’s proposed 2013 budget the share would be over 12 percent.

Councilman Tim Bynum saw this injustice and introduced Bill 2425 to reduce it. His partial remedy — to increase homeowner exemptions — was defeated last month. If tax rates were kept constant, increased exemptions would reduce taxes for the homeowners group. But if revenues from the homeowners class were kept constant increasing, exemptions would remove or reduce revenues from lower value owners and shift them to middle and upper value property owners. The only direct way to reduce the tax burden of the homeowner group is to reduce tax rates.

Various reasons were ascribed by council members for turning the measure down. Most of them demonstrated a lack of understanding of the law or their powers as council members. For example, the contention that the bill would jeopardize tax revenues is unwarranted as the council can simply adjust rates to avoid revenue loss. The observation that the bill was not “targeted” was misplaced as the bill was designed to assist a taxpayer group that deserved relief — the resident homeowners.

If council members accept the view that the tax share paid by resident homeowners is now too high — and they should — there is only one straightforward way of dealing with that problem. That would be to adopt a bill limiting the percentage of taxes that would be paid by the resident homeowner class. The share paid can also be controlled each year by a simple adjustment in the rate applicable to the homeowners. While this result could be achieved for a single year without an ordinance, regular continuance of the correction can only be assured with an ordinance.

An important underlying reality is that our council has failed for some time to exercise the control that it should have over tax policy. Except for Bynum’s proposals, nearly all tax law amendments sought have originated with the administration. Each year the council receives the mayor’s proposed budget which includes the proposed property tax revenues. The tax revenue computation in the budget is made using the current assessments and the mayor’s proposed tax rates which typically restate the prior year’s rates. In usual practice, the council passively accepts the mayor’s proposals as to property tax revenues, and thus from year to year rates remain constant. This delinquency is inexcusable. When existing law and rates generate a condition that needs correction, the council should be on the lookout for it and use its power over rates and other provisions to remedy it.

Giving relief for resident homeowners this year is not a lost cause. The council could still act incident to its budget review function to make the appropriate adjustments required in the homeowner class and the other rates to maintain proposed revenue while correcting the unjust share being borne by our residents. We can hope that the council members will come to the realization that this is the proper course for them to take. Your contacting council members and urging lower homeowner rates would help.

• Walter Lewis is a resident of Princeville and pens a biweekly column for The Garden Island.