LIHU‘E — Kaua‘i Mayor Bernard Carvalho Jr.’s office this week announced a proposed increase of 12 percent in the 2012 operating budget to $165 million, although property tax revenues are expected to continue their decline an estimated 6 percent to
LIHU‘E — Kaua‘i Mayor Bernard Carvalho Jr.’s office this week announced a proposed increase of 12 percent in the 2012 operating budget to $165 million, although property tax revenues are expected to continue their decline an estimated 6 percent to $76.6 million for the next fiscal year.
During current fiscal year, which ends June 30, property taxes comprise $81.5 million of the county’s $147 million total operating budget, or 55 percent. This is 89 percent of all revenues going into the county’s General Fund.
Declines in real property values could impact the county’s ability to provide the level and scope of services residents now receive, county Finance Director Wallace Rezentes said.
“The effects cannot yet be determined and will largely be dependent upon budgetary policies going forward,” he said.
The budget proposes diverting nearly all of the county’s unappropriated surplus revenue from previous years, almost $32 million, to compensate for next year’s shortfalls.
Gross taxable property assessments declined 11 percent between tax years 2009 and 2010, from $20.61 billion to $18.44 billion, representing the most significant decline since the crack up of the nation’s real estate boom.
Though gross assessments data for the current year is unavailable, county officials said it is expected to fall again.
From January 2008 through December 2010, 1,627 new taxable properties were added to the local tax base, representing a 5 percent increase in inventory.
The tax rate has not changed since 2006, when it was lowered $0.05 for most tax classes for 2007. Building and land are assessed separately.
“We in the private sector consider 2006 to 2007 to be the peak of the market,” said Dennis Nakahara, a Kaua‘i tax appraiser for 27 years. “Since then, as a whole, property values have decreased 40 percent, more or less — but not 15 percent. No way.”
He said he believes many residents are being highly over-assessed.
The opinion of Michael Olsen, president of Kaua‘i Board of Realtors, coincided with Nakahara’s in that property values have declined at a more rapid clip than the county is assessing.
The most effective way to bring taxes to “a more fair level” is to file a tax appeal and lobbying to ensure the appraisal process reflects true market values, he said.
The number of property tax appeals increased from 203 in 2008 to 763 in 2010.
Real Property officer Steven Hunt said the spike in appeals to 961 during 2009 was primarily due to changes in the assessors’ method of allocating value between land and improvements. Of the 961 appeals, 547 were in the apartment (condo) and resort classes.
Prior to that, in 2005 there were 619 appeals; 2006 saw 319; and 2007 had 334.
Tax appeals are required to have a 20-percent margin of discrepancy between the assessed value and market value to be considered valid, according to the Kaua‘i County Code.
“If there are no appeals, then the assessments are clearly too low,” Hunt said. “If more than 5 percent of taxpayers file appeals, then the assessments are likely too high. A typical assessment year should generate appeals for about 2 percent of the taxable properties, so we are anticipating 650 to 700 appeals.”
Olsen said, “I think if people went to the tax office and appealed their assessment, they would probably get it,” adding that REO properties keep bringing appraisals down.
Distressed sales may be factored into assessments depending on their reliability as market value indicators, Hunt said.
Distressed market
Julie Black, principal broker and owner of Kaua‘i Dreams Realty, tracks REO property transactions on Kaua‘i. In her estimation, at least one third of residential property transactions during 2010 were distressed sales, with REOs representing at least 20 percent and short sales more than 10 percent.
Hunt said he documented 116 distressed condominium sales out of 210 total condo sales during 2010.
Quantifying the decline in property values is also difficult because of the limited number of sales since the market’s bubble burst.
The flood of distressed properties that swept over the county between 2008 and 2010 begs questions as to whether the distressed market is the new normal, whether distressed sales data should be collateralized, or whether it should be thrown out altogether when determining assessed values.
Hunt said when an assessor begins to see sales and listings that were not subject to distressed situations fall to levels similar to those sales that were under duress, it becomes evident that the market has become distressed.
Levels of distress are measured by area, and when all properties in a given area or project are distressed, the distressed level becomes the market, he said. This has been the case for projects such as Kaua‘i Beach Resort.
This year, the distressed sales market was “primarily used as collateral data to the market sales and, in general, appeared to be about 15 percent lower than non-distressed sales,” Hunt said.
“Sales on the high and low ends of the price spectrum are regarded as outliers and are not typically used as valid market value indicators by the assessors,” he said. “Distressed sales that were exposed to the market for a reasonable period of time and did not appear to sell at liquidation prices were included as valid comparable sales.”
Sales for last year occurred largely at the high and low ends of the market, thereby skewing the trend in median sales prices tracked by MLS.
