Guest Viewpoint for Saturday — November 08, 2003

• Real property tax task force needs to expand its scope

Real property tax task force needs to expand its scope

By WALTER LEWIS

The convening of the County-appointed Real Property Tax task force earlier this year was a recognition by our County officials that matters were seriously amiss in the operation of the County’s real property tax system. Regrettably, however, the energies of the well-chosen members of the task force have, to a significant extent, been misdirected.

The task force function was fundamentally flawed from the outset. When it accepted a limitation that its recommendations would be revenue neutral and the Council would retain full power to set rates and control revenues the task force was largely circumscribed. In consequence, virtually the entire focus of the task force has been oriented to the issue whether the tax assessments imposed on Kaua‘i’s taxpayers are allocated in a manner that the task force considers to be equitable. Three very important aspects have been almost totally ignored.

First, the task force has assumed that the assessment system is operating efficiently and that assessments are adopted in accordance with the law and are rationally defensible. To an unacceptable extent this assumption is unwarranted.

Under the governing law real property assessments are to be made annually at 100% of the market value of the property. A recent survey of residential properties disclosed that, in fact, properties that were sold in 2002 were, on average, assessed only about 70% of the price at which the properties were sold. When this circumstance was pointed out to the task force one of its members, formerly with the County assessor’s office, argued that assessments always lagged by at least a year and that if prices were not rising the differential would be smaller. This excuse may have some merit, but the underlying point is that the statutory mandate was disregarded and a significant variance remains. However, a more disturbing point noted in the survey was that the range of the underassessments varied greatly. Some properties were assessed at less than 50% of the price at which they were sold, while others were assessed close to the sales price. Putting the matter another way, the system was sufficiently decayed that properties having comparable market values had vastly disparate assessments. Not only was this an indictment of the assessment staff and the methodology of the county assessors, it was markedly unfair to our taxpayers and it arises despite the substantial costs of the administration of the tax.

Second, a glaring systemic disorder exists in the taxation of properties that are classified as “agricultural”. The responsibility for this problem is only partially to be borne by the real property assessors office. The land use practices in our County, as is true elsewhere in the state, are inconsistent and illogical. Land zoned as agricultural is variously used in agricultural subdivisions as landed estates for wealthy owners, held without any productive use or actively involved in farming or ranching. Until a rational method is created to deal with these anomalies fair taxation cannot occur. But historic practices of the tax office have exacerbated the problems. Exemptions dating back to the times of large scale sugar operations and valuation protocols impede efforts to have a structure that provides responsible taxation to our agricultural lands.

Third, the task force has focused on assessment amounts and not on tax amounts. Disturbingly in the past five years County budgets have risen about 50% and because the County relies on the property tax to fund its operations property taxes have also soared. Tax amounts are the product of assessments and rates. So long as the Council determines rates any reform is likely to be illusory.

Any tax system will have its critics and no tax can be defended as being totally fair. But we need to develop a system that assures a more stable revenue rather than one having irresponsible variations and a more acceptable allocation of the tax to the taxpayers must be found. One potential solution is to change to a system where a taxpayer’s obligations during the term of his ownership are related to his purchase cost. This will avoid the need for the costly annual assessments which are so frequently erroneous and instead only require them when there is a disposition of the property. A related solution is the thoughtful program for a charter amendment now being proposed by a citizens group to reduce taxes on resident owned property by a roll back to a base year which would also eliminate the need for annual assessments.

The task force is urged to reconsider the limitations that it has acknowledged and expand the scope of its agenda when it makes its recommendations to the County officials. Succumbing to the present restraints will almost certainly doom the recommendations of the task force to the same disregarded fate that has been experienced by most other County task forces.

Walter Lewis is a Princeville resident.