Kauai’s government is moving in a very dangerous direction regarding property taxes. The mayor and the council should immediately overhaul the real property assessment and property tax system along the lines of California’s Proposition 13 as outlined below. Prop 13
Kauai’s government is moving in a very dangerous direction regarding property taxes. The mayor and the council should immediately overhaul the real property assessment and property tax system along the lines of California’s Proposition 13 as outlined below. Prop 13 eliminated the wasteful annual reassessment of real properties. Instead, it relies on market forces to set the valuation when a property is sold or construction is finished. It also set a cap on the tax rate of 1 percent of the fair market value, with possible small adjustments for inflation.
My wife and I lived in Southern California in the ‘70s and remember well the events leading to taxpayer revolt and passage of Prop 13. Kauai does not need to make the same mistakes.
As background, people in entertainment and other industries, like technology in Silicon Valley, were doing very well, creating a lot of new wealth. California was also attracting wealthy immigrants from other countries, including the Middle East. People started to bid up prices in more desirable neighborhoods, many of them along California’s scenic coastline.
California’s Real Properties were reassessed annually, much like Kauai today. We soon learned that if a home sold at top dollar, or a movie mogul spent millions building on a vacant lot, everyone’s assessment would go up and property tax bills soared. Think Hanalei today.
Many people did not want to sell but just could not afford the new, staggering tax bills. So they sold at the best price they could get and moved to neighborhoods they could afford, property taxes included.
However, they had money and did tend to bid up prices so before long, more and more areas in the state were seeing assessments and property taxes rise. I came to think of it as financial waves starting big near the coast and gradually dissipating as they moved inland. It was very disruptive and millions of people were affected.
Most of the politicians were delighted . New property tax dollars came flooding in. Government employee salaries and benefits rose. A building spree ensued. The new offices, libraries, police stations, etc. were probably needed but the gold plating was not.
The citizens finally had enough and supported The People’s Initiative to Limit Property Taxation, now known as Proposition 13. It passed by a large margin in 1978, making it a hot political issue. The U. S. Supreme Court finally declared it constitutional in 1992.
As noted above, Prop 13 is designed to let market forces, and not an assessor’s guesswork, establish value of a particular property when it is sold. It is also intended to keep the taxes reasonable and stable. It rolled back existing assessments to 1975 levels. It forbids annual reassessment. The assessment can only change when the property is sold or when new construction is completed. It limits the tax rate to no more than 1 percent of the fair market value but does allow an inflation related adjustment which is capped.
One criticism of Prop 13 we heard when it was being passed, and we heard here much more recently, is that somehow “it isn’t fair.” There was nothing “fair” about the old system when many lived in fear that they would be taxed out of house and home. And for that matter, what is “fair” about people with similar incomes paying very different taxes because of the twists and turns of our tax code?
We have many friends who still live in California who are glad for the protection offered by Prop 13. No one has mentioned any problem with neighbors who moved in more recently and pay much higher taxes.
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John A. Love is a resident of Kapaa.
