Letters for Thursday — October 21, 2004

• Ohana Kauai

Ohana Kauai

We believe that the concept of limiting or capping by law growth in property taxes on Kaua‘i County (in a form similar to Proposition 13 in California) would have significant negative credit implications for the County’s existing and future G.O. bonds. As you are aware, the primary Source of revenue securing the County’s existing G.O. bonds is property taxes from residential citizens. This specific credit strength is one of the main drivers behind the County’s existing “A” category ratings from all three rating agencies. In addition, the ability to levy property taxes absent of any limitation provides substantial financial flexibility for the County to meet its ongoing financial needs (which include its G.O. debt service payments).

Any limitation on this ability to levy property taxes would be viewed negatively by the rating agencies, bond insurers and the municipal market as a whole, and would result in higher borrowing costs for the County. Historically, other states and local jurisdictions that have been forced to restrict their primary revenue sources in a manner similar to California’s Proposition 13 have experienced greater budgetary pressures during difficult economic times. In addition, such restrictions have forced municipalities to rely to a greater degree upon less stable alternative sources of revenues to meet their budgetary needs. The result in all cases has been deferred capital programs, deterioration in services and chronic fiscal deficits.

Kaua‘i County has always exemplified the model of an effective and well managed government. It would be indeed tragic to see Kaua‘i County subjected to the same problems that have beset local governments in California since the passage of Proposition 13 in the 1970’s. one need only look at the unfortunate state of affairs in California to see the enduring legacy of Proposition 13 and related measures.

Frank X. Lauterbur

Los Angeles, California