As property taxpayers across the state receive notices of the valuation of their real property for tax purposes, elected officials will offer a spate of proposals to provide relief for homeowners.
With proposals that recommend raising the home exemption to proposals allowing homeowners to dedicate their owner-occupied homes to residential use for a period of years to proposals limiting the annual increase in homeowners’ tax bills, county officials figure that they can provide enough smoke to hide the real solution to higher assessments.
When it comes right down to the facts, over the years county officials have managed to cloud the real property tax picture with all sorts of gimmicks to provide tax relief to the largest segment of their voting constituents, the homeowner.
After all, when they hear the cry “we are being taxed out of our homes,” they run for cover.
Probably the longest-running real property tax relief gimmick is the home exemption. It became a feature of the real property tax in the thirties when it was perceived as an incentive to transients who had left the dust bowl of the Midwest and headed out to settle down and purchase a home and become respectable members of the community.
The proposition was that if you would buy a home and settle down, the government would lop off a part of the value and thereby reduce your real property tax bill as a homeowner.
However, in reality, as values rise and demand drives prices higher, a static home exemption becomes almost meaningless. That’s why proposals to merely raise the home exemption fall short of providing meaningful tax relief. So, say elected officials raise the home exemption to $100,000, how helpful is that if your assessment went up by $200,000? Or say in five years from now if the value of your home grew by $500,000? Conversely, if your valuation went up by only $50,000, the $100,000 home exemption will wipe out, if not decrease, any increase from your bill last year.
But more importantly, the home exemption is extended to any and all homeowners regardless of whether or not the homeowner has the means to pay the property tax on his or her home. Thus, for those homeowners at the high end of the income scale, the home exemption is nothing more than a windfall. In a sense, granting the home exemption to persons who have the means to pay the full tab of their real property tax bill is a waste of city resources and comes at the expense of taxpayers who cannot afford to pay the property tax levied on their home. Proposals that would tie increases in real property tax bills for homeowners to some sort of economic indicator such as the consumer price index (CPI), otherwise known as inflation, or perhaps personal income ignore the changing needs of the county. Such limits assume that the revenues will grow no faster than the economic indicator and ignore the fact that the cost of services may outpace the growth of the economic indicators. What is even worse is if the limit applies to only one type of property, in this case to homeowners, it is almost guaranteed that future revenue needs will be passed on to all the other classes of property that are not protected by the limit. Thus, whatever revenue needs the county will have will be passed on to these other classes of property which are usually businesses who in turn will pass the added burden on to their customers in the form of higher prices. Guess who those customers are? If county officials truly want to alleviate the soaring valuations, the simple solution is to lower the tax rate to produce what revenues they need to run the county. If the rate is not lowered sufficiently in the eye of the real property taxpayer, then elected officials have to go back to the spending drawing board and ask which services or projects must be eliminated so that the rate can be lowered some more. This means that taxpayers also have to acknowledge that they may have to do without or with a lesser level of county services.
This is the accountability relationship that is so important in the relationship between elected officials and the taxpayer. And elected officials must also realize that if taxpayers are not willing to pay as much in taxes, then they have a duty to decide which services should be pared back or done without in order to be able to lower the property tax rate.
All of the gimmicks to provide relief to homeowners are nothing but that, gimmicks. County officials should make every effort to clear the air so that the property taxpayer understands the tax and understands what he is paying for in county services.
• Lowell L. Kalapa is president of the Tax Foundation of Hawai‘i.