Real property assessment notices have recently been sent by the Kaua‘i finance department to owners of property. Once again the assessed amounts are up. Residential property owners who occupy their homes tend to be somewhat complacent about the increases in their assessments because they believe they are covered under the 2 percent cap and the assessments are not affecting them. They would prefer to believe that the cap will remain and continue to shelter them.
In fact, the council has given indication that the cap is “temporary” and may be repealed at any time. In that case the soaring assessments would no longer be academic. It is a time for realism.
There is an aspect of the new assessments that should be thoughtfully considered by all owners of residential property. The Kaua‘i real property tax law provides that all property is to be assessed at its fair market value and divides the property to be assessed into two categories n land and improvements. The resources of the real property tax division are limited and in practice it uses imperfect methods to determine value. For improved properties the division attempts to set value based on sales of comparable properties in the neighborhood. But these sales are of the entire property, owners of improved property do not just sell their land or just sell their improvements.
So while there is comparability to use for the value of land, for improvements the assessor must use a different approach. Under the law the assessor is required to employ “systematic methods” and replacement or reproduction cost as the method. Because of its limitations, Kaua‘i County has regularly sought advice from the Honolulu Real Property Assessment Division which annually contracts for building cost studies. For the assessment year 2000, the Honolulu Division in September 2004 recommended for single family residences in Kaua‘i an increase of between 5.45 percent and 5.7 percent over the amount for the 2004 year. The same advice was received in July 2005 for the increase to be made for the 2006 year.
Despite this survey data, the Kaua‘i assessor last year increased the assessment of improvements by about 25 percent and a sampling of the notices issued this month show increases of 17 percent to 20 percent. What this means is that by the arbitrary action of our Kaua‘i assessor the assessments of improvements on Kauai owner-occupied residences is now about $400-500 million higher than it would be if the Honolulu recommendations had been used.
The legality of the action by Mr. Herring, the Kaua‘i assessor, is open to serious question. When the law requires that building assessments be based on systematic methods, it seems indicated that the process employed must be reasonable. The valuing of improvements by their reproduction costs is an acceptable practice, but ignoring historically applied information and replacing it with arbitrary and unexplained techniques appears to be unjustified.
Time is a factor. Property owners have under the Tax Code only until April 9, 2006, to protest their 2006 assessment and the assessment for 2005 is probably no longer challengeable.
Walter Lewis is a resident of Princeville.