The Real Property tax provides the bulk of the funds needed to meet the expenditures by the officials of Kauai County. While county accounting practices mask true costs of our governance, last year the tax generated over $77 million in revenue, about 70 percent of total county income.
Under the Kauai Code the Real Property tax assessors are required to assess all taxable properties at 100 percent of their market value “by the market data and cost approaches to value using appropriate systematic methods.”
There are no surveys publicly available that compare island-wide assessment amounts to sales prices. However, a study was made in 2002 of sales of homes, condos and land that year in Princeville and the related assessments amounts. It showed that assessment amounts varied between 30 percent and 110 percent of sales prices. Properties with a fuller appraisal pay an undue share of the tax burden but are without remedy. This study was not a ringing endorsement of the quality of assessments that had been made.
At the time of Hurricane Iniki in 1992 the total assessed value of all island properties was about $6.7 billion and this amount remained relatively constant through 2002 when the amount was $6.9 billion. This stability was not to last. Beginning in 2003 assessments soared. For the year 2006 total assessments were $18.5 billion and it is expected that assessments just announced, as of January 2007, will be over $20 billion. In summary assessments have trebled in five years. These ample assessments allowed our county officials to make massive spending increases while claiming tax rates were not rising.
The Real Property tax assessors office is a small one. There is only a limited cadre of persons making the assessment determinations for over 30,000 taxable properties on our island. Their work is complicated by the fact that the law requires a separate assessment for the improvements and for the land on each property.
For many years prior to 2005 the Kaua‘i assessor’s office relied on data compiled in Honolulu for assessments of improvements as to changes in statewide construction costs.
In the more recent years the average annual increase was about 5.5 percent as applied to Kaua‘i. Despite this consistent practice, in 2005 an arbitrary 25 percent increase was assessed for improvements on residential properties. In 2006 the increases on improvement assessments were between 10 and 20 percent.
Evidently the director of our assessor’s office is satisfied with his inconsistent maneuvering because in the current year residential properties improvements assessments were generally unchanged.
Both national and local data indicate that residential real estate values declined in 2006. Apparently our assessor does not read the papers. The recent notices for assessments as of January 2007 for land are showing increases up to 50 percent compared with the assessment amount as of January 2006. If the amounts as assessed for January 2006 correctly reflected fair market value at that date, then it appears that with the resounding assessment increases for 2007 and the real market conditions showing value declines, many Kaua‘i residential properties are being assessed at greater than their market value.
Under the Kaua‘i Code, taxpayers receive notices of assessment in mid-March and have the short period until April 9, to appeal any over-assessment they believe has occurred. The appeal may be made to either the Board of Review here on Kaua‘i or to the Tax Appeal Court in Honolulu. But there are some formidable hurdles. The Code provides for no assessment adjustment unless “assessment of the property exceeds by more than 20 percent the assessment of market value used by the director as the real property tax base.”
How this opaque language should be read is unclear, but the assessor’s interpretation is that unless your assessment is more than 20 percent over market value there is no valid appeal. If your appeal is made to the Board of Review, it has a reputation of being a “kangaroo court” in that the findings of the assessor are routinely upheld. As the Code refers to assessment of the entire property, it may well be that appeals as to the land only, or as to the improvements only, would be impermissible.
In 2003 a group of nine citizens was appointed to constitute a task force to recommend reform of the real property tax laws. After nine months of meetings it reported conclusions in early 2004. They proposed major changes in how properties should be assessed and significant improvement in taxpayer’s rights as to appeals.
Last month after three years of being in limbo these thoughtful proposals were dismissed by our County Council. It is rumored that county officials are presently considering new changes in the property tax laws but are not seeking taxpayer input. Well-considered recommendations by fellow tax payers have been rejected and instead we are to get proposals formulated to meet tax collectors objectives. Can we reasonably expect that the legitimate concerns of citizens will be met and our tax system will be fair and equitable?
• Walter Lewis is a resident of Princeville and writes a biweekly column for The Garden Island.