Traditionally tax laws are written to provide revenue. However, the preamble of the recently proposed bill to amend our real property tax laws says its intent is to accomplish the policies of the county through tax incentives, one of which is the encouraging of homeownership. Yet contrary to this purpose, a key provision of the bill is the elimination of the 2 percent annual increase limit now protecting a taxpayer who owns and occupies his home. This cap, which was adopted in 2005, applies to about one third of the county’s taxable properties.
For perspective we should review some history. In the past decade, gross assessments on taxable properties have increased from $6.3 billion in 1998 to $20.7 billion in 2007. This 228 percent increase is enormous.
Assessments of homestead class properties grew even faster, up from $1.143 billion in 1998 to $4.824 billion in 2007, or 322 percent. In the same period, the growth in our county government spending and our property tax revenues has had a moderately smaller increase.
This escalation in spending is much more than the roughly 25 percent inflation increase and the 8 percent population increase would warrant. If increases in government spending continue at this historic rate, your tax bill in 10 years will be three times what it is today.
At the time of the adoption of the 2 percent cap a legal challenge to the Ohana Kaua‘i charter amendment enacted in 2004 by nearly two thirds of the county’s voters was pending. The charter amendment terms included a 2 percent cap on annual tax increases for the resident homeowner group.
However, as Kaua‘i’s taxpayers well know, the policies of our officials are sometimes fickle and what is bestowed at one time may be withdrawn at any other. Our elected representatives appear also unreliable in saying they want to encourage homeownership, but then seek to repeal the provision that is the encouragement .
The real reason our tax collectors have for ending the cap is that they want resident owners to pay more taxes. But they don’t say that. They argue that because of the 2 percent limit, resident homeowners are now paying a smaller percentage of the total property tax revenues.
In the years preceding the adoption of the cap, resident homeowner taxpayers paid a little more than 10 percent of all the property taxes. In 2007, homestead taxpayers paid only about 9 percent of total collections.
County officials claim that in the past three years, homestead property owners have accrued about $13 million in tax savings because of the limit. In other words, they are claiming our taxes would be about 50 percent higher without the cap. Is that a preview of what will happen if the cap is repealed?
The modest decline in the percentage of property taxes paid by those in the homestead group occurs because the rate of county annual expenditures has increased considerably more than the 2 percent allowance in the cap. The corresponding increases in the tax revenues to pay for the spending have also been substantial. From 2005 to 2007 tax collections increased 40 percent.
Another contention sometimes voiced by those who disfavor the cap say it discriminates between taxpayers and we need to put everybody on an equal footing. The argument assumes that if one taxpayer buys a property for $400,000, and some years later another taxpayer buys a comparable property for $800,000, each should have the same tax bill. This position is defective because properties with the same overall value will be taxed differently depending on differing land and improvement assessments, and the proposed bill does not address that situation. However, the best analysis is that the defective nature of ad valorem taxation is the problem.
In other forms of taxation, such as the income tax, if a property gains in value it is not taxed until disposition of the property occurs. But where the market value of property is measured annually, taxation may soar because of circumstances beyond the control of the taxpayer.
A taxpayer acquires a residential property in keeping with his needs at the time of acquisition and budgets his mortgage payments and taxes accordingly. It is unfair that his taxes should reflect a huge change in taxes on his property because a speculator purchased a home down the street at an inflated price.
Having a stabilizing limit on annual change in tax amount is a vital benefit. It is the law in many other places and should remain so here.
There is no reason why our government should look to residents to feed its spending appetites. It is clear that much of the growth in government spending is attributable to the needs to service our resort facilities and tourists, and it is inappropriate to expect that residents should have the financial responsibility for these costs.
The authors of the new tax measure have included in it some worthwhile improvements, but their efforts to place our residential homeowners at risk for unlimited tax increases must be rejected. There is no way that giving our not always dependable County Council a blank check to set resident owner taxes at whatever level enables the council to enjoy their spending proclivities is right for our citizens.
• Walter Lewis is a resident of Princeville and writes a bi-weekly column for The Garden Island.