Series: Part 1 – Property tax system reform work gets underway

The county is striving to reform its real property tax system in a way that is fair, clear and simple.

The goal is to accomplish the county’s overall policies — such as fostering affordable housing, preserving the island’s rural character and promoting agriculture — through tax incentives.

After working on the proposed package with stakeholder groups for more than a year, administrative officials in July transmitted the revenue neutral bill to the Kaua‘i County Council for approval.

The 147-page document contains sweeping changes to the current system. The bill proposes cutting the number of tax classes in half, implementing tax rates based more on use than zoning and significantly increasing homeowner exemptions while doing away with caps.

The seven-member lawmaking body must pass the legislation by Aug. 27 for the administration to have enough time to implement the changes to affect next year’s tax roll, county officials said.

With only two regularly scheduled meetings between now and then, the council must act quickly and decisively if it is to meet that deadline.

There was a public hearing at 1:30 p.m. yesterday at the Historic County Building. The council heard testimony for more than two hours on portions of the bill ranging from timeshares to homesteads.

The bill heads to the Committee of the Whole for possible revisions Wednesday. The committee, which consists of all seven council members, must pass the bill out to the council floor for final approval.

This would seem an intrinsic challenge considering the months, sometimes years, that substantial bills typically spend being hammered out in committee before advancing to the council level.

For instance, a bill to allow leashed dogs on the coastal path has been in the Parks and Recreation Committee since May. A bill to regulate transient vacation rentals was years in the works before it was passed last February.

Still, some council members remain optimistic about passing the legislation by month’s end.

Council Chair Jay Furfaro said last week that there are parts that the county needs to move on urgently.

The portion dealing with kuleana lands, which ties those properties to the original intent of the deeds, is a must, he said.

But other council members, such as Mel Rapozo, said the bill cannot be driven by a timeline.

Furfaro said some aspects of the package need to be carefully reviewed and slowly implemented. He noted the increased potential for unintended consequences if the changes are rushed.

For instance, the dramatic boost to homeowner exemptions could wind up as insignificant as they currently are if the economy turns upward and there are again big jumps in valuations. He said one of several amendments he plans to propose is a mandate to periodically review the exemptions and possibly tie them with the Honolulu consumer price index.

The current exemption for a primary residence on Kaua‘i is $48,000; $96,000 for residents age 60 and older; and $120,000 for age 70 and older. The proposal calls for increasing these figures to $300,000, $325,000 and $350,000, respectively.

The reduction on average of an owner-occupant’s net tax bill will be more than 30 percent, administrative officials said.

“These are some of the things on the radar screen,” Furfaro said.

He questioned if the county should be as aggressive as the bill calls for in its real property tax system.

“Is it right in this economy?” he said.

Furfaro painted a picture of the backdrop coloring the council’s decision-making process.

Hawai‘i has lost 3,000 jobs, 95,000 airline seats and five overnight cruise ships during this economic downturn, he said, which is not expected to recover until 2012.

Furfaro listed several other points of interest that could impact the county’s tax assumptions.

The federal government is faced with the largest deficit in history, he said. The county currently receives $82 million in the form of federal and state grants.

The Hawaii Tourism Authority has asked for an additional emergency marketing budget of $3 million, making up a booking loss of 7 percent occupancy, which will affect the county’s portions of the transit accommodation tax revenue.

Additionally, Furfaro said home foreclosures in Hawai‘i continue at a record rate of 19 percent over last year while federal home loan organizations such as Fannie Mae and Freddie Mac require bailouts with federal tax dollars.

The proposed tax system has four main components: land value, building value, tax rates and classifications.

There are no proposed changes to how land and building values will be calculated.

The Real Property Tax Committee — which includes representatives from the county Finance Department, an appraiser, a tax collection supervisor, a tax administrator, an ag land use inspector and council services — recommends low tax rates on land and three times as high tax rates on buildings.

This three-to-one proposal reflects buildings generally requiring more county services, such as fire and rubbish, than land, according to the committee facilitator, Eric Knutzen.

The proposed tax system would group properties of like uses. The current eight different tax rate classes would be reduced to four, reflecting a changed focus on use versus zoning.

The proposed four classes are residential, resource lands, general and resort.

While the tax burden on residents, the business community and agricultural land will on average be going down, resort rates will be going up but will still be less than Kauai’s sister islands, Knutzen said.

Over the next few weeks, The Garden Island will take an in-depth look at the four classes, the proposed exemptions and the anticipated impact of the tax burden shift away from residential and toward resort.

Additionally, the series of articles will look at the concerns of community members who want the county to keep the current 2 percent tax cap on owner-occupied homes and part-time residents and visitors who say they will be unable to keep pumping money into Kaua‘i’s tourism-based economy if the county increases taxes on their timeshare units and vacation rentals.

• Nathan Eagle, staff writer, can be reached at 245-3681 (ext. 224) or neagle@kauaipubco.com

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