Pending before the County Council is a 147-page bill (2274) authored by a group of finance department employees (real property tax committee) that would fundamentally change our county’s real property tax laws. The manner that the bill was presented and processed should be of great concern to all of us.
Accompanied by misleading handouts, the committee offered computations about the effect of the bill that were not supported by its terms, assumed tax rates that were without historic validity and used data that was not verifiable. The performance could well be described as a fraud on the council and the taxpayers.
Claiming simplification the bill says it will reduce the tax categories from the present eight to four identified as (1) Residential (2) Resource lands (3) General and (4) Resort. It is noteworthy that in many locations there is only one category and the 2002 citizen Tax Task Force recommended only two.
The provisions of the bill that affect the most citizens of the county are those in category (1) which relate to properties owned and occupied by residents or leased by residents and remove the current 2 percent annual cap and (2) Resource or farm lands. The committee asserts that the supposedly revenue-neutral bill will result in a 30 percent tax reduction for residential properties and 60 percent for farm properties. Let’s examine these contentions. The bill specifies that the County Council would have absolute control and discretion as to tax rates. Taxpayers put their head in the lion’s mouth and hope for the best. However, to promote its proposal the committee arrogantly assumed their recommendation that the rates for buildings would be three times the rates for land, an assumption not contained in the bill, and used rates historically inapplicable for the residential category. Taxes of the over 11,000 properties in the proposed residential class had been about $8 million when the 2 percent cap was adopted in 2005. But the committee said they had surprisingly soared to $13 million. This combination of unjustified assumptions resulted in a supposed $4 million decrease in the taxes that would be paid from the residential class after adoption of the bill. Similar assumptions were applied as to farmlands. This unprincipled manipulation was offered without apology by the committee. In fact, with its absolute authority over rates nothing in the bill would prevent the council — which many do not trust — from discarding the committee’s assumptions and doubling residential tax liabilities. That is why a restraint in the nature of the present cap is needed.
Even if the aggregate revenues from the residential category are relatively unchanged, the bill would significantly alter the tax burden within the class. At present a home with an appraised value of $1 million pays a little more than twice the tax of a home with a $500,000 value. Under the proposal the $1 million property would pay nearly four times as much tax. The longstanding proportionate tax policy is being abandoned.
Although the proposal is entirely written by tax collector oriented county employees, the committee tries to avoid assertions of bias and says that it “built on experience” from the 2002 citizen Task Force group. But the truth is that the committee did not include any major concept of the task force in the bill.
The committee lacked the courage to challenge the “sacred” right of the council to set rates without limitation. The mincing wording of Sec.5A – 6.3 d (5) that says “The tax rate for net taxable buildings shall bear a higher ratio to the tax rate for net taxable land within each category” is revealing. Despite its lack of clarity — what is a “higher ratio”? — the sentence apparently is intended to be some sort of justification for employing the three-to-one ratio. The 2002 Tax Task Force did the honorable thing and set forth the three-to-one ratio in the proposal. But the committee waffled. Interestingly, at present in three of the eight categories land rates are higher than building rates.
Numerous other inconsistencies exist. The presentation by the committee virtuously proclaims that land values will be calculated based on their market price. However, despite this statement, for over 1,000 farmland parcels market value is to be disregarded and a flat value is to be assigned. The bill says that building values are to be replacement cost, less depreciation, but the taxpayers are informed about neither of them. More could be mentioned.
The bill is also deficient in failing to include reform of defects. One omission is not addressing the unduly restrictive procedures for taxpayer appeals from assessments believed excessive. The current law says that to qualify for an appeal the new assessment must exceed the prior one by 20 percent. This provision may not be outrageous when property values are rising, but in current conditions when property values are declining 10 percent and more it is unreasonable. Even when a new assessment is unchanged if the property value has dropped an overassessment has occurred, an appeal would be impermissible. But even if the appeal threshold is met obtaining relief remains formidable. The Board of Review decides about 98 percent of all appeals by siding with the appraiser. Many taxpayers with good grievances don’t even appeal because the verdict is foreordained. This lopsided condition is a travesty and corrective steps for Kaua‘i’s taxpayers are crucial if our law is to be fair. My preferred solution would be to require full disclosure by the appraiser of his justification for the assessment and then binding arbitration if the matter could not be resolved.
The Kaua‘i property tax is important as the principal source of revenue for the county, but its provisions should be well considered and fair. The proposed bill 2274 contains some worthwhile reforms. In its present form, however, its adoption would be disastrous. The bill serves the tax collectors not the taxpayers. It is no time for silence. If you care about how the county will tax you let the council know of your concerns.
• Walter Lewis is a resident of Princeville and writes a bi-weekly column for The Garden Island.