One of the results of the Hawai‘i Constitutional Convention of 1978 which set several “home rule” provisions for Hawai‘i’s counties was that Kaua‘i was given the authority to take over the assessment and revenues from the real property taxation which had been operated by the state. It was a mixed blessing. While the county would enjoy its own new revenue source, the property tax structure it inherited was seriously flawed.
Although in most jurisdictions there is only one rate for all taxpayers, in the Hawai‘i law there were eight classifications with each having a different tax rate for land and for buildings, making a total of 16 separate rates that needed to be set each year. The classifications had uncertain boundaries. Although a separate classification was provided for resident home owners, the “Homestead Class”, at least 15 percent of such properties were found in other classes. Some reform was seriously needed.
In 2002 Mayor Kusaka appointed a citizen Real Property Tax Task Force with a mission to review the law and offer their suggestions for its change. The task force met regularly for over a year and generated a multi-point program for revision of the law. While their product was meritorious and was introduced as a bill in the council, it received only passing attention and no real chance for adoption because council members were aggrieved that they were not the moving force behind the proposals.
The next year a citizen sponsored effort was made to amend the Kaua‘i charter to protect resident home owners from huge tax increases that were arising from the surge in property values at that time. The measure was adopted by Kaua‘i voters in 2004 by a nearly two to one margin but it was strongly opposed by both the council and the administration. In a rather unique litigation the county challenged the amendment that had been duly adopted by its voters in court. By a divided Supreme court decision the county was upheld and the charter amendment never went into effect.
In 2008 a group of county employees in the Finance Department developed a proposed tax reform in many ways along the lines proposed by the 2002 Task Force. It also failed because it had neither adequate public or council support.
It appears that although there is general recognition that the law needs some significant changes, acceptance of a program requires that its formulation must be one in which the public, the council and the administration each have had an opportunity to participate in its formation.
Understanding the respective roles of the branches of government and the public is important. Under our system the council sets policies and the administration executes them. Thus for our property tax regime it is important for the executive branch that the tax enable the production of revenue necessary for its share of county expenses and that its provisions be administratively feasible. Our council needs to set terms that are revenue productive and are fair for the various taxpayer groups and individual taxpayers. And the public needs to have terms that are fair and stable and appropriate rights to appeal assessment and other decisions that result in unfair applications.
As above noted a major flaw of the present real property tax law is the bulky number of taxpayer classifications. It would be a beneficial change to reduce them to one or two and to differentiate among taxpayer groups as necessary by exemptions or credits. Valuation methods such as those used for time shares should be reexamined. Over the years some special provisions such as the “circuit breaker” and the “2 percent cap” have been adopted to accommodate particular issues. A review as to the necessity for their retention should occur.
A specific group of provisions that warrant a close look are those setting forth taxpayer rights to appeal assessments deemed excessive. Currently the language of the law is somewhat unclear but is generally understood to require that the assessment must be more than 20 percent above the amount that the taxpayer believes is the fair market value of the property before an appeal is allowed. In recent times with values generally declining and assessments that may not be current the law sets an unreasonable threshold for appeals. A more realistic provision is needed. A related problem for taxpayers is that appeals are heard by the appointed Board of Review. Its history shows that it normally acts as a rubber stamp for the assessor’s office. A fairer procedure ought to be found.
Given the numerous issues that should be reviewed an isolated “Band-Aid” type of enactment should be avoided. The climate is right for a comprehensive look at the changes that should be considered in our archaic law and an effort should made to create an appropriate assemblage of the various interests that ought to be involved in the formulation of proposals for amendments. The financial affairs of our county would likely be materially enhanced if these matters could be suitably coordinated. An opportunity for leadership by our county council is beckoning.
• Walter Lewis is a resident of Princeville and writes a biweekly column for The Garden Island.