Several issues in Real Property Tax law need comprehensive updating

Under the Kaua‘i County Charter the function of the County Council is to make, amend and repeal laws which identify the policies intended by our county to govern our affairs. The charter prescribes that the function of the administration, headed by the mayor, is to carry our and execute the laws and policies enacted by our council. That is the way it is supposed to be. In practice, though, the lines are blurred and sometimes reversed.

An excellent illustration of what actually goes on may be found in the bills 2416 and 2417 which received their first reading at the council meeting on Sept. 21. These bills which originated in the Finance Department of our administration propose to amend the county’s real property tax laws.

Both bills ostentatiously proclaim that “the purpose of this bill is to update the real property tax provisions for the county of Kaua‘i and provide for a fair, more efficient real property tax system.” and then go on for 55 pages to offer their proposals. The Kaua‘i property tax law has more pages per dollar of revenue than the Federal Internal Revenue Code.

Some of the provisions in these bills relate to issues arising in the administration of the tax law by the Real Property Assessor’s office and may constitute legitimate subjects for presentation by the administration. However a number of other provisions blatantly usurp the role of the council and deal with the policy issues which are the domain of the council. These inappropriate extensions of the administration function include terms that would change the homestead exemption enjoyed by resident home owners, would repeal the circuit breaker tax credit designed for low income taxpayers, and would change the tax limit for these with permanent home use.

These intrusions by unelected members of the administration into the realm of the council are troubling. Although many people regard any effort to change our tax laws as an inevitable element of the governmental process and unworthy of interest, we should be more discriminating. By what right are agents of the tax collector empowered to proclaim that that their proposals are “fair.” Such an assertion should only be recognized if approved by our taxpayers after a meaningful opportunity to provide their views to the council.

The chair of the council Finance Committee is Tim Bynum and property tax amendment bills would be referred to his committee for processing. Mr. Bynum has been talking with people about potential changes in the property tax law, but he is subject to some significant limitations. The Hawai‘i Sunshine Law as it is interpreted basically allows discussion on any concept with only one other council member. And Mr. Bynum does not have any staff for researching and drafting proposed bills. But he is thoughtfully engaged in looking for a beneficial reform of our property tax laws.

I have spoken to Mr. Bynum and would like to share with you the three principal points I offered to him:

1. There are vital flaws in the present property tax structure. This is not a time to employ a Band-Aid approach and try to cherry-pick specific problems. When there are a variety of concerns that need to be addressed trying to solve some of them and neglecting the remainder is not the proper choice. A program of comprehensive reform is far better.

2. The current law provides for eight classifications of taxpayer property and it requires separate assessment of land and building for each classification making it necessary for the council to set 16 different rates. This necessity has proven so onerous that the council has made no rate changes for over five years. The preferable solution is for our law to change to the practice of many other jurisdictions and have a single rate for all taxpayers. This arrangement would allow the council to set only one rate each year at a level designed to yield the desired revenue to meet county operating costs.

3. There are over 30,000 parcels of taxable property in the county of which about a third are owned and occupied by county residents. Historically the effective rate for these properties has been between thirty and fifty percent of the rate applicable for business classes such as stores and hotels. The variances arise from age of the owner and value of the property. It is both fair and appropriate to retain the more favorable treatment given to resident occupied sites. If as suggested above there were a single rate for all taxpayers, the best way to accommodate our citizen residences would be to provide an assessment exemption of 55 percent for resident owners under age 65 and a 65 percent exemption for those over age 65. These amounts would enable the elimination of the present fixed dollar exemptions and preserve the existing preferences for our citizens. These terms would give the largest group of our taxpayers, the resident homeowners, their reasonable expectations of stability and fairness. Similar provisions should be given for our citizens who rent their residences.

There are a number of other issues that need attention in a comprehensive reform of our property tax laws. We should, however, avoid piece meal proposals like bills 2416 and 2417 and instead act only through efforts like the well considered 2003 program of the Real Property Tax Task Force.

The real property tax is the principal revenue source for our county. It is in our interests that its terms be updated to provide a fair and well structured revenue measure.

• Walter Lewis is a resident of Princeville and writes a biweekly column for The Garden Island.


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