Property tax exemption defeated

LIHU‘E — County council members Tim Bynum and JoAnn Yukimura lost their battle to lower property taxes for Kaua‘i residents Thursday, with their opposition citing economic uncertainty.

By a 2 to 5 vote, council defeated a proposal from Bynum that sought to increase real property tax exemptions for the island’s homestead class of taxpayers. Homestead class refers to those who live in the home they own.

“This is not so much about tax relief, it’s about tax fairness,” said Council Vice Chair JoAnn Yukimura, the only one besides Bynum to vote in favor of Bill 2425.

A 2 percent tax cap approved by the council in 2004 protected homesteaders from the rising market and gave them predictability. But when a property sells, taxes are reset according to the county’s current tax assessment. This has created huge tax inequities, especially for homesteaders living next door to each other and owning similar homes, according to Bynum.

The council recently passed a bill to change the 2 percent cap to a Permanent Home Use cap reflecting Honolulu’s Consumer Price Index for the previous year.

The bill, first introduced Jan. 25, originally proposed a $225,000 exemption, with increments of $25,000 for seniors over 60 and 70 years old. The bill was deferred several times by the council’s Planning Committee, until an amendment last week by Yukimura reduced the exemption to $175,000, with no age brackets.

In the bill’s original version, the county would give homesteaders $5.4 million in exemptions. Yukimura’s amendment last week cut the county’s potential loss of revenues in half, to $2.7 million, but it also gathered enough votes to allow the bill to move out of committee and into full council Wednesday, when a final decision had to be made.

The island-wide power outage Wednesday evening, however, caused Chair Jay Furfaro to recess the meeting early. It reconvened Thursday morning.

With the hours ticking until today’s deadline for the administration to finalize tax adjustments for the upcoming fiscal year, county officials expected a council decision soon.

“We have a certified tax roll that is due tomorrow. We are in desperation mode,” county Finance Director Wally Rezentes said Thursday.

“We are against our backs right now,” said Steve Hunt, from the county Real Property Tax Division. “We can’t start programming until we know your decision.”

As discussion progressed from Wednesday to Thursday the outcome was still up in the air until the council’s final thoughts.

Chair Jay Furfaro and council members Mel Rapozo and KipuKai Kuali‘i seemed opposed to the bill. The position of council members Nadine Nakamura and Dickie Chang were not so clear, while Yukimura worked to find a compromise for Bynum’s proposal.

Weeks ago, Furfaro called the independent county auditors to give a presentation on the county’s financial situation. On Wednesday, the Honolulu-based auditors were back on Kaua‘i. According to the auditors, the county ended Fiscal Year 2011 on June 30, 2010, with $51 million in the bank.

According to numbers given by Furfaro, that money is gone — appropriated for different reasons, including the creation of a $25 million reserve fund — and the county is now facing a potential $2.64 million shortfall.

According to Bynum, the administration has always ended its fiscal years with a surplus — and it will be no different when the current fiscal year ends June 30.

For the first six months of Fiscal Year 2012 (July 1 to Dec. 31) the county has some $9 million in surplus, according to Furfaro’s calculations. That number could increase by June 30, when the current fiscal year ends.

The budget for Fiscal Year 2013, submitted March 15 by Mayor Bernard Carvalho Jr., is counting on that surplus and more. It includes $12.55 million form “unappropriated surplus/fund equity.” It also appropriates some $10.75 million from the reserve fund.

County Treasurer David Spanski on Wednesday said if the council approved the bill, the reduced tax revenues could potentially affect the county’s bond ratings. Bynum did not agree.

Rapozo said declining revenues since 2008 will continue, and that the tax inequities would still remain under this bill. He said he would love to give tax relief to Kaua‘i residents, but he has to do what is right rather than what is popular.

Chang opposed to the bill, saying there is too much uncertainty right now. “This is not the time,” he said.

Kuali‘i said the main reason he is opposed to the bill is because of financial responsibility. He said the relief, $2.7 million, is not a modest one — it may cost 20 to 30 county jobs and even prompt furloughs. He also said there is no guarantees that hotel taxes would have to be increased to make up for the shortfall.

Nakamura said she was torn with the proposal. It would cause reduced revenues and the administration would be tapping into the reserve to make up for it. She said she would need more time to understand the issue.

Yukimura said the $2.7 million in exemptions proposed by the bill would have a small impact in the county’s financial situation, and there are many ways to address it.

The shortfall, she said, could be easily made up by adjusting the rates of other tax classes that are projected to have smaller tax bills this year due to lower tax assessments.

Over the last three years, six other tax classes — hotel/resorts, conservation, ag, commercial, apartment and single-family residential — had their tax contributions to the general fund decreased by more than $24 million, according to Bynum’s calculations.

During the same period, he said, the homestead class saw their taxes increase by $3.1 million. The only other tax class that paid more taxes during the same period was industrial, which paid $487,107.

Furfaro said the county is $121 million in debt. By his calculations, the 2 percent tax cap and other exemptions gave more than $70 million in relief to homesteaders over the last few years.

Despite voting against the bill, Furfaro thanked Bynum for stimulating a tax discussion, long overdue.

Furfaro also lashed at the administration, calling for a more sustainable budget, a contingency plan for external events, reasonable goals and current assumptions, a fair reserve fund and a better way to monitor, measure and evaluate the budget.

Just prior to the final roll call, Yukimura made a last attempt to reach a compromise.

“So I guess there is no possibility for something lower,” said Yukimura, hinting for an amendment to reduce the exemption even lower. But her words fell on deaf years.

Bynum, as if making an statement, let out a long and loud “aye” when it was his turn to vote.

Afterward, Bynum said the administration is projecting nearly $2 million less in revenues compared to last year. But homesteaders, he said, will pay more taxes while everyone else will see their tax bills drop.

• Léo Azambuja, staff writer, can be reached at 245-3681 (ext. 252) or lazambuja@ thegardenisland.com.

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