LIHUE — The Kauai County Council approved on second and final reading Wednesday a proposal that will decrease property tax bills for the majority of taxpayers, while potentially bringing significant increases to others.
“This has been a bill that has been years in coming to fruition. It’s sort of the last major component of a tax reform that began through various iterations,” Finance Director Steve Hunt said.
Despite its magnitude — every taxpayer will be affected — Bill 2495 sailed quickly through the council chambers in six weeks, in order for it to be effective next tax year.
“There is no perfect tax bill, and we have been working on this for three years,” Councilman Tim Bynum said.
In the last four years, as the economy tanked, resident homeowners continued paying higher taxes, he said. During the same period, other classes of taxpayers had a reduction of $40 million collectively, according to Bynum.
However, many council members felt rushed, and the bill only passed by four affirmative votes, with two against it and one silent vote.
“Where is the rush?” Hanalei resident Carl Imparato said. “A number of council members already said that they have concerns that this bill is being rushed through.”
Councilman Ross Kagawa said it’s hard to be perfect with something that affects so many different things, and with so many market fluctuations.
“I’m just worried that there will be people hurt in this legislation,” he said.
Kagawa and Councilman Mel Rapozo voted against the bill, which will bring tax relief to 57 percent of all taxpayers and 63 percent of homesteaders. On the flipside, the new system will raise property taxes for 43 percent of all taxpayers and 37 percent of homesteaders.
The average increase in taxes islandwide will be $387, and for homesteaders it will be $243. The average decrease islandwide will be $220, and $214 for homesteaders.
Rapozo had concerns with the unknown consequences of the bill.
“We’re finding out now the unintended consequences of the last property tax bill that we passed,” he said. Just now, people are receiving their tax bill and are finding out they have substantial increases, he said.
“This is in addition to that, so I’m really, really concerned,” said Rapozo, adding he was very aware the cap was causing equity problems, but removing it will cause more problems.
The new system will cause 110 properties to have an increase in taxes greater than $2,000, and 17 of those properties are in the homestead class, according to Hunt.
“Some unlucky soul is going to get a tax bill increase of $13, 575,” Rapozo said. “Can you imagine that person when they pick up that tax bill?”
Another taxpayer, in the homestead class, will have a $12,753 increase, he said.
Tax cap removed
The new system removes a tax cap that protected resident homeowners during the boom of the real estate market in the 2000s. Originally, the cap allowed a maximum 2 percent increase, and lately the increase was dictated by Honolulu’s Consumer Price Index.
After a decade in place, however, many properties of comparable value now have disparaging tax bills.
“The more we delay (removing the cap), the greater the discrepancies will be among owners of comparable properties, and it will be harder to correct the system,” Councilwoman JoAnn Yukimura said.
Council Chair Jay Furfaro was the original author of the bill that put the tax cap in place years ago. He said he doesn’t think the cap is as bad as everyone was making it out to be.
“I’m not going to vote to remove my cap, but I will take a vote that will be silent,” said Furfaro, whose silent vote went with the main motion to approve the bill.
To offset the cap removal, the council approved a steep hike in tax exemptions. The flat exemption for homesteaders increased to $160,000 from $48,000.
For those between the ages of 60 and 69, the exemption was raised to $180,000 from $96,000, and for seniors who are 70 or older, their exemption increased to $200,000 from $120,000.
There is an additional $120,000 relief based on low income, which was already available.
Hunt said the bill represents the return to a more simplistic real property tax system, with taxes based on value.
It assures equity and fairness among taxpayers of similar tax classes, provides taxpayers with options for tax relief, establishes a reasonable minimum tax, and follows through with discussions with the council earlier this year during budgetary sessions, he said.
The minimum tax of $25 will increase to $100 next year and to $150 in 2015. But Hawaiian homesteaders are now exempt from all property taxes.
Credit unions, which up until now paid $25 in annual taxes, will pay $300.
Council Vice Chair Nadine Nakamura said that for the next year, she wants to learn what other credit unions are doing for communities elsewhere. The council will then consider imposing credit union taxes based on 10 percent of the value of their properties.
Thanks to an amendment introduced by Bynum last week, licensed day-care facilities being operated from home can still enjoy homestead rates, despite that the new system would tax these properties based on commercial rates.
Long-term affordable rentals will receive the same benefits as the homestead class, including a rate of $3.05 per $1,000 of assessed value.
A home preservation program applies for owner-occupied homes valued at more than $750,000 that are owned by residents who earn $100,000 or less, have had a home exemption for at least 10 years, and do not own other property. They will pay 3 percent of their income or $500.
Retired carpenter Douglas Blackburn, of Hanalei, had concerns with the new tax changes.
He said he qualifies for the home preservation program. But because he got married this year, he may not qualify anymore for the following year, as the exemption is reviewed annually.
Imparato, despite qualifying for the home preservation, also had concerns with the “so-called” home preservation tax limitation, which he said, is a “sham.”
Even the sponsors admit that it would provide no protection for most of the island’s homeowners who are protected by the cap, he said.
“This bill would mandate just a return to the old tax system; the system that did not work,” Imparato said. “That is not reform. That is just regression.”