We understand that many people on Kauai have experienced an increase in their real property taxes this year – some significantly. While raising taxes is never easy, it is unavoidable for any unit of government because the cost of operation is never static over time.
After a period of seven years of not raising taxes — and in fact lowering taxes in certain categories or providing other forms of tax relief — the county is at a point where revenue increases are necessary in order to provide an acceptable level of services for the people of Kauai.
Unfortunately, real property is the only arena over which we have been granted taxing authority by the State of Hawaii. While we have other sources of income, most have been inconsistent or unstable over the past several years, and they are sources over which we have minimal or no control (e.g., grants, transient accommodations tax).
Please consider the recent history of real property tax rates on Kauai. Between fiscal years 2006 and 2007, real property rates in all categories except the Homestead class were decreased.
From fiscal year 2008-2012, there were no real property tax rate increases, which was a conscious effort to buffer residents from further economic impacts due to the recession. In fact, between fiscal years 2008-2012, the county did not lower taxes, but instead provided various tax relief measures in the amount of $51.9 million.
During that same period the cost of doing business for the county was increasing significantly. Between 2007 and 2008, the following three departments were created as a result of voter initiatives: Parks and Recreation, Office of Boards and Commissions and the Office of the County Auditor. The budgets for these new departments respectively totaled $56 million, $4.8 million and $4.1 million through fiscal year 2013.
During those years we also experienced major expenditures such as the expansion of Kauai bus routes and services ($2.5 million), and lighting retrofits for compliance with federal protections for endangered species ($3.2 million). Other expensive but critical initiatives that were undertaken during this period was the phase-in of automated refuse collection, construction of the Kaiakea Fire Station and the upgrade of our 800 MHz radio system. In order to maintain a balanced budget without increasing taxes, we relied on tapping into fund balances (i.e., savings) between fiscal year 2008-2012. Those large fund balances are no longer available.
We have known for quite some time that the various property tax exemption programs that had been implemented over the years were creating disparities and inequities among taxpayers within rate classes.
A real property tax system overhaul has been long overdue.
Some taxpayers in the Homestead class (owner-occupants and/or long-term affordable rental) who are receiving large increases now have been benefiting from significant relief programs such as the Permanent Home Use (PHU) credit for a number of years.
The current adjustments are bringing their taxes in line with others of similar value within their category. For example, in one neighborhood in the Wailua Houselots, one home was being taxed $328.15 per year with a sizeable PHU credit, while neighboring property of similar value was paying $707.76 with little to no PHU credit accrued.
And the news is not all bad. While there are some exceptions, in fiscal year 2014 the average Homestead tax was $1,007.75 vs. $968.38 in fiscal year 2015. Similarly, the median tax for Homestead in fiscal year 2014 was $796.15 vs. $737.95 in fiscal year 2015.
Both the average and the median taxes are lower for this group, and 51.5 percent have lower tax bills than the prior year.
On its face, it appears that the increase in real property collections over the past two years (roughly $30 million) is significant. The increase was accountable to a number of factors including:
• Property values rebounding following the deep recession of 2008-2012
• An increase in all rate classes except Homestead in FY14 and all classes except Homestead and Industrial/Commercial in FY15 (the first increases since fiscal year 2005)
• Lifting of the Permanent Home Use credit for some properties
• New construction
• Movement of some high-end homes from Residential to the newly-created Vacation Rental tax class
It’s important to remember that the gains in tax collections were offset by loss of our transient accommodations tax (TAT) in approximate amounts of $7.5 million in fiscal year 2012, $10.4 million in fiscal year 2013 and $9 million in fiscal year 2014. This loss was due to the “cap” that was implemented by the state in 2011, placing a limit on the amount that could be distributed to the counties, regardless of how much TAT they may have been entitled to receive under the established formula.
The loss of the TAT was particularly unfortunate in that this is a revenue source that comes from visitors, not residents, and theoretically helps pay for services the county provides directly and indirectly to the visitor industry.
The increase in real property tax revenues was also offset by collective bargaining increases for all four of our unions, which impacted our fiscal year 2014 budget to the tune of $3.8 million. For fiscal year 2015, the collective bargaining impact is an additional $4 million.
An examination of year-over-year growth in real property tax revenues for the county over the past seven years reveals a modest 3.2 percent average growth rate. While the annual increase or decline in revenues over that period varied widely, we feel that the average of 3.2 percent is a reasonable growth rate given cost of living adjustments and other external factors.
We realize these adjustments are difficult and perhaps should have been phased in for those feeling the greatest impacts.
However the harsh reality is that we simply must bring real property revenues into line with current budgetary realities, and effectuate a fair application of rates within and among the various classes. While the mayor did sign the budget ordinance this year, he did so with stated reservations. It was the administration’s proposal to increase only the hotel/resort category this year.
Our approach was to undertake a comprehensive examination of all categories, so that a thoughtful plan for addressing the inequities could be presented for fiscal year 2016 as part of a five-year plan to raise property taxes in a manner that could create a sustainable budget. We are also fully committed to ensuring that we are using your tax dollars wisely, continuously looking for efficiency and savings measures, and providing you with the best possible service at all times.
Each property has a unique set of circumstances, and there could be tax relief programs available to you that you are currently not using. For example, if you are currently in the Homestead tax class, have been an owner-occupant of your property for a minimum of 10 years and meet several other criteria, you may be eligible for a Home Preservation Limit.
We encourage anyone who has a question about their property taxes to call our Real Property Division at (808) 241-4224 for a full explanation and guidance. Remember that Sept. 30 is the deadline to apply for any relief programs that could lower your tax bill next year.
Steven A. Hunt is director of finance for the County of Kauai.