Arguing tax reform

LIHUE — Rosalina “Sweetie” Lopez said she and her late husband have worked hard for what they have.

For a number of years, they operated a hog farm on their Keapana property and even built many of the structures on it from the ground up with the help of their children. It is something that Lopez said she is proud of and wants to hand down to her five children and grandchildren. 

But recent increases on her tax bill this year, she fears, could jeopardize her family’s hard work. 

Though the assessed value on her property did not change between last year and this year, Lopez lost her homeowners exemption and was moved into the county’s residential tax class — one that’s reserved for properties that are not owner-occupied. This caused her taxes to jump from $1,343 to $2,908, a 116 percent increase between 2013 and 2014.  

“This is not paradise for us locals — you’re killing us,” Lopez told Kauai County Council members on Thursday. “Every week you guys put something on us, now the trash, what else? It doesn’t come out of your pockets — it comes out of our pockets. My daughter has eight children and seven of them are home with her, because when you try to go out and rent a place, it’s $1,500 or $1,400 for one room that you can’t even fit one damn bed. That is not right. You guys are killing the local families, you are killing the local people.”

Lopez is not alone.

She and nearly 75 other homeowners attended a standing room only workshop to hear county officials outline current tax policies and discuss potential relief measures for residents who saw measurable increases on their real property tax bills that, in some cases, amounted to hundreds of dollars, if not thousands.

“When I look at our house at the way it’s going, me and my family are going to wind up on the beach one of these days, but I tell you what, we’re going to come out fighting,” said 83-year-old Kapaa resident John Palmeria, who saw the assessed value on his home jump from $578,400 to $738,000 between 2013 and 2014, causing a $422 jump on his real property tax bill. “At my house, I have a whole bunch of family there — they could be on the street. They don’t have anywhere else to go. All I can say is that somebody better straighten some of these things out. This is not right — I don’t care what anybody says.” 

County Finance Director Steve Hunt said he and other county officials had several objectives in mind when they first proposed drastic changes to real property tax laws last year. Those changes, he said, sought to assure equity and fairness among taxpayers in a similar tax class and bring back a more simplistic real property tax system where taxes are tied value.

These proposals, which were approved by the County Council last year, eliminated the permanent home use tax credit, which capped future tax increases on owner-occupied homes, with the proper exemptions, at 2 percent. Basic home use exemptions, in turn, increased from $48,000 to $160,000. 

Home exemptions for those between 61 to 70 years old also increased from $96,000 to $180,000, while exemptions for those who are at least 70 years old rose from $120,000 to $200,000.

A new tax credit, called the Home Preservation Tax Limit, was also created to help shield some longtime homeowners from major tax hikes, if they paid less taxes under the permanent home use cap, met specific income requirements and lived in a home that was worth at least $750,000.

But the problem, Hunt said, was that some residents did not apply for some of these exemptions, causing some of the increases on their real property tax bills.

“It’s not a criticism, it’s just the reality — we don’t get the word out,” Councilman Mel Rapozo said at the workshop. “I don’t know how to get the word out, I really don’t, but this is a good way and I’m glad we’re getting the word out.” 

To help those who experienced significant increases on their taxes, Hunt said he and other county officials will recommend that the County Council approve a measure that would permit a $500 allowable increase on real property tax bills but provide a 70 percent discount for all increased taxes above that amount to homestead and residential property owners only.

Hunt said county officials will also seek to extend the deadline for the first half of this year’s real property tax payments to Dec. 31, 2014. All penalties and interest accrued from Aug. 20, the original due date, and Dec. 20 would be waived retroactively.

These solutions, however, could cost about $700,000 to $750,000 to implement, Hunt said.

In all, 5,651 homestead property owners received decreases on their tax bills while another 5,293 people received increases. Of those who received increases, only 246 received increases that were more than $500. 

Though county officials initially estimated that removing the permanent home use cap for all taxes would increase real property tax revenues by $496,098, that amount more than doubled to $1,236,506 once final tax bills were calculated. 

Still, the removal of the permanent home use cap was necessary, Hunt said.

The tax cap, he said, made it difficult for county tax officials to track and manage when adjustments to taxes needed to be made for changes like new construction or tax class changes. Though the cap allowed taxes to drop without limits when property values were falling, it also severely limited county officials to recover taxes once values began to rise again.

“It is not a targeted solution and provides tax credits indiscriminately, including those that can afford to pay higher taxes,” Hunt explained. “The PHU cap perpetuates inequities arising from inaccuracies, such as undervaluation in prior years, without a means to rectifying the resulting taxes. It creates tax disparities between taxpayers within the same tax classification solely based on what the taxes were when a homeowner acquires their residence.”

But not everyone agrees.

Councilman Ross Kagawa said he would support a measure to reinstitute the permanent home use cap and claimed that the process to remove it last year was rushed.

“I say, let’s put the cap back on, let’s take our time, whether it’s takes a year or two years, for real tax reform that everybody clear on and understands so we don’t have meetings like this where we’re trying to dissect individual complaints,” Kagawa said. “I think this is ridiculous to digest one by one their complaints — we don’t have all the facts in front of us.”

But coming up with a balanced solution, Rapozo said, won’t be an easy task.

“We have to come up with a solution that is equitable and a balanced proposal that does not just have revenue enhancements but some spending cuts,” Rapozo said. “Believe me, the community will be upset with some of the services that could be reduced but you can’t be upset with raising taxes and upset when services are cut — you can’t have your cake and eat it, too. That’s the harsh reality.” 

Councilman Gary Hooser said he is open to restoring the cap but also wants to look at extending exemption deadlines and applying them retroactively and creating tailored requirements for basing tax classifications on use. 

“I think we really need to take the long view at this,” Hooser said.

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