According to the lead headline of a recent TGI paper, our County Council wants, among other things, to reform the real property tax system this year. While a closer reading of the article appears to limit this wish to unidentified “officials,” it is likely fair to say that it is a shared objective by councilmembers.
The problem is that it is one thing to want tax reform and another to achieve it. The council itself is ill equipped to engage in the necessary research, analysis and consideration to accomplish any major reform. Such work can best be performed by a study group composed of persons knowledgeable in tax affairs.
It is doubtful that under our charter, the council has the authority to create such a group. It certainly is not an enumerated power.
Since the beginning of this century, two separate groups were formed to consider property tax reform. The Real Property Tax Task Force, appointed in 2003 by Mayor Kusaka, consisted of private citizens who made recommendations and later a group of employees from the county finance department offered a Real Property Initiative (RPI).
The proposals of neither group were enacted. After these failed efforts, councilman Tim Bynum spent considerable time in examining rates and exemptions for resident taxpayers and was influential in the controversial termination of the Permanent Home Use credit, perhaps better known as the 2 percent cap.
Our county property tax laws do badly need reform. They are essentially an extension of the poorly conceived Hawaii state property tax system, which was taken over by the counties after the 1978 Home Rule Constitutional Convention. They are unduly complicated and are a hodgepodge of often conflicting policies.
Property taxes are central to our county’s revenue and typically provide about 60 percent of it. State law limits the county from imposing any other major tax.
It is therefore vital for us to have a soundly structured property tax system that will provide the revenue needed to sustain our county’s operations and to allocate the burden of taxation fairly among our taxpayers.
Probably the foremost area of concern for a reform effort would be taxation of citizen owners of their residence. This is the portion of the law that has been given the greatest attention to date by the council. The two issues receiving the most consideration have been programs to stabilize taxation for resident owners and programs to provide credits and exemptions for low income taxpayers. Other important issues that will require attention are taxation of agricultural properties and timeshares, a better process for taxpayer appeals of tax department appraisals and other determinations, and taxation of resident occupied rental properties.
In order to accomplish any meaningful reform and correction of our present system, it will be necessary to avoid the mistakes made in the past.
The principal reason for the failure of the recommendations of the RPTTF was that they were made by persons who were private citizens who did not obtain the support of the county’s tax collecting officials.
The converse was true for the proposals of the RPI, which reflected concepts of the tax collectors that did not resonate with the taxpayers.
While I believe that realistic reform can only occur as a result from thoughtful deliberations by a well-constituted study group, it is essential that all viewpoints be represented in such a group. I suggest that the group consist of seven members.
I believe the council should appoint at least four citizens representing taxpayer interests to assure that the tax is fairly apportioned, but the mayor should appoint at least two finance officials representing the tax collector to assure the tax will allow adequate revenue and be administratively feasible.
Other combinations or sizes are, of course, possible, but it is vital that the group be fairly composed.
The institution of such a group to consider tax reform would require coordination between the council and the mayor. This does not always happen, but it is important if tax reform is to be made.
It is to be hoped that the council will organize action promptly because it is likely that any tax reform group that is constituted could require a year or more to survey, deliberate and promulgate their recommendations.
I would urge that the council should give this matter a high priority as thoughtful reformation of our obsolete property tax system is desperately needed.
Walter Lewis is a retired attorney who lives on Kauai. He writes a regular column for The Garden Island.