Still waiting for meaningful tax reform

The pace of governmental action on our island is hardly expeditious. At best it is deliberate and often it is excruciatingly slow. My articles have commented on the fact that even 23 years after Hurricane Iniki, issues remain as to the demolition of Coco Palms and the repair of the Kilauea gym.

One such issue that has lingered for nearly 40 years is the reform and repair of our real property tax system. Yes, Band-Aids have been applied periodically, but the core problems perpetuate.

As a result of the home rule effort at the 1978 Constitutional convention, Kauai was given as its principal revenue source control of the operational aspects affecting our island of the cumbersome, poorly considered property tax system enacted by the state of Hawaii.

A well-structured tax system has three principal features. It is simple. It is stable. And it is equitable. The system Kauai inherited was far from simple. It provided for eight different taxpayer classifications each requiring separate assessments of land and improvements. The boundaries between classifications were often imprecise. Assessments were supposed to be made at 100 percent of market value, but in practice were erratic and at varying fractions of such value. Taxes levied were frequently not stable and fluctuated widely when corrective assessments or new rates were applied. As a result of these imperfections, without any logical justification, some taxpayers enjoyed favored taxation as others were inequitably treated with adverse discrimination.

In recent years, a far better administration has mitigated many of the former delinquencies, but the system itself continues to have defective provisions.

By reason of frequent taxpayer complaints, our governing officials have, from time to time, attempted to remedy perceived problems. Most of these endeavors have related to taxation of properties owned or occupied by county residents having lower incomes. But these patchwork efforts have largely resulted in further systemic complexities.

Comprehensive reform of the tax system has been attempted twice. In 2003, a citizen task force was appointed by Mayor Kusaka. Its recommendations were never seriously considered by the County Council. In 2007-2008, a group of finance department employees made some proposals which were not well received. It is apparent that government officials don’t like what our citizens would prefer and conversely.

In August of last year, when the impact of the 2013 repeal of the 2005 cap on tax increases for resident owned and occupied properties was experienced, and a Band-Aid solution (?) was enacted once again, a sympathy for meaningful reform emerged. Ever the optimist, I wrote a column suggesting the formation of a task force that would integrate government and citizen views, but to date, eight months later, there have been no visible signs that any meaningful reform efforts are on the horizon.

There are several thorny issues that would have to be navigated successfully for any meaningful comprehensive reform to occur. A reform movement would necessarily have to center on the taxation of residents who either own or rent their homes. On at least two recent occasions residents have seen their taxes sharply escalate when real estate values have soared or when county spending has mushroomed. It is unlikely that they would be satisfied with a tax regime that fails to resolve this problem.

It is foreseeable that the major issue in a reform would be whether there will be a cap on the tax increases that a resident could incur for his home. There is little doubt how our people feel on the point. Both from the voting on the Ohana Kauai tax measure in 2004, which gave nearly two to one support for a cap, and the testimony to the council last year in which residents vigorously objected to a repeal of the cap, having a limit is popular. However, government officials claim that the cap creates an inequality of tax on properties of comparable value. It would, in my view, be best if our officials could accept that taxpayers are not going to be supportive of a tax system that does not provide assurances against unpleasant tax increases.

It seems inevitable that some badly needed repairs to the present system of real property taxes will be neglected unless and until our officials can be open to a thoughtful dialogue on meaningful reform.

Walter Lewis is a resident of Princeville and writes a biweekly column for The Garden Island.

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