Property tax rates questioned

A Kona coffee farmer is asking Mayor Harry Kim’s administration to put its money where its mouth is. Or a lot of people’s mouths, actually.

If the county truly supports sustainable agriculture, says Fred Housel, it will lower the tax rate on agricultural property. Now the highest rate in the state, the agricultural rate was increased by 31.5 percent in 2010.

With Hawaii Island being the breadbasket of the state, Housel says, it should encourage farming both to feed its people and as a viable economic engine.

“Since 2008, our property taxes have increased by 48.2 percent with no additions or improvements,” Housel said in a Feb. 15 letter to Kim. “We are very concerned about the high costs of farming in Hawaii County having a severe adverse impact on the sustainability of agriculture in Hawaii County.”

Tax rates, an important component of county budgeting, will come to the forefront over the coming weeks as Kim finalizes his annual spending plan in the face of increasing expenses and less help from the state.

Kim has said he doesn’t want to raise property taxes, but he hasn’t yet ruled it out. His proposed $474 million budget is $11 million more, or 2.4 percent higher, than the current budget.

County Council members are scheduled to undertake a department-by-department analysis of the budget April 11-13 as the individual department heads come before them to explain their program budgets.

Kona Councilwoman Karen Eoff, who represents the district where Housel lives, said she received a copy of Housel’s letter but was unable to connect with him Friday. Eoff said she’s concerned about how taxes are assessed, but she hasn’t studied the agriculture rates enough to comment on them.

“In general, I feel there are areas of our tax structure we should be looking at,” Eoff said. “There may be some areas where we may not be assessing fairly.”

The mayor is scheduled to submit a final budget proposal in early May, which will include proposed tax rates. Tax rates must be set by June 20, under the county code.

“One of the considerations in setting rates on the various classes as defined in (county code) is a balance between the benefits that each class can obtain by entering the various programs available to that class and the total budgetary needs of the county,” county Property Tax Administrator Stan Sitko said Friday. “The benefits one class obtains must be made up in another class.”

Sitko said policy discussions are outside his department’s purview, but he provided a detailed analysis of the facts surrounding property designated as agriculture as it interacts with county homeowner and agriculture tax break programs.

The council has until June 30, the last day of the fiscal year, to amend and pass a budget or the mayor’s budget automatically goes into effect July 1.

Hawaii County’s agriculture rate is $9.25 tax for every $1,000 in property value, compared to $6.75 on Kauai, $5.70 on Oahu and $5.66 on Maui, Housel noted.

In comparison, Hawaii County’s homeowner and affordable rental housing rates are $6.15, commercial, industrial and residential rates, for property that is not the principal residence of the owner, are $10.05 and the highest categories, hotel/resort, apartment and conservation, are $10.85.

“The rates in Hawaii County are generally higher than in other counties across the board due primarily to the fact that our market values are lower than the other islands,” Sitko said.

The rate multiplied by the property value results in the tax. With West Hawaii property values so much higher than East Hawaii’s — West Hawaii’s three council districts, home to a third of the island’s population, shoulders more than two-thirds of the property tax burden — farmers feel the pinch.

Coffee farmers are especially hard hit, especially those like his company, Kiele 0 Kona Coffee Company, that roasts and processes its own beans, Housel said. The tax is applied to the improvements as well as the land.

Housel planted 6,400 coffee trees on his 5-acre farm in 1999. He’s one of the few farmers who roasts his own beans rather than selling coffee cherry, he said. That’s raised his profits some, but he bears the added burden of high taxes on his buildings and equipment, he noted.

“The cost of farm labor, taxes, land, water and utilities have grown so much that it is becoming much more difficult to produce coffee on a sustainable basis,” he said in his letter to Kim.

It’s obvious, really. The vaunted Kona coffee can be grown in only one area. Kona. Where property values are high, and thus, property taxes.

Coffee’s not the only agricultural product that’s suffering from the higher rates, Housel said.

Other kinds of farming and ranching, with lower profit margins, suffer as well.

Sitko said Housel’s property is a special case because the value of the improvements “greatly exceeds” the value of the land.

Although he’s in an agricultural program to lower his assessments, it applies only to his land, not his home and farm buildings.

“At the average land to building ratio for those in the Ag programs the difference is much more significant,” Sitko said. “Owner-occupied parcels are able to select which program benefits them most if they qualify and this is a parcel by parcel calculation.”

Email Nancy Cook Lauer at ncook-lauer@westhawaiitoday.com.