Tax & exemptions

By NANCY COOK LAUER

Stephens Media

West Hawaii’s three County Council districts, comprising roughly one-third of the county’s population, will continue shouldering 70 percent of the property tax burden under a 10 percent rate hike proposed by Mayor Billy Kenoi.

Council Districts 7, 8 and 9 also have less of their property value subject to tax exemptions, according to a West Hawaii Today analysis of data provided by the county Finance Department.

The county’s system of evaluating property, assigning tax rates and allocating exemptions is under increasing scrutiny as council members prepare to vote Thursday on tax hikes and the 2013-14 annual budget. On June 4, the council will vote on a task force to evaluate whether property taxes are imposed fairly on all county property owners.

The majority of council members contacted last week said they’re inclined to support raising tax rates, after spending the last several weeks meeting with constituents and attending community meetings with Kenoi to explain how the new money will be used.

“It’s just so tough as a newly elected council member. It’s a decision you don’t want to make to raise taxes,” said Puna Councilman Greggor Ilagan. “(But) I’m kind of leaning in favor of it.”

Ilagan has scheduled a budget talk story for 5:30 p.m. Tuesday at the Pahoa Community Center.

Some council members, however, want to ensure the hikes won’t be permanent. Kohala Councilwoman Margaret Wille said she’d like to see a sunset provision in the plan. She’s looking at long-term solutions to county revenue and expenditures, she said, but the tax hike is a stop-gap measure until those plans and the recommendations of the property tax task force can come to fruition.

“I’m going to go along with some kind of tax hike but the lowest extent possible to cover critical services,” Wille said. “We need a plan to handle taxes on a long-term basis. … We don’t want to have to be in the same position next year.”

The analysis found that North Kona’s District 8 will pay about $65.9 million, Kohala’s District 9 will pay $59.3 million and Kona’s District 7 will pay $26.1 million of the approximately $216.5 million tax base under the proposed rates. In contrast, Hilo’s District 3 will pay the lowest, $7.3 million, Hilo’s District 2 will pay $7.5 million and Hamakua’s District 1 will pay $9.2 million.

The newspaper did the analysis by aggregating by council district all property assessments that are currently not under appeal and applying the current tax rates and proposed tax rates for each of the nine property classes within each district. Exemptions were calculated by comparing gross and net property values for each district.

As expected, districts with the lowest taxes also had the highest percentage of exemptions. A full 35.9 percent of property value in District 3 is exempted from taxes, compared to 9.4 percent in District 8.

South Kona/Ka‘u Councilwoman Brenda Ford has been the most vocal opponent of raising property taxes, pointing to the discrepancy among council districts. She understands that property values are higher in West Hawaii, but she questions why assessments on buildings differ so markedly.

“It just seems something is seriously wrong that it’s that skewed,” Ford said.

A number of factors go into setting property values. The growth in property value is capped at 3 percent a year for the homeowner property class until property changes hands.

Homeowners receive an exemption of $40,000. Homeowners aged 60 to 69 receive an $80,000 exemption and those 70 and over receive a $100,000 exemption. Additional exemptions apply for the disabled and disabled veterans.

District 3 Councilman Dennis Onishi said his district has the lowest tax burden because it’s composed primarily of established homeowner neighborhoods, and many of the homeowners are older.

“In my district, the neighborhood is older. We have homeowners who have been owning their homes for 40 to 50 years, who’ve been living there their lifetimes,” Onishi said. “Other areas, they have people who are just moving in.”

One of those areas is North Kona, where Councilwoman Karen Eoff said in an email response that property taxes are higher because the district has a high concentration of hotels and resorts as well as second homes. Those categories not only pay higher tax rates, but they also don’t qualify for exemptions that lower the property values.

Kona Councilman Dru Kanuha, where 17.8 percent of property values are exempted, is looking forward to the results of the still to be formed tax task force.

“Everybody understands the need for fairness across the board,” Kanuha said. “It does seem unfair, but we definitely need to take a look at that.”

Kanuha said he’s inclined to support a tax hike, with a caveat.

“If I vote for this tax increase, I want to make sure we look at it every single year, so we can make real good decisions and so we can lower the tax right away when values go up,” he said.

Kenoi said Friday his roadshow presentations with council members and constituents are making most more comfortable with the prospect of a tax hike. In addition to the property tax hike, residents face increases in bus fares, vehicle registration and weight fees and park fees.

Public hearings on the park fee increases will be held at 5 p.m. Tuesday at Aupuni Center in Hilo and the West Hawaii Civic Center in Kailua-Kona.

The proposed budget increase follows a parade of county department heads last month pleading poor before the County Council, saying tight budget restrictions over the past four years have left agencies short-staffed and with aging equipment. The money will go for 28 new employees, ending monthly employee furloughs, raises negotiated in collective bargaining agreements, new equipment, increased payments on debt and investment in the GASB 45 fund for retirement benefits for employees.

Property with a net taxable value of $250,000 would get an annual tax bill hike of $150, under Kenoi’s proposal.

On average, property taxes would go up by $341.88 in the residential class (second homes and rentals), $417.48 for commercial, $560.88 for industrial and $870.48 for hotels and resorts, according to Finance Department calculations. Although the tax rate would increase for conservation land, property owners would actually see an average $75.12 annual decrease because property values continued to decrease last year.

Only seven people came to a public hearing earlier this month on the tax hikes, all in opposition.

Kenoi has cut the budget every year since he took office, with his newest proposed $394.3 million budget a 7.9 percent increase over this year, yet still $8.9 million less than when he took office. He and the council last raised taxes in 2010.

“I think it’s been a great conversation around the island,” Kenoi said. “People of course have their concerns, but after they’ve heard from us about what we’re doing and why we’re doing it, generally the feedback has been positive.”

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