It remains to be seen whether Mayor Mitch Roth’s administration will be able to provide property tax relief while still balancing its budget, officials told the County Council on Tuesday.
The budget picture will become more clear when the administration releases its final spending plan May 5, once property values are certified and appeals resolved, they said. Many property owners have filed appeals, although the number is not yet known.
“There is no fluff in this budget,” said Managing Director Lee Lord, addressing the Finance Committee on behalf of Roth, who was at a sustainable oceans conference in Palau.
The record $689.9 million spending plan is raising concerns among some business groups, who say they’re seeing their property values rise dramatically, in some cases more than doubling, which could send their tax bills out of reach.
Properties in commercial, industrial and hotel/resort categories have increased as a result of movement in what is typically a fairly stagnant market. Some longtime business owners decided to close during the height of the pandemic, sparking a reappraisal of property that resulted in higher values, said Deputy Finance Director Steve Hunt.
“I think what this really represents is a catch-up,” Hunt said.
County code requires property to be assessed at market value. While homeowners have their property values capped at 3% until property changes hands, there is no provision in the law to do something similar with other categories. But the tax rate can be rolled back by the County Council if it so chooses.
Kona Councilwoman Rebecca Villegas, who said her email is “blowing up” with people asking for tax relief, questioned whether commercial property owners have been paying less taxes than they should have been over the past years.
“Is this is a realignment to a more realistic value?” Villegas asked. “I would like to see a little more empathy and flexibility in large property owners … to not pass it down to the small business. … For all these years many of these entities haven’t been assessed equitable values.”
If tax rates stay the same, property tax revenue is expected to go up 12.9% or by $45.9 million. The transient accommodations tax on hotel rooms and short-term stays is expected to bring in about $19 million and a rapid tourism recovery is expected to add more to general excise tax revenue than previously thought.
On the expenditure side of the budget are increases for salary and wages, homeless programs, retirement benefits and an increase in debt service due to increased borrowing.
There are also big increases in energy costs and utilities because of Russia’s invasion of Ukraine, said Finance Director Deanna Sako.
“We continue to struggle with supply chain issues and others due to inflation,” Sako said.
Businesses are in the same boat, several groups noted.
“As we begin recovery from the socio-economic challenges experienced these past two years, we also face the confluence of rising costs for food, energy, healthcare, labor, supplies and materials for doing business and a supply chain that is not fully recovered,” Jacqui Hoover, executive director and chief operating officer of the Hawaii Island Economic Development Board, said in testimony.
But Lord said county government has done without and postponed maintenance for too long. In addition, he said, the administration is strapped to find workers and is looking at hiring incentives and other methods to try to fill more than 40 open positions.
“It’s been a decade or more when departments were asked to submit status quo or reduced budgets,” Lord said. “It is not an easy prioritization when you are seeing a whole canoe needing repairs and you only have enough resources to address one square foot of it.”