A bill capping property assessments could lead to an unfair balance between East Hawaii and West Hawaii, administration officials warned the County Council Finance Committee as a measure aiming to put a 15% ceiling on most commercial classes of property was postponed for the second time.
Council members, responding to a flood of constituent complaints in a hot real estate market, in general support the concept of putting a limit on how high property values — and therefore taxes — could increase in a given year.
Hilo Councilwoman Sue Lee Loy, the sponsor of Bill 156, characterized her measure as “a dull ax rather than a scalpel,” and asked that it be postponed until the Sept. 6 meeting to gather more information.
The bill would cap the value of property classified as apartment, hotel and resort, commercial, industrial, agricultural, native forests or conservation at 15% of the previous year’s assessed value for that property. Property values in the homeowner and affordable rental classes are already capped at 3%.
“This would create some stability for all these industries that have had this big jump,” Lee Loy said. “It will allow people a better opportunity to forecast what their taxes would look like.”
Kohala Councilman Tim Richards seemed to agree.
“From a budgetary standpoint … we’re talking abut guardrails and guardrails for the constituents as well as the county as we go forward,” Richards said. “I see the logic in it because it helps out our businesses going forward.”
With more property than usual changing hands, assessments, which by law are tied to market values, have skyrocketed in some categories.
“As we see the market rise and the market starts to go crazy … there’s a lot of money. Everyone is making money and having fun but the rate is changed on the back end,” said committee Chairman Matt Kaneali‘i-Kleinfelder. “This is a reality of where we live.”
But Finance Director Deanna Sako cautioned the council that setting a ceiling on increases could create a disadvantage for West Hawaii businesses because they have a more frequent turnover, and thus reevaluations, than East Hawaii businesses.
That could mean a West Hawaii commercial property, for example, could see increases of 12%, 13% or 14% year over year, while an East Hawaii property, where there is little turnover to influence market prices, could see minimal increases each year and then be protected when a sudden reevaluation exceeded the 15% ceiling.
“I do feel the divide between east and west will get greater,” she said. “I still feel controlling the (tax) rates is the best way to do it.”
In addition, Sako said, “I’m pretty confident our bond rating will drop.”
The total value of net taxable real property in the county was certified this year at $43.8 billion, an increase of $6.8 billion or 18.5% compared to last year. But not every category of real property increased at the same rate. The hotel and resort class got hit the hardest with an average 46.2% increase, industrial with 29.3% and commercial with 28.8%.
The hotel and resort class had such a big increase because the administration, under emergency pandemic proclamations by the governor and mayor, last year reduced assessments by 20% for that category, under the assumption that those businesses had suffered under the mandatory lockdowns and loss of tourism.
This was news to some council members and the public, as the reduction didn’t go through the typical public channels for lowering assessments and tax rates.