By Lowell L. Kalapa
We tend to hold our county officials a lot more accountable not only because they are our next door neighbors, but also because the real property tax provides the bulk of the revenues that the county has available to spend.
This accountability structure just didn’t happen by accident. In fact, the counties didn’t have much control over their destinies until after statehood when they were permitted to establish local government by charter and set the real property tax rates. Later in 1978, after pleading with the Constitutional Convention that if given complete control over the real property tax they could be totally self-sufficient, the counties took over the real property tax from policy to rate-setting.
Up until 1978, the state legislature set real property tax policy such as how much the home exemption should be, what sort of dedications would get a reduced value, and how value was to be determined while the counties were allowed to set the tax rate. Now the counties can decide who should be exempt from the real property tax, how values are to be set, as well as set the tax rate.
However, once the counties took over complete control of the real property tax, they realized that they could not pass the blame back to the state legislature as they had for nearly twenty years. During that time, every time taxes went up, the counties would blame state lawmakers for not providing enough tax relief through the home exemption or some other type of exemption. State lawmakers would always point out that it was county policymakers who set the rate and therefor the rise or fall of the real property tax bill was dependent on how much the rate went up.
Once they realized the bite and pain of being fully responsible for the real property tax, county officials were back in Honolulu pleading with the legislature for more grants-in-aid. That plea went on for nearly a decade when the state, awash in a huge surplus, decided to toss a biscuit to the counties to keep them quiet.
That biscuit came in the form of the Transient Accommodations Tax (TAT) or hotel room tax. This decision was based on an observation made by the Tax Review Commission at the time. They noted that of all the state taxes, the TAT bore the closest resemblance to the economic activity within a county since it is one of the few taxes that must be reported on a county by county basis. However, instead of giving the power to impose the TAT to the counties, the legislature merely gave them the receipts from the tax.
Well, as we all know now, the state turned out to be insincere about that “gift” when last year they took back the collections from two-percentage points of the tax as part of the effort to establish a dedicated fund for visitor promotion. Now the counties seem to have a legitimate gripe that they need to be made whole by the state with a restoration of the lost funds.
But wait a minute! The state is in a financial crisis, where will it get the money? Sure the counties are also in a pinch, but have they truly utilized all the alternatives at their disposal? It may be an unpopular idea, but county officials need to use the resources they have available to them before they start asking for handouts.
If the state gives some sort of grants to the counties, the state will have to make cutbacks (or in the alternative – raise taxes). The counties cry that unless they get those grants, they will have to cutback their spending – or in the alternative, raise property taxes.
Now, no one wants to pay higher taxes, on the other hand, county real property taxpayers have not been offered the alternative. If real property taxpayers don’t want to pay more next year, then what is the only alternative that county officials have? It’s not rocket science, obviously they will have to cut spending.
It is this very relationship between the amount of the real property taxes any one household has to pay and how much they really need those county services that underscores the accountability between county elected officials and real property taxpayers. Merely running the county on handouts from the state obscures just how much it costs to run the county and whether or not real property taxpayers are willing to pay.