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Underestimating the Scrutiny of the Public is Dangerous

posted in: Weekly Commentary 0
By Lowell L. Kalapa

While those living on the neighbor islands may have experienced spirited debate over the adoption of the county’s budget for the coming year and the setting of real property tax rates, those discussions were probably no where as confusing or as contentious as they were in Honolulu. The battle over the budget was so contentious that it resulted in the deposition of the council chair and the overnight restructuring of the council. What was even more amazing was that in a matter of days, money was found so that a proposed monthly garbage collection fee did not have to be adopted nor an increase in golf course fees, both of which would have generated $21 million in new revenues.

However, what was even more disturbing was the fact that both the majority of the city council and the city administration recommended hiking the real property tax rate which they claim was really not an increase in taxes. No, in fact, they tried to sooth the ire of taxpayers by characterizing the rate increase as “revenue neutral.” This term, city officials announced, meant that no one would pay any more in real property taxes than they paid in the previous year. Thus, this was not a tax increase.

What city officials were unprepared for was the public backlash at the notion that officials didn’t think taxpayers could figure out what was going on. As one constituent noted, if he lost his second job and his income dropped by 5%, would the state increase the income tax rates by 5% so that he would pay the same amount in income taxes as he did last year?

There is nothing wrong with raising tax rates as long as public officials acknowledge that they are increasing tax rates which will in turn raise taxes. But to raise those tax rates, public officials ought to have a darn good reason why those additional tax dollars are needed. This is where the process seems to have gone awry in the case of the Honolulu budget. In a matter of a few days and behind closed doors, the budget went from needing a new garbage collection fee to one that could do without. The budget went from one which incorporated suggestions from the community including from city employees to one that basically represented what the administration had submitted earlier in the year before all of the public input. If the budget does not reflect the wishes of the people, then can one expect that taxpayers are willing to support an increase real property taxes?

And what about this paying the same amount as last year? The property tax is dependent on two factors: (1) the value of the property, and (2) the property tax rate. The value of the property is adjusted each year and taxpayers are given fair warning, months before the rate is set, as to what that value will be for tax purposes in the following fiscal year.

There are two things a property owner usually does when the assessment notice of value is received. The owner checks out how that value compares to what he knows about other properties around his property. If the value is comparable with other similar properties, he is satisfied. If the value is way out of line and is much higher than surrounding properties, then the owner can appeal the assessment.

The other action that the owner will take upon receiving the notice of valuation is to figure out what the assessment will produce when the current property tax rate is applied to the new value. This way he can compare how much higher or lower his property tax will be based on the current rate. Thus, when Honolulu city officials announced they were going to increase the property tax rates, many taxpayers quickly figured out that their tax bills would be higher than if the rates had not been changed.

The reason why taxpayers got upset was that city officials tried to convince the public an increase in the property tax rate was NOT a tax increase. Taxpayers probably would not have been as upset if: (1) programs that required the increase were services that were deemed critical by the community, and (2) city officials had just owned up to the fact that taxes need to be increased to cover the city’s operating costs.

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