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Give Real Property Tax Base a Chance to Grow

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By Lowell L. Kalapa

The irony of watching state and county governments expand their ownership of property while complaining that they don’t have enough resources to operate their respective governments becomes no more apparent than during this season of budget making at both the state and county level.

The irony is that as state and county administrators and policy makers pander to their constituents about how the acquisition of this or that park land or perhaps an office building will enhance the quality of life or serve the taxpayer better, they seem to ignore the economics of their actions. It is especially difficult to understand when it comes to the county which is highly dependent on the real property tax.

When was the last time you read or heard that your county government was about to acquire some beachfront land so that there would be more beach access for residents and visitors? Or is your county buying out some old office building like the state is about to buy out the old Hemmeter office building? As state and county governments acquire what used to be property tax-paying, privately-owned parcels of land, more and more value leaves the property tax rolls, and there is less in the property tax base that can be taxed.

In fact, isn’t it odd that on the mainland, municipal governments aggressively try to annex adjoining plots of developed areas as a means of broadening the tax base. Municipalities also encourage development of underutilized land as a means of increasing the value of the real property tax base. While some municipalities do a better job than others in directing this growth and expansion, the goal remains the same, to broaden the tax base as a means of alleviating the tax burden on individual taxpayers. The broader the base, the greater the possibility of being able to lower the tax rate.

While expanding the property tax base is a more obvious way that government can alleviate a tax burden, the same can be said about the other taxes imposed by state government in Hawaii. Instead of giving away “select” tax breaks as the legislature did this year, alleviating the overall tax burden would support initiatives in all industries to create new economic activity. The strategy employed by state lawmakers in the past few sessions has been one that focuses on certain activities or businesses which can make the good sell at the state legislature. More recently the focus has been on high technology businesses which received all sorts of tax credits and the ability to “sell” their net operating losses as a means of financing their fledgling businesses.

But what makes one type of business more attractive than another? Why should only high technology businesses get these tax breaks when other businesses which could make just as much of a contribution to the economic well-being of the state get no breaks at all?

And if some businesses are going to get tax breaks, then who will continue to pay for the services that those businesses will need from state and county government? By carving out these select types of businesses, be they film makers, high technology businesses, or jumbo jet aircraft maintenance facilities, those remaining taxpayers who don’t get the favored treatment have to shoulder a heavier burden of taxes if public services are to remain at their current level.

The result is higher tax rates unless there is a commensurate cut in the level or amount of public services that are to be provided. And while most elected officials like to “bring home the bacon” that they did something good for their constituency, they need to be reminded that the bacon will always cost someone something. There is no such thing as a free lunch!

So in this budget making season and this lull before the campaign season just down the road, stop to think about what your lawmaker or county elected official is asking you to believe. If the political rhetoric is filled with nothing but “tax break goodies,” beware, because also those “goodies” are going to cost someone something.

Whether is is an increase in a property tax exemption or some tax credit to spur the economy along, sooner or later someone or something must pay for that specialized tax break.

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