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Real Property Tax Still Needs Reform

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By Lowell L. Kalapa

Now that the counties have just about put the final touches on their budgets for the new fiscal year, it is time to start thinking about what will happen next year and what is yet in store for us as the real estate market heats up again. While most counties had to raise property tax rates either this year or last year, others reaped a windfall as a result of rising property values. However, on the whole, most counties – like the state – are facing the same financial squeeze and it is the real property taxpayer who is getting hit the hardest. Higher real property tax rates boosted tax bills in some counties while higher assessments hiked tax bills for those property taxpayers in other counties.
While local government officials tried to grapple with the dilemma of either not having enough money or in other cases having too much money, they were certainly sensitive to the rising property tax bills of their constituents. The problem is that while this was a tough year, it will not get any better in the near future.
For those counties where there wasn’t enough money, the situation will grow worse next year as looming costs outpace the growth in the property tax base. How will those counties find more money to underwrite county costs if elected officials refuse to curb spending or find that they are already stretched thin? If elected officials are unwilling to do the politically unpopular and raise real property tax rates, will they resort to the in- lieu tax called user fees? But constituents have caught on to this hidden tax and raising user fees or imposing new ones has also become a political mine field.
So what is it that causes county officials to shy away from raising property tax rates or raising property tax bills, period. One reason is that unlike other taxes, largely imposed by the state, the real property tax is very obvious to the taxpayer. For the homeowner who has paid off all mortgages on the homestead, the property tax bill comes in two lump sum payments every six months. These tax bills can be hundreds or thousands of dollars, so any increase in the amount will capture the attention of the homeowner.
For those homeowners who are still paying off a mortgage, the property tax is collected in the customer trust fund held by the bank or mortgage company. When the property tax bill is increased, the amount of the monthly payment rises causing the taxpayer to search out the reason why the monthly amount to be paid has gone up.
So taxpayers show up at council hearings and decry that the county is taxing them out of their homes. While it may be true, it is hard to tell without knowing whether the taxpayer truly doesn’t have the resources to pay his or her property tax bill. That’s not to say that perhaps the council may not have justified the need for the higher property taxes. The fact of the matter is that the counties’ current approach to property tax relief for homeowners is totally irrelevant to the needs of the taxpayer.
The current approach to relief for homeowners is the home exemption or in the case of Kauai a special category for those who occupy their homestead. Generally the home exemption is set at $40,000 of assessed value and is granted merely because the taxpayer lives in the residential dwelling. So the refuse worker who happens to occupy the dwelling that he owns gets the same $40,000 reduction in valuation as the chief executive officer of a company making a six or seven figure salary.
And if the homeowner is 55 years or older, the home exemption increases in $20,000 increments every five years of age even though a person nearing retirement may be earning three or four times as much as the twenty-year old just starting a career.
No, the home exemption does little to address the charge that county elected officials are taxing homeowners out of their homes. And did anyone happen to mention that people who don’t own but rent their shelter get no such tax break because they rent rather than own?
Time has come to rethink how relief is granted to those who truly cannot afford to pay the county real property tax. If, in fact, tax relief was based on the homeowner’s ability to pay the amount of property tax, county officials would find that the real property tax is not so bad after all and could truly carry the cost of operating county government. Next week we will look at a more efficient means of tax relief.

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