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Jeopardizing Property Tax Accountability

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By Lowell L. Kalapa

As the real estate market continues to heat up, real property taxpayers are already seeing their valuations rise and many have voiced concerns that they will soon be “taxed out of their houses.”
As a result, the politicians are racing in to propose ways to alleviate the public outcry, otherwise known as pandering to the constituents. Because it is the valuation number that is increasing, the approaches focus largely on how to mitigate the rising assessment number.
Of course, the most convenient solution to address the rising valuation of residential property is to increase the existing homeowner’s exemption. However, that solution actually does very little to help those homeowners who need the most help in meeting their real property tax obligations. But it is so easy because every homeowner gets a basic home exemption of $40,000. So why not increase this amount to accommodate the rapid rise in values?
The first red flag comes in the form of the question “by how much?” Some property values have gone up by 10% to 15% over the past couple of years while others have double in value during the same period. So just raising the home exemption doesn’t address the unevenness in the increases. In fact, one has to ask just what does the home exemption really do for homeowners? When applied to the tax rates which range from a low of $3.75 on Oahu to $9.10 on the Big Island, the value of the $40,000 home exemption ranges from $150 to $364. That “tax savings” is given out to anyone who is a homeowner, regardless of where the property is located, how large or small it is or whether or not the owner is employed or unemployed. It gets even better if the homeowner is elderly. Those who are over age 55 in Honolulu receive a homeowner’s exemption of $60,000 or one and a half times the basic home exemption. The home exemption continues to rise at every five-year milestone of age until age 70 when it is three times the basic home exemption or $120,000.
And that’s the point, what does the home exemption have to do with a person’s ability to pay his or her property tax bill? While the elderly with a $120,000 home exemption might argue that they are living on a fixed income, they probably don’t have a mortgage on their home, the kids have grown up and flown the nest, and they don’t need to shop for the latest fashions because they are retired and don’t need to dress for the workplace.
At the opposite end, the young couple with a baby on the way, buying their first home, working at entry level jobs and commuting to their workplace, receive the basic $40,000 home exemption. Again, where is the logic in the home exemption?
Ah, but it is easy and politicians can claim that they did something to stave off the tax collector. But that is just not very responsible or accountable. Because the home exemption will do little for those with substantial hikes in their values, any increase that the county can afford to adopt will be of little consolation. Because the home exemption is available to everyone owning their own home, the loss created by increasing the amount of the home exemption will have to be factored into what can be raised from the remaining property tax base. Because the home exemption applies only to residential property, there will be an automatic shift of the tax burden to nonresidential properties.
That’s where accountability begins to erode. Because homeowners enjoy a greater slice off their property values, county officials will have to make up for the loss in revenues by either keeping or increasing the tax rates on other properties. These nonresidential or business properties will have to raise prices to their customers in order to cover the increased overhead in the form of higher property tax bills and in the end, their customers are homeowners who either shop or work at these businesses.
And will it be the elected official that consumers blame when they pay more for their rice or milk or when the boss says there is no money for pay increases this year? Of course not, it will be the grocer or the department store or the employer that gets the stink eye.
Increasing the home exemption may in the short term look like elected officials are doing something to alleviate the rising valuation and therefore larger tax bills, but in the long run, it will merely hide the real problems with the property tax system and, more importantly, that county officials have little penchant for tightening the spending belt.

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