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Kitchen Pot About to Boil Over

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By Lowell L. Kalapa

Well, folks, it has happened, the emotional fervor over rising real property tax assessments has helped to slap lids on residential real property tax bills in two out of the four counties.
On Kauai, voters approved a charter amendment that basically limits annual growth in real property tax bills to 2% while on the Big Island council members approved a package of proposals submitted by the administration to allow homeowners to dedicate their properties for owner-occupied use for a period of five years and be guaranteed that their valuations will not be increased by more than 3% per year. And homeowners will get an additional exemption equal to 20% of the value of their real property up to a maximum additional exemption of $80,000 (maximum valuation of $400,000).
On Maui, a citizens’ group has proposed limiting annual increases of owner-occupied, residential property to 4% per year using 2001 as the base year with new acquisitions valued at the time of acquisition. This will have the effect of shifting the bulk of the value of the residential base to those properties that have been acquired more recently and to nonresidential property.
Undoubtedly, all of these proposals to place a cap on rising values of residential property, especially on the Neighbor Islands, is being throttled by the hot real estate market fed primarily by nonresident purchases of real property. Thus, longtime residents believe that their valuations are being driven higher by no fault of their own and want those who buy real property in the future to pay more of the tax burden.
But that perspective ignores the fact that all property owners benefit from the county services underwritten with real property tax revenues. It also ignores the fact that those longtime homeowners will enjoy the equity created by rising valuations against which they will be able to borrow money from the bank. It also ignores the fact that property tax bills do not always have to track the rise in real property valuations. Elected county officials have the ability to lower real property tax rates to counter the rise in valuations.
More importantly, this approach to tax relief severs the accountability relationship between the taxpayer and the programs and services paid for by real property tax revenues. Those who will be able to enjoy the cap on their real property tax bills can demand more and more services from county government without having to foot the real property bill for those programs and services because their property tax bills will be protected by the caps.
As the years run on, identical properties will pay disparate tax bills just because one of the properties was sold recently and the other has the original owner still living on that property. In some places in California where this idea of freezing property valuation growth to specified annual growth rates, an identical property is paying a tenth of its twin.
To put it in absurd terms, let’s flip the coin over to the spending side. Should, for example, the police respond to one out of every ten calls placed by the property that is paying one-tenth of what the property next door is paying?
And what will advocates of these caps on increases in property valuation say when they visit their friendly neighborhood supermarket and find the bag of rice now costs twice as much as it did two years ago because the grocery store has been asked to pick up the tab in the shift of the property tax burden from the homes enjoying the valuation caps?
Why did these proposals win approval when the cost of running the county will merely be shifted to someone else? Why, that is why the proposals were approved! Those who voted for the proposals want someone else to pay for the county services they enjoy. So it will be passed on to those who have yet to come through the door. Those who voted to approve these caps on valuations have made it through the door and they want to slam the door shut, only to be opened if others pay more of the real property tax burden.
The problem is not only that the burden will be shifted to new homeowners, but it will also be shifted to businesses that will have no choice but to pass the cost of the increased burden on to their customers, old-timers and newcomers alike. It will also put another black cloud in the business climate sky of that county, making it more unattractive to locate or start a business in that county.
To that end, this is a Welcome stranger, we want you to pay for the services we enjoy!

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