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Quest for Revenues Will Drive Property Tax Rate

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By Lowell L. Kalapa

County council members across the state will be fidgeting in their seats this month as they prepare to set the real property tax rates for their respective counties, a task made more difficult this year because of the meteoric increase in valuations primarily in the residential category.
While a number of proposals have come forward, including one charter amendment that was actually adopted to limit either the increase in valuations or limit the amount a homeowner’s property tax bill may increase from year to year, all seem to ignore that taxpayers already have a mechanism that can temper the growth in property taxes. That mechanism is the rate setting process that the county councils are currently evaluating.
Taxpayers must remember that their property tax bills are a product of two factors. The first factor is, of course, the valuation of the property. With skyrocketing valuations, fear has struck the hearts of many a homeowner fearing that property tax bills will ride along with those valuations. However, the second factor in the real property tax formula is the rate.
Now, those fears would be founded if, in fact, council members did not adjust real property tax rates to accommodate the rise in valuations. When the state legislature controlled the real property tax, that is before the function was transferred to the counties in 1978, state lawmakers adopted a provision that automatically recalculated the real property tax rate based on the new valuations so the new valuations would produce the same amount of revenue realized in the previous fiscal year.
This provision was patterned after a law established in Florida and was intended to inform real property taxpayers what the rate should be if county councils wanted to raise no more than in the previous year. The recalculated rate would go into effect if the county council did not proactively move to change the rate. As a result, taxpayers could see council members raise rates and, therefore, their tax bills, as they adjusted the recalculated rate.
However, this provision was not carried over to the county ordinances once the real property tax was turned over to the counties. Consideration might be given to reestablishing this provision as one more way to hold county officials accountable when it comes to setting real property tax rates. If taxpayers could see that the rate adopted by the county council was higher than the recalculated rate, there would be more questioning of what council members intend to do with the extra money.
Although no one wants to pay more in taxes, higher taxes come with the demand for more or new services to be provided by the county. True, sometimes the county elected officials’ spending may rise to the level of questionable, but that is exactly where taxpayers should hold their elected officials accountable. Allowing elected officials to run free and loose with taxpayer money will eventually result in higher tax bills for future generations.
Such is the case in the City & County of Honolulu where only now taxpayers are becoming aware of the many projects initiated by the previous administration that carried a hidden cost for future taxpayers. When various community-visioning teams were promised $2 million for their “visions,” no one questioned where the money was coming from as much as they saw their dreams come true. But in the long run as we know now, all of that “free” money was being borrowed and must be paid back by future taxpayers, beginning with taxpayers in this coming fiscal year.
If real property taxpayers want to insure that their property tax bills don’t follow the trend of property valuations, then they need to start with the spending half of the ledger. Unless county spending is brought under control, no tax limitation will insure the fiscal soundness of county government. In other words, if real property taxpayers want to control the rise in property taxes, they must address how the money is being spent.
Finally, while property valuations are a reflection of what is happening to the real estate market, they are by no means the only determinant of what each property taxpayer’s bill will look like. The rates set by county councils must also be carefully scrutinized and local officials need to be told when spending, that will drive the level of the property tax rate, is getting out of hand. In other words, real property taxpayers need to hold their elected officials accountable for not only the property tax rate, but also the spending that drives that rate.

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