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Guaranteeing Increases In Property Taxes

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By Lowell L. Kalapa

Environmentalists and others who want to make sure that development doesn’t overrun the Islands, have managed to insert an insidious provision in the charters of two counties and are attempting to get it into a third county charter.

Adoption of this provision will almost surely guarantee continued increases in real property tax bills. This is because the provision earmarks a percentage of all real property tax collections to be used for the acquisition or preservation of watersheds, drinking water sources, beaches, coastal areas and other natural, cultural and historical sites. Kauai county adopted this provision a couple of years ago earmarking one-half of one percent of their property taxes and Maui earmarks one percent of its real property tax collections for this purpose.

Now a similar provision will be placed on the ballot for voters in the City and County of Honolulu to consider this fall. However, backers of the amendment obviously did not think the issue of preservation of natural resources could persuade enough voters to adopt the provision and therefore earmarked an equal amount to provide and maintain affordable housing for low-income families. The provision, to be considered by the Honolulu voters, will earmark one percent of real property tax collections for these purposes with the windfall to be divided equally between natural resource preservation and affordable housing.

As readers will recall from last week’s column, earmarking of revenues that have traditionally been receipts of the government’s general fund is poor public finance policy as it, “restricts budget flexibility, creates inefficiencies and lessens accountability.” In other words, because what were unrestricted funds are now designated for a specific purpose, those funds are no longer available to address the pressing and changing needs of the community. 

For example, should there be a rise in crime which would necessitate additional resources for the police department, the funds that could have been available are locked into the designated purposes of natural resource preservation and affordable housing. If policymakers cannot find other activities or functions of government that can be reduced to free up the necessary funds to fight crime or fires, the only other alternative is to raise additional taxes, and in the case of the county, the real property tax.

Designating revenues for a specific purpose or function of government only works where there is a direct relationship between the tax imposed and the service provided. For example, the county fuel tax or county vehicle weight tax is paid by motor vehicle users who expect those revenues to build and maintain the roads upon which they drive. The fuel tax measures the amount or distance the highway user utilizes the county’s roads, whereas the vehicle weight tax measures how much wear and tear a particular vehicle imposes on that county’s roadways.

Similarly, user fees for specific activities, such as camping fees, are designated for the repair and maintenance of county recreation or park facilities. Likewise, fees imposed for the use of county meeting facilities go back into a fund that helps maintain those facilities. The more users there are, the greater the amount of revenues that should be generated for the wear and tear those users impose on those facilities. Thus, earmarking revenues generated from the specific users of facilities or services can be justified. But that is not the case in the charter provisions in the Maui and Kauai charters and the proposed Honolulu charter as there is no relationship between the property taxpayer and the designated preservation of natural resources or, as in the case of Honolulu, affordable housing.

While the absolute dollar amount earmarked for the counties of Kauai and Maui amounts to several hundred thousand dollars, the impact for the City and County of Honolulu could total anywhere between $5 to $7 million annually. Thus, in considering the adoption of this provision, be it in Honolulu or on any Neighbor Island county, the taxpayer should question which program or service that costs several hundred thousand dollars or as much as $5 to $7 million would they be willing to do without.

Conversely, are real property taxpayers willing to pay an additional $5 to $7 million a year to cover current and on going costs of services provided by the City and County? If the reaction is anything like it was this year when property tax rates were being determined, county policymakers may just find themselves in the middle of a taxpayer revolt.

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