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Required Services, Fluff If We Can Afford It

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By Lowell L. Kalapa

(Released on 06/03/07)

Last week was spent sitting in hearings before the Honolulu City Council as members tried to lower property tax rates on homeowner and other types of residential property. 

Although the Honolulu City Council had explored a number of tax relief options earlier in the year, they finally seemed to get the message that the only true tax relief was to lower real property tax rates. Unfortunately, they basically went along with the mayor’s recommendation that the rates on nonresidential property be raised although not quite as high as had been requested by the administration. 

While Council members worried about their home-owning constituents, they seemed to blithely dismiss the fact that by raising the real property taxes of non-residential properties, they were merely hitting their constituents in the same pocketbook by raising prices. Those Council members who supported the shift pointed out that by doing so, some of that passed-on burden of taxes will be paid by Hawaii’s visitors. Unfortunately, that is a myopic self-serving point of view as a consultant study for one of the past Tax Review Commissions reported that less than 9% of the real property tax burden is passed on to tourists. 

Businesses, unfortunately, have to raise prices and if they can’t raise them then they need to cut other costs if they are to remain in business. In some cases that may mean laying employees off or reducing their hours or in the worst case scenario, closing their doors and going out of business. So the bottom line is that we, as homeowners or renters, pay for the increased cost of County government as consumers and employees. 

So that brings us back to the only real kind of relief from soaring assessments and that is for county officials to lower the real property tax rate. Now, homeowners have complained loudly in recent years that their tax bills have soared by as much as 100% or more in some cases. However, none of these homeowners have asked where the money from the increased property tax bills is going. If everyone’s real property tax bills went up by 100% over the past, say, five years, then the natural response has to be that county spending has gone up by 100% if not more. And that’s where there seems to be a breakdown in the linkage between rising tax bills and the amount of spending County officials have approved. 

So where is all that money going? In the case of Honolulu, there are some really questionable expenditures of County moneys raised from the real property tax. From a historical perspective, a restructuring of state and county responsibilities in 1965 basically assigned functions that were unique to each island to county government. 

For example, public safety services, such as police and fire protection, were assigned to the counties along with sanitation issues such as garbage collection and disposal and wastewater treatment. The state took on issues that pertained to general public welfare including health, human services, education, as well as housing including housing criminals where incarceration became a state function. Some responsibilities were shared as in the case of the road systems where there are both state and county highways. 

However, over the years, the counties have taken on functions that are clearly not their responsibility such as affordable housing, management of conservation lands, economic development and the arts. Thus, real property taxpayers are paying for programs and services that are duplicating services and programs provided by the state. And like the state, the counties are handing out various grants-in-aid to all sorts of community groups as if the counties had a bottomless pit of revenue. 

If, in fact, County officials want to provide real relief to real property taxpayers, they should start looking at how they are spending those tax dollars and taxpayers should be asking their elected officials if this or that expenditure is really required to be paid for with real property tax revenues or is it something that should be supported by the community and not be a part of the County’s responsibility to fund. 

For example, one request to the Honolulu City Council was to provide $150,000 to apply for federal matching funds to explore the possibility of setting up a high-tech innovation center in Honolulu. While we would all like to encourage new industries, perhaps this matching amount could be provided by many of the high-tech companies that taxpayers already fund with state tax credits. It might be a unique way for that industry to give back to the community rather than asking all real property taxpayers to foot that bill.

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