Property tax assessments: Science or speculation?
| • | No'eau Street and 15th Avenue property assessments |
| • | Comparing house values |
| • | Property values over time |
| • | Landowner appeals spike to 8-year high |
By Robbie Dingeman
Advertiser City Hall Writer
Not long after Honolulu property tax assessments went out to some 260,000 homeowners, the complaints began to roll in, from elderly owners of modest tract houses in Kaimuki to wealthy executives living on the beach in Lanikai.
Cory Lum • The Honolulu Advertiser
Most were startled by a sharp increase in the estimated value of their homes, which translates to a jump in their property tax. Some grudgingly conceded that home prices in many areas of O'ahu had gone up significantly as the real estate market recovered from nearly a decade of decline. But others could not understand why the change was so dramatic.
Thelma Robello holds her property tax assessment at her home at 3807 Noeau St. in Kaimuki. Robello, who has lived at the family home since 1958, saw her tax jump from $652 last year to $808 this year.
More than 900 homeowners — about three times as many as last year — and more than 850 condominium owners, or nearly double the number from last year, have filed appeals on their 2002 assessments. Some question the city's assessment methods, which have changed as the result of new computer systems that can calculate sale prices and analyze comparable property values more quickly than before.
City Council members have been battered by complaints, and while they claim they are confident in the city's assessors, they think the city should explain the process better and are discussing measures that might limit the increase in any given year.
Families hit hardest
Although some taxpayers believe the city is simply gouging them to raise millions more, Honolulu will bring in an estimated $383.7 million in property tax this year, far less than the $432.7 million raised in 1993-94.
Homeowners are seeing the biggest increase. The estimated tax on single-family homes is $144.3 million this year, up from $132 million in 1993-94.
Among those wondering how the value of her house could increase so quickly is Kaimuki resident Thelma Robello, who is a month shy of 74.
She lives two blocks mauka of Wai'alae Avenue in a neighborhood dominated by small wood-frame homes, many of them more than 50 years old. Mango and avocado trees are still common. Many of the houses are still occupied by the families who built them.
Robello has lived on the property since 1958. Her family built two homes on the lot: a three-bedroom, one-bath house, and a two-bedroom, one-bath cottage behind it so family members could help care for her mother. Both are carefully tended, the yard neatly trimmed, but the only real "improvement" to the property was a carport the Robellos built in the 1970s.
In 1998, their property tax was $258, because her elderly mother got a break from the city. Property owners received exemptions if they were owner-occupants, which grew bigger as they got older.
After her mother died, the assessment and the tax rose. It was $652 in 2001, and this year is estimated at $808.
"I can see it going up $20 or $40, but $150?" Robello said. "It just doesn't make sense."
Robello worries that she and her husband, Antone, and others on a fixed income may some day be forced to move because of property taxes. "I thought it was outrageous," Robello said. "I think they're attacking the seniors."
Calculations to blame
Tax and real estate experts generally agree that the city has improved its ability accurately to calculate property values in recent years to reflect more closely what a buyer might be willing to pay for a property. But that has jarred homeowners who benefited when assessments lagged far behind market prices.
Gary Kurokawa, administrator of the city real property assessment division, willingly lays out the process and works to assure taxpayers that the amounts come from complicated calculations designed to factor in subjective factors (Is there a view? Is the house on a busy street? Is the neighborhood neat and attractive?) and not from any politician's efforts to manipulate the system to bring in more money.
"We represent the taxpayers. We're representing uniformity and fairness," Kurokawa said of his division. "We don't represent the administration."
Property taxes make up the single biggest source of money for the city, about 40 percent of its $1 billion annual budget.
Kurokawa said there is no simple formula to explain how the value of each lot is calculated. The city's 33 staff appraisers set the values for about 7,900 parcels each year, collecting sales data from the state Bureau of Conveyances, tax certificates and real estate sources.
The city is in the second year of a three-year conversion to a new system, Computer Assisted Mass Appraisal, designed to be more up-to-date and fair, Kurokawa said. The assessors crank into their analysis general data about the forces affecting real estate in a particular area, specific data about the properties, and comparative information about homes that the analysts consider comparable.
Kurokawa said assessors are trained to keep their analysis uniform, base it on objective standards and use samples to test their conclusions. As for visiting the neighborhoods, "the goal is to get out on residential properties every five years."
Kurokawa and real property assessor Robert Magota said assessed values generally lagged two years behind what the properties were fetching on the market when they began working for the city in the 1980s. Now they believe the market information gets computed within a month, making the values much more current.
Accuracy is generally considered a good thing, but Lowell Kalapa of the Tax Foundation of Hawa'i said the sudden improvement in calculating market values prompted sticker shock.
"We skipped the step," Kalapa said. "People weren't prepared for it."
Accurate values
The single-family-home communities that saw the biggest jump this year were on the Windward side, with an average 8.7 percent increase in East Honolulu, including Hawai'i Kai, which rose 7.8 percent. Only the Wai'anae Coast saw a dip in property values, of 5.1 percent.
Real estate economist Mike Sklarz said the 2002 assessments appear to reflect accurately the rising values in the O'ahu real estate market. He points to the median value of a single-family home in Hono-lulu, which climbed from around $160,000 in 1985 to $360,000 in 1994, dipped to $290,000 and is now climbing past $310,000.
Sklarz, vice president of real estate evaluation technology for Fidelity National Information Solutions, said complaints are to be expected, but that doesn't mean the system is flawed.
"(Assessments have) gone up significantly from the low points of several years ago," Sklarz said. "I think, if anything, (city assessors are) probably understating in certain areas what's gone on."
Homeowners in desirable older neighborhoods such as Manoa and Kahala have been hit especially hard by fast-rising assessments.
Susan Wong of Maunalani Heights saw the assessed value of her home nearly double, from $84,600 in the 2001 assessment to $164,200 in the current assessment, putting the value of her house and land at $534,700. She has appealed her assessment.
Although she knows the market is strong and she lives in an attractive area, Wong cannot fathom an increase of nearly 100 percent, when the entire area surrounding Diamond Head has gone up only about 7 percent.
"How did the building go up so high? How did they do this?" she said.
To help explain the process, city assessor Norman Yoshida provided an analysis of comparable homes used to help determine the value. Yoshida explained that the city sets values for each area that take into consideration various factors, and that each neighborhood is different.
"It's not a matter of adding it up and taking the average," he said.
In Wong's case, Yoshida said assessors reviewed the sales prices of five similar houses on Maunalani Heights and Wilhelmina Rise, and used those "comps" to determine the value of Wong's five-bedroom, two-bath home.
New forms issued by the city this year also helped incite confusion and anger, because they showed a property's tax history over the previous seven years — a grating reminder of how much assessments had increased.
City Budget and Fiscal Service Director Caroll Takahashi said the city chose seven years because it fit on the form, not — as some speculated — to coincide with the term of Mayor Jeremy Harris.
"We wanted to give people as much information as possible," she said.
Changes brewing
Harris said he's reluctant to support a change that would create a one-size-fits-most assessment system, because he thinks the current system can factor in information fairly. A standardized system might prompt fewer complaints over the short term, Harris said, but be less fair over the long term.
City Councilman John Henry Felix is pushing for a cap on the amount that residential property tax bills could rise in a year. "I feel that it's an unrealistic burden to impose on property owners in light of our fragile economy," Felix said.
If his bill passes, it would mean residential property bills would not rise more than 15 percent from one year to the next, barring new construction or major repairs.
City Councilman Duke Bainum also wants the system reviewed, and thinks more explanation would help taxpayers.
"You have to have the confidence of the people that it's a fair amount," Bainum said.
Reach Robbie Dingeman at rdingeman@honoluluadvertiser.com or 525-8070.
