Land values benefit counties
By Kevin Dayton
Advertiser Staff Writer
While Honolulu politicians are considering tax and fee increases to close a $76 million city budget deficit, county governments on the Neighbor Islands are enjoying a fairly comfortable budget cycle this year, thanks to growth in property tax collections.
Maui is the only county other than Honolulu contemplating a property tax rate increase for the coming year, but tax collections in the county are expected to rise by about 6 percent even without the proposed rate hike.
On the Big Island, a rebound in real estate values and new construction are expected to boost property tax revenues by almost 10 percent, or about $10 million, in the fiscal year beginning July 1.
That is partly because property values are rising, and partly because Mayor Harry Kim and the Hawai'i County Council increased property tax rates last year along with the county's minimum tax. No property tax increase is planned for the upcoming budget year.
On Kaua'i, county officials expect to collect 13 percent more in property taxes next year than they did this year, and a task force has been formed to consider relief measures for homeowners struggling to pay the higher taxes.
Honolulu's property tax revenues are expected to increase by 5 percent, or about $20 million over last year's collections, even without the proposed rate increase now advancing through the City Council.
Still, city officials say that wouldn't bring in enough money to cover increased costs in city operations. The proposed property tax rate increase would raise an additional $23 million.
Hawai'i County Council Chairman James Arakaki credited former Mayor Stephen Yamashiro with creating many of the conditions that put the Big Island in a favorable position today.
Yamashiro encouraged development in West Hawai'i years ago that has resulted in a surge of luxury-home building, which is generating more property tax revenue, Arakaki said.
The former mayor, who left office in 2000, was a fiscal conservative who always put a financial cushion in his budgets to help the county weather bad times, Arakaki said.
"People can criticize him for maybe some services that weren't given at the time," but the county stuck with "bread-and-butter" initiatives such as police and fire services and road and sewer projects, he said.
On Maui, the increase in tax collections is spurred by higher land values and new construction, with much of the construction in the Kihei and Wailea area, county officials said.
The Maui County Council has proposed cutting tax rates slightly for owner-occupied homes, and increasing them for land, homes and apartments held by absentee owners.
The net effect would be an extra $6 million more in property taxes for the county, but Mayor Alan Arakawa hasn't yet said whether he will go along with the proposed tax increase.
On Kaua'i, home purchases by celebrities and technology millionaires has ratcheted up real property values in upscale communities.
In more sedate towns with less glitz appeal, increases are generally smaller. But overall, the trend is up, and even though property values were depressed for nearly a decade after 1992's Hurricane Iniki, recent years have seen significant jumps in values.
The Kaua'i County Council has kept tax rates level, but since tax bills are based on the assessed value, property owners generally will be paying substantially more. Property tax revenues are expected to increase by $5.7 million in the coming fiscal year.
Despite the good news in tax collections, county Finance Director Mike Tresler said Kaua'i's budget was balanced with difficulty. He said increases in fixed costs were roughly equivalent to this year's increase in real property revenues.
"We had a tremendous increase in fixed costs — things like the retirement fund, electricity, insurance. The health fund increased 12 percent. We had a significant increase as a result of the firefighters' arbitration, and we have the police coming up," Tresler said.
Honolulu Mayor Jeremy Harris said if the budget process looks less painful for the other counties this year, it is partly because Neighbor Island property tax collections grew over the last decade, while collections on O'ahu declined.
Collections were almost $433 million in 1994, Harris said, while collections next fiscal year are expected to be only $427 million, even after the proposed tax increase.
By contrast, property tax collections on Kaua'i, Maui and the Big Island increased by 10 percent to 45 percent over the past 10 years, he said.
The city made a policy decision to keep tax rates low even as property values dropped, which forced the city to cut costs and operate more efficiently, Harris said.
After years of cost-cutting, the city once again is faced with millions of dollars in increasing employee costs for health coverage, pensions and workers compensation claims.
However, Harris said the city is well-managed with a solid bond rating. He blamed City Council politics for creating a public perception that the city is in terrible financial straits.
"The issue really here has been blown out of all proportion simply because of the politics," Harris said.
He said the proposed increase in residential property tax rates, which would be accompanied by a cut in apartment rates, is hardly "earthshaking," and would still leave city tax collections below what they were 10 years ago.
"It's been so politicized, and I think the Neighbor Island counties and the Neighbor Island county councils have dealt with this issue in a far more responsible manner than the Honolulu City Council has," Harris said.
Council Budget Chairwoman Ann Kobayashi said the debate this year was particularly difficult because Harris built into his proposed budget a number of proposals the council would not accept, such as a new trash pick-up fee.
When the council rejected those ideas, council members had to sift through Harris' budget to find places to cut more than $9 million to compensate for the money that would not be collected.
"That's why it was such a challenging time this year, because all these projected revenues from fees that had not been approved yet caused a lot of heartache," she said. "It became a very difficult process."
Advertiser staff writers Jan TenBruggencate and Treena Shapiro contributed to this report. Reach Kevin Dayton at kdayton@honoluluadvertiser.com or (808) 935-3916.
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