EDITORIAL
Farm tax changes need reconsideration

The City Council needs to step back and take a fresh look at a tax break that seems to be producing unintended consequences of unexpected proportions.

The council has been wrestling with devising a fair method of taxation of agricultural lands for a couple of years now. In 2002, it decided to switch to a fair market value system for determining property taxes on ag lands. Before that, it had been determined by the value of crops produced on the land.

The change to the law was meant to prevent owners of property zoned for agriculture from taking advantage of the lower property tax rate and using the land for other purposes.

Taxes shoot up

Alarmed owners of ag land, not all of them farmers, say many of them are seeing their property taxes shoot up by 100 percent or more under the new system. So to ease that sudden impact on the owners, the council now wants to allow them a one-time assessed valuation of only 5 percent of fair market value — in essence a 95 percent tax break.

The unavoidable wrinkle in dealing with ag land assessment is that a very few owners own a very large percentage of the island's ag land, and much of this land is ag land in name only. In fact, much of it is being land-banked for development, which may explain why its fair market value is soaring.

The bill to reduce valuation to 5 percent was produced by the Land Use Research Foundation, which represents owners like Campbell Estate, Kamehameha Schools, Castle & Cooke and Gentry Pacific.

They have a point, but we're unsure how to evaluate it. Kamehameha Schools complains that the assessed value of one of its parcels jumped from $48 million under the crop value system to $445 million under a fair market value system.

What we don't know is whether this huge leap has to do with the land's proximity to developed land, which would sharply increase its fair market value; or a minimal amount of farming on it, which under the crop value system artificially kept its earlier assessments very low.

Budget turmoil

A consequence (unintended, we hope) of the one-time tax break is that, according to city Budget Director Ivan Lui-Kwan, it will cost the city as much as $12 million in tax revenues. That, says Lui-Kwan, will unbalance the city's $1.2 billion operating budget, unravel the city's assessment process and defeat the purpose of the original attempt to distinguish between productive and nonproductive ag lands.

Question of fairness

Given that a large proportion of this $12 million tax break will benefit fewer than a half-dozen landowners, there's an urgent question of fairness. These landowners are hardly paupers, and we wonder why the rest of the island's taxpayers, who would presumably have to make up the city's revenue shortfall, ought to be subsidizing them.

We sympathize with any effort to stimulate growth and diversification among the island's farmers, but this result isn't it.