Homeowner taxes likely to rise
By Robbie Dingeman
Advertiser Staff Writer
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Honolulu property values climbed nearly 26 percent over last year, capping six years of growth that have nearly doubled assessed values and sent tax bills skyrocketing.
Values are up broadly across O'ahu since last year, led by a nearly 44 percent average increase in the area from Ka'a'awa to Kahuku, and 38 percent on both the North Shore and in the area from Nanakuli to Makua.
Most property owners can expect higher tax bills unless the city cuts the tax rate.
Mayor Mufi Hannemann said yesterday he's not ready to recommend such a reduction because the city faces significant expenses for debt service, salaries and improving roads, sewers and other core services.
He did propose a $200 tax credit for older homeowners. He also said he would use the money generated by higher tax bills to create a reserve fund to protect the city's financial health.
"We need to put more into our savings," Hannemann said.
The city began mailing assessment notices yesterday to 273,550 property owners.
Retiree Solomon Kam, of McCully, is among many taxpayers who have seen their property tax bills soar in recent years. On his duplex built in 1941, he has gone from paying $100 in 2002-03, to $238 in 2004-05 — to $840 in 2005-06.
The city's online records — updated yesterday with current gross values — show that his 2,228-square-foot property rose in value to $399,400 for the coming year. His exemptions mean he subtracts $94,200, for a taxable value of $305,200.
If the council leaves tax rates where they are now, as Hannemann recommends, Kam will likely pay more than $1,000 on his duplex — 10 times what he paid just four years ago.
Kam said he can't believe that the city assesses his duplex that high.
"I still can't see this ... property costing $300,000," he said.
So how will Kam, now 77, pay the rising bill? "You just have to skimp on something else," he said. "I just take it out of my savings and pay it."
Kam doesn't hold out much hope that city officials will cut tax rates. "Politicians, all they know how to do is raise the taxes," he said. "You can grumble as much as you like."
The gross value of property across O'ahu totals $166.2 billion this year, up 99 percent since 2000.
The higher property values are fueled by record-breaking real-estate prices, new-home construction and improvements made to existing homes, Hannemann said.
He said unprecedented demand for oceanfront property is driving some of the increases, with some people buying "sight unseen."
In other land classifications, hotel and resort property values increased by 22.6 percent while commercial rose by 13.8 percent and industrial properties went up by 11.5 percent.
If the city leaves tax rates where they are now, the increase in property values alone will bring in tens of millions more. Property taxes are the city's single largest source of revenue.
Although the property values are determined as of October and mailed out now, the City Council must set the rates in the spring. Homeowners will find out how much they owe when the tax bills go out in July.
Hannemann said the new values are based on sales of similar properties in each neighborhood from July 1, 2004, to June 30, 2005.
The Honolulu Board of Realtors pegged the median sales price for single-family homes at the end of September 2005 at $615,000 compared with $460,000 for 2004, an increase of 33.5 percent. The same organization logged the median price for condominiums as of September at $280,000, compared with $208,500 for the previous year, a rise of 34.3 percent.
Instead of reducing residential tax rates, Hannemann is proposing:
"We're looking at a larger, more flexible reserve that would help the city weather economic downturns, natural disasters, debilitating lawsuits or other financial crises," he said. "We need to be prepared for times when the economy is not as strong as it has been for the last few years."
Hannemann said bond raters recommend such a fund, and various major cities already have them, including Los Angeles, San Francisco, Seattle, Portland, Denver and Minneapolis.
City Council Chairman Donovan Dela Cruz said the council will consider all aspects of the mayor's financial package after his entire budget takes shape over the next two months.
Dela Cruz said the council may look beyond the proposed 62-plus tax credit to consider other proposals that offer property tax relief to low- and middle-income working families.
"We do need to help based on income," Dela Cruz said. "We want to provide relief to local working families."
While the increased reserve fund makes sense on paper, Dela Cruz said the council will weigh that against the increased tax burden on residents. "We would have to really justify that to taxpayers," he said.
City Councilman Charles Djou, who prides himself on being the only member of the council to vote against all of the recent tax increases, said he still believes the city needs to lower tax rates and reduce the cost of government.
He applauded Hannemann's attempt to offer tax relief to some older residents. "I personally would be far more aggressive ... because I do think the city is raking in money hand over fist," Djou said.
He did praise Hannemann for not proposing any tax rate increases. And he said there's merit in the idea of building a larger reserve fund.
But Djou ticks through the list of recent city tax and fee increases: the vehicle tax, sewer fees, commercial and residential property tax rates, which were last raised four years ago.
"The cost of living in Hawai'i is already inordinately high," he said. Tack on these other increases and "it just makes it that much more harder to make a living in Hawai'i."
Hannemann said he would like to encourage those who might qualify for the 62-plus tax credit but "can spare the money" to consider dedicating that $200 to a yet-to-be-detailed program to reduce homelessness on O'ahu.
Reach Robbie Dingeman at rdingeman@honoluluadvertiser.com.
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