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The Honolulu Advertiser
Posted on: Sunday, January 1, 2006

Hannemann seeks homeowner tax cut

By Will Hoover
Advertiser Staff Writer

Vowing to remain fiscally prudent, Honolulu Mayor Mufi Hannemann yesterday proposed a one-time $40 million tax cut this year for homeowners.

In an unusual New Year's Eve news conference at Honolulu Hale, Hannemann said he was responding to homeowners concerned about escalating home assessments.

"We feel the pain of taxpayers who have seen their home values rise an average of 27.8 percent over the past year," he said.

Hannemann said the tax cut would replace an earlier proposal that would have given homeowners 62 and older a one-time $200 tax break.

He offered no specifics about which homeowners might qualify for the proposed tax cut.

However, if the tax break is limited to Honolulu's approximately 135,000 owner occupants and excludes investors or part-time residents the owner occupants would get an average $300 in relief this year if the overall tax cut is $40 million.

City officials have said they have no way of knowing how many of the total 273,000 Honolulu property owners qualify for exemptions.

The present owner-occupant exemption on property tax assessments is $40,000. According to city budget officials, a $300 one-time tax credit would be the equivalent to receiving an additional $75,000 homeowners' exemption.

"I'm not going to lay out any specific details on how this $40 million is going to be parceled out, or how we determine the methodology by which we go about distributing this," the mayor said. "I want to work with the City Council. They are just as concerned as I am about this issue."

Hannemann said the proposal would be included in the budget plan he'll submit to the City Council in two months.

The tax cut was one of three legislative proposals Hannemann outlined yesterday that he hoped would provide relief for O'ahu homeowners who have watched their tax burdens soar along with home prices in recent years.

The mayor said he would establish a homeowner classification for Honolulu that would distinguish owner-occupants from speculators and investors.

He said Honolulu County, unlike other counties in Hawai'i, does not have such a classification. The idea would enable the city to reduce tax rates for owner-occupants, Hannemann said.

He also said he had taken steps to create a tax policy committee that would include private sector economists, tax experts and business leaders.

The mayor named noted University of Hawai'i professor and economist Seiji Naya as one person who has agreed to be on the committee, which he said would work with the City Council to maintain sound fiscal management and accountability.

Property tax increases will account for an estimated $125 million in additional revenues next fiscal year, Hannemann said.

Of that money, $40 million would cover the proposed tax cut, and $65 million would pay for fixed costs, such as raises for city workers, debt payments and higher fuel costs for city vehicles.

Hannemann said the city has previously "lived beyond its means," and the balance of $20 million would be used to establish a stability reserve fund something the mayor insisted is necessary for fiscal security.

He said he had wanted to create a $50 million reserve fund for next year, but understood the feelings of homeowners who say they needed tax relief.

"We all agree we need tax relief," said City Council Chairman Donovan Dela Cruz, following the mayor's news conference. "We have to work out how we will provide that relief and who will benefit from it.

"It's important to make sure that the benefit goes to our local working families and our middle- and fixed-income families.

"Depending on how the proposal comes down, that's when we see who will benefit."

Mike Abe, who heads a Property Tax Fairness task force for the O'ahu County Democrats, said he was pleased that the mayor is addressing the issue, although he said it was unclear exactly how the outcome would benefit O'ahu residents.

"I think the homeowner will be encouraged by knowing that somehow there will be a $40 million reduction," said Abe. "But the question should be: Who gets the relief? And, secondly, what's going to happen in 2007? This is a one-time thing."

Abe added that the mayor's proposal would do little to relieve the financial burden of O'ahu renters, who are coping with soaring rents propelled by increasing property values.

"O'ahu has one of the lowest homeowner rates in the country," said Abe. "So, many residents are renters.

"If we're going to deal with relief, let's deal with the people who are really going to need it."

Reach Will Hoover at whoover@honoluluadvertiser.com.