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The Honolulu Advertiser
Posted on: Sunday, January 22, 2006

Whose county is it, anyway?

By Robert H. Thomas

According to Kaua'i government officials, how much property tax homeowners pay is an issue too important to be trusted to the people who pay them.

In recent years, the median value of Kaua'i homes has soared to nearly $700,000, a 48 percent increase this past year alone. The staggering prices are the product of a hyperactive market fueled by speculation, and investors flush with cash willing to pay top dollar for modest properties.

A rise in market value has little benefit to those who have no intention of selling. When a neighbor's home sells, or is upgraded by a new owner, all of the properties in the neighborhood see an increase in assessed value, which the tax collector uses to justify increased property taxes.

There is little a homeowner can do, except challenge the assessment through the often byzantine maze of local bureaucracy, with only a slight chance of success.

Since 1998, the average Kaua'i homeowner experienced a nearly 50 percent increase in property tax, and county coffers are bulging. But middle-class families of longtime Kaua'i residents, seniors and others on fixed incomes are in danger of being taxed out of their homes.

After years to trying to convince their elected officials to provide tax relief, the people of Kaua'i exercised their right to change the system themselves. Local homeowners proposed an amendment to the Kaua'i Charter to roll back property taxes to 1998 levels for owner-occupied homes.

For those who bought their homes after 1998, property taxes are based on the assessment at the time of purchase. Yearly tax increases for all resident homeowners are capped at 2 percent.

Under this system, resident homeowners are not at the mercy of an unpredictable and volatile housing market and are able to plan their property-tax liability from year to year and to budget accordingly.

And there is no surprise to the new purchaser, who is able to factor future property-tax liability into the decision to buy.

The charter amendment was placed on the November 2004 ballot, and in the run-up to the vote, virtually every Kaua'i elected official attacked the measure, with the mayor and the County Council leading the charge.

They claimed it would adversely affect their ability to provide services. However, since 1998, the Kaua'i budget has risen 50 percent, and the current budget increased 25 percent over last year's alone. Kaua'i government spending is now a record $123 million.

In spite of the organized and well-financed opposition, the people of Kaua'i approved the measure by a nearly 2-to-1 margin. Instead of accepting this decisive political defeat, Kaua'i officials went to court.

Against themselves.

The Kaua'i county attorney sued the mayor, the finance director and the County Council. The claim: the County Council has a monopoly on property-tax policy, and the people of the county had no right to propose and vote on the charter amendment.

To top it off, the county attorney represents both sides in the lawsuit. The litigation is backed by a $100,000 war chest of taxpayer money, budgeted for private lawyers hired to attack the charter amendment.

Four local homeowners intervened in the officials-against-themselves case. They argued that government officials should not be able to concoct a lawsuit, in which they are both the plaintiff and the defendant, in order to gain court approval for their claimed real-property-tax policy monopoly.

The Kaua'i Circuit Court voided the charter amendment, ruling that only county councils may set property-tax policy, and the people have no right to do it themselves by amending their charter.

The homeowners have now appealed to the state Supreme Court because the people not just local politicians have the right to vote and decide on how property taxes are imposed.

Until now, this case has received scant attention beyond Kaua'i's shores, but Honolulu property owners should take notice.

With similar market forces at work and an average 26 percent increase in property value, Honolulu homeowners are beginning to rethink whether property taxes should be tied to an unpredictable housing market that penalizes long-term owners for not selling their properties.

Would Honolulu's politicians consider enacting a measure like Kaua'i's? If the Kaua'i case is any guide, it is doubtful.

Property-tax relief only comes when government officials understand that if they don't provide it, the people will. Or when the people fed up with inaction of government officials do it themselves.

If the arguments of Kaua'i officials prevail on appeal, however, the right of the people to directly set property-tax policy will be lost forever. If this occurs, any incentive for government officials to reform the current property-tax system will drop dramatically.

In the end, this case will determine whether "we the people" determine how much property tax we are willing to bear, or whether the politicians alone have control.