Members of the City Council pushing for tax breaks for property owners wrestled yesterday with where to focus relief: those who need the money most — based on age, income or other factors — or all property owners.

Budget Chairwoman Ann Kobayashi, who — with Council Chairman Donovan Dela Cruz — wrote several of the many proposals considered yesterday, said she started this year's discussions thinking that relief might target a smaller group. Now, she's not so sure.

"I was leaning toward helping those who really need help," she said. But after hearing from hundreds of taxpayers how years of increases have hurt their personal finances, she said, "there is this cry to help everyone."

Kobayashi presided over a six-hour special meeting at which council members sifted through more than a dozen proposals that respond to property owners who are reeling from double-digit increases in property tax assessments over the past three years.

'Ewa Beach homeowner Barbara Jessee told council members that she's counting on them to help. She said the assessed value of her one-bedroom condominium has gone from $108,500 to $171,500 in three years — a 58 percent increase — while her taxes ballooned 217 percent over the same period.

Jessee, who was among an audience of about two dozen people, favored re-evaluating how the assessments are reached. "It seems like it should be very equal," she said.

By day's end, Kobayashi postponed narrowing the field of proposals, which include increasing exemptions, capping property tax increases and a variety of tax breaks based on age, income, residency, disability and other factors.

HIGH ADMIN COSTS

City officials also analyzed the proposals, noting that some would be complicated and expensive to administer. Gary Kurokawa, administrator of the real property tax assessment division, estimated that a measure to increase the maximum income limit for an income-based tax credit program from $50,000 to $75,000 would cost $9 million just to process the applications.

"The administrative costs represent money that could have been given back to the taxpayers or put into a reserve fund," he said.

Lowell Kalapa, president of the Tax Foundation of Hawai'i, recommended against boosting the exemptions as a solution.

"The home exemption is an archaic relic left over from the 1930s," Kalapa told the committee, back when government was trying to encourage transient workers to settle down and take roots in their communities.

Kalapa said the exemption is a poor way to provide relief because it doesn't respond to quick changes in valuation. And he said the exemptions would be hard to change once increased. If values decline, so would revenue that is used for city programs and services.

MORE WORK TO DO

Kalapa said that could lead to other hard choices about which priorities are more important. "Are the parents in your community willing to go without Summer Fun?" he asked, referring to a popular low-cost children's summer program run by the city.

The City Council sets the property tax rates annually. But Councilman Gary Okino said the rates aren't easy to change, either.

"I remember suffering through 10 years of declining revenues when we could have raised the rates a little bit but instead we chose to cut back government," Okino said. "Nobody wants to even raise rates."

The budget committee will meet again next week to consider the tax relief measures. The next full council meeting isn't scheduled until Feb. 15, and Mayor Mufi Hannemann is expected to send down his budget on March 2.

Although the council does not have to wait for Hannemann's spending plan, members say it will help give them a more realistic understanding of the city's financial picture and plan how much money could be given back to taxpayers. Administration officials estimate that the city will collect $728 million in revenue from property taxes, $125 million more than in the previous year. Deciding what to do with the windfall is part of the debate.

$40 MILLION GIVEBACK

Hannemann said at least $65 million is needed to pay for salaries, debt service and other basic city needs. He wants to put $20 million in a reserve or rainy-day fund to prepare for emergencies and bolster the city's bond rating.

That would leave $40 million that he wants to give back to taxpayers in a credit. He has yet to propose specifics of how that credit would work.

In mid-December, 273,000 property owners received their assessments, which showed an average islandwide increase of 26 percent. The record-breaking real estate market sent assessments skyrocketing and homeowners with no plans to cash in on the boom have complained that their tax bills have doubled, tripled and more in recent years.

Reach Robbie Dingeman at rdingeman@honoluluadvertiser.com.