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The Honolulu Advertiser
Posted on: Wednesday, May 20, 2009

Honolulu City Council considers raising property tax by 9%


By Gordon Y.K. Pang
Advertiser Staff Writer

The latest tax plan offered by the Honolulu City Council Budget Committee would cost the average home-owning family about $32 more in property taxes next year, city officials said.

But whether it's a plan a majority of council members will support to come up with a balanced $1.8 billion operating budget in the face of a $1.8 billion shortfall remains uncertain.

In addition, some council members want to restore $6 million to the budget to allow the final phase of islandwide curbside recycling to begin in West O'ahu.

The plan offered by council Budget Chairman Nestor Garcia and approved 3-2 by his committee Monday night calls for keeping Mayor Mufi Hannemann's March proposal to increase the residential tax rate from $3.29 per $1,000 in valuation to $3.59 per $1,000.

To help offset that increase, the committee voted 3-2 to offer owner-occupants a one-time $175 tax credit. Hannemann's proposal called for a $75 tax credit.

Garcia and others have argued that the higher tax credit will lessen the tax burden on residential homeowners under the assumption that they would least be able to afford the hit that would result from what amounts to a 9 percent increase in the rate.

City Budget Director Rix Maurer III said Garcia's proposal is something the administration can live with.

Maurer said a family living in a house or condominium with a median assessed value of $532,000 would pay about $32 more a year starting next year. That's factoring in homeowner exemptions and the $175 tax credit. The administration's original plan, with a $3.59 rate and a $75 tax credit, would have cost that same family about $120 more per year.

Several council members say they have reservations about increasing the tax credit as high as Garcia is suggesting while also keeping the higher tax rate.

Council Chairman Todd Apo was among the three people who supported the plan coming out of the Budget Committee on Monday, but said he's not convinced the formula is right.

Apo said he's worried that by placing a larger burden on residential property owners who don't live on their properties, renters may be hurt.

"If a landlord's expenses go up, it's highly likely it will be passed on to the renters," Apo said. "It's all about balance. We definitely want to provide some kind of benefit to our local owner-occupants but it can't be at the complete expense at the other side of the coin."

Councilman Duke Bainum agreed, noting that renters are "the ones who can least afford (a tax hike) in such a down economy."

Apo said he thinks there's time between now and the June 10 council meeting on the budget to tinker with the amount of the tax rate and tax credit.

IMPACT ON RENTERS

Maurer said the impact of the rate hike would be minimal on renters.

"I think monthly rental rates are going to be driven less by an increase in real property taxes than by the rental market," he said. He noted that property taxes are deductible on both federal and state income tax returns.

He said with an increase to $3.59 in the residential property rate without any homeowner exemptions or tax credits, the residential property owner would have an average assessed value of $521,000 and would need to pay about $105 more a year.

Lowell Kalapa, executive director of the nonprofit Tax Foundation of Hawaii, said that while his organization believes the city should cut services first during tight fiscal times, it also feels that if the council wants to raise more revenues, it should raise residential property tax rates first.

For too long, previous city councils have been afraid to raise rates on homeowners and compensating for it by increasing rates on other categories, including commercial, agricultural, industrial and hotel/retail, he said.

Kalapa said residential property owners are fooled into thinking they've escaped higher taxes when non-residential categories have been the only one increased because "in the end, they end up paying" through higher costs for food or other goods and services.

Tax credits, he said, are "a token salve to relieve the pain. Why don't they just lower the property tax rates?"

Kalapa said he believes residential properties make up the majority of the assessed valuation pie but a much smaller percentage of property taxes paid.

Maurer said residential parcels would account for about 81 percent of gross valuation next year and, assuming a $2.59 rate and a $175 tax credit for owner-occupants, would pay about 55.6 percent of the taxes.

CURBSIDE RECYCLING

In a related development, the Sierra Club Hawai'i Chapter was joined by Bainum and Councilman Charles Djou in calling for the council to reconsider the Budget Committee's move to delay implementation of curbside recycling in 2010 from Waipi'o to Makua.

Garcia said the $6 million saved would help balance the budget and provide tax relief.

Robert Harris, Sierra Club Hawai'i director, said the decision was "inappropriate, short-sighted and somewhat unfair."

Left unserved would be about 36,000 homes, or about 23 percent of the households receiving trash pickup on O'ahu.

"Approximately 10,000 tons of green waste and 6,000 tons of recyclable material per year would continue to go to the landfill or the incinerator," Harris said.

Bainum and Djou, as did Apo, said they would try to find the money to restore the service by, among other things, lowering the proposed $175 tax credit.