The City Council has advanced a measure that would create a new property tax classification for owner-occupants.

The Hannemann administration and other supporters say Bill 51-09 would provide tax relief to residents who need it most, such as those on limited or fixed incomes. Opponents say the measure gives city officials a more politically convenient way to pass property tax increases on to businesses and property owners in other classifications.

The council voted 6-2, with members Todd Apo and Charles Djou opposed. Newly elected council member Ann Kobayashi has not yet taken office.

City budget director Rix Maurer III said the city is anticipating a deficit in the operating budget of between $145 million and $150 million. Mayor Mufi Hannemann has said he is committed to ensuring that owner-occupants need not pay more next year despite falling property values and revenues.

City property taxes are calculated by multiplying a class rate by the value of a property. Owners of all residential properties on O'ahu this year will pay $3.42 for every $1,000 of valuation, regardless of whether they live at the property. Owner-occupants, however, can apply for a "homeowner's exemption," which allows them to take $80,000 off the value of their property before the tax is calculated. Other exemptions are also available, most notably to senior citizens.

Several council members asked why the city needs to have both an exemption and a separate classification for owner-occupants. Noting that the other three Hawai'i counties have a tax classification for owner-occupants, Maurer said, "I think it's prudent that we have as many tools as we can."

Lowell Kalapa, executive director of the Tax Foundation of Hawaii, was the sole person to testify yesterday.

"The unfortunate thing is that this allows you ... to shift the burden among the classes," Kalapa said.

"The likelihood is that the burden is going to shift to non-residential or residential that's not owner-occupied."

The measure now goes back to the Budget Committee.

Also yesterday, the council gave the first of three approvals for what's being called a companion bill that would give tax exemptions to owners of affordable rental properties.

Councilman Donovan Dela Cruz said he introduced Bill 63-09 to counter any negative consequences to low- or fixed-income renters that might result from a new owner-occupant class.