Unfair property tax hike another case of poor city planning

The Residential A real property tax classification that increases the tax rate by 71 percent — to $6 from $3.50 per $1,000 of assessed value on non-owner occupied properties — has been in the news recently, but in all the hubbub, some major impacts and related issues have not surfaced.

This new classification and the huge tax increase were the result of poor planning and the belief that people who can afford to own a home they don’t live in themselves can, and therefore should, bear a much higher share of the tax burden than others.

But what about the unintended consequences of this classification?

One elderly gentleman told me his lease provides for his tenant to pay the real property tax directly. The tenant is 87, deaf and lives on Social Security of $10,000 per year. Her taxes went from about $3,330 to about $6,300.

Another woman and her husband, who just recently retired, said they will be increasing their tenant’s rent by $400 per month to cover the tax hike. The tenants were paying $1,750 per month and will soon be feeling the pinch of an almost 25 percent increase in rent.

Another family invested in a second home to give to their children after college. Now they’re penalized for planning for their families’ future.

Or are we just telling them the City Council knows better what they should do with their hard-earned money?

What were they thinking?

Well, it’s pretty simple. The law requires that the budget balance. Faced with increased costs from revised union agreements, new programs such as Housing First and City Council add-ins like the $5 million for nonprofit grants outside of the grants-in-aid fund — and having already said no to higher fuel taxes, ads on buses, trash pickup fees and other real property tax changes — the city was in need of a quick fix.

Who would object to sticking it to some rich people who own multiple homes in a premium-priced market like Honolulu? In reaction to recent outcry, however, the city’s deputy director of Budget and Fiscal Services recently said that the rate hike would have been an incremental 40 cents per $1,000 of assessed value, or about 11 percent more than the $3.50 rate, if it had been equitably borne by all homeowners — not a whopping 71 percent.

I’m not advocating that the Council should have increased the residential rate for everybody. I’m merely pointing out that I don’t recall alternatives being offered. How about a tiered rate for the Residential A class with homes at the bottom tier taxed at lower rates than the $15 million second home on Diamond Head?

Better yet, how about controlling costs and not overbudgeting for things like payroll taxes that any first-year accounting student can calculate from a set of tables found on the Internet? That would be a long-term solution, rather than a quick fix.

Perhaps the greatest lesson from this most recent bad tax policy decision is that we need a plan that goes beyond the one-year budget cycle, especially when we know projects such as the rail will hit hard. Proposing a new tax less than a year before we need the revenue almost guarantees incomplete thinking and poor implementation.