Owners of historic homes on Oahu are getting substantial tax breaks to help offset the cost of preserving their properties, yet they are not required to reinvest the savings into the dwellings.
The idea of providing publicly subsidized assistance to homeowners to preserve Hawaii’s historically significant residences was a key reason the property tax exemption program was established in the early 1980s.
But the program does not establish any formal link between the 10-year exemption and a plan to preserve the residences.
Some owners of million-dollar homes are saving thousands of dollars annually because of the tax exemption.
While the exteriors of many historic homes on Oahu are kept in good condition, others appear to be poorly maintained, undermining one of the public benefits of the program.
The Star-Advertiser previously reported that another public benefit — the ability to view the historic homes — has been undermined because some exempted dwellings are largely out of sight.
The city acknowledged that its oversight has loosened over the years because of a shortage of resources. But in response to the newspaper’s findings, it said it would reinspect all 240 exempted houses for compliance.
The concern about upkeep of historic dwellings has been raised at recent meetings of the state panel that decides whether to add properties to the Hawaii Register of Historic Places.
A home must be placed on the state registry before becoming eligible for the property tax exemption, which reduces the annual tab to $300 for most Oahu owners. The other counties have similar programs.
Architectural historian Kenneth Hays, vice chairman of the Hawaii Historic Places Review Board, told the Star-Advertiser that he has frequently voiced concerns at board meetings over the past few years about the upkeep of homes.
Hays, who has been on the panel about five years, said homeowners have appeared before the board promising to address maintenance issues once their residences were placed on the registry and exempted from property taxes.
Yet Hays said he has driven by some properties several years later where none of the promised improvements were done. He declined to identify the residences, saying he did not want to single out any.
"It’s not unreasonable to ask for some accountability from those who get the tax break," Hays said. "We (board members) want to make sure we’re doing the right thing, protecting the public’s interest."
Though the state panel has no say on what requirements the counties impose for the exemptions, it effectively has become the gatekeeper because it controls what properties go on the registry. Once on that list, exemption approvals for Oahu homeowners have been routinely granted if the required paperwork was submitted.
Gary Kurokawa, who heads the city agency overseeing property tax exemptions, said in a written statement that the agency is assembling an advisory group to review the historic homes program.
"The city would certainly welcome suggestions from the historic review panel and others knowledgeable about the preservation of historic homes," Kurokawa said. "The administration has already suggested to the City Council that it establish a blue ribbon community committee to review all tax credits, exemptions, dedications and the tax rate system."
On the Big Island, county officials started asking homeowners seeking the exemption last year to justify the need for it in part by showing how much they spent on improvements, according to county spokesman Hunter Bishop.
The county sought such information to help determine whether the homeowner met the requirement that the pre-exemption level of taxation was a "material factor" threatening the existence of the home, Bishop said.
Two applicants have been denied the exemption because they did not respond to the county’s request, he added. Big Island homeowners who get the full exemption pay only $100 a year.
On Oahu the city does not ask homeowners to provide information to substantiate the "material factor" requirement, relying solely on the application the owner signs attesting to meeting all the conditions.
While Hays lauded the intent of the exemption program, he said there should be a way to ensure homeowners follow through with promised improvements.
"I just think there needs to be accountability," he said.
Honolulu and the three neighbor island counties are among a minority of cities and counties nationwide that offer property tax exemptions as an incentive for preserving historic homes.
The local incentives are among the most generous nationally because of the low minimum rates and because the exemptions are automatically renewable after 10 years, basically making them good for the life of the home.
The vast majority of jurisdictions offer tax credits that typically link the level of relief to what the owner spends on preserving the home, according to Adrian Fine of the National Trust for Historic Preservation and other experts. Some of the credits are limited to 10 years and are calculated based on a percentage of preservation expenditures.
Historian Ross Stephenson of the state’s Historic Preservation Division said the majority of historic homes locally are owned by people who take great pride in maintaining their residences and appreciate that their properties are special.
But sometimes second- and third-generation owners within a family or new owners from outside the family do not share that same appreciation, he said.
Stephenson said he was not aware of any complaints from the public about run-down historic homes.
Because of budget cutbacks, he added, his office does not have the staffing to monitor Hawaii’s historic properties on a regular basis, something he acknowledged would be beneficial.
To underscore how lax the state’s oversight can be, the review board removed a downtown property, the Alexander Young Building, from the registry last year. The board took the action after being informed that the structure had been demolished — nearly 30 years ago.
Major operational problems within the preservation division prompted the National Park Service in March to place the state agency on "high-risk" status. The service gave the division two years to meet specific improvement goals or face the loss of federal funding, a major part of its budget.
The lack of resources has hampered the review board’s ability to do its job, according to board members.
"All of us on the board share these frustrations," said Chairman Bill Souza. "We want accountability."
Getting on the state list does not provide homeowners with any direct financial benefit. The benefit comes only when they get approval from one of the counties for the property tax break.
"All they’re after is the state listing to get the tax break," Hays said of most homeowners.
Once they get the exemption, homeowners are restricted on what changes can be made to the property if the modifications were to alter the look of the dwellings significantly. Planned changes must be approved by the city and state.
If a historic home becomes a major eyesore because of neglect, the review board has the ability to remove the property from the registry, essentially making the home no longer eligible for the tax exemption. But those involved in the process could not recall a case like that happening.
Owners of historic homes say the tax break is helpful in covering the high costs of maintaining the old structures.
"It’s been more of an expense than I possibly dreamed it could be," said Lynn Lalakea, who with her husband owns a nearly 5,000-square-foot Nuuanu home that was built in 1940.
Not far from her neighborhood, workers were busy recently renovating an 80-year-old historic home that was showing major wear from age. The Kepola Place residence, which has been getting the tax break for years, was purchased by a new owner two months ago.
The new owner could not be reached for comment.