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Private schools, churches and hospitals are among 50 or so landowner categories that pay flat amounts of only $300 each in property taxes to the city, regardless of the property’s worth. With support from Mayor Peter Carlisle, the City Council should go forward with an extensive review of the policy to determine its fairness and the consequences of change.
In many cases, nonprofit organizations make a good case that their activities are for the public good, lessening the need for expenditure of tax dollars. Also, without doubt, requiring Oahu hospitals to pay property taxes on nearly $640 million — the actual 2010-11 assessed values — would result in that amount being tacked onto health insurance premiums.
City Council members Ann Kobayashi and Romy Cachola support forming a blue ribbon panel to conduct a comprehensive review of the flat rate to nonprofits. Small nonprofits that rely on donations and, in some cases, government assistance, are understandably nervous about the prospect of changing the system while trying to recover from the recession. The $300 flat tax was tripled by the Council from $100 just this year.
Many mainland cities and counties exempt schools, churches, hospitals and some other nonprofits from paying any property tax, and some states have that exemption in their constitutions. Some jurisdictions have voluntary systems for nonprofits to agree to pay a certain amount to help cover the cost of city services such as police, fire and ambulance services.
Lowell Kalapa, president of the nonprofit Tax Foundation of Hawaii, told the Star-Advertiser’s Rob Perez that "a huge nonprofit like Kamehameha Schools" should be required to compensate the city for those kinds of services. However, Kamehameha Schools spokesman Kekoa Paulsen pointed out that the institution pays $40 million a year in property taxes for its non-school parcels on Oahu; the exemption is applied only to its Kapalama campus and preschool sites on the island.
Paulsen added that any review of the current system should "consider the rationale for why nonprofits are accorded their exemption in the first place," and he is right. They provide food and shelter for the poor, schooling for the young and other services that make tax breaks sensible at every level of government.
However, some categories of property tax-exempt operations deserve a look as part of a review, such as credit unions, for-profit child care centers, crop shelters and — for real — a slaughterhouse with property assessed at $2.9 million. Like many jurisdictions, Honolulu exempts its 29 foreign consulates from property tax, but questions have been raised by New York City about whether its similar exemption includes property to house their staffs.
Such a review in Honolulu should determine not only whether certain characteristics or use of property should merit an exemption but whether the exemption is being properly applied; a tiered system based on land value or revenues, for example, has been floated. Such a review may or may not amount to much of an increase in tax revenue, but knowledge of the system’s effectiveness is worth the effort.
