Talk about unfortunate timing. With a new report showing that housing costs in Honolulu are higher than just about anywhere else, the Honolulu City Council will consider a just-released proposal to eliminate most property tax exemptions — the ones that make home ownership easier to afford.

The Center for Housing Policy released a report Thursday showing that Honolulu is the fourth most expensive market for homeownership in the nation; for renters, it is the third most expensive. It came less than a week after the City Council’s Real Property Tax Advisory Commission released a preliminary report calling for an overhaul of the city’s property tax system.

The first report might make the second one hard to swallow. But consider two things: First, the commission makes a reasonable argument that the present system is archaic, with room for improvement. Second, the Council raising taxes in this tough economy — and in an election year, no less — would be a spectacular miscalculation and, therefore, a remote possibility at best.

The commission does not mince words about its target: a property tax system "riddled with numerous exemptions, exclusions, and dedications that have eroded the tax base and shifted the burden of taxation to categories of properties that have not been so favored."

To reform the system, the commission would:

» Get rid of home exemptions, multiple home exemptions and "in lieu of" home exemptions. This includes exemptions for the disabled and disabled veterans or their surviving spouses.

» Limit exemptions to charitable organizations that qualify under federal code section 501(c)(3). Make them pay a rate based on a percentage of the value of the real property used for the exempt activity, rather than a $300 minimum.

» Eliminate the exemption for credit unions.

» Eliminate the exemption for kuleana lands.

» Tighten restrictions on tax breaks for historic residences.

The commission argues that such changes would spread the property tax burden more evenly among those who use city services. It would be fairer, especially for renters who get no exemption and for businesses that pay a higher rate. Those who depend on current tax breaks to make ends meet — such as fixed-income elderly in highly valued homes they bought years ago — could seek relief through the city’s tax credit program instead.

The report has flaws. Raising taxes on charitable organizations runs the risk of shutting some nonprofits that provide valuable community services at razor-thin margins. The report offers little guidance on how to avoid this problem, except that "the assessment ratio be greater than zero but not more than 100% of fair market value" so a nonprofit pays its "fair share."

In the absence of clearer guidance, the Council should be loathe to tinker with the current exemptions.

Nonetheless, the report could be a solid first step in a long-term effort to reform the system. A property tax levy based on actual property values, with exceptions based strictly on ability to pay, would level the playing field somewhat. Some of the categories used for exemptions, such as those for disabled veterans and kuleana lands, are based on political, not fiscal, calculations.

But politics is the people’s business and cannot be ignored. Simply eliminating exemptions could cost Honolulu taxpayers up to an estimated $100 million. That would create an unacceptable burden on residents already struggling with ever-rising sewer and electricity bills and the general cost of living. Besides, property values increased again over the past year, which is expected to generate additional revenue for the city.

Raising taxes on Honolulu residents when our fragile economy is barely recovering is simply a bad idea.

The report also noted that the city’s tax assessment division lacks the resources to do annual assessments on all exempted properties. While the Council should tread carefully to ensure that any reforms it considers will not add to the tax burden of Oahu residents, it should also ensure that its decisions are backed up by adequate data.

The commission raises important issues regarding Honolulu’s property tax system. The Council will consider them in January. So should anyone who pays — or doesn’t pay — property taxes.

The report can be found at http://www4.honolulu.gov/docushare/dsweb/View/Collection-1656.