Reassess some property taxes

The taxman cometh, and Honolulu residents are going to have to weigh how much to keep him at bay while also bracing for cuts in city services.

Staffers for Ann Kobayashi, who chairs the City Council’s budget panel, are drawing up a chart that lists the 10 proposed reforms to the Honolulu property tax code, as well as a list of city services that this revenue supports. Kobayashi said as revenue options start dropping out of contention, the Council can then start figuring out which of the activities underwritten by the city will have to go.

That’s one useful guidepost to help the Council with the difficult decisions ahead. The bottom line is that rising costs — the $200 million line item for the Honolulu Police Department following the recent contract arbitration certainly comes to mind — make it all but unavoidable that revenue increases will be necessary.

And as each interest group raises the roof at hearings at each stage of the bill review process — the Council will surely hear from some today — elected leaders would be wise to consider the advice of the unelected Real Property Tax Review Commission, which issued its report to little fanfare some 18 months ago.

The commission, chaired by Lowell Kalapa of the Tax Foundation of Hawaii, could be seen as the driving force behind the proposals in Bills 34-36 and 38-40, which dealt largely with eliminating several tax exemptions. Among the protected classes that should pay some property tax, Kalapa said, are nonprofits, credit unions, labor unions and, yes, the elderly. This latter group, he added, already has protection through a tax circuit-breaker that exempts property owners of limited means.

These ideas deserve a clear-eyed examination by the Council. The bills are written to allow a more modest discount on the standard rate in some cases, which would be reasonable.

“We’ve reached a point where we can’t afford to provide services where people don’t pay anything at all,” Kalapa rightly observed.

Beyond the exemptions, the Council is considering some other revenue drivers:

>> Bill 37 would assess vacation rentals the same rate as hotels. This seems problematic on two counts. For one, these accommodations should have their own category, not bear the same tax burden as full-scale tourist accommodations.

But no change of the sort should happen until the city finally decides how to bring the currently illegal rental houses and bed-and-breakfast units into a regulatory scheme. A new tax on the permitted accommodations would unfairly penalize them while the ones doing business under the table would get off scot-free.

>> Bill 41 would categorize multifamily units separately and tax them higher than single-family homes.

The Council will need to consider whether this would ultimately penalize renters, who surely would be passed the extra cost.

>> Bills 42 and 43 offer some good potential for revenue production. Respectively, they would create a higher-tax class for investor owners of the most expensive properties and for time shares. People who have the income to support second residences, as most of these homes are, can afford to pay a higher toll.

Kalapa and others have voiced concern that adding to the popular anti-business perception of Hawaii could depress sales of some upscale homes in Kakaako and elsewhere, and thus cut into developers’ ability to finance the promised 30 percent of units at more affordable, first-time-buyer prices.

However, given that Honolulu’s property tax rate is relatively low compared with many other American cities of comparable size, it seems unlikely that a bump in the rate would be a dealbreaker in purchasing units.

But Kalapa does have a good point in complaining that all these schemes to insulate the average taxpayer from the true cost of city services is merely shielding elected officials from the consequences of their fiscal management. In fact, any single one of these revenue sources will not erase Honolulu’s mounting fiscal challenges. It’s entirely possible, even likely, that the Council will be forced to cut its spending, or force its broad tax base to pay the piper at last.