Two bills approved by the Honolulu City Council last week could have an impact on what you pay in property taxes in the coming year.
Bill 42 creates a new property tax classification dubbed the “Residential A” class, which would include all houses and condominiums valued at $1 million or more. Properties that have home exemptions, even those valued at $1 million or more, would still be in the existing “Residential” class.
The bill, which Mayor Kirk Caldwell has said he will sign, is designed to allow the Council to raise the tax rate on people who own $1-million-plus homes but don’t live in them.
Owners of all residential properties now pay $3.50 for every $1,000 of assessed value as determined by the city Department of Budget and Fiscal Services.
The bill passed 7-2 Wednesday, with Council members Ikaika Anderson and Stanley Chang opposed.
In today’s Hawaii, a home valued at $1 million “is far from being a luxury home,” Chang said. “I’m concerned about the impact this might have on small, mom-and-pop-type landlords.”
Anderson said a $1 million home “could be a very modest home” today. Older homeowners seeking to hold on to property to pass to their offspring may have a hard time if their homes are taxed at a higher rate.
Budget Chairwoman Ann Kobayashi said the bill attempts to seek extra tax revenues from people with investment properties, not working families.
City officials told Kobayashi they believe that if the tax were raised to $4.50 per $1,000 on non-owner-occupant homes valued at more than $1 million, it would generate an additional $10 million for the city, while a $2 increase would pump an additional $20 million into city coffers.
Lowell Kalapa, president of the Tax Foundation of Hawaii, had testified that it would be unfair to charge owners of higher-priced properties at a higher rate when the amount or types of services used are essentially the same regardless of the value of a residential property.
Council members also passed Bill 40, which would affect about 2,000 homeowners 65 and older who currently receive “in lieu” homeowner exemptions.
The bill repeals a law that allows people to receive higher exemptions as they get older. For instance, homeowners can cut $120,000 off the assessed value of their properties at age 65 and $160,000 at age 75. (The bill does not eliminate the basic $80,000 exemption given to all owner-occupants.)
City officials say Honolulu already has a low-income tax credit program, also known as a “circuit breaker” mechanism, that allows homeowners of any age up to 75 with a combined annual income of less than $50,000 to pay no more than 4 percent of their income toward property taxes, and those older than 75 to pay no more than 3 percent.
To blunt the impact on those homeowners affected, those who currently receive in-lieu exemptions would be able to retain them for up to five years if they are currently under 90, or for life or up until 2039 if they are 90 or older.
While those currently receiving the exemptions will have some time, anyone wishing to apply for low-income tax credits in the 2014 tax year has until Sept. 30 to do so. Information and an application are on the city’s low-income property tax credit Web page at www.realpropertyhonolulu.com/portal/rpadcms/ExemptionInformation?parent=FORMS&tree=forums&li=einfo or bit.ly/19QOdHZ.
The two bills were among 10 tax reform proposals introduced by the administration this summer designed to either find additional revenue-raising tools or address inequities.
Eight others failed. One would have lumped bed-and-breakfast establishments and transient vacation units into the hotel and resort classification, which typically pays a rate higher than residential properties. Also shelved was a bill creating a new tax classification just for time-share units.
Also getting approvals on Wednesday:
>> A resolution that would ask Oahu voters in next year’s election if they want the Council to have more authority over the Honolulu Board of Water Supply. The board has been accused of overbilling and customer services-related problems recently.
The resolution was given unanimous approval on first reading, meaning it will now go to the Council Executive Matters and Legal Affairs Committee for more discussion. But four Council members — Chang, Breene Harimoto, Joey Manahan and Ron Menor — voted “yes” with reservations.
>> Bills banning lying on public sidewalks and the “affixing” of private property onto city property, both on first reading. Opponents say the bills unfairly harm the homeless.
>> A bill allowing for expansion of the existing Kapaa Industrial Park onto 27 acres on two parcels next to Kawainui Marsh, on second reading. Opponents worry the expansion will harm the marsh and surrounding area.
