Council panel rejects bid to limit luxury property tax

City Councilman Joey Manahan’s attempt to raise the minimum value to $1.5 million for residential properties to be placed in the city’s new luxury residential tax classification appears to be failing.

The Council Budget Committee on Wednesday voted 4-1 to strip out Manahan’s proposal to increase the threshold for the new Residential A tax class to $1.5 million, leaving the original limit of $1 million in place. Manahan cast the sole "no" vote.

While the Council does not pass tax rates until late spring, all indications are that the Caldwell administration and Council leaders are intending to impose a higher rate on Residential A class property owners than those in the standard residential property tax class.

Property owners pay taxes based on assessed value of their properties multiplied by a tax rate determined by their type, or class, of property. All residential properties now pay $3.50 for every $1,000 of assessed value.

An ordinance established in September created the Residential A tax classification exclusively for residential properties with assessed values of $1 million or more that do not have home exemptions. Both administration officials and Council members said the intent of creating the new class was to have the flexibility to raise tax rates for higher-priced homes while, at the same time, sheltering owner-occupants.

Manahan, however, wanted to move the threshold higher in response to concerns raised by families who said they would be adversely affected by the bill and would have to pass on the added expenses to their renters.

"I was concerned about the $1 million threshold because it could affect the smaller mom-and-pop renters,"Manahan said. Landlords in his Kalihi district are warning that increases in property taxes would have to be passed on to their renters, he said.

There could be unintended consequences, especially given the steadily rising property values in the current real estate market, Manahan said. Many more homeowners may suddenly be seeing their properties valued at $1 million or more for the first time, thus kicking them into the Residential A category, he said.

At the Nov. 13 full Council meeting, Manahan persuaded colleagues to advance Bill 63 after amending it to say only homes valued at $1.5 million or more should be moved into the new category. Bill 63 was originally introduced by the Caldwell administration as a housekeeping measure to ensure vacant properties — those properties without houses or other structures — would be included in the Residential A tax class. Six of Manahan’s with reservations at last week’s full Council meeting.

At Wednesday’s Budget Committee meeting, four of Manahan’s colleagues withdrew their support after hearing objections from city budget officials.

Deputy Budget Director Gary Kurokawa warned that Manahan’s proposal would cost the city a significant chunk of revenue at a time when it is trying to meet a budget shortfall.

About 5,700 residential properties would be placed in the Residential A class using a $1 million threshold, budget officials estimate. That would be reduced to 2,700 properties if the threshold were raised to $1.5 million.

A $1 increase in the current tax rate of $3.50 per $1,000 of assessed value for those in Residential A would net about $10 million if a $1 million threshold were used, assuming values stay the same, but only $6 million with a $1.5 million threshold, Kurokawa told the Budget Committee.

Kurokawa said his personal view is that "the landlord can only charge rent at what the market will bear," adding, "He cannot just keep raising to cover all these costs."

The threshold was set at $1 million because the median price of a home today is about $640,000, he said. Only about 2 percent of about 260,000 total residential properties would fall into Residential A using a $1 million threshold, he said. "It would be the very upper end of rentals that would be affected."

Kurokawa said the owner of a home valued at $1 million facing a $4.50 tax rate would pay about $1,000 more annually than at a $3.50 rate.