Commission considers adjustment to property tax exemptions

The Oahu Real Property Tax Advisory Commission is considering changes to the city’s property tax rates and exemptions — notably, for historic homes, for-profit child care centers and primary residences.

The commission discussed the potential adjustments it will present to the City Council later this year at its meeting on Tuesday.

Real property tax is the city’s main source of revenue to pay for core services such as emergency services, police and other essential functions.

Because property tax exemptions reduce the valuation of property from which taxes are computed, they decrease the city’s tax base. Real property tax exemptions decreased revenue by about $164.1 million for fiscal year 2021-2022, which ends June 30, according to the city’s Budget and Fiscal Services Department.

The commission is considering changes to the city’s property tax exemptions after Council member Calvin Say introduced Bill 42, which aims to “repeal certain real property tax exemptions.”

Say, who is also chairman of the Council’s Budget Committee, explained that the bill is vague on purpose.

“What I wanted to learn, both for the general public and the members of the City Council … was how much money are we giving through property tax exemptions,” he said.

“I did make a request … with the Real Property Tax Commission that we’ll look at it, and have some dialogue, we can get the general public involved. But you know how to move people, you’ve got to take the severe position and then (say), ‘Come on, come to the table and explain.’”

While the commission did not make any final decision at Tuesday’s meeting, it did discuss its preliminary recommendations.

The commission agreed to adjust the historic-home exemption minimum property tax rate to $1,000 instead of $300, but will continue to discuss it.

Historic homes are given a property tax exemption because of strict rules for maintaining the property and allowing public access. For example, if the property is fenced off, it is required to be open to the public on the second Saturday of the month from 9 a.m. to 4 p.m.

“Our compliance specialists visit these properties on the second Saturday of each month … periodically, we have a schedule,” said Budget and Fiscal Services Director Steven Takara.

“We have canceled (the exemption for) quite a bit of properties, one because they didn’t give that visual access as well as maintain the property at the average condition, and we’ve gone to court on that as well.”

Commission Chairman Robert Mould suggested rates based on the value of the historic property, and Takara suggested an option that could require a minimum percentage of property taxes owed instead of a flat $1,000.

Members voted in favor of the $1,000 minimum but agreed to continue discussions.

Even so, Takara said granting exemptions affects all taxpayers. “If they’re paying minimum tax, the burden is shifted to the other taxpayers as well,” he said. “As far as a fairness and equity standpoint, you can appreciate the historic property, but somebody needs to pay for core (city) services.”

The historic-homes property tax exemption accounted for about $4.19 million in FY 2021- 2022.

The commission agreed that there should also be changes in the exemptions currently granted for primary residences but said further discussion is needed.

Currently, $100,000 is deducted from the valuation of primary residences for owners under age 65. For those over 65, $140,000 is deducted from the valuation of a primary residence.

“It’s not so much about whether to do that; I think the writing’s on the wall,” said Mould. “We’re going to do something. The question is how.”

The commission is also still considering whether to repeal property tax exemptions for for-profit child care centers, which currently do not have to pay any property taxes.

Commission Vice Chairman Winston Wong said that exemption should be kept because of the severe child care shortage on Oahu.

“I think that the purpose is being carried out at this point. And there’s no need to change it,” he said.

One concern when the commission previously considered repealing the exemption was that the for-profit child care centers would pass their tax burden on to parents.

However, commissioner Calvin Foo Pham said the concern could be remedied by putting a restriction on how much centers that receive an exemption could charge.

“It’s not like the exemption yields any regulatory agreement that says that the child care is going to be done at an affordable rate,” he said.

“The concern of the public really seems to be, Is my child care costs going to be higher because of this? But if you were to institute something like an agreement on price here with the for-profit child care exemption, then maybe here’s a compromise here to be had, because that would therefore not affect the families. But it also gives some greater justification.”

So far, the commission has agreed to repeal property tax exemptions for crop shelters and slaughterhouses.

Those account for 19 property tax exemptions and about $45,000.

The adjustments to property tax exemptions will continue to be discussed at the commission’s next meeting in March.