The Honolulu City Council might take a look at modifying the historic homes property tax exemption to increase the minimum tax payment or possibly remove the exemption altogether.

Most owners of historic homes get a break on their property taxes, paying the minimum $300.

Historic homes are given a property tax exemption, saving thousands of dollars, but are subject to strict rules for maintaining the property and allowing public access. For example, if the property is fenced off, the homeowner must ensure that the structure is still visible to the public on the second Saturday of the month from 9 a.m. to 4 p.m.

The city’s main source of revenue is from property taxes.

About $164.14 million in property tax breaks was given out in fiscal year 2021-2022, which ended Thursday, according to the city Department of Budget and Fiscal Services. The historic-­homes exemption accounts for about $4.19 million and applies to 376 homes.

A residential home that has a valuation of $1 million would be assessed $3,500 in property taxes, but the exemption would mean a minimum $300 assessment. The last time the city adjusted that minimum was in 2010 when it increased the rate to $300 from $100.

The Oahu Real Property Tax Advisory Commission was tasked with examining the many property tax exemptions given to various properties, such as historic homes. The commission recommended that the City Council look at changing the exemption for historic homes by either raising the minimum to $1,000, consider a means-based exemption system or repeal the exemption altogether.

Commissioner Jack Legal, during a commission meeting last week, said he was in favor of raising the minimum to $1,000, weighing the need to provide incentives for people to preserve their historic properties with the needs for funding city services.

“The key word there, I think, is ‘preservation,’” he said. “Because as to what’s going on around Hawaii, building all these monster homes, tearing down old buildings and building all these big homes — we don’t want to do that. I think we want to preserve something that is kind of historical, the history of Hawaii.”

Commissioner Kenna StormoGipson questioned whether the property tax exemption was needed to preserve the historic homes.

“We need to have taxes to pay for public goods and services … in particular, goods and services that no one else is going to pay for. Like, no one else is going to pay for housing for homeless people, or health care needs or the fixing the roads. … We have to have a government to help pay for these things. So sometimes you use taxes to incentivize behavior,” she said.

“But sometimes the discount loses value and it’s not needed. … We’re giving a discount to these historic properties. If we remove the discount, will we end up with less historic properties? What will be the downside of removing it?”

Linda Legrande, president of Malama Manoa, an organization dedicated to historic preservation, said increasing the minimum payment or repealing the historic-homes property tax exemption will likely result in the destruction of historic homes.

“To keep these houses standing, we need incentives like this. … This is the only incentive we have in our state to keep these houses out of the landfill, out of the hands of developers and people that want to see them torn down,” she said.

“I don’t think there’s any question of the value of our historic homes in our neighborhoods, socially, the stories of these homes, culturally, and just artistically.”

Legrande’s historic Manoa home, where she’s lived since 1979, was built in 1926. Since moving in, she’s had to replace the roof twice and has recently started to replace the windows — a more involved and expensive process when trying to preserve the historic standards of the home.

“When you factor in the way that you have to maintain and restore and keep up these old houses, it really pales when you can go to Home Depot and buy a plastic screen and just pop it in your window,” she said. “We can’t do that. We have this obligation to maintain the house in as much of the original condition that it was built in.”

For example, when Legrande replaced her roof, she needed to use wood, instead of a cheaper asphalt alternative, to match how the home was originally built.

Those who own historic homes need to submit a form to the State Historic Preservation Division if any work being done will change the design, material or outer appearance of the residence.

Before the COVID-19 pandemic, Malama Manoa would organize walking tours of private historic homes. Some participating homeowners allowed the public inside, although the requirement is only that the home be visible to the public at least 12 times a year.

“You do have to provide a place where they can see your house. That’s the public benefit, which I think it’s beautiful,” Legrande said.

“We need to have a public benefit if we’re going to enjoy such a great tax incentive.”

At a Oahu Real Property Tax Advisory Commission meeting in February, Budget and Fiscal Services Real Property Tax Administrator Steven Takara said that compliance specialists visit historic properties on the second Saturday of each month to make sure that they are following the requirements for visual access. These visits have resulted in canceled tax exemptions for noncompliant properties.

Historic preservation nonprofit Historic Hawai‘i Executive Director Kiersten Faulkner said that the property tax exemption has been extremely effective in maintaining historic properties because it provides an incentive for people to voluntarily preserve properties. In most other states and cities, historic preservation is more regulatory.

“They’re more about imposing restrictions than about incentivizing good actions,” Faulkner said.

“Regulatory programs are wonderful because they are uniform and they apply equally to any property that meets those criteria. But ultimately, it’s a stick rather than a carrot, where the tax incentive is a carrot to participate.”

City Council Budget Committee Chair Calvin Say said he plans to introduce the recommendations the Oahu Real Property Tax Advisory Commission submitted to the Council, either through resolutions or bills.

He was leaning toward tying the historic-property tax exemption to increases in the consumer price index.

“As it increases, I think maybe that particular fee should increase to that level. It’s because of the increase in the county’s government services that we are providing,” Say said.

He pointed to recent public worker union contract negotiations, which averaged about a 14% increase over the next four years.

The Oahu Real Property Tax Advisory Commission finished its final report Thursday and will submit it to the City Council.