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Honorable Members of the Hawaii County Council <br /> May 5, 2017 <br /> Page 2 <br /> REVENUE <br /> The Transient Accommodations Tax (TAT) was reduced by the state legislature. This put an <br /> additional strain on our budget. In addition, our projection for fund balance is lower than our <br /> estimate for the March submittal. This also created a need for additional revenue. <br /> During April, the real property tax values were certified. This provided us with final numbers to <br /> aid in balancing and making decisions about the budget. While the real property tax values did <br /> indeed increase, this did not provide enough real property tax revenue to balance the budget. <br /> IMPACT <br /> After all of the above expenditure and revenue changes, an additional $21.5 million in revenues <br /> was needed to balance the general fund budget. We looked at many forms of revenue increases, <br /> including looking at our real property tax rates and other related options. After careful <br /> consideration, it is our proposal to increase the real property tax rates by approximately 6.5% on <br /> all classes except affordable rental, to protect those most at risk. See Exhibit A for our proposed <br /> real property tax rates. <br /> In addition, the minimum tax rates will also be changed to ensure that everyone is paying their fair <br /> share of real property taxes. To help offset these increases and to help protect those on fixed <br /> incomes, we are proposing to add two additional levels to our homeowner age exemptions. This <br /> would create an additional exemption at 75 and another one at age 80. More information on these <br /> proposals can be found on Exhibit A. Bills for both of these changes are being submitted with the <br /> budget. <br /> We have also added a Real Property Tax Valuation Analyst to the budget to act as a compliance <br /> officer. The first project assigned to this person, will be to create a new classification for vacation <br /> rentals. While this will not generate additional revenue for this coming year, it will have an impact <br /> on the following year in fiscal year 2019. <br /> In addition, we have reviewed the fuel taxes that go to help with road paving and our transit system <br /> in our Highway Fund. These taxes have not been increased since 1988. The condition of our roads <br /> continue to deteriorate at a rapid rate. It is time to take action to improve our roads and transit <br /> system. The highway Fund has experienced two years of significant declines in the franchise tax <br /> revenue. Along with rising costs for roads, traffic and transit, the fund can no longer operate <br /> effectively without an increase in revenue. We are proposing an increase in fuel tax rates to be <br /> staggered in over a three year period. The proposed fuel tax rate increases are attached as Exhibit <br /> B. We are submitting legislation with the budget to effect these rate changes. <br /> Significant Changes to March 1, 2017 Revenue Estimates <br /> General Fund <br /> • Real Property Tax - revenue projections have increased by approximately $21.5 million <br /> primarily due to the proposed real property tax rate increases in almost all classes. In addition, <br /> the estimated revenue includes increases to the minimum real property taxes, as well as, the <br /> County of Hawaii is an Equal Opportunity Provider and Employer. <br />