2012-COH-A Technical Assistance Report Evaluating Property Tax Policies and Administrative Practices in Hawaii County

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further exemptions, some of which may be applied to properties other than their principal residence. In 1990, a "non-speculative residential use dedication" program was created under which an owner could petition to have the land on which his principal residence was located dedicated to residential use for ten (later five) years, in return for which the assessment would be frozen. New applicants are no longer permitted to participate in this program, but current properties with this dedication retain frozen taxable values. A replacement program, instituted in 2004, provides limits under which assessment increases cannot exceed 3 percent in any year. The complexity of eligibility criteria can make enforcement expensive. As is typical nationally, agricultural and forest land is valued on a current-use basis instead of a highest and best use-basis, which is the basis used in the estimation of market values. Use values are lower than market values when there is a potential to use land more intensively. Although the nominal property tax rate for agricultural property is comparatively high (at 0.835 percent), "dedicated" agricultural land is assessed at 50 percent of use value, while non-dedicated agricultural land is assessed at its use value. Other properties, such as golf courses, are to be valued in their current use, not highest and best use. The uniformity in effective tax rates potentially afforded by annually valuing property at its market value is undercut by the effects of the relief measures on net taxable values. Based on the limited information available to us, there is remarkable variation in effective property tax rates among similarly situated properties. The average variation in average effective property tax rates among census designated places is more than 300 percent. This project was undertaken in response to concerns expressed by Council members that the underlying policies found in the Code or the implementation of these policies by the Department of Finance Real Property Division have led to confusion, over-complexity, especially with regard to exemptions, and unequal treatment of similarly situated properties. Much of the public's concerns about the fairness of the property tax system can be attributed to a shortage of accessible information about why neighboring taxable values vary so greatly and about the rationale for and tax allocation effects of the various features of the system. Although taxpayers credit the staff of the Real Property Tax Division with providing helpful explanations to questions, there is little evidence of anticipating questions about appraisal procedures or about all the various relief mechanisms. The required quired annual report to the mayor is not very informative. The property record search function on the website is cumbersome to use. Difficulties in getting information can naturally lead to suspicions of misconduct. After reviewing both the policies and the administration and implementation of these policies, the authors of this report find the following major areas for concern: • No regular "cyclic" reappraisal, including physical inspection, of all real property. This is a concern because records of physical characteristics that contribute to market value become increasingly out of date over time. This in ix