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

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2. Economic, Fiscal, and Institutional Setting The economic, fiscal, and institutional setting of a property tax system influences its development and evolution. 9 An understanding of the background of Hawaii County's real property tax system also is helpful in evaluating it. 2.1 Background The current local system of real property taxation is an outgrowth of the centralized system that existed from before statehood until the Hawaii Constitution was amended in 1978 to devolve responsibility for property tax policy and administration to the counties in 1981. Longstanding features of the real property tax system include low levels of taxation (partly achieved by relief measures) and considerable authority accorded to administrators. Regarding the level of property taxation, we reviewed an analysis of data compiled by the National Association of Home Builders on median housing prices and median real estate taxes in Hawaii County's census designated places from the 2005-2009 American Community Survey of the U.S. Census Bureau. The median residential effective property tax rate (property taxes as a percent of property value) was 0.147 percent. According to data provided by the U.S. Census Bureau and compiled by the Idaho State Tax Commission, 10 the State of Hawaii ranked 36th in property taxes per capita (at $1,016) in 2009 and 42nd in property taxes in comparison to income. In the income based comparison, property taxes in Hawaii were 30.7 percent below the U.S. average. There are several other distinctive features of Hawaii County and its real property tax system. As with the systems in other Hawaii counties, there is no state oversight of property tax administration. 11 However, the county real property tax administrators cooperate and have brought in IAAO instructors for training. There are no overlapping local governments. Some functions normally provided by local governments and funded from property taxes, such as public education, remain provided by the state (perhaps this feature best explains the low level of property taxation). Nevertheless, real property taxes account for nearly 60 percent of the County's revenues, according to the County's 2010 Comprehensive Annual Financial Report. The report also succinctly describes the economic situation: "The Big Island is the most diversified of the neighbor island economies. As a result it is buffered to some extent when any one industry lags. Although 9 In addition to information obtained from county officials, this section draws from Advisory Commission on Intergovernmental Relations, 1963, The Role of the States in Strengthening the Property Tax,Volume 2, pp. 34-40; Lonely Planet, 2011, Discover Hawaii, The Big Island; and Wikipedia. 10 http://tax.idaho.go v/reports/EPB00074_01-06-2012.pdf, last accessed January 21, 2012 11 This is also true of Delaware (with only three counties), the District of Columbia, Maryland and Montana (both have state-administered systems), and Puerto Rico (which still has a territorial system). Oversight is negligible in Connecticut, Pennsylvania, and Rhode Island. 5