HomeMy WebLinkAboutCOM 0027.003 2020-2022 REAL PROPERTY TAX BOARD OF REVIEW
COUNTY OF HAWAII
101 Pauahi Street, Suite No. 4 Hilo, Hawaili 96720®4679
December 1, 2021 :
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The Honorable Mitch Roth, Mayor
County of Hawaii
25 Aupuni Street
Hilo, Hawaii 96720
The Honorable Maile David
and Members of the County Council -
County of Hawaii
25 Aupuni Street
Hilo, Hl96720
Dear Mayor Roth, Chairwoman David and Members of the County Council:
Pursuant to Chapter 19 of the Hawaii County Code, enclosed please find the 2021
Annual Report of the Real Property Tax Board of Review.
Thank you for your time.
Respectfully submitted,
Michael Hughes
Chairman
/enclosure
cc: Deanna Sako, Finance Director
Lisa Miura, Real Property Tax Administrator
Comm. No
Ref. Date DEC
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REA
L PROPERTY TAX BOARD OF REVIEW
COUNTY OF HAWAII
101 Pauahi Street, Sure No. 4 * Hilo, Hawaii 96720-4679
REAL PROPERTY TAX BOARD OF REVIEW
2021 ANNUAL REPORT C=
DC
December 19 2021 ..
Introduction
Pursuant to the provisions of Chapter 19, Article 12, Section 19-97(e), Hawaii County (5de wr .
as amended, the members of the Real Property Tax Board of Review submit the follovg M°
report of activities and recommendations for the 2021-2022 tax year. The recommendations
relate to both legislative and administrative matters.
Board Me
r
The following is a list of the officers and members of the Board and when their term ends:
Board Members Term Ends ® December 31
Michael Hughes, Chairperson 2021
Nelson Harano 2022
Diane Blancett-Maddock, Vice Chair 2023
Michael Okumoto 2024
Dale Tokuuke 2025
Activities
Organizational Meeting
The annual organizational meeting of the Board was held on March 3, 2021 at the Aupuni
Center Conference Room in Hilo for the purpose of electing officers and establishing a tentative
appeal hearing schedule for hearings to be held in both Hilo and Kona. Mr. Michael Hughes was
elected as Chairperson and Ms. Diane Blancett-Maddock as Vice-Chairperson. A general
timeframe of when the annual workshop should take place was discussed. There was a brief
discussion of topics to address at that meeting.
Real Property Tax Assistant Administrator Keita Jo was also in attendance and provided
comments as well as providing that there were no current state bills pending relating to
assessments. Mr. Jo however did report that the 2020 Annual Report caught the attention of
County Council regarding the recommendation of repealing the Non-Speculative Residential
Program and that it would be discussed further at an upcoming County Council meeting.
Ffawai`i County is an Equal Opportunity Provider and Employer
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1 Board of ReviewStatewide Conference
Due to the ongoing threat of the coronavirus, the State of Hawaii, the Honolulu City and County
Real Property Assessment Division cancelled this year's statewide conference. The conference
has proven to be very beneficial to all attendees and the Oahu staff has done a great job
organizing the event throughout the years. This Board supports this statewide conference and
hopes that it continues to be offered in the future.
Workshop
A workshop was held on June 1, 2021, at the Aupuni Center Conference Room in Hilo with
Board Members, Real Property Tax Office Administration, Appraisal Supervisor, Appraiser V
(Commercial Appraisers), Valuation Analysts and support staff in attendance. Also present were
Finance Director Deanna Sako and Deputy Corporation Counsels, Diana Mellon-Lacey and
Sinclair Salas-Ferguson.
Opening remarks were provided by Ms. Deanna Sako and Ms. Lisa Miura. Mr. Salas-Ferguson
provided a presentation on the Role of the Board of Review. Various Real Property Tax staff
presented information on the sales ratio analysis, an update on budget and legislature, native
forest and agricultural use, COVID-19 market updates, Marshall & Swift— Commercial
Conversion, exemptions, STVR and other various programs offered by the division. The Board
was provided the opportunity to present questions to the tax office personnel and administration.
The workshop continues to be a very beneficial and worthwhile session to the Board.
Appeal Hearings
There were 345 appeals filed, including appeals from amended assessment notices (141 from
East Hawaii and 204 from West Hawaii), that were scheduled for hearings this tax year for a
combined total of$573,048,100 disputed. This is a decrease from 750 cases in the previous tax
year. There were three (3) sessions held in East Hawaii (July 13, 14; August 10) and four (4)
sessions held in West Hawaii (July 20, 21; August 17, 18).
Complaint Hearing
As required by Chapter 19-97(e), a notice was published on September 5, 2021, specifying a
period (September 7 — 20, 2021) within which complaints may be filed by a taxpayer.
There were no complaints filed this year. The Board held its complaint hearing on October 19,
2021.
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Comments and Recommendations
Administrative Matters
1. Potential appointees should be apprised of the time commitment serving on this Board
demands before their names are submitted to the County Council for confirmation
hearings. All members are expected to attend all meetings. Meetings in Hilo or Kona
occur from July through December with two nights away from home or the office.
2. The Board recommends that additional one-on-one training continue to be provided by
the Real Property Tax division and Corporation Counsel for newly appointed members.
This training session should include basic information on programs, appeal procedures
and the specifications of their role as a member.
3. The Board recommends that they are accompanied by both Corporation Counsel and the
Board Clerk to all conferences, workshops, meetings, and other related matters.
4. The Board recommends continued funding to allow the Board and support staff to attend
the statewide conference (when available) as it provides multiple benefits to all
participants.
5. The Board appreciates the impromptu training sessions conducted by Corporation
Counsel and the Real Property Tax division. These sessions provided the Board with
information and insight on various issues, topics, programs, etc. and recommends that
these training sessions continue to be offered.
6. The Board recommends that the County continue to provide outreach interaction to the
public to dispel the misconception that the Real Property Tax division sets the tax rates.
7. The Board recommends that the public is continuously informed on the various programs
and exemptions Real Property Tax has to offer, e.g., Short-Term Vacation Rental,
Agricultural Use Benefit programs. One suggestion is to provide more avenues where
information can be obtained/provided so that taxpayers can educate themselves.
8. The Board appreciates the effort by the administrative and appraisal staff in settling 70%
of the appeals that were filed which reduced the hearing time of each scheduled day.
However, the Board recommends improvement when booking the hearing dates with
active cases. One suggestion is to book the mornings with active cases and the
settlements and withdrawal are reviewed/approved in the afternoon. In addition to that, to
perhaps stagger the hearing times in the morning so that the waiting time for the
appellants is minimized.
9. The Board appreciates the inclusion of the settlement agreement letters between the
County and the appellant in the board packets. However, the Board recommends that the
settlement letters include more details on the reason for the adjusted value to assist the
Board in fully understanding the circumstances of the settlement.
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2421 Tax Board of Review Annual Report
10. The Board encourages the appraisers (when appropriate and at their discretion) to cite
the Hawaii County Code and include it in their board packets to support their decision to
adjust the subject property's values.
11. The procedure of rendering an immediate decision in open session upon the completion
of the presentation of each appeal case is found to be an acceptable practice to all
parties. Due to the known financial impact of the Board's decision, some cases can be
very emotional for the appellant and at times contentious, however the Board
understands that it is incumbent upon the appellant to provide the data in support of their
claim.
12. The Board continues to be impressed with how well-prepared the appraisers are. This
has been the case for the past six years. The Board does recommend that the appraisers
completely fill out the appeal data worksheet, especially the County's recommendation of
values located at the bottom of the document. Providing this to the Board for review prior
to hearing the cases has been a vital tool and continues to reduce the amount of time
spent on each case.
13. The Board has noticed an increased number of cases whereby taxpayers are appealing
RPT's disallowance for the Agricultural Use Program. It is unfortunate to see that some
taxpayers are willing to take advantage of this program that rightfully benefits true
farmers, just to secure a lower tax rate. Due to this, the Board encourages the
enforcement of Rule 31.3 — Petitions to Dedicate; Requirements, specifically Rule 31.3
(a)(2) from the County of Hawaii, Department of Finance, Rules and Regulations of the
Director of Finance. See attached rule as Exhibit "A". In addition, the Board encourages
the appraisers to continue their inspections and reviews of owners under the Non-
Dedicated / Dedicated Agricultural Use Program.
14. The Board commends the division for their effort to review the enforcement of the
exemption program by expanding their options to verify the claimant's eligibility and to
understand the owner's possible financial consequences of the disallowance of an
exemption, especially one in the homeowner's classification with the three percent (3%)
growth cap.
15. The presence of Corporation Counsel, Sinclair Salas-Ferguson at each meeting/hearing
has proven itself to be essential and is recommended to continue. The Board has relied
upon Mr. Salas-Ferguson in many instances for clarification and interpretation of rules
and/or laws.
16. The presence of the Real Property Administrator and/or Assistant Administrator at each
meeting/hearing has proven itself to be essential and is recommended to continue. The
Board has relied upon the administration in many instances for information on office
policies and procedures before rendering decisions.
17. The Annual Workshop, which included Real Property Tax staff and board members, held
prior to the start of this year's appeal hearings, was very informative and productive for all
attendees. The continuation of this workshop is highly recommended as it allows the
administrative staff to present a broad array of relevant tax matters and is viewed as an
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2021 Tax Board of Review Annual Report
important refresher course for board members and an educational benefit for newer
ones.
18. The Board is aware that the Real Property Tax Division's Short-Term Vacation Rentals
(STVR) ordinance differs and/or conflicts with how other county departments' STVR
ordinances are written. The public would have a clearer understanding how STVRs
worked if a singular ordinance was written that applied to multiple departments where it
could be regulated and enforced collectively.
Legisiative Matters
1. The Board continues to strongly recommend that the Hawaii County Code be amended
to change the $50.00 appeal fee to be non-refundable due to the postage costs (USPS
Certified Mail) and time it takes to process an appeal. The appeal fee would only be
refunded in instances of a county error.
2. The Board appreciates Councilman Aaron Chung's commitment in presenting the
recommendation of repealing the Non-Speculative Residential Use Program to County
Council. Thank you to County Council for their time in reviewing the request with a
favorable outcome.
3. The Board recommends a review of the Non-Dedicated and Dedicated Agricultural Use
Programs. A final report dated September 20, 2019, was submitted to the Hawaii County
Council by the Agricultural Committee which recognized these programs needed to be
updated. See attached report as Exhibit "B", pgs. 7-9. The Board agrees agricultural
activities should be encouraged, however there needs to be clear clarification on what
qualifies for the non-dedicated agricultural preferential value to discourage abuse of the
system.
Close
Chairperson's Comments
After four years on the Board, two as Chairperson, the Real Property Tax Division
(administrators, appraisers, and staff) have consistently proved their competency and their
continued display of professionalism. Every encounter with staff at RPT whether it be
conversational or at a hearing/meeting has been pleasant and each time I have found them to
be resourceful. At hearings when cases can sometimes be intense, the appraisers remained
steadfast and thorough in presenting their case. Every hearing was well organized, and each
board member was well supported and treated with respect. Credit and kudos to the
administrators of RPT; their office runs like a well-oiled machine!
I thoroughly enjoyed serving on the Tax Board of Review alongside my fellow board members. It
has been a very educational experience for me. Proudly terming off, Michael Hughes.
Hawaii Counh,is an Equal Opportunity Provider and Employer 5
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2021 Tax Board of Review Annual Report
Respectfully submitted by Members of the Tax Board of Review:
^•-�-°DocuSigned by: ^^^^^^--DocuSigned by:
a3l P-'j, I i I aAAJ, aw&�—At4h&
Michael Hughes V. Diane Blancett-Maddock
Chairperson Vice-Chairperson
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Felson Harano Michael Okumoto
Member Member
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Dale Tokuuke
Member
Haivai`i County is an Equal Opportunity Provider and Employer 6
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XH01-1
DEPARTMENT OF FINANCE
COUNTY OF HAWAII
STATE OF HAWAII
RULES AND REGULATIONS OF THE DIRECTOR OF FINANCE
RULE 31
RULES AND REGULATIONS RELATING TO COMMERCIAL AGRICULTURAL
USE DEDICATION UNDER CHAPTER 19, ARTICLE 8, SECTION 19-60,
HAWAII COUNTY CODE 1983 (2005 EDITION,AS AMENDED)
Rule 31.1 Purpose of Rules.
These rules and regulations are intended to implement the provisions of Chapter 19,
Article 8, Section 19-60,Hawaii County Code 1983 (2005 Edition, as amended),relating to the
commercial agricultural use dedication.
Rule 31.2 Definitions.
(a) As used in these rules and regulations:
(1) The term"agricultural use"shall mean lands used on a continuous and regular
basis for intensive agriculture, orchards,feed crops and fast rotation forestry of
pasture and slow rotation forestry on lands zoned by the County to be in the
districts of agricultural,residential and agricultural,family agricultural,intensive
agricultural, and agricultural project district. The term "agricultural use"does not
include or apply to areas used primarily as farm dwelling sites, such as, but not
limited to,yard space, set backs, or open landscape associated with residential use
planted with ornamental plants,fruit or ornamental trees and vegetables primarily
for home use or recreation.
(2) The term"commercial dedicated agricultural use value"shall mean the
agricultural use values established under the provisions of Section 19-53(a)(2),
Hawaii County Code 1983 (2005 Edition, as amended).
(3) The term"date of the petition"shall mean the effective date of dedication.
(4) The term "dedicated area"shall mean the land area approved as dedicated lands
by the Director.
(5) The tenni"fan-n dwelling site"shall mean that portion of the land not exceeding
one-fourth acre which is used for residential purposes, including the land upon
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which any house is located,together with all accessory buildings and the land
designated to be the yard space.
(6) The term "owner"shall mean the fee owner or the lessee of real property with a
recorded lease that possesses an unexpired lease term of not less than five years
from the effective date of the dedication.
(7) The term"tax year"shall mean the period commencing frorn July I of a calendar
year and ending on June 30 of the following calendar year.
(8) A "violation"means the fail-Lire by the owner or any owner by succession who
signed a notarized affidavit to use the land for the general agricultural category,
that was listed on the petition and approved by the Director, for a period of six
consecutive months. It also means the overt act of changing between commercial
agricultural categories without prior notification and approval of such change by
the Director for any period of time during the life of the dedication or any failure
by the owner to observe any of the terms, conditions, or restrictions of the
dedication.
(b) Use of gender and number. Words importing0 the singular number shall extend to and
include the plural;words importing the plural shall extend to and include the singular;
words importing the masculine or the feminine gender shall extend to and include the
male or the female as the case may be.
Rule 31.3 Petitions to Dedicate; Requirements.
(a) The dedication of lands for commercial agricultural use shall be initiated by filing two
copies of the petition with the Director of Finance on or before September I for the
dedication to become effective in the following tax year.
(1) The petitions for dedication shall be submitted on a form prescribed by the
Director. Petitions shall be available at the offices of the Real Property Division
and County of Hawaii website.
(2) The Director may require evidence of commercial agricultural activities as
defined in Section 19-2,Hawaii County Code 1983 (2005 Edition, as amended).
This may be evidenced by,but is not limited to,the following indicia:
(A) Copy of the State of Hawaii General Excise Tax Return showing income
for the petitioned agricultural activity.
(B) Copy of Federal or State Income Tax Return with applicable farm
schedule.
(C) Other written verification acceptable to the Director.
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(3) Lands petitioned for dedication shall be of the following minimum lot size:
(A) Intensive Agriculture: 0.25 acre.
(D) Orchard: 1.0 acre.
(C) Feed Crops or Fast Rotation Forestry: 5.0 acres.
(D) Pasture or Slow Rotation Forestry: 10.0 acres.
('F) Exceptions to these minimurn lot sizes shall be with the approval of the
Director.
(b) Each petition for dedication shall be signed by all owners, shall state the general
agricultural category to which the land is to be dedicated, and shall be accompanied by
the following:
(1) A tax map or an appropriate facsimile thereof delineating the area to be dedicated.
The farm dwelling shall be delineated in the petition and shall not be included in
the dedicated area.
(c) Separate petitions shall be filed for each parcel or portion thereof to be dedicated.
(1) Where a County-zoning boundary divided a contiguous parcel of land so that a
portion thereof is situated in any County-zoned district other than agricultural,
residential and agricultural,family agricultural,intensive agricultural, or
agricultural project district,each such portion shall be treated as a separate
petition. Where the owner dedicates the contiguous parcel, a separate petition
shall be filed for that portion situated in the agricultural,residential and
agricultural,family agricultural,intensive agricultural, or agricultural project
district and a separate petition shall be tiled for that portion situated in any other
County-zoned districts meeting with the approval of the Director of Planning.
(d) Petitions to be for ten-year dedication.
(1) Where the land to be dedicated is within an agricultural,residential and
agricultural,family agricultural,intensive agricultural or agricultural project
district,the petitioner shall indicate on the petition that the dedication shall be for
a ten-year period or, in the case of an acceptable recorded lease, the remaining
term of the lease.
(2) The provision for twenty-year agricultural dedications has been repealed. Until
its dedication teen expires, an existing twenty-year dedication may continue to be
assessed at fifty percent of its agricultural use value and shall be subject to the
conditions and provisions of the effective commercial agricultural use dedication.
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(e) Petitions shall be submitted for changes in dedicated use.
(1) Where the owner desires to change the dedicated use,the owner shall petition the
Director for such a change in use.
(2) Upon receipt of any such petition,the Director shall review the petition and
require the findings to be made in the same manner as they are required for the
initial petition for dedication.
(f) Each petition and document filed shall be reviewed within a reasonable period, and any
errors or deficiencies shall be corrected by the petitioner. No petition for dedication shall
be deemed to have been filed unless the petition is complete in form and any and all
errors or deficiencies have been corrected.
(1) The Director shall assign an appropriate number to each petition.
Rule 31.4 Findings of Facts.
(a) The Director shall, by November 15 of each year,make the following findings with
respect to petitions filed by September I of said year:
(1) Whether the petitioned land is actually put to the general agricultural category,
and is reasonably suited for such use.
(2) The productivity ratings of the land for those uses to which it is best suited.
(3) The adequacy or sufficiency of the size or area of the unit for the petitioned use
and the present use of the Surrounding lands.
(4) Whether the petitioned use is permissible under the County zoning district or
ordinance.
(5) Whether the use is in conflict with the general plan of the County and the overall
development plan of the State.
Rule 31.5 Approval or Disapproval of the Petition.
(a) For lands in any County-zoned district including agricultural,residential and agricultural,
C,
family agricultural,intensive agricultural, or agricultural project district,the Director
shall approve the petition if the findings of facts, including the economic feasibility of the
petitioned use, are all favorable to the owner.
(b) The Director shall disapprove the petition if any of the findings are not favorable to the
owner or if he determines good cause exists for such disapproval.
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Harry K im Deanna S, Sako
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Mayor � .
o Director
Steven A.Hunt
Deputy Director
County of Hawai 1
Finance Department � ;.6
25 Aupuni Street,Suite 2103 ® Hilo,Hawaii 96720'
(808)961-8234 Fax(808)9618569 —
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TO: Aaron Chung, Council Chair
FROM: Deanna Sako
DATE: October 31, 2019
Attached is our final Real Property Tax Review Working Group and Ag Committee report which.
includes recommended changes to the County Code.
If there are any questions,please contact Lisa Miura at 961-8260.
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Comm. No. V.
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Steven A.Hunt
Deputy Director
County of Hawai'i
DEPARTMENT OF FINANCE-REAL PROPERTY TAX
Aupuni Center 101 Pauahi Street ® .Suite No,4 ® Hilo,Hawai"i 96720 - Fax(808)961-8415
Appraisers(808)961-8354 ® Clerical(808)961-8201 o Collections(808)961-8282
West Hawaii Civic Center ® 74-5044 Ane Keohokalole Hwy. ® Bldg.D,2nd Fir, ® Kailua Kona,Hawaii 96740
Fax(808)327-3538 ® Appraisers(808)323-4881 o Clerical(808)323-4880
FINAL REPORT TO HAWAI'I COUNTY COUNCIL
FROM THE REALP Y TAX REVIEWN CTP
AND AGRICULTURAL COMMITTEE
September 20, 2019
This is the ficial report to the Ilawai'i County Council from the Real Property Tax Review
Working Group (Review Group) which includes the Agricultural Committee (Ag
Committee). The Review Group held twenty-four meetings and the Ag Committee held
twenty-three meetings,
The focus of the Review Group and Ag Committee was to review,and give policy driven
recommendations as needed on the following: I-Iawai'i County Code Chapter 19, Finance
Director Rules and Regulations as it pertains to Real Property Tax, Agricultural
RatesNalues, 2011 International Association of Assessing Officers (IAAO) Audit and
review proposed changes or legislation which affects the Real Property Tax Division that is
referred by the Council or County. In addition the Real Property Tax Division has been
providing the Review Group and Ag Committee with complaints and concerns the Division
receives.
The group has met since August 2017,•and had agreed to meet for a period of two years.
Reports were filed to provide County Council with updates of the group's progress.The goals
were collectively agreed upon:
Increase the fairness of the County's Real Property Tax Program
Identify and incorporate best property tax administrative practices
® Propose additional tax programs as appropriate
• Identify public policy goals and incorporate them into the County's
Real Property Tax Program
While tax rates were not part of the group's tasks, they were an integral part of discussion. The
group wishes to recognize that Council and Administration are not looking to the group to
provide insight into specific rates and tax rates are to be evaluated separately by Council and
Administration through the annual budget process. As such, we are not recommending any
changes to tax rates.
I
Going forward, the Review Group recommends the continuation of its participation as an
Advisory group to maintain the infonnal nature of the review of the Real Property Tax
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Program and provide guidance to the Division, The Review Group farther recommends the
meetings to be held on a quarterly basis or as needed to ensure continuity and momentum.
In regard to the prior recommendations provided previously in reports to County Council, the
Review Group is aware Corporation Counsel has provided ordinance changes to the
Department of Finance Administration. With the busy fiscal year end and budget complete for
2019-2020,we are hopeful Administration will submit the recommended changes to the
County Council or County Council will introduce legislation in time to be effective within the
next tax year 2020-202 1.
The prior recommendations provided previously by the Review Group include the following:
I. The Veterans Disability Exemption annual real property tax to be $0. This
would require a change to the Hawaii County Code. Recommendation is to change
for tax year 2018, however, it may be more realistic to have this done for tax year
2019 due to budget deadlines. To receive this benefit,the current program requires
the Veteran be 100%disabled due to a service related injury and the property needs
to be the Veteran's primary residence. This program currently has 609 parcels and
,at- the current $200 minimum tax, the County receives $121,800 in revenue
annually. There was much discussion regarding the value of the properties in this
category, the potential increase in properties that could end up qualifying for this
substantial discount and the concern with the loss of revenue during a time when
the County is having difficulty balancing the budget. The consensus is these are
100% disabled Veterans due to a service related injury and they have already paid
the ultimate price.
Update: Bill No. 165 introduced by CM Dru Kanuha was passed, Ordinance 18-
88 became effective July 1, 2019 resulting in the reduction of the minimum tax to
fifty percent for the Veteran's Disability Exemption.
2. Repeal the Non Speculative Residential Use program. Recommendation for
Administration or County Council to look into an ordinance to change the Hawaii
County Code. Recommended steps include informing all owners currently with
parcels in this program of the repeal for tax year 2019, allow all parcels currently
in this program to automatically convert these parcels to the Homeowner
Exemption program (by virtue of the program they already technically are part of
the Homeowner class) at the 2019 frozen value and explain the 3% CAP would
then be applied to the tax year 2020 (first year they would see the increase). This
has been a recommendation the Real Property Tax Board of Review has reported
for several years as this program does not allow new applicants into this program
therefore it is not considered to be fair-and equitable. It is our understanding when
the County Council approved the 3% CAP and the additional 20% homeowner
exemption (up to $80,900) there was discussion to have this program completely
repealed however it ended up being an "optional out" for those in the program.
There are currently 483 parcels in this program. The impact to the real property tax
revenue in tax year 2020 based on the current frozen non spec values would be
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$23,000 total. In addition, the County will save approximately $4,400 per year in
staff time which was allocated to the administering of this program.
Update: Corporation Counsel provided ordinance changes to the Department Of
Finance Administration. Currently pending administrative review and submission
to County Council.
3. Repeal Solar Water Heater Tax Credit. This would require a change to the
Hawai'i County Code. Recommendation is to completely repeal Section 19-104 of
the Hawaii County Code, In 2008 when this credit was established,the County of
Hawai'i Building Code did not require solar water heaters, however, since 2012 it
has been a requirement for all new construction. The group researched the
possibility of creating a photovoltaic credit.As the Real Property Tax Division does
not assess for solar and photovoltaic for residential use,there is no recommendation
to create another program in the place of ending the solar water heater tax credit.
Update: Corporation Counsel provided ordinance changes to the Department Of
Finance Administration. Currently pending administrative review and submission
to County Council.
4. Procedural change to Real Property Tax classification® This would not require
a change to the Hawaii County Code, however, the.group was approached by the
Real Property Tax Division for guidance regarding a portion of the Hawaii County
Code that was not consistently applied on the island-There are properties under one
acre,of land that have been receiving the agricultural class tax rate when the highest
and best use is residential. Three meetings were held regarding discussion of what
would be the-most fair and equitable way to tax these parcels as the underlying
zoning is agricultural which included reviewing properties up to five acres in size.
The recommendation to the Real Property Tax Division is all properties less than
one acre in size which are not part of an agricultural use or dedicated agricultural
use program should be taxed at the residential class tax rate to be consistent with
the County Code island-wide, This is consistent with State Land Use Commission
statute which provides for the construction of,single-family dwellings on lots
existing before June 4, 1976.
There are currently 19,604 parcels which will experience a tax class rate change.
6,665 will experience an increase in taxes with the remaining parcels not anticipated
to be impacted by the recommendation. The impact to the real property tax revenue
in tax year 2019 based on the current assessed values and tax rates would be an
estimated $1.3 million increase. Taxpayers still retain the option to apply for an
agricultural use program to receive the agricultural tax classification in future years.
Update: Real Property Tax Division implemented the procedural changes for Tax
Year 2019 with notification issued to the owners oj'affected properties.
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In addition to the prior recommendations,the Review Group is also recommending the
following:
I Recommendation to maintain the current tax classifications based on highest
and best use.After many meetings, including presentations from the County of
Hawaii Planning Department.and review of other local government tax codes, the
Review Group is recommending to maintain the current tax classifications at this
time. This decision, in the context of Short Term Vacation-Rentals (STVR) and the
apartment classification, was not made lightly and is based on several important
factors including:
a. The current Hawai'i County Code tax 'Classifications are based on highest and
best use.
b. The County of Hawai'i Planning Department only requires certificates for
STVRs which are non-hosted properties for rentals under thirty days. This
differs from the State of Hawaii and County of Hawai'i Real Property Tax
Division as both reflect vacation rentals as anything under six months (or 180
days)whether it is hosted or not.
c. There are additional burdens this Division would incur. The management of
constant changes in actual use with no additional support staff would likely
result in greater
ater levels of inequity in assessments. An example would be the
evolution of an STVR which can change within a relatively short period'of
time from hotel/resort classification into a proposed vacation rental tax
classification, and back to hotel/resort classification. In addition,there is no
reliable mechanism in place to provide data on these changes as they occur
which would present administrative challenges.
d. With the exception of County of Kauai and County of Maui,the County of
Hawaii Real Property Tax Division staff were unable to locate another
jurisdiction within the country which had a vacation rental tax
classification/rate for real property taxes.
e. There are implications of moving STVRs to the hotel/resort classification
from the apartment classification. During the analysis, it should be noted that
based on current tax rates the hotel/resort classification is often lower than the
current apartment classification based on highest and best use.
f. Upon review of the apartment classification, which includes condominiums
and apartments, the group identified the Affordable Rental Housing Program
as an alternative mechanism to separate apartments from condominiums. The
Affordable Rental Housing Program provides for a preferential tax rate upon
affirmation of rental rates at affordable levels. Changes are to occur to allow
for a focused communication to educate apartment owners of the Affordable
Rental Housing Program in an effort to change this through internal
procedure.
2. Update the Affordable Rental Housing Program. Update the portion of the
Hawaii County Code to reflect requested changes discussed in 2015 and 2016.
During that period there were five meetings between County staff and local property
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management companies which took into account requests from the public. These
changes include;
a. Adding flexibility to allow for the use of a certification of rental rate in lieu of
a current rental agreement.
b. Allowing a licensed property manager or authorized representative to sign the
affordable rental housing claim form in lieu of an owner's signature.
c. General housekeeping of the County Code to provide for the consolidation or
change to the placement of existing language.
These changes do not reflect the inequity between West Hawaii and East Hawaii rental
amounts as this group understands this has to be handled at the Office of Housing and
Community Development level due to their relationship with the U.S. Department of
Housing and Urban Development(HUD).
In addition,the group is recommending a change.to Section 19-2 of the Hawaii
County Code to remove the specified seventy-five percent of the payment standards
as established by the Office of Housing and Community Development and replace
with broader language to allow for flexibility to change the percentage through an
administrative review process. Working in consort with other agencies, including the
Office of Housing and Community Development, an administrative review of the
percentage on a regular basis would provide for greater flexibility to react to changing
market conditions. This recommendation is provided with the understanding that the
Affordable Rental Housing Program is not a significant driver of encouraging
affordable rentals alone,but is complimentary to other programs and should not be
considered a stand-alone program.
3. Update the Hawaii County Code to appeal on total value for condominium
properties only.The assessment notice can continue to reflect land and building
values separately.
The Review Group did consider the request for all property types to appeal on total
value only,however, the Review Group as a whole decided against this
recommendation as it could cause more confusion and create more inconsistency.
There was not enough data provided to the Review Group to change anything more
than the condominium properties only.
4. Allow for the use of Electronic Signatures. In recognition of advancements in
technology and opportunities to improve filing options for taxpayers, streamlining
processes and recordkeeping, the Review Group is recommending a change in
practice to allow for the use of electronic signatures in addition to the current process
of filing for exemptions and program applications. The current process requires a
hard copy, wet-signature for all exemption and program applications. The Division is
currently in the process of converting forms into tillable pdfs and this
recommendation is an extension of the Division's efforts to modernize its processes.
Some of these processes would require corporation counsel consult or in the case of
distributing assessment notices electronically, a change to the Hawaii County Code.
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The Review Group has also reviewed and affirmed the following items throughout the course
of the last two years:
1. The proactive communication established by the Division notifying owners of
agricultural to residential classification changes in February 2019. The Division
issued more than 6,800 letters prior to the 2019 assessment notice notifying taxpayers
of a change to their tax classification from agricultural to residential. This resulted in
a greater level of communication between taxpayers and the Division to ensure all
parties understood the reasoning and impacts of the change.
2. The Division's swift response to the.Lower East Rift Zone Eruption which started in
May 2018. The Division issued a significant number of damage assessment letters;
coordinated assessments with Civil Defense, Office of Housing and Community
Development; adjusted taxes as a result of the Mayor's emergency declaration; and
revaluated the market's response and recovery in a very short period of time.
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3. A continuous review of State and County legislation impacting real property taxation.
4. The evaluation of the Tax Board of Review's annual report and recommendations
with some of these recommendations also being affirmed by the Review Working
Group. An example was the affirmation and recommendation by the Review
Working Group to repeal the Non Speculative Residential Use Program.
5. A review of 2012 IAAO Audit action items which the Division has implemented and
others which require Council action.
Interim recommendations made by the group to Real Property Tax Division included
presentations to the entire group by the Planning Department of the STVR bill and program,
overall review of recent Legislative actions and a review of the County of Hawaii budget
cycle(see Appendix A) in relation to the Real Property Tax Division's tax cycle and various
deadlines.
Accompanying this report, the Ag Committee is submitting a comprehensive
recommendation to.update the agricultural programs including updating agricultural values.
The earliest these changes could have an impact on real property tax revenues is tax year
2021, if County Council is able to approve in a timely fashion. We realize these changes are
substantial, however, the agricultural programs should provide considerable incentive to
farm production at a community level and go beyond a personal sustainable level.
The current Agricultural Programs were developed at a time where there were large
landowners with a single crop/agricultural activity such as ranching or sugar cultivation. The
Dedicated Agricultural program was very effective in working within this set of
circumstances. In addition, the Non-Dedicated Program supported small scale agricultural
activities in the rural environment.
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However, since the origination of these program, there has been structural changes within
the agricultural industry and land development activities within the County. With the closing
of the sugar plantations, large landowners have been seeking diversified agricultural
activities on their lands. This has led to a program of leasing/licensing portions of properties
to various farms, with the farming activities changing through time as markets change.
In addition, there has been a "gentrification" of the rural areas with the creation of
"gentleperson"ranches. While supporting agricultural activities, the general tax breaks for
non-dedicated agricultural activities has created an impression that the Agricultural
Programs can be abused.
In order to support commercial agricultural activities as well as to continue encouraging
reasonable agricultural uses within the rural areas,the Real Property Agricultural Committee
has concluded that the overall agricultural tax program should be restructured with the
creation of a three (3)tiered system. This proposed system would include:
I
91 Revision of the existing Dedicated Agricultural Program to encourage its use by
landowners within diversified agricultural activities;
0 Creation of a new Short-Term Agricultural Dedication Program to encourage commercial
agricultural activities where a farmer is just starting out or where the landowner is not
willing/able to make a long term commitment for agricultural uses; and
Revision of the Non-Dedicated Agricultural Program to continue to encourage
agricultural activities in the rural areas while reducing the opportunities for and
perceptions of abuse of the system.
These following recommendations must be considered in combination with each other as they
would not achieve the appropriate goal without the other changes.
1. Revise the 10 Fear Dedicated Agricultural Program. There are a number of
reasons why the Dedicated Agricultural Program is not as effective as it can be in
supporting commercial agricultural activities. A significant portion of these reasons
will be addressed with the acceptance of the recommendations below. However, the
program will also need to be revised to allow for diversified agricultural activities
areas,recognizing that farmers and crops will change over time so area may be fallow
while crops and/or farmers change. The potential for abuse of this program is
proposed to be addressed with the requirement for a detailed farm plan that would
identify the potential areas and types of uses as well as a requirement that any vacant
areas be actively marketed during the dedication period. The program would also
allow for blended agricultural values based on a potential range of uses. This would
eliminate the need to continually monitor specific agricultural activities as long as the
overall farm program is being followed. The valuation for this program would be the
lower of 10% of market value or the dedicated value.
2. Create a Short Term Dedicated AG program. This would require a change to the
Hawaii County Code. The change would create a program similar to the 10 year
dedicated program with a shorter term of 3 years. The requirements would be
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identical to the 10 year program with the exception of it not being recorded with the
Bureau of Conveyances. The program would be established to allow for diversified
agricultural activities as provided in the Dedicated Agricultural Program. The
valuation for this program would'be the lower of 20% of market value or 3X the 10
year dedicated value. This program would be focused on start up operations or where
there is uncertainty with respect to the long-term viability of a commercial
agricultural program.
3. Revise the Non-Dedicated Agricultural Programa The Non-Dedicated Agricultural
Program would be revised to require a minimum lot size for agricultural uses as set
by the Dedicated and Short Term Dedicated Programs. In addition, in order to
qualify for this program, a Farm Plan would be required to ensure there is a viable
agricultural activity being undertaken. Another recommendation is that the Non-
Dedicated property agricultural value would be based on a percentage of the Fair
Market Value of the property and not as multiple of the Dedicated Agricultural rate.
The agricultural value for this program would have an assessed land value of 30%of
market value.
4. Native Forest programa Further review of the Native Forest program is
recommended with input from local native forest practitioners, United States
.Department of Agriculture Forest Service Division,University of Hawaii -Tropical
Conservation Biology&Environmental Science and Tropical Ecosystem &
Agroforestry Management staff. An updated value of the Native Forest program is
suggested at 1/2 the current dedicated value per acre for pasture. .
In addition to the recommendations above, the Real Property Agricultural Committee
recommends to the County Council and Administration the following changes which are
located in the Hawaii County Code, Finance Director's Rules and Regulations as well as Real
Property Tax office procedures and guidelines:
5. Add a minimum size requirement for Non-Dedicated AG use parcels. This
would match the current minimum size requirements in place for the Dedicated AG
program. There are approximately 3,000 of the 8,400 parcels currently enrolled in a
Non-Dedicated AG program that would not meet the minimum size requirements.
The county receives approximately$580,000 in revenue annually from these parcels
and could gain approximately$6.5M by implementing an absolute minimum size
requirement.
The current minimum size levels are .25 acres (intensive AG), 1 acre (orchard), 5
acres`(feed crops), and 10 acres (pasture). Parcels that fall below the minimum size
may still be eligible to receive the Non-Dedicated AG benefit if they can prove they
are part of a larger AG operation that in total meets the minimum size requirements or
they provide additional documentation(i.e. Farm plan and/or schedule F, G-49).
6. Reduce number of required signatures on AG applications. The current county
code requires all owners on title sign the application to receive the AG benefit. The
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change would require at least 51%of the owners' signatures on each application
including an affidavit of responsibility for any rollback taxes incurred. The group
feels that requiring All signatures is prohibitive in some cases and should not be an
excluding factor in the application process.
7. Require specific documentation of commercial operations for Dedicated AG.
The change would require the submission of either the prior year IRS Schedule F or
the State Department of Taxation Form G-49 upon application for the dedicated AG
program. The group feels the current proof of commercial operations is not
substantial enough to validate actual commercial operations.
8. Create a blended AG value for Diversified Use. This type of AG use will allow for
a seamless transition between intensive agriculture and orchard without requiring a
new application. The assessed value of this category would be midway between the
intensive and orchard categories,
9. Consolidate the pasture quality ratings to one value. The current valuation for
pasture is split between three categories. The current dedicated value for"good"
pasture is $210 per acre, "average"pasture is$60 per acre, and"poor"pasture is $14
per acre. The group feels the variability of the carrying capacity is inconsistent to
accurately assess pasture quality on an annual basis and would like to set one pasture
value of$14 per acre for dedicated pasture lands.
10. Require a farm plan with all AG applications. The group feels the current
application process does not adequately identify legitimate fanning activities.
The current committee members for the Real Property Tax Review Working Group are:
Members from the general public:
Mary Begier,Mary Begier Realty(Hamakua,Hilo)
William Moore,William L Moore Planning(Islandwide)
Marissa Harman, Kamehameha Schools(Islandwide)
Nahua Guilloz, Parker Ranch (South Kohala,North Kohala, Hamakua, Kona)
Riley Smith, Lanihau Properties (South Kohala, Kona)
Shannon Matson, Hot Yoga Hilo (Hilo, Puna)
Stephanie Donoho,Kohala Coast Resort Association(South Kohala,Hamakua)
Peggy Farias,W.H. Shipman(Puna, Hilo)
Jaime Ortiz-Nava, Ortiz Hawaii Real Estate Solutions LLC (Islandwide)
The Agricultural committee members for the Real Property Tax Review Working Group are:
Members from the general,public:
Mary Begier, Mary Begier Realty(Hamakua, Hilo)
Chris English, Ponoholo Ranch(South Kohala,North Kohala, Hilo, Puna)
William Moore, William L Moore Planning(Islandwide)
Marissa Harman,Kamehameha Schools(Islandwide)
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Nahua Guilloz, Parker Ranch(South Kohala,North Kohala, Hamakua,Kona)
Riley Smith, Lanihau Properties (South Kohala, Kona)
Peggy Farias,W.H. Shipman(Puna,Hilo)
Jaime Ortiz-Nava, Ortiz Hawai°i Real Estate Solutions LLC (lslandwide)
The following members from the County of Hawai°i support the efforts of the Real Property
Tax Review Working Group and the Agricultural Committee;
Deanna Sako, Finance Director
Glenn Sako,Research&Development Ag Specialist*
Lisa Miura, Real Property Tax Administrator
Keita Jo, Acting Assistant Real Property Tax Administrator
Brandon Cain, Valuation Analyst
*Agricultural Committee only
Sincerely,
Real Property'Tax Review Working Group and Agricultural Committee
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