HomeMy WebLinkAboutCOM 0118.006 2002-2004 ~tY OF
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Harry Kim Dixie Kaetsu
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Mayor Managing Director
~"K'g;•N:+~ Peter L. Hendricks
Deputy Managing Director
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25 Aupuni Street, Room 215 Hilo, Hawaii 96720-4252 • (808) 961-8211 • Fax (808) 961-6553
KONA. 75-5706 Kuakini Highway, Suite l03 • Kailua-Kona, Hawaii 96740
(808)329-5226 Faz (808)326-5663
August 2, 2004
The Honorable Aaron Chung, Chairman, and
Members of the Committee on Finance ~ ~ "
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Hawaii County Council
25 Aupuni Street
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Hilo, Hawaii 96720 -
Re: Bill No. 49, Draft 3 n-
Dear Chairman Chung and Committee Members:
Thank you very much for placing this bill on the agenda for discussion and consideration.
Attached for your review and consideration is a proposed Draft 3, which is discussed below.
However, since it has been over 18 months since this bill was first introduced, a brief review
of its background and intent follows.
Purpose and goals
The purpose of this bill is not to increase tax revenues for the County. The purpose is to make
our real property tax system fairer, to support the agriculture industry through property tax
incentives, and to close loopholes that enable some non-farmers to take advantage of tax
provisions intended to help the agriculture industry. Because of the complexity of our tax
laws, we must be very diligent to make sure that any changes do not inadvertently have a
negative impact on those who should benefit from them.
While working on this proposal,~the guiding principles or goals of the County regarding
agriculture were held to be:
1) Keep prime agricultural land in agricultural use;
2) Encourage new agricultural uses;
3) Return agricultural lands to agricultural use;
4) Promote agriculture industry/employment;
5) Promote equitable taxation; and
6) Promote General Plan goals/policies.
It is the intent of Bill No. 49 Draft 3 to help implement these goals. ~ ~ O
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Hawaii County is an equal opportunity provider and employer.
August 2, 2004
The Honorable Aaron Chung and Committee Members
Page 2
What has been done in the interim period
When this bill was deferred in February of 2003, the Council wanted more feedback from
farmers and ranchers. Meetings were subsequently held with fanners in Waimea and South
Kona in March of 2003. At those meetings, several valid concerns were brought forward by
the farmers in attendance. As a result of these discussions, attached is a proposed Draft 3 to
address the issues that were raised.
Changes in proposed Draft 3
To receive the maximum agricultural benefit under this bill as originally proposed,
farmers/ranchers must dedicate their land to agriculture for ten years. This would create a
greater tax liability for persons who lease the land they farm or ranch when their lease term is
less than ten years because they cannot participate in the dedication program. Draft 3
modifies the dedication period to allow farmers/ranchers who lease their land to
dedicate it for the period of their lease if that period is at least five years. This is in
response to concems of coffee farmers in Kona who are only able to lease their land on a
short-term basis.
For farmers/ranchers who do not choose to dedicate their land, Draft 3 proposes the value of
their property will be set at twice the dedicated productivity values rather than at the
increasing percentage of market value (up to 75% of market) that was originally proposed.
This will address the plight of older farmers in Waimea and South Kona who are not
comfortable dedicating for ten years and whose properties have appreciated considerably in
value.
Original Bill No. 49 provisions maintained
Some major policy changes proposed in the original bill that are unchanged in Draft 3 include:
Definitions Bill No. 49 includes additional definitions that will remove confusion and allow
easier enforcement of the rules to insure benefits are awarded appropriately. This includes the
requirement that afarmer/rancher must have $2,000 gross income or be following recognized
agricultural practices to receive the maximum benefits, and the additional requirement that
agricultural use must be on agricultural-zoned land to receive non-dedicated benefits.
Dedication requirements Property must be in commercial agricultural use to receive
dedication benefits.
Breach of dedication Tax rollback for breach of dedication or breach ofnon-dedicated
agricultural use will be reduced. Sale of dedicated land will cause a breach unless the buyer
assumes the dedication in writing. Also establishes certain exceptions to the breach rules for
dedication; currently there are no exceptions.
August 2, 2004
The Honorable Aaron Chung and Committee Members
Page 3
Unresolved issues
Two major issues remain unresolved, and we look forward to working with the Council to
arrive at the best way of handling them.
Subsistence vs. commercial use This bill as proposed restricts the maximum benefits to
commercial agricultural operations on agricultural-zoned land, demonstrated by $2,000 gross
income or following recognized agricultural practices. Those who farm for subsistence will
not qualify for maximum benefits, and those whose activities are not on agriculture-zoned
land will not qualify for any benefits. Whether subsistence farmers should be eligible for
maximum benefits, and whether agricultural activity on non-agricultural zoned land should
receive benefits are policy issues that we look forward to discussing with you before Bill No.
49 is finalized.
Farm dwellings rented to farm workers A bill recently adopted by the Council allows persons
who live on their farm in a farm dwelling that is valued at mazket as a homesite to receive the
benefit of paying tax on the homesite at the lower homeowners tax rate. However, farmers
who rent a farm dwelling to persons who work on the farm have the farm dwelling valued at
market as a homesite but cannot be taxed at the homeowners rate because the dwelling is
rented out. This is a situation that exists especially (but not exclusively) in Kona on coffee
farms. We recognize this is a situation that needs to be discussed further to arrive at what is
fair and equitable.
Conclusion
The attached Draft 3 of Bill No. 49 addresses issues of concern to Hawai`i's farmers, as well
as fulfilling the goals stated above by giving appropriate real property tax incentives to
persons involved in agriculture.
Again, I thank you for bringing this bill up for consideration, ask for your support of Draft 3,
and look forward to working with you on issues that remain unresolved. The end product of
our joint efforts will be a bill that will support our agricultural industry and make our tax code
fairer.
Aloha,
Harry Kim William Takaba
MAYOR DIRECTOR OF FINANCE