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Home My WebLink AboutCOM 0118.020 2002-2004 A-23-04; q:4~AMJ 18085283463 :18085283463 # 1- 4 I LAND USE RESEARCH FOUNDATION OF HAWAII 70o Bishop Street, ate 1926 Honolulu, Hawaii 96813 Phone Sy-4717 Fax 536o13z August 24, 2004 The Honorable Aaron S.Y. Chung, Chair, and Members Committee on Finance Hawaii ounty Council County f Hawai i 25 Aup i Street Hilo, Ha aii 96720 BY FACSIMILE: (8081961-8912 Deaz Ch ~ Chung and Committee Members: RE: ILL N0.49 DRAFT 3 FOR AN ORDINANCE AMENDING CHAPTER 19, TICLES 1, 7, AND 8 OF THE HAWAII COUNTY CODE 1983 (1995 DTTION), RELATING TO REAL PROPERTY TAX DEFINTTIONS; NON- EDICATED AGRICULTURAL USE ASSESSMENT AND AGRICULTURAL SE DEDICATION ~ My nari!t~ is Dean Uchida, Executive Director of the Land Use Reseazch Foundation of Hawaii (LUR~),II testifying in regard to Bill 49 Drag 3, Relating to Real Property Tax Definitions; Non- Dedicated Agricultural Use Assessment and Agricultural Use Dedication. The main provisions of Bi1149 Draft 3 are as follows: Defines and distinguishes Non-Dedicated Agricultural Use Assessment and Commercial Agricultural Use Dedication [minimum $2,000 gross income per year]. I}imits agricultural use assessments and dedications to areas zoned by the County for algricultural, residential and agricultural, family agricultural, intensive agricultural, and aggricultural project districts. Provides for assessment ofnon-dedicated lands in agricultural use on a continuous and ~ regular basis at hvice the dedicated agricultural productivity values. Homesites, setbacks, i d open landscape associated with residential use would be excluded from the 'cultural area for assessment purposes. All portions of land not committed or used for ~ specific agricultural use would be assessed at full market value. • rovides that an owner or recorded lessee may petition to dedicate land for specific mmercial agricultural use for l0 years or the unexpired term of the lease if a minimum ~ f 5 yeazs remain. Homesites, setbacks, and open landscape associated with residential i i Comm. No. ~ Z~ Ref. To• Presented Ref. Date 8-23-04: 9: 4~AM: ~BOB5283463 +BON5283483 a 2i a i { ~ Honorable Aaron S.Y. Chung, Chair, and Members Finance Cpmmittee ~ August 24, 2004 Page 2 i ~ I u~ [or] planted with crops primarily for home use would be excluded from the area d icated for commercial agricultural use. Land not so dedicated would be assessed at Tuazket value. The minimum lot size for feed crops, pasture, and fast and slow rotation j fgrestry would be provided by administrative rule (cuaentlyl0 acres]. • F~iminates the 20-year dedication period with assessment at 50 percent of productivity i t/~lue, although the 10.yeaz dedication period remains. Lands under existing 20-yeaz i dedication may continue to be assessed at 50 percent of agricultural use value, subject to the conditions and provisions of commercial agricultural use dedication. • Reduces the rollback tax look-back period for breach of agricultural use to 2 years plus current yeaz, scaled up to 5 years for dedicated lands, depending on how long the dedication has been in effect [if less than 8 years]. The period of breach reduced from 12 to 6 consecutive months, unless non-use is part of an approved farm plan. i Allows breach exceptions for natural disasters, land no longer usable for dedicated I agricultural use, and death or severe disability. • Provides for breach of dedication upon sale of the property, unless the buyer expressly assumes the dedication; assumption will no longer be automatic. i , I Draft 3 albpeazs to inadvertently omit the existing subsection of HCC § 19-53 relating to native ~ forests. c We sham the concerns of others that Bi1149 will be anti-agricultural in effect and will amount to a prop tax increase for small farmers. This effect will make itself felt primarily through the change assessment basis from productivity value to mazket value. New or developing farms i would n~o qualify for dedication until they meet the $2,000 commercial threshold for ptoduc 'ty assessment, and until then they will be taxed at twice productivity value. Farm lessees ~v th less than 5-year leases would also be assessed and taxed at this higher value if they aze una l to dedicate their land. Finally, vacant or unusable portions of agricultural pazcels would br;'~assessed at market value if they aze not committed or dedicated to agricultural use. We are concerned that there maybe few if any true "market value" compazables for such lands. We respectfully suggest that the Hawaii County Council review and consider the implemer}tation of Ordinance 02-39 in the City and County of Honolulu before acting on Bi1149. Ordinance 02-39 has created serious problems for farmers and agricultural landowners because the assessed value of agricultural lands on Oahu is now determined at "fair mazket value," generally~based on conveyances of properties zoned for agriculture which reflect not actual agriculturtal use, but rather other restricted and atypical uses (e.g., antenna or utility sites and "gentlem farmer estates")permitted under the AG-1 and AG-2 zoning districts. This flaw has erroneously inflated the value of agricultural lands on Oahu to approximately $40,000 per acre. li This flaw d "mazket value" assessment has resulted in tax revenues from agricultural lands going ' from'app oximately $4 million in 2003-2004 to approximately $14 million in 2004-2005. i i I 8-23-04; ~:4"IAM; ~BOB5283463 tBOB5283463 +t 3/ 4 I Honorable Aaron S.Y. Chung, Chan, and Members i Finance Committee August 24, 2004 Page 3 j While the remedy for this inequitable tax increase of approximately 250 percent has been characterized by some as a "windfall" to landowners, it is the City and County which in fact ~ stands td reap the benefit from the "windfall" created by Ordinance 02-39 on lands which receive ~ ~ few if auy municipal services. Meanwhile, farmers who cannot afford the increased taxes will probabllj abandon their agricultural operations, to the great detriment of the economy and envirorir~rent of the people of Oahu. Further, these flawed assessed valuations may not be sustain on appgal (and most have been appealed). Unfortunately, many farmers cannot wait for the p tcome of the protracted appeals process. We may be on track for a major "lose-lose" I situati on Oahu, in which the City and County will put many farmers out of business and ultimat y have to refund much of the taxes wllected on overstated values. It is tm rtant, in considering an appropriate tax structure for agricultural lands, to understand that rea~ roperty taxes are intended to pay for municipal services. These services include police, fire, se~v ,water, etc., that are provided by the County. There needs to be a nexus between the taxes g paid and the services being received for the property being taxed. For example, residential properties should be taxed at a level proportionate to the demands they place on the municip~ services. In the case of agricultural lands, it is difficult to find that rational nexus to justify a arge tax base, as agricultural users usually have little or no impact on municipal services. Also, th tax system should not be used as an enforcement tool for land use. If the land is zoned for agric tore but is not being used for agriculture, then the remedy is to pursue the matter as a zoning, 'olation, not through some type of punitive taxation policy. Allowing agricultural land 'i , to lie fal ow, particularly after scores of yeazs of intensive plantation cultivation, is not I ! necess ly a bad thing. The federal government pays farmers across the Midwest and elsewhere i + undz;r m ti-year contracts not to grow crops. ~ We bel} ve that the County of Hawaii should consider the following: 1. I axes on all agricultural lands, both dedicated and non-dedicated, should be based on 'cultur'al activity, not on "market value" determined from sales transactions of lands hich maY not have been in agricultural use. There should be a fixed assessed valuation i f land based on its agricultural crop type or use. In this regazd, the County's oductivity assessment system is exemplary and should be retained for all agricultural '1 ds. I 2. 't'he tax assessment system needs to allow for multiple uses on a single parcel. The taxes ould reflect the actual use of lands on the parcel, not generalize or blend the sessment. In particular, waste or unusable lands should not be taxed as if they are sable. i i II 8-23-D4; 9:4~AM;~B085283463 ~80852B34 Fi3 ? 4/ 4 1 ji~ 1 Honorabl Aaron S.Y. Chung, Chav, and Members Finance C mmittee August 242004 Page 4 3. avant or fallowed lands should be assessed at what the lands could realistically be used f r under the limitations of the zoning districts, or based on prior historic use. The 1 downer pays the tax on any vacant lands. The tenant pays the tax when the lands aze A t vacant. That, combined with the high agricultural tax rate of $9.85/$1,000, should be ore than enough incentive for a landowner to put someone on the property and not keep , t vacant. Vacant land requires the landowner to have insurance, pay taxes, and provide s me on-site property management. A higher assessed valuation for vacant lands is ' ecessary to compel a landowner to put a tenant on the property. 4. Unusable portions of agricultural parcels, such as gulches and hillsides, should be assessed at nominal rather than mazket value, reflecting the fact that such lands have no economic use. We appreciate the opportunity to express our views on this matter, and look forwazd to further discussions with the Council to address the issue of long-term agricultural real property tax reform fdr the County of Hawaii. i I i II i III i i, Ili 'I I i I{ i