HomeMy WebLinkAboutCOM 0118.043 2002-2004 8-04; i~:34AM; 180fl5283483 t80B5283493 # 1/ t0
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~ LAND USE RESEARCH ('i!'. ~ i
FOUNDATION OF HAWAII
' 70o Tiishop Street, Ste. igzS
~ Honolulu, Hawaii g68~3
Phone SZi-4717 ~ ~
i Fax 536-o~32 ~ '
I November 10, 2004
The Hdi orable James Y. Arakaki, Chairman and Presiding Officer, and Members '
Cormty ounci]
County! f Hawaii
25 Aupi 'Street
Hilo, H aii 96720 BY FACSIMILE: (8081961-8912
Dear Ch irman Arakaki and Council Members:
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RE: ILL N0. 49 DRAFT 4 FOR AN ORDINANCE AMENDING CHAPTER 19,
I TICLES 1, 7, AND 8 OF THE HAWAII COUNTY CODE 1983 (1995
9 DITION), RELATING TO REAL PROPERTY TAX DEFINITIONS; NON-
EDICATED AGRICULTURAL USE ASSESSMENT AND AGRICULTURAL
SE DEDICATION
My nam is Dearl Uchida, Executive Director of the Land Use Reseazch Foundation of Hawaii I
(LURF~ testifying in regard to Bi1149 Draft 4, Relating to Real Property Tax Definitions; Non- I
Dedicat d Agricultural Use Assessment and Agricultural Use Dedication.
The m ~ provisiions of Bill 49 Draft 4 are as follows:
• efines ahd distinguishes Non-Dedicated Agricultural Use Assessment and Commercial ~
i gricultulral Use Dedication, where "commercial agricultural activities" generate a
I inimum of $2,000 annual gross income per farm operation.
3
i rovides for an exception for the value of land classified and used for agriculture, which
alue shall be for agriculhval use without regard for other purposes or uses.
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• rovides for assessment ofnon-dedicated lands in agricultural use on a continuous and
gulaz basis at twice the dedicated agricultural use value.
• rovides that farm dwelling sites not exceeding one-fourth acre shall be assessed at the
ighest commercial agriculhiral use value.
i ~ G
~ Comm. N~r (I O' ~ 7 ~ 1
Ref. To; ~a~~ ' ~
Ref. Date NOV 1 fl 9t1(1A '
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Flonorabh~~ Jamcs 1'. Artkaki, Chairnwn, .uul (\lcmbcr,
County Coquncil
Novembci{ 10, 2004
Page 2
• ovides that all portions of land not committed or used for a specific agricultural use (i.e. ;
v caztt and unusable/waste lands) would be assessed at firll market value based on
c mparable sales.
• ovides that an owner or recorded lessee may petition to dedicate land for specific
c mmercial agricultural use for 10 years or the unexpired term of the lease if a minimu>t1 ~ ;
j o 5 years remain. Land not so dedicated would be assessed at market value. The ~
~ inimum lot size for feed crops, pasture, and fast and slow rotation forestry would be
p ovided 6y administrative rule [current1y10 acres]. ; ~i
• iminate$ the 20-year dedication period with assessment at 50 percent of productivity
N lue, although the 10-year dedication period remains. Lands under existing 20-year
d dication may continue to be assessed at 50 percent of agricultural use value, subject to
t e condi~ons and provisions of commercial agricultural use dedication.
• duces the rollback tax look-back period for breach of agricultural use to 2 years plus
c rent yeaz, scaled up to 5 years for dedicated lands, depending on how long the
t d dication has been in effect [if less than 8 years]. The period of breach reduFed from 12
~ t 6 consecutive months, unless non-use is part of an approved farm plan.
Coincide tly, the City and County of Honolulu is also reviewing the agricultural real property tax
system f r Oahu. They created a Task Force to prepare a "workable" agricultural real property
I tax syste .The members of the Task Force were:
1 Chair Yukio Kitagawa, former Director of the Department of Agriculture; ~
2 Vice Chair Calvin Lum, former State Veterinarian and current rancher; i ~I
3 Dean Okimoto, President Nalo Farms;
4. Lowell Kalapa, Director of the Tax Foundation of Hawaii;
~ James Nakatazu, former Director of the Department of Agriculture;
Kapu Smith, Kamehameha Schools and Manager of the Kawailoa Plantation;
Amy Hirano, Private Consultant;
Allemate: Alec Sou, President Aloun Farms;
~ ~ Alternate: Jeff Peterson, Land-O-Lakes.
The Tas Force's proposed Agricultural Real Property Tax bill was approved by the City Council
of Hongl lu and is now before Mayor Harris for his signature. A copy of the bill (Bill No. 49
(2004) C 1 FD2) is provided with this testimony.
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There ar a lot of similarities between what the Task Force came up with and what the County of
Hawaii i considering under its Bill No. 49. The Task Force bill provided for:
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8-04;1 :34AM; 18085283463 ;18085283463 3/ t0
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Flaiom I James Y.IArakaki, Chairman, and Members
County' until I
Novcml>Ilc 10, 20041 i
J Page 3 ~ '
€ (1) One-year dedication at five percent, five-yeaz dedication at three percent, and ten-
year dedication at one percent of fair market value;
"Circuit Breakers" not to exceed agricriltural production value for five-year
dedicated lands, and not to exceed five times that value for one-year dedicated
f lands;
E Assessment of vacant lands dedicated for ten years at 50 percent of fair market
i value;
O A schedule of declining rollback tax periods depending on the year the dedication
is cancelled; and
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~~O A~~new Section 8-10 providing an exemption for the value of qualifying II
agricultural irrigation and drainage systems and land improvements on dedicated
~ II vacant lands.
h What W leamed~ through this process was that the Counties all start from a basis ofusing "fair I, ' '
market aloe," determined either through fee simple sales or replacement costs, as a~, means of ~
determi 'ng the tax assessed value of property in all land use categories. While appraisal
i method logy recognizes the income approach as a means to determine fair market value, the
' Countie aze hesitant to use the income approach for agricultural assessments. We could find no -
provisio in the County Charter that prohibits the use of the income approach; however, it
appears at the Real Property Tax Office wanted to create a "uniform" assessment methodology
for asse sment purposes. This created a problem because agricultural yield or productivity is
viewed s an "income approach" in determining the land values.
Using c mparable sales data to determine the fair mazket value for agricultural lands on Oahu
resulted in significantly higher values for agricultural lands on Oahu from previous years.
Ironical ,although the changes to the real property tax system were initially intended to close
the "loo hole" that allowed for "gentlemen estates" to pay the agricultural rate, the fee simple,
sales of `gentlemen estates" are being used as comparable sales to determine the tax assessed
values f r agriculhrral lands on Oahu. For example, on lots less than 20 acres in size, the fair '
market aloe ford Waimanalo was $310,000 per acre; for Kahttku it was $250,000 per acre. Based
on lots eing advertised for sale now, Mokuleia could be in the range of $1,000,000 per acre.
i From t~r disc4ssions at the Task Force, the City Administration's position, supported by
CorpOr on Counsel and the Real Property Assessment Division staff, was that the ~
Admire tration must use comparable sales or replacement cost to determine the fair market ~ r
assesse values. The only flexibility or discretion the Administration has is based on having
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I-lonorabl James Y. Arikaki. Chairman, and ~1embcrs ~ ~
County ~ until
Noverob~ 10,2004 ~
i Page 4 III
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lands de icated. When lands are dedicated, the Administration has some flexibility to adjust the
I fair ma bt value Also, and just as significant, is the fact that the Council is solely responsible ; I ;
for sett~i g the "ta rates" for the different categories of land on Oahu for tax purposes.
In coope ation with the City Administration, the Task Force allowed for the fair mar~ret values to
be deteh fined by using fee simple sales. Based on dedication periods, the assessed c~alues were
adjusted y 95 percent, 97 percent, or 99 percent; however, the bill provides fora "cap" on the
assessed values by comparing the adjusted assessed values based on fee simple sales against the
' agricult 1 yields for the property. If the fee simple sales-adjusted assessments exceed the value
of the a cultural yields, the bill provides for automatic lowering of the percentage adjustment
such tha the tax assessed values do not exceed the agricultural yields. (See attached
Spreads eet.)
The Cou ty of Hawaii's Bill No. 49 provides for agricultural real property tax assessments to be ~ '
detenn` d by the agricultural productivity values for dedicated and non-dedicated lands. We ~
unders ' d this to mean that for lands in active agricultural use, whether the lands arG dedicated I
or not, tl a maximum tax liability will be twice the agricultural productivity value for the
propert~ Similar to the City and County of Honolulu, this provides fora "cap" on the assessed
values agricultural lands and provides for some stability for farmers from the fluctuations in
the real state ma ket. We believe that using agricultural productivity values or agriculhtral
yields,pt vides a air basis to assess agricultural lands. I
' With tes ect to vacant and unusable/waste lands, in both the City and County of Honolulu and II
the Co of Hawaii, the fair market value based on comparable sales will be used to determine ~ '
the tax ~ sensed values for vacant and unusable/waste lands. Recognizing the fact that this ~
i "surplus' of agricultural lands maybe attributed to the limited amount of qualified farmers in
Hawaii, to City and Comity of Honolulu allows for property owners who dedicate "Vacant"
I lands for 10 years a 50 percent reduction in their assessed valuations. This would allow owners
I to invest in infrastructure or improvements to the lands and keep the lands available for qualified
farmers i the future. It also attempts to address the situation where owners of agricultural lands
I that arel acant because of market conditions (i.e. limited amount of farmers) are provided with
~ some tax relief as long as the property remains zoned for agriculture.
I; At the re ent Agriculture 2004 Conference, we participated in a panel discussion on the i '
~i agricultu al real property tax issue in Hawaii. One approach that has been used in the past wad tol I
have vac nt lands taxed at their "highest and best use" in order to, orce the lazidowners to put the ' ( II
lauds irit active 2gricultural use. The rationale is based on the assumption that by taxing '
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~ landown rs of vacant lands at less than market value, the Counties would allow the lands to be
i "land ba ked" anal not used for active agriculttue. Our position is that in today's market in
I Hawaii; tere a}•e Ilnot enough qualified farmers to use all of the agricultural lands made available
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8-04; 1~:34AM;1B085283463 ~BOB5283483 # 5/ t0
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lionorabl James Y. Arakaki, C'hainnan, and Members'
County C until I
Novcmbc 10.2004 ~ i i
_ Page 5
since pl ntation agriculture closed across the State. The current large amounts of vacant, viable ,I
agrcul al lands, in our mind, is more a function of the lack of qualified farmers than of '
Lando rs "land banking" lands. Moreover, land banking agricultural lands for future I I
agricul~ al uses ,~hould be encouraged as a matter of policy rather than discouraged through
punittvt; real property tax policies.
Thtoq gut th~ 'seussions on agricultural real property taxes, it is important to understand t),raY ~
real p~ , erty tax s are intended to pay for municipal services. These services inclu a police, fire,
sewer, ~ ater, etc., that are provided by the County. There needs to be a nexus betwAen the taxes
being 1~ d and the services being received for the property being taxed. For example, residential
propert s should, be taxed at a level proportionate to the demands they place on the municipal
services in the case of agricultural lands, it is difficult to find that rational nexus to', justify a
large to base, as agricultural users usually have little or no impact on municipal services.
I In additi n, historically, the real property tax system was used as an "enforcement tool" to make
Lando rs comply with agricultural uses. However, in today's world, the real property tax
systems ould not be used as an enforcement tool for land use. If the land is zoned for
agricul a 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' '
to lie fal ow, particularly after scores of years of intensive plantation cultivation, is riot I
necessa ly a bad thing. The federal government pays fanners across the Midwest a~td elsewhere
unrlxr m lti-year,contracts not to grow crops.
Finallypp hen I a peered before this Council's Finance Committee in August, the question was ii I
j posed rle azding ow best to create a tax system that addresses the problem of gentlemen estates
in the, ~ icultural district. The focus historically has been on attempting to define "farming,"
and if ` antleme~r estates" were not farming, they would be assessed accordingly..q. differer4t ;
i I appro~~ may be, to focus on improved value on the property rather than the agricul}T,_val use of I
the prop rty. Mtich of the concern we have heazd deals with the large and expensive homes ~
being c strutted on the agricultural zoned lands. The County may consider setting some
I threshdl based on the value of the improvements made on the property that is reasonable to ~
allow fo active agricultural users who have a residence on their property. Howeve~, as home
improve ent values exceed this threshold, the homeowner would be taxed at a higher rate.
As a su gestion, we propose that the Council consider the following:
1. rid two new classes of lands (Section 19-53 (e)) under agriculture called utlusable or
aste lands and vacant lands. Allow the Council to set a special rate for waste or
usable and vacant agricultural lands.
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11- 8-04;t :34AM; 18085283463 ;18086283463 # 6/ t0
Hcrnoriil~l .lames Y.Arikaki. Chairman, and Nlcmbcrs
County C until i,
Nuvcm6c 10,2004
1 Pagc 6
r 2. llow for Exemptions for Agricultural hnprovements to encourage investment in
aintaining aztd improving infrastructure and best management practices for iagricultural
1 ids.
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3. gricultural Tax Rate. The Task Force proposed that the tax rate for agriculhiral zoned
1 nds be set annually by the Council at a rate that is equal to or less than ithe rate for
'I roperties classified improved residential"
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4. he tax assessment system needs to allow for multiple uses on a single parcel. The taxes'
s ould reiilect the actual use of lands on the parcel, not generalize or blend the ~ ~ i ~
sessment. In particular, waste or unusable lands should not be taxed as if they are
able. ~
We ap~ iate the opportunity to express our views on this matter, and look forward to further
discuss ns with ~he Council to address the issue of long-term agricultural real propet•ty tax
reforr i f r the G^oiunty of Hawaii.
Atitachm nt
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