The URL can be used to link to this page

Home My WebLink AboutCOM 0915.004 2004-2006 Peter Melone, melonep@hawaiiantel.net 73-1309 Kaiminani Drive, Kailua Kona, Hawaii 96740, Open Letter to Hawaii County Council, May 18, 2006 An ordinance was recently passed by the County Council that limits the annual property assessment increase to three percent for owner occupant homeowners, while allowing other properties to be assessed at full market value. Thus, non owner occupied properties are assessed at full market value regardless of the amount of increase due to the market valuation. The current market valued assessment increases for this year is almost 501/6. While the Ordinance has a desirable goal, it is misguided, seriously flawed and will have undesirable outcomes. The Ordinance is regressive. The more wealthy homeowners have expensive homes and will benefit the most while the less wealthy homeowners have less expensive homes and will benefit the least. There are owner occupied homes with market values greater than a million dollars while many struggle to find and purchase affordable housing. The large dollar amounts of tax breaks for expensive homes will continue to increase each and every year. The 3% limit is a flat rate, but its difference in tax breaks for higher priced home owners will be far greater than those of lower priced home owners. This difference will be greater each and every year. This is not property tax reform. It is welfare for the wealthy. It does not contribute to affordable housing and it will make matters worse in the long run. It is a scam disguised as tax reform. Additional problems are created for the new home owners and for our children and their children's children, etc. If a resident buys a house from a non-owner occupant this year, then that property is assessed at 40% more then the home owner with a similar home with the same market value just because it was purchased before January First 2006. That is significant for this year and it will become worse every year since the problem is compounded each and every year. That is the opposite of affordable housing, especially for the future. Affordable housing is a hoax for those who work hard, but still earn only $10.00 per hour. Even two full time jobs will total just $41,600 before taxes. The County's median income of $52,500 does not leave room for saving or for buying a house. This is a big problem for current renters and future home buyers, especially those families consisting of three or four generations who live together. Welfare for the wealthy may attract votes, but it does nothing for affordable housing. The Ordnance has fallen short; it has missed its mark. Vacant lots also increased by a large amount. Those who bought a vacant lot while planning to build up equality, increase their credit rating and save for future home construction will also experience inequality. Worse yet are the children who's parents put land and lots aside so that housing could be affordable for them in the future. They will own property with land assessed and taxed at a much higher amount than other owner occupants with similar properties having the same market value. Long term rentals will be negatively affected. Whenever there is an assessment decrease in one property, or one class of property, then all of the other properties must make up the difference in order to meet the County Tax Levy (Budget). The increased taxes will cause owners to pass it on to Conran. No. AISA Ref. Tor ft~W« CIAMWI Ref. Dote MAY 18 7006 the tenants with higher rents. Thus there will be higher rents and less affordable rentals units will be available. It appears to be a win-win situation for residents at the expense of wealthy out of town owners. Beware! Not all is as it seems. Vacation rental rates will need to increase to cover the higher taxes. This will not happen on the other islands because Hawaii (County) is the only one to adapt this ordinance. Thus, the Big Island will have higher vacation rental rates while the other islands will have lower rates. Other island occupancy rates will go up, ours will go down. Some of the vacation rental property owners are corporations and individual non-residents; but some are planning to be future residents and some are current resident investors. The tourism industry will suffer a little; the individuals who directly or indirectly depend on the tourist industry for their livelihood will suffer a lot more. According to the West Hawaii today, page one, 5-17-06, the Mayor has indicated that he wants to reduce the tax rate from $9.85 to $8.10. What a sham. The property tax on a property that had a 46 percent assessment increase will pay about 20 percent more in taxes this year with an $8.10 tax rate than last year with the $9.85 tax rate. The Mayor also indicated that he wants tax savings for apartments and unimproved residential classes. That's like chopping a hole in the bottom of your boat and then trying to fix it with patchwork. If the hole is going to be fixed, then why make the hole in the first place? If you can't make it right, at least don't make it worse. There are also legal concerns. The three percent limit is arbitrary. Courts across the land have ruled that assessments at less then full market value are allowable, if and only if there is consistency within each class. Obviously that consistency no longer exists, so the inconsistency is illegal. A special class has been created for non-owner occupied properties; most of which are believed to be out of town property owners. This non-legal class is created solely for the purpose of tax collection. That is discrimination. True, they are not a protected class, so anti discrimination laws might not apply. But there are parts of the Hawaii State Constitution and State Laws as well as the Equal Rights Protection and the Commerce Clause of the U. S. Constitution and case law that will apply. The County is setting itself up for a long and costly suit that it can not win (even if the `yes sir' County Attorneys say it isn't so). While the County has deep pockets, so do the resorts and hotels who are also adversely affected by years assessment. The resorts and hotels try to be good community citizens; they provide employment, pay a lot of taxes, provide improvements and contribute to local charities and non-profit organizations. While they are not all good, they also are not all bad. The suit may take many years to be settled. Can you imagine what will happen when it's settled? The County may be ordered to pay back the illegally collected taxes covering many years, plus interest. If the money has been spent, where will the money come from for repayment? The County Council will get it from the same place they always get the money, our pockets. Why should we pay for the council's stupid mistakes? Sincerely, Peter Melone, MBA/Finance EXHIBITS TABLE IA Conservative figures are used in this analysis. Rather than a 50% increase, assume a 43% increase for other properties. The 43% estimate is based on a small sample since the Assessor's Office was unable or unwilling to supply assessments form last year. Last year's assessments are not available on line; apparently they were deleted to make way for the new assessments. Appling the above indicates there is a 40% difference in the assessment between owner occupant homeowner and non- owner occupant this year; and for a new owner occupant homeowner buying from a non-owner occupant. This difference and this analysis do not include the already existing assessment exemptions which will increase this difference. Assume that the new tax rate will be lowered to $8.10, as per the news release (5-6-05). Assume we are comparing two similar properties adjacent to each other and having the same market value. As an example, listed below are five different hypothetical assessments. Tax brakes for the owner occupant, as compared to the non-owner occupied properties, will amount to the following. Year 1 40% of a $300,000 assessment is $120,000 x$8.10/1000=$ 972 tax break 40% of a $500,000 assessment is $200,000 x $8.10/1000 = $1,520 tax break 40% of a $750,000 assessment is $300,000 x $8.10/1000 = $2,430 tax break 40% of a $1,000,000 assessment is $400,000 x $8.10/1000 = $3,240 tax break 40% of a $1,500,000 assessment is $600,000 x $8.10/1000 = $4,860 tax break TABLE 1B Assume for the second year that the owner occupant homeowner has a 3% increase (3% limit by ordinance) while the other properties increase by a conservative 13%. The difference is 10%. Thus the accumulated difference is now approximately 50%. Also assume no change in the tax rate. Year 2 50% of a $300,000 assessment is $150,000 x $8.10/1000 = $1,215 tax break 50% of a $500,000 assessment is $250,000 x $8.10/1000 = $2,025 tax break 501/o of a $750,000 assessment is $375,000 x $8.10/1000 = $3,830 tax break 50% of a $1,000,000 assessment is $500,000 x $8.10/1000 = $4,050 tax break 501/6 of a $1,500,000 assessment is $750,000 x $8.10/1000 = $6,075 tax break As you can see from the above table, even with conservative market value increases, the regressive tax gets worse each and every year This is not tax reform, it is welfare for the wealthy, it damages the economy, and it reduces the inventory of affordable housing. TABLE 2 Actual 2005 and 2006 Assessments for a Non-Home Owner Condo. 2005 2005 Difference % INCREASE Land $ 42,200 $ 66,300 $ 24,100 57.1% Improvements $187,500 $268,800 $81,300 43.4% Total $229,700 $335,100 $105,400 45.9% TABLE 3 2006 Homeowner and Non-Home Owner Assessments in the Same Complex Rms/BR/Ba Size Total Assessment Home Owner 4/2/2 1,486 s q. ft. $328,900 Yes 4/2/2 1,486 . ft. $608,700 Yes 4/2/2 1,486 s q. ft. $788,700 No 3/1/1 1016 . ft. $401,100 Yes 3/1/1 1016 s q. ft. $543,100 No 4/2/2 1412 sq. ft. $232,200 Yes 4/2/2 1412 sq. ft. $547,700 No