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HomeMy WebLinkAboutCOM 0154.001 2006-2008 Harry Kim ~y:' ~ Dixie Kae[su Mayor Managing Director • Barbara Kossow Deputy Managing Director County of Hawaii 25 Aupuni S[ree[, Room 215 • Hilo, Hawaii 96720 (808)961-8211 • Pax (808)961-6553 c-: 'Vi Q T February 20, 2007 = ' c N Pete Hoffmann, Chairman and Members of the Hawaii County Council ~ Hawaii County Council 25 Aupuni Street _ x Hilo, HI 96720 Re: Resolution to Reduce the Homeowner Real Property Tax Rate I have reviewed Resolution No. 64 07 requesting the Mayor to consider reducing the Fiscal Year 2008 homeowner real property tax rate, and would like to take this opportunity to comment. BACKGROUND Tax increases, FY 2002-03. The downturn of the economy subsequent to the events of 9-11 required this administration to make a very difficult decision as we prepared our budget for Fiscal Year (FY) 2002-03. With an anticipated shortfall of $8.1 million, the County needed to reduce services and/or increase property taxes in order to submit a balanced budget to the Council in March 2002. Our amended budget in May proposed a property tax increase of $7.6 million. Although every class of property was affected by this increase, the tax rate for the homeowners class grew most. Prior to the change, the tax rate for homeowners, the largest users of County services, was about half of what properties in other classes were taxed. The homeowners tax rate was $4.45/$1,000 of valuation, while the rates for properties in other classes were between $8.50 and $10.00/$1,000 of valuation. We believe the new tax rate for homeowners ($5.55/$1,000) was fair and still maintained a significant benefit. Homeowners benefits, FY 2005-06. As the economy improved, assessed values grew and the County was able to gradually resume its maintenance and repair responsibilities, expand services, and provide property tax relief for homeowners. In November 2004, three ordinances were adopted by the Council to protect homeowners and farmers from the tax effects of skyrocketing property values: • Ordinance 04 123 created an additional exemption of 20%, up to $80,000, for qualifying homeowners. Sent to Council 10/23/03, adopted 11/10/04. ,,II Comm. hto. ~ S7. Ref. To:Prosracleod _ R.el'. ,p ah0~7 Honorable Pete Hoffmann, Chairman Page 2 February 20, 2007 • Ordinance 04 121 limited assessed value increases of properties in the homeowners class to not more than 3% per year. Sent to Council 10/23/03, adopted 11/10/04. • Ordinance 04 121 reduced the dedication period of properties in the non-speculative residential class to 5 years to promote greater pazticipation. The non-speculative residential dedication program allows homeowners to dedicate their properties to non- speculative use and receive a "freeze" on assessed values. Sent to Council 10/23/03, adopted 11/10/04. • Ordinance 04 143 fixed the value of the farm dwelling site to not more than the highest commercial agriculture use value (currently $2,000). Since the farm dwelling site shall not exceed one-fourth acre, the farm dwelling site is assessed at not more than $500. Sent to Council 1/23/03, adopted 11/24/04. Because of the measures that were taken, the severe inflation in values over the last couple of years did not negatively impact homeowners on the Big Island. In FY 2005-06, homeowners actually received reductions in their tax bills at a time when property values were showing double-digit increases. Because of the growth limit on property values, property taxes for homeowners should increase no more than 3% per year. Tax decreases, FY 2006-07. As property values on the Big Island continued to grow, benefits were proposed for properties in other classes that had no limits on assessed values. It was determined that the greatest reductions should go to properties in classes that contained residential rental properties to discourage landlords from raising rents when their tax bills go up. As a result, properties in the apartment, residential, and agricultural classes received the greatest reductions. Properties in the homeowners class were already protected, and thus, received no reductions. CONCLUSION Due to the financial hardship endured by the County during the first three years of Mayor Kim's term, this administration realizes and fully appreciates the importance of properly managing our resources and prepazing for economic downturns when the economy is robust, such as it is today. For the FY 2007-08 budget proposal, we will strive to keep property taxes and the cost of housing affordable for our residents, as we also seek to put money aside for unforeseen disasters or"rainy days". While we appreciate your resolution requesting the Mayor to reduce the FY 2007-08 homeowner property tax rate, the County Council has the ultimate responsibility of setting property tax rates. We firmly believe that the addition of a 20% exemption; the 3% annual limit on valuation for properties in the homeowners class; the opportunity for homeowners to enroll in the non- speculative residential dedication program and obtain a freeze on assessed values; and the flat $500 assessment on the farm dwelling site more than make up for the rate increase of Honorable Pete Hoffmann, Chairman Page 3 February 20, 2007 FY 2002-03 -and the effects of valuation increases thereafter. For this reason, we do not anticipate singling out the homeowners class for any tax rate reduction in FY 2007-08. We would, instead, like to offer tax incentives that will ultimately create more affordable homes for those who must rent. In the next few weeks, the creation an "affordable rental" class for properties rented at or below an "affordable rental" threshold will be proposed. Once established, the impact of any incentives can be evaluated and thereafter, the tax rates for all classes of property can be reconsidered. We look forward to working with you and other members of the County Council as we now try to address the housing needs of Big Island renters. I firmly believe we are making great strides in achieving our goal of improving our tax laws as we consider fairness, ability to pay, simplicity, and sharing appropriately in the cost of government operations and services. Thank you for the opportunity to present our comments. Thank you for the opportunity to present our comments. Aloha, William Takaba Finance Director cc: Harry Kim, Mayor