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HomeMy WebLinkAboutCOM 0641.001 2010-2012William P. Kenoi Mayor April 3, 2012 County of Hawaii Finance Department 25 Aupuni Street, Suite 2103. Hilo, Hawaii 96720 (808) 961-8234 • Fax (808) 961 -8248 Colleen Schrandt Legislative Auditor County of Hawai`i 1266 Kamehameha Avenue, Suite A -1 Hilo, Hawai`i 96720 Nancy E. Crawford Director Deanna S. Sako Deputy Director RE: A Technical Assistance Report Evaluating Property Tax Policies and Administrative Practices in Hawai`i County Ms. Schrandt, The IAAO review of the Hawai`i County real property taxation system has brought a useful outside perspective to the system as it currently stands. It also highlights areas of concern and recommendations for correction. Some of these areas have been or are being currently addressed. Some are constrained by fiscal or legal considerations. We welcome this opportunity to increase public understanding regarding our real property tax (RPT) system and to consider options which could simplify and improve the current tax code and its implementation. As identified in the report's summary, the code includes a broad variety of programs, dedications and exemptions providing tax relief to certain segments of the population. All of this deserves careful review. I would like to take this opportunity to comment on the referenced report to provide some input from the Department of Finance. For the sake of brevity, this correspondence is related only to the Executive Summary portion of the report. There are, however, a number of items in the body of the report that we would like to make additional comment on at a later time. The authors report that many of the public's concerns about fairness can be attributed to a shortage of information about property valuations and the many real property tax programs and exemptions. Specific concern is expressed about the RPT website. It is one of the Real Property Tax Division's goals to communicate with the taxpayer using whatever means are available. In the past, the division has met with interest groups across Hawai'i County is an equal opportunity provider and employer. C) Comm. No. 4!• 1 Ref. To: logiielliA 1 G Ref. Date APR 0 '' O12 IAAO Review April 3, 2012 Page 2 the island, however more recently presentations have been limited. The division is open to ideas on how to more effectively communicate with the public. Some questions must be answered individually, as the complexity of the current system makes it difficult to explain without actually addressing a specific parcel and working out all the alternatives. The division is actively working to procure a new website, as the current website is based on 12 year old technology and is therefore limited in its options. The following paragraphs correspond to those bulleted in the Executive Summary of the report: • No regular "cyclic" reappraisal, including physical inspection, of all real property. This is a desirable goal for the RPT Division. With over 140,000 taxable parcels spread over 4,028 square miles, the recommended 6 year cycle of physical inspection will require each of our 15 appraisers to review 1,554 taxable parcels annually in addition to other required inspections. A reasonable estimate of what it would cost for an outside firm to resurvey based on what Kauai County paid per permit a few years ago would be $75 /parcel over a 2 -3 year period or over $10 million. • Lack of use of regional building cost modifiers. Cost data is gathered from contractors and suppliers island -wide and is combined to a single set of cost data. Currently the difference in cost between areas has been less than 5 %. In the past during a more competitive building environment, the difference was higher. Using the combined cost data potentially resulted in undervaluing the cost of West Hawai`i construction and a resulting loss of revenue. The department will re- evaluate this practice. • Lack of ability to use the income approach to value. The ability to use the income approach would be very welcome and the CAMA system is capable of handling it, assuming adequate funds and resources are available to collect data and set it up. • Limited review of agricultural and other exemptions. Income based qualification re- quirements. Income based qualifications are already in place for the dedicated agricultural program, it is the non - dedicated program that does not have this criteria. The division currently checks the initial application criteria and follows up on leads for violations. • Limited grounds for appeals on equity grounds. We disagree with the authors that there are limited grounds for appeals based on equity. The lack of uniformity is but one of the grounds of appeal, and valuation issues are heard as grounds for appeal. We do not interpret the County Code as limiting a taxpayer's right to appeal as shown in the report example. The Real Property Tax Board of Review errs on the side of granting jurisdiction rather than denying it. • Overly complex exemption system making it difficult to understand who benefits and how much they benefit. Difficult to ascertain whether benefits received from these programs apply as intended by the Council. We agree that the County currently has IAA() Review April 3, 2012 Page 3 a complex exemption system that can be confusing to taxpayers and requires a high level of computer and appraisal expertise to implement. Additional analysis is desirable. • Lack of ongoing, regular analysis of effects of exemptions. Ongoing and regular analysis of exemption effects is very desirable. The RPT Division performs analysis upon request and has provided a great deal of information on various programs and exemptions in the past. The department will work to develop a more routine analysis program. • Complex multi - tiered tax rates. No evidence of any analysis of the effects of these multiple tax rates. Tax rate determinations are not a responsibility of the RPT Division. The Finance Department does study various rate options each year during budget development. The County Council is also provided with the certified values each year for use in determining the tax rates for the upcoming fiscal year. In some years the administration has proposed certain rates, but that is not always the case. • Lack of formal complaint investigation and reporting system. The RPT formal complaint system is part of the function of the Real Property Tax Board of Review. Annually they hold a special hearing for complaints, which is publically noticed. All complaints received or heard by the board are reported to the Mayor and the County Council as part of their annual report, and the complaint document is included with the report. Other, less formal complaints may range from those that are resolved simply through a call to the office to complaints that require investigation and a more formal response. Those are not consistently tracked and the department will look at implementing a more formal tracking /filing system. The RPT also has customer service reporting forms in both offices. Completed forms are submitted to the Director of Finance. All feedback received is shared with the division and with specific employees if applicable. Though complaints are rare, they are investigated and acted upon. • Limited documentation about sales validation and ratio studies. The existing ratio and sales verification system has been improved over the past decade starting with the legacy system as a basis: The staffs proficiency, recognized by the authors, is the result of the workshops being conducted by the division in this area. This is especially encouraging since most of the appraisal staff has 2 or less years of experience. Queries on the database are used to detect sale chasing. It is expected that a fuller use of the studies can be the easiest item to implement as long as we retain the staff to do it. • Limited opportunities for consistent ongoing communication between staff Such contacts and communications can promote cohesiveness and encourage effective problem solving, as well as common understanding and consistent application of policies and procedures. We agree with the authors that communication and personal contact create a more cohesive work group and lead to better problem solving and understanding. The RPT Division holds monthly supervisor meetings which include IAAO Review April 3, 2012 Page 4 supervisors from both offices, as well as division administrators and Finance Director or Deputy. Normally the minutes of these meetings are shared with the whole staff by email. All of the supervisors, including the administrator, have an open door policy and as far as can be determined the staff has no qualms about using that access. Use of workshops is increasing. Currently, because of the newness of the staff, the goal is to hold two half day sessions a month with the appraisers and hope to expand that to the other sections. ■ Limited training opportunities for staff. Currently, there are no requirements for ongoing, continuing appraisal related education for staff. Division emphasis has been on in- service training by senior staff. Over fourteen internal workshops have been offered in the last two years. Last year the division brought in a market modeling expert to train a group of senior staff in the process and will be bringing him back this May for a follow up session. Additionally, they are sending 8 (out of 15) new appraisers to Honolulu for IAAO Course 101. Arrangements are being made for next fiscal year to bring an additional IAAO course to Hilo in December. • Vague property class definitions and an over - reliance on zoned use rather than actual use in determining property class. This is a legacy from the state. The values for vacant land are based on comparable sales with the same zoning; improved sales are compared to others of like use as improved. Less dependence on the zoning and more on actual highest and best use analysis would be welcome. ■ Limited use of digital maps and photographic images. We were informed that the County has a geographic information system (GIS) and has acquired oblique imagery of buildings. Yet we were informed that the Division does not routinely use these technologies and has no plan to implement them. This is a misunderstanding. All the appraisal staff have access to both the GIS and photographic databases and use them extensively (training is provided). The misunderstanding comes from a reply by the administrator that these databases are not integrated with the IAS system, which they could be but are not yet. • Lack of analysis of workloads, productivity, and standards against which to evaluate performance. Workloads are analyzed and redistributed on a 2 -3 year basis. They do not necessarily follow zone boundaries. The workload is monitored on an ongoing basis, as is productivity using queries on the database, and assistance is assigned to appraisers when an imbalance is found or reported. However, this process has been disrupted in the last two years by staff turnover. Assistance could not be allocated as the entire staff was dealing with an overload. This situation is improving as positions are filled and trained. Performance standards are checked by reviewing completed assessments and this will continue. The ability to run more specific and frequent sales ratios will also assist greatly in maintaining standards. The IAAO's Assessment Practices: Self - Evaluation Guide was obtained last May and is being used to guide our future course as resources allow. IAA() Review April 3, 2012 Page 5 We appreciate the efforts of the authors of the report in reviewing our County's tax policies and hope to have the opportunity to discuss the policies with them. Their review of operations has identified several areas that we would like to work on, or where we are already involved in implementing improvements. The authors maintain that all of their recommended changes, other than new software, can be implemented with current staffing and budget. It is our position that their analysis was made without all necessary information, or a complete understanding of operational challenges. The authors' comparison to `benchmark' jurisdictions notes that most, if not all, of those jurisdictions listed do not include tax collections. They did remove the employees from the collections section from the calculation but did not remove the costs from the budget number used. The RPT budget includes $945,505 that is directly related to the collections section. Once this is removed Hawai'i County falls to the bottom of the acceptable range. An attached chart provides additional information regarding budget and staffing, and compares the County to the other counties in Hawai`i. The most comparable is Maui County. The amounts used are from the statewide report which is compiled annually by each of the counties and available on the Honolulu website. The number used is for levied real property tax amounts for FY 2009 -10 and does not include penalty, interest or amounts collected by tax sale. The staffing counts exclude any collections staff, where applicable, and were provided by the administrators of the other three counties. While division budget amounts for the other outer islands were not immediately available the same civil service costs apply across the state. In 2004 and 2005 the County Council passed several ordinances amending the county code related to certain exemptions and agricultural programs. This was the culmination of over two years and hundreds of hours of work, involving a wide range of stakeholders, including legislative branch representatives, real property tax appraisers, various finance experts, corporation counsel, input from members of the Real Property Tax Board of Review and a variety of members from the agricultural community. Review of tax provisions and policies is important and warrants a thorough and thoughtful process to achieve the desired results. Thank you for this opportunity to provide input. Sincerely, Nancy Crawford Finance Director Attachments cc: William P. Kenoi, Mayor Hawai`i County Council State of Hawai'i Statistics Staffing breakdown RPT Staff Clerical Mapping Abstractors Agency State Year Total Property/ Business Taxes Levied FY9 -10 Total Real Property Parcels Personal Property Accounts Total Budget 2009 -10 Total Staff Budget as a Percent of Total Property Taxes Budget / Cost per Parcel City and County of Honolulu HI 2010 836,448,000 277,581 0 6,259,649 115 0.748% 22.55 Hawaii County HI 2010 214,198,000 139,883 0 2,332,077 37 1.089% 16.67 Maui County HI 2010 232,597,000 70365 0 N/A 37 N/A N/A Kauai County HI 2010 100,786,000 32,993 0 N/A 17 N/A N/A Staffing breakdown RPT Staff Clerical Mapping Abstractors Appraisal Tax Admin PTO Total Tax - Tax Honolulu 22 15* 9 • 54 0 4 11 115 0 115 Hawaii 12 0 5 15 11 3 2 48 11 37 Maui 9 1' 7 13 0 3 4 37 0 37 Kauai 5 1` 1 8 6 2 0 23 6 17 apprng staff; 1 each for Maui and Kauai; Both Maui and Kauai use CCH for drafting and mapping, FY 2010 -11 taxable Parcel Count for RPT Staff Clerical Mapping Abstractors Appraisal Tax Admin PTO Total Tax - Tax Honolulu 12,617 18,505 30,842 5,140 N/A 69,395 25,235 2,414 N/A 2,414 Hawaii 11,657 N/A 27,977 9,326 12,717 46,628 69,942 2,914 12,717 3,781 Maui 7,818 70,365 10,052 5,413 N/A 23,455 17,591 1,902 N/A 1,902 Kauai 6,599 32,993 32,993 _ 4,124 5,499 16,497 N/A 1,434 5,499 1,941 FY2010 -11 exemptions per clerical /araisa pp RPT Staff Exemptions Clerical Appraisal C +A Honolulu 162,783 7,399 3,015 2,142 Hawaii 50,605 4,217 3,374 1,874 Maui 32,889 3,654 2,530 1,495 Kauai 17,598 3,520 2,200 1,354 Parcels per Staff 2,414 3,781 1,902 1,941 Parcels per Staff 2,414 3,781 1,902 1,941