HomeMy WebLinkAboutCOM 0641.007 2010-2012 . Pete Hoffmann -i;:oF Phone No. Hilo: (808)961-8027
Council Member �c,°��� +.,`.. Phone No. Waimea: (808) 887-2043
,'I'''H' Fax No.: (808)887-2072
District 9-North and South Kohala �" � �-
`� � :. E-Mail: phoffmann@co.hawaii.hi.us
••�E OF N►
HAWAII COUNTY COUNCIL
County of Hawai`i
Hawaii County Building Holomua Center
25 Aupuni Street 64-1067 Mamalahoa Highway,Suite C-5
Hilo, Hawaii 96720 Waimea, Hawai`i 96.74 T
TO: Dominic Yagong, Chair
and Members of the Hawai`i County Council
FROM: Pete Hoffmann, Council Member
Date: November 5, 2012 .1 .
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Subject: Final Report of the Real Property Taxes Ad Hoc Committee
Pursuant to Hawai`i Revised Statutes §92 -2.5 "Permitted interactions of members" and Council
Rule No. 7 Ad Hoc Committees, please find attached the final report of the Real Property Taxes
Ad Hoc Committee formed with Communication 641.4 on July 31, 2012.
Per Council Rule No. 7(5), deliberation and decision making is prohibited until the next
Committee meeting held subsequent to the meeting at which the findings and recommendations
are presented.
Please place this matter on the November 20, 2012, Finance Committee agenda.
Thank you.
PH/dh
att.
Ccmm. No. (041 . 7
Ref. To: 1'L
Ref. Date NOV 0 7 2012
Serving the Interests of the People of Our Island
Hawai`i County Is An Equal Opportunity Provider And Employer
7 Nov 2012
FINAL REPORT TAX POLICY AD-HOC COMMITTEE
This constitutes the final report of the Tax Policy Ad-Hoc Committee established by
the County Council on 31 July 2012 pursuant to Communication 641.4.
The Committee consisted of Council Members Brittany Smart and Pete Hoffmann.
They were assisted by Ms. Jan Mahuna, Mr. David Turner, Mr Robert Price —
participating as members of the public; Ms. Nancy Crawford - Director of Finance,
and Mr. Stan Sitko — Real Property Tax Division Administrator. The Committee
met on seven occasions: 13 and 27 August, 11 and 25 September, 10 and 23 October
and 7 November 2012.
The Committee's purpose was to review the International Association of Assessing
Officers (IAAO) Technical Assistance Report, dated 5 March 2012 (Communication
641), and establish priorities for action among the forty recommendations in the
report. Further the Committee's activities were also directed towards the possible
elimination/reduction of public criticisms of the County's tax system.
In organizing its work, the Committee developed a prioritization effort that
considered those recommendations relatively easy to implement, those that require
little or no resources to accomplish or are being currently addressed, those that can
be resolved in the short-term (six months once initiated), and those for which the
Committee/County possesses the legal capacity to solve. Comments regarding the
recommendations contained in this report follow and are grouped among general
categories that consider first short or long term efforts and then whether the
recommendations are high, medium or low priority. The prioritization is a
consensus judgment of the committee.
The report consists of brief comments derived for each of the forty
recommendations in the IAAO report. Also attached is a listing of the forty
recommendations. The committee strongly recommends that further consideration
be given to a full study of the current cap and exemption system and the non-
dedicated and dedicated categories for AG land in light of the potential tax revenues
that could be generated if these items were altered.
SUBMITTED BY COUNCIL-MEMBERS:
BRITTANY SMART AND PETE HOFFMANN
SHORT TERM - HIGH PRIORITY:
- #5 Agree that while planning exercise is a long-term objective, Finance will start
process to enhance training by end of year as well as continue ongoing training courses.
New budget will address resources required to expand training.
- #7 Finance will estimate staffing requirements by 30 Nov and will include them
in budget draft for FY 2013-2014.
- #18 Finance agrees that formalizing appraisal reviews should be done and in the
short term. Appraisal supervisor will be responsible.
- #22 Initiative through State Legislature to amend CTC. Legislation can be part of
HSAC package. Noted that much of the CTC info is incorrect or missing.
- #24 and #25 Division is not opposed to six year verification but thinks ten years
is adequate. Additional personnel will be needed to implement this effort. Committee
recognizes this is critical to overall perception of fairness by general public.
- #26 Although no other County uses the income approach, this would result in a
more accurate evaluation for some properties. It would take some time to build data
base, but it should begin now.
- #27 AG specialist needed to properly implement, but must be done. Change
vacant unfunded position to funded and initiate hiring action now. A concern remains
that two types of AG classifications exist; one with clear standards, the other without.
- #30 Although finance is currently reviewing some exempt properties, legislation
should be prepared to formalize this effort and insure it is carried out.
- #31 A draft resolution has been prepared that establishes a "stakeholder
committee" to follow up on several issues noted by IAAO, specifically on ag use policies.
More frequent inspections are necessary, but will demand personnel additions.
- #32 Council to prepare a resolution and draft bill as part of the HSAC package to
generate support in legislature to obtain residency homeowner info.
- #33 Finance is analyzing effects of 3% cap and has submitted a brief report to the
ad-hoc committee reference FY 2011-2012 figures. The impact the 3% cap has on
County revenues must be better explained in public outreach. Agree with IAAO that
caps destroy property tax equity to some degree but no alternatives were evaluated by the
committee.
- #34 The "Stakeholder Committee" will examine whether the creation of sunset
provisions for exemptions are beneficial.
- #35 Include in "stakeholder committee" provisions of resolution in #31 above.
- #37 Council is preparing a bill to revise 19-93 to reduce the 20% value difference
on residential property for appeal purposes. In addition, Corporation Counsel will clarify
whether any limitation is proper. In the same legislation, the Council will amend section
of the code to insure that only one value is appealed for both land and buildings.
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SHORT TERM - MEDIUM PRIORITY
- #13 Finance notes a system for review of invalid sales exists, but is not
formalized/written down. This can be done quickly. A lack of independent oversight adds
to difficulties, particularly in regard commercial property appraisals.
- #16 This can and will be done when a statistical analyst is on board.
SHORT TERM - LOW PRIORITY
- #11 Some upgrades are already being developed, but investment is simply too
expensive. A new GIS analyst was recently hired and has begun work on a number of
issues related to these recommendations. Work on the GIS link begins by year end.
- #15 County agrees that ratio study analysis should be extended by market and
appraisal areas and this will be implemented shortly. The need for an additional analyst
is noted.
- #17 Ratio study procedure manual is a good idea but not critical. Training classes
should resolve some of the shortfalls.
LONG TERM - HIGH PRIORITY
- #3 Agree that code changes and review are required. Corp Counsel should be
called in to review Section 4.2 of IAAO report to begin process.
- #4 Agree that code changes are needed but Finance will need a valuation analyst
to properly conduct studies and other personnel to expand inspection of properties.
Resources can be added in next budget.
- #6 Justifying budget expenditures is critical but can't be done on a short-term
basis. IAAO report would call for a change in the manner in which County budget is
constructed. However, there must be some consideration for allocating resources to non-
residential properties.
- #12 County uses some IAAO standards but not all. Agree to integrate new
standards. Two new analysts must be hired, two positions exist, one is funded and
recruitment is on-going, the other position is unfunded. County will include this in the
FY 13-14 budget submission.
- #14 County says this issue will be resolved when additional analysts are on
board. Tax division trims outliers but not to extent recommended by IAAO. This will be
addressed over time.
- #19 County agrees that an independent oversight system should be formed. This
would contribute to the reduction of public perceptions of inequality. Unclear where this
oversight should reside — state or county? Committee recommends that an IAAO review
of this effort be made after two years.
- #38 Finance is not averse to changes that would alter the short time frame for
filing appeals and the certification of property values. A one-year period is suggested. If
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implemented, the first appeal could be an informal one in accordance with the IAAO
recommendation. Note that the impacts of this change must be reviewed.
LONG TERM - MEDIUM PRIORITY
- #36 Agree that "stakeholder committee" be formed and that sub-committees
might be the best approach to consider various topics.
- #40 All agree that more public outreach is required and is a responsibility of the
department. It is recognized that some resources may be required to insure this program
is effectively implemented.
LONG TERM— LOW PRIORITY
- #28 Agree that modifiers are needed to bring realistic assessment procedures
and cost factors island-wide. This would be helpful for public perception of process.
RECOMMENDATIONS COMPLETED OR IN PROGRESS
- #1 Agree that some effort is being done to address this issue but more data
should be collected. Better public outreach is called for. Finance will provide input in the
next budget cycle.
- #2 Agree that current exemption system is difficult to understand. `Stakeholder
committee' can review this item.
- #8 Agree that appraisers are currently doing some of their work by property type,
but more can/should be done. It is recognized that some appraisers should do their work
on a geographical basis.
- #9 Effort is underway to develop performance standards and should be completed
by 30 November. Standards are not quantified in all cases. This demands union
discussion before implementation.
- #10 Education for appraisers is currently being done at a minimum on a quarterly
basis. Further resources are required in the next budget to accomplish fully.
- #20 Division currently does holdout samples. Effort will be updated when the
analyst is on board.
- # 23 Finance notes this recommendation would increase budget costs for postage
unnecessarily. Letters are sent to reapply for dedications and exemptions. Using MLS
data has decreased staff work significantly.
RECOMMENDATIONS THAT REQUIRE NO ACTION:
- #21 Finance indicates that security access is restricted and passwords are updated
every 90 days. Industry standards are met - history screen exists and audit trail exists.
- #29 Finance says this is a misunderstanding with consultants. No action required.
- #39 Finance does watch the increase in delinquencies on a continuous basis.
Delinquent amounts appear to be steady one year to the next.
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IAAO Report Recommendations
Recommendation 1: The Council should require the Finance Department to conduct
annual analysis of the tax shifting and allocation effects of multiple tax rates in
comparison to a single rate system to determine if the intent of the policies underlying
the multiple rate system is being realized.
Recommendation 2: The Council should implement Code changes to require the
Finance Department to analyze tax loss, shifting, and other effects of property tax
exemptions, including the cap on assessed value increases for certain residential
property. Such analysis should be conducted on an annual basis with the results,
including a review of the intent of each exemption or limitation policy, reported to the
Council and made available to the public.
Recommendation 3: The Finance Department and Corporation Counsel should review
Chapter 19 of the Code for the reasons given in report Section 4. 2 ( i.e. improve
clarity and eliminate unused provisions) and to implement our other recommendations
that would need or benefit from a legal authorization.
Recommendation 4: The Council should consider Code amendments implementing
requirements for annual ratio studies, periodic review of properties granted full or
partial exemptions, physical inspection of property on a regular basis, and acceptability
of the income approach to value. Training and certification requirements should also be
addressed.
Recommendation 5: The Department of Finance and the Real Property Tax Division
should consider a strategic planning exercise as a way of formally addressing
opportunities for improvement, setting priorities for their achievement, and committing
the necessary resources. In addition, management should look for ways to increase staff
involvement with planning.
Recommendation 6: The Real Property Tax Division should consider justifying its
funding requests on a program or activity basis to better enable expenditures to be
related to results.
Recommendation 7: The Real Property Tax Division should prepare an estimate of
the number and allocation of the staff it needs.
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Recommendation 8: The Real Property Tax Division should deploy its appraisers
on a task, property type, and a market area basis, rather than the current geographically
based zone basis.
Recommendation 9: The Real Property Tax Division should state performance
expectations clearly and institute the necessary internal controls to provide assurance
that performance is in line with standards.
Recommendation 10: The Real Property Tax Division should assess the interest and
needs of appraisers in further education in mass appraisal and property tax administration
and develop a program to offer courses designed to meet those needs. Consider
establishing continuing education programs for appraisers.
Recommendation 11: The Council should provide the Real Property Tax Division
with funds to upgrade the current version of the ias system. That the Division develop
a plan to fully incorporate spatial analyses and other GIS capabilities in its operations
and that oblique imagery be reviewed as part of the Division' s property inspection
program.
Recommendation 12: The Council should require the Finance Department to conduct
a review of IAAO ratio study performance standards and adopt standards for appraisal
level and both horizontal and vertical uniformity. Consider dedicating appraisal staff
resources to correcting deficiencies when they are discovered.
Recommendation 13: The Real Property Tax Division should consider and implement
a more definitive system for reviewing sales deemed invalid. This is needed to ensure
consistent decision- making regarding determination of sales validity.
Recommendation 14: Ratio studies conducted by the Real Property Tax Division
should include procedures for identifying and, possibly, trimming outlier ratios. Such
procedures may be modeled after those found in the IAAO Standard on Ratio Studies.
Recommendation 15: Except when too few sales are available, the Real Property
Tax Division should do ratio study analysis by market area and by each appraisal
area or appraiser. Results should be discussed with all appraisal staff and plans of
action developed to correct deficiencies. Ratio studies should also be considered and
attempted for commercial properties.
Recommendation 16: The Division should add missing statistical and graphical
elements, such as histograms, lists of trimmed sales, and reliability statistics to enable
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proper interpretation of results.
Recommendation 17: The Real Property Tax Division should develop a ratio study
procedure and explanatory manual separately from the Appraisal Manual. Staff
should receive training in conducting and understanding ratio studies.
Recommendation 18: The Real Property Tax Division should consider formalizing
supervisory review of some or all appraisals done by staff They should incorporate
a broader role for valuation analysts, including running queries on a regular basis
to look for sales chasing and building permit chasing. Findings should be reported
as part of an annual ratio study report.
Recommendation 19: The Council should consider ways by which a body independent
from the Real Property Tax Division could be formed to review the quality of
appraisals and the techniques, such as ratio studies, currently employed by the Division
to report on this quality. Code should be changed to reflect this new process.
Recommendation 20: The Real Property Tax Division should implement holdout
samples or use subsequent sales not part of the appraisal model to provide an independent
test of the quality of the values generated by the CAMA system. To the extent such
queries are not routine under the current system, the Division, should develop routine
queries to compare market value changes on selling and non- selling parcels by market
area, neighborhood and other relevant strata. The Division should develop a systematic
approach to reviewing unusual value or ratio issues incorporating both office review and
field review procedures.
Recommendation 21: The Division should review current data entry edits and security
procedures to ensure that they meet industry standards as outlined in IAAO references
and elsewhere.
Recommendation 22: The Council should request all counties in the State of Hawaii
to approach the State Bureau of Conveyances about amending the Conveyance Tax
Certificate or attaching a supplemental declaration that attempts to elicit the information
needed to evaluate the usability of each conveyance.
Recommendation 23: Until the Conveyance Tax Certificate (CTC) is improved, as
recommended in Section 6. 1. 2 of this report, the Division should routinely send sale
confirmation letters to buyers and sellers, especially when there are few transfers in
the area or of the type of property in question and when the property that was sold
received an exemption or other form of preferential assessment.
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Recommendation 24: The Division should develop and implement a plan for verifying
the accuracy of each property record at least once every six years.
Recommendation 25: The Council should require a regular property inspection cycle.
Every property should be inspected at least once every six years.
Recommendation 26: The Council should consider Code changes to permit the use
of the income approach, especially for multi-family and commercial properties, in
addition to the other recognized approaches to value, when appropriate on the basis
of data availability and type of property under consideration. The Division should
review data gathering methods to try to maximize available income and expense
information.
Recommendation 27: The County should implement the updated agricultural land
values developed by the Division. if the effects of implementing the proposed values
do not comport with the County' s agricultural land preservation policy, the values
should be changed appropriately or changes in Section 19- 53, County Code, should
be considered. if so, the Division should provide such recommendations to the Council.
Recommendation 28: The Division should consider developing different building
cost location modifiers to reflect differences in material and labor costs between the
east and west sides of the island.
Recommendation 29: Before moving to combined land and building valuation, the
County should review this decision with a broad array of stakeholders to eliminate
unanticipated problems.
Recommendation 30: The Council should consider Code changes to institute a review
cycle or requiring re-application for exempt property.
Recommendation 31: The Council should require the Division to conduct more frequent
inspections and inclusion of proof of eligibility and income information as part of the
application process for agricultural use value assessment. A stakeholder committee
should be established to review the intent of underlying policies and allegations of abuse.
This committee should also look into the possibility of consolidating agricultural use
eligibility options, weighing the benefits of a simpler, more transparent system against
specific tax shifts.
Recommendation 32: The Council should consider working with state legislators to
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obtain residency information from income tax returns and death certificates to prevent
abuse of homeowner' s exemptions. In addition, the Division should institute procedures
to verify residency using drivers' licenses and voter registration records.
Recommendation 33: The Council should require the Finance Department to analyze
the effects of the 3% assessed value increase cap to determine if the underlying policies
are being fulfilled. In addition, although no new claims can be made for the non-
speculative residential use dedication, the Council should review the underlying policies
for retaining this value freeze for properties remaining under the dedication. Both
programs should be reviewed with respect to the different tax treatment that results for
similarly situated properties with and without the dedication or the 3% cap.
Recommendation 34: The Council may wish to consider incorporating sunset provisions
into exemptions to force periodic review of underlying policies.
Recommendation 35: The Council should consider establishing a stakeholder committee
to identify problems related to tax relief and review options.
Recommendation 36: The Council should consider establishing a stakeholder
committee, including taxpayers, to determine specific ways to make the relationship
between taxes and value changes more transparent.
Recommendation 37: The Council should revise Section 19- 93 of the Code.
Specifically, it should reduce the 20 percent value-difference threshold to no more than
10 percent, at least for residential property. The current non-uniformity ground should
be revised to permit non- uniformity appeals based on valuation practices generally.
The filing fee requirement should be eliminated, at least on principal residences.
Appellants should not be allowed to appeal only the land value or the improvement
value without contending that the sum of the land and building values exceeds the
over-valuation threshold that is adopted.
Recommendation 38: The Council should make the first stage in the appeal process
an informal appeal to the Division.
Recommendation 39: The Council should require the Finance Department to undertake
an analysis of the cause of the increase in the gap between delinquencies and delinquent
tax collections to determine whether there is weakness in billing and collection
procedures.
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Recommendation 40: The Council should require the Finance Department to undertake
a review of staff public relations related training and may need to update this training. A
public relations manual should be developed. Outreach should be expanded to be certain
that issues driving public complaints are being addressed. Complaint handling procedures
should be formalized. Outreach should include an expansion of publicly available general
information, including documents describing valuation methods and results of tests of the
quality of appraised values, such as ratio studies. A citizens' committee should be
organized to conduct periodic review of brochures and forms to make sure they are easily
understandable.
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