Loading...
HomeMy WebLinkAboutREP FC 465 10/22/1991 REPORT OF THE COMMITTEE ON FINANCE Date: October 22, 1991 Re: 'Comm. 2970 Place: Councilroom Time: 10 : 00 a .m. Chairman and Members Hawaii County Council Hilo, Hawaii 96720 Your Committee on Finance, to which was referred Bill 504 , reports as follows : The purpose of Bill 504 is to amend Chapter 19 of the Hawaii County Code relating to Real Property Taxation to enable those owners of real property, who qualify for home exemption, to dedicate their property to a Non-Speculative Residential Use dedication and have their property values for assessment purposes frozen for a period of ten successive years . The intent is to protect the dedicated property from the effects of escalating values due to the market activities of the surrounding properties . SECTION 2 . Article 7, Chapter 19 , Section 19-58 . 1 (b) is amended as follows : (b) Any owner of property who qualifies under section 19-71 and 19-72 for home exemption and uses the property exclusively for residential use may dedicate said property in its entirety to Non-Speculative Residential Use and have that parcel assessed in the manner provided by section 19-58 . 2, except that husband and wife, although living separate and apart, shall be entitled to dedicate only one parcel to the Non-Speculative Residential Use. Section 19-58 . 1(d) is amended as follows : (d) Each petition for dedication shall be for ten-year periods . The owner shall reapply for renewal of the dedication by filing an application with the director on or before September 1 of the tenth year . The renewal petition shall, in all respects , be processed similar to an original petition. Upon approval by the director of succeeding dedications, the assessed valuation shall continue to be assessed in accordance with the provisions of the Non-Speculative Residential Use dedication. FC REPORT NO . 465 ADOPTED : NOV 6 1991 FC- 465 Page 2 October 22, 1991 Section 19-58 . 1(e) is deleted in its entirety and replaced with the following paragraph: (e) In the case of a renewal which immediately follows an expiring term, the assessment base for the new dedication term shall be fifty percent (50%) of the amount of increase between the fair market value and the frozen value as existed in the previous dedication. Section 19-58 . 1(g) is amended as follows : (g) If, during any period of dedication, any breach of the dedication requirements should occur, the special Non-Speculative Residential Use assessment privilege shall be cancelled and retroactive taxes [and penalties] shall be imposed. Breach of the dedication shall include the [sale, transfer, change in land use classification of the property upon a petition by the owner, subdivision of the property into condominium units or separate parcels, or failure to maintain the home exemption status of the property] failure to maintain the home exemption status of the property, subdivision of the property into condominium units or separate parcels , or the sale of the dedicated property or any portion thereof sold by way of a conveyance which is subject to conveyance tax under the terms of Chapter 247, Hawaii Revised Statutes . Retroactive taxes [and penalties] due and owing as a result of the cancellation shall be a paramount lien on the property. (1) Provided, that the Non-Speculative Residential Use dedication shall not be cancelled if the dedicated property [is : ] meets the criteria as listed below. The following also includes provisions that are not subject to the conveyance tax under the terms of Chapter 247, Hawaii Revised Statutes , and are included for further clarification. (A) Transferred to the owner ' s heirs by testacy or intestacy, (B) Jointly owned by spouses and upon the death of one spouse ownership is transferred to the surviving spouse, (C) Transferred to a spouse or former spouse in connection with a property settlement agreement or decree of dissolution of a marriage or legal separation, FC- 465 Page 3 October 22, 1991 (D) Transferred to a trustee for the beneficial use of a spouse, or the surviving spouse of a deceased transferor, or by a trustee of such a trust to the spouse of the trustor, (E) Subject to a title change between spouses and said change does not result in a loss of the home exemption status, [ (E) ] (F) And the heirs, surviving spouse, divorced spouse, or trustee, within 60 days after receiving title to the property, petitions the director, in writing, to continue the dedication and the property continues to qualify for the home exemption as defined in sections 19-71 and 19-72 . (G) Further provided that the dedication shall not be cancelled if the owner changes the use of a portion of the property from residential use to an ag use and the owner continues to maintain the exemption status on the remaining portion, however, the owner forfeits the right to change the assessment from the non-speculative residential use value to the agricultural use value or the dedicated agricultural use value during any period of the dedication. (2) Provided further that, except as provided herein, [penalties and] retroactive taxes shall not be assessed when: SECTION 3 . Article 7, Chapter 19, Section 19-58 .2(a) is amended as follows : (a) Property, approved for Non-Speculative Residential Use dedication, shall be assessed at the real property tax valuation which existed [at the time the petition was approved] on January 1 of the calendar year following the petition' s approval . This assessment shall be [adjusted in subsequent years of the dedication period in accordance with the methodology established in Article 7 of this chapter, however, in no case shall any increase in a particular year exceed the growth rate of the consumer price index] frozen for the dedication period, except for adjustments as provided for in this section. Section 19-58 . 2(d) is amended as follows : (d) If any improvements are undertaken on the dedicated property [a copy of the building permit shall be provided to the director by the owner prior to construction] , the owner shall obtain the required building permit for the construction of new or additional improvements or renovations of the dedicated property. Violation of this reporting requirement will result in cancellation of the dedication and activate payment of retroactive taxes [and penalties] . FC- 465 Page 4 October 22, 1991 Section 19-58 .2(e) is deleted in its entirety and replaced with the following paragraph: (e) In the case where additional dwelling units are constructed or a single family dwelling unit is renovated or converted into a two or more family dwelling unit all in accordance with Article 25 Chapter 25 Hawaii County Code of 1983 , the dedication shall not be cancelled provided the owners within 60 days of the change submit a written application to continue the dedication and files the claim for home exemption and the owners would continue to be eligible for the home exemption. If the owner fails to submit the written application in a timely manner or uses the additional dwelling units or renovated areas for rental or income producing purposes the dedication shall be cancelled and the retroactive taxes imposed. Section 19-58 . 2(f) is deleted in its entirety and replaced with the following paragraph: (f) If the dedicated property loses the home exemption under which it was dedicated, or if the dedicated property or any portion thereof is sold by way of a conveyance which is subject to conveyance tax under the terms of Chapter 247, Hawaii Revised Statutes, the dedication shall be deemed breached. Section 19-58 . 2(g) is added and reads as follows : (g) Retroactive assessments shall be imposed upon the breach of the dedication. The retroactive assessment shall be calculated as the cumulative difference between the amount that should have been owed without the dedication less the amount actually paid for each of the years deemed to be in breach plus interest at a rate of ten percent (10%) per year. In the case of properties dedicated to Non-Speculative Use, tax bills as prepared under section 19-31 shall delineate the dedicated value and fair market value, beginning tax year 1993-94 . " Material to be repealed is bracketed. New material is underscored. FC- 465 Page 5 October 22, 1991 Your Committee was informed by Director of Finance that administrative rules regarding the non-speculative dedication program was taken to informational hearings and the reception was mostly positive. Questions regarding breach of dedication and qualification to participate were most often asked. Objections were raised about retroactive taxes and penalty payments . He stated Bill 504 , as proposed, would help clarify the dedication program. He added, the Administration concurs with the purpose, intent and most changes of the proposed bill . However, the financial impact on real property tax revenues must be evaluated. Further stated that annual rate increases tied to the inflation rate should be built into the program to ensure some fiscal security. Stated that existing program or proposed program should not negatively affect the County' s bond credit rating. Your Committee heard testimony from representatives of the Real Property Tax (RPT) office regarding the projected loss of real property tax revenues under Bill 483 (adopted October 16, 1991 and pending Mayor ' s signature) and proposed Bill 504 . They provided a financial model, based on selective assumptions, which projects revenue loss to be approximately $15 million and $30 million, respectively, by the year 2001. Stated the model was only carried to 1997, thereafter projections did not include additional participants in dedication program. Also provided a chart entitled, "Comparison of Number of Single Family Detached Homes Versus Number of Non-Speculative Applicants as of October 4 , 1991 . " Stated, although the Net Taxable Value of real property increased by 16% between 1990-1991, the amount per district varied greatly. The aforementioned chart reflects these variances . Noted, participation in non-speculative dedication program was much stronger in East Hawaii , indicating resident preference for long-term home security. West Hawaii trend indicates a more mobile population. Your Committee members discussed the original intent behind Bill 483 and clarified they intended RPT use a market value approach to assessment rather than the replacement cost method presently used. Further, they questioned the Division' s timeliness in reassessing properties, noting a previous audit of the division. The audit stated site inspections for some agricultural properties had not been done for over two years . RPT representatives acknowledged that some residential properties had not been inspected or reassessed for 15 years . FC- 465 Page 6 October 22, 1991 Your Committee and Real Property Tax representatives agreed a problem with timely inspection exists, and acknowledged there are incidents of non-compliance where property has been dedicated to agriculture use when, in fact, it is not being used for that purpose. Your Committee members were informed that presently residences are assessed using the replacement cost method. Therefore, the assessed value of older homes is lower than new homes . As interpreted by RPT representatives, Bill 483 would allow older homes to be frozen at current, lower replacement value and newer homes at higher values . Although under Bill 483, participation in non-speculative program triggers an inspection, assessment values will not be changed unless there are new or non-recorded additions or structures on property. Additional structures or improvements would be assessed at present replacement costs . Otherwise, the assessment in the books at RPT will be used. Land value would be assessed based on vacant lot sales in area . Your Committee was informed that new depreciation tables have been implemented by RPT and there will be uniform increases throughout the County for all real property owners . Your Committee was informed using the market value approach with current 36, 000 single-family detached homes, using 12 appraisers at RPT division would require 5 years to reassess homes . This assumes no new homes are built . They also anticipate a marked increase in tax appeals when implementing market value assessment . RPT Administrator ' s approach is planned to be implemented on a geographical area approach, rather than individual or selective approach. This would prevent anticipated legal challenges on the latter . Further stated the RPT plans to implement a 6-year assessment program. Your Committee recessed and upon convening, examined and voted to accept some amendments to Bill 504 . The Administration agreed to reevaluate these amendments to determine the financial impact and present their findings to the Council at the November 6th meeting. The following amendments were approved: Section 19-58 . 1(e) of Bill 504 , amending Bill 483 , is amended to read: In the case of a renewal which immediately follows an expiring term, the assessment base for the new dedication term shall be that value as existed at the expiration date plus fifty percent (50%) of the amount of increase between the fair market value and the assessed valuation as existed at the expiration of the dedication term. FC- 465 Page 7 October 22, 1991 Section 19-58 . 1(g) (1) (G) , line #3, the word "ag" is to read "agricultural . " Section 19-58 . 1(i) is amended to read: (i) Upon approval, the dedication shall become effective July 1 of the following tax year, but the assessed value, the fair market value, will be [determined] based on the assessment date January 1� utilizing the market data approach based on three improved market sales . In the event that the Real Property Tax Office is unable to determine the fair market value for the dedication based on the market data approach, the prior assessed value shall be utilized until the calculation is completed. Upon completion of the market data approach calculation, then that fair market value shall be the dedicated value for the remaining term of the dedication. Section 19-58 .2 is amended to read: (g) Retroactive assessments shall be imposed upon the breach of the dedication. The retroactive assessment shall be calculated as the cumulative difference between the amount that should have been owed without the dedication less the amount actually paid for each of the years deemed to be in breach plus interest at a rate of ten percent (10%) per year . If the dedicated property is sold, the retroactive assessment for that year shall be calculated as the difference between the dedicated value and the higher of either the actual selling price or the value of the property at its actual use. In the case of properties dedicated to Non-Speculative Use, tax bills as prepared under section 19-31 shall delineate the dedicated value and fair market value, beginning tax year 1993-94 . FC- 465 Page 8 October 22, 1991 Your Committee on Finance is in accord with the intent and purpose of Bill 504 , Draft 2, and recommends that it pass first reading. HELENE H. HALE, CHAIRWOMAN ROBER H. MAKUAKANE, VICE CHR. BRIAN J. D LIMA, '' MB . ,LIC14 AA, TA ' S I DOMING" , MEMBE; 0 - •LE I , MB • „+i HARRY S. • 'DDLE, MEMBER CE' K. SCHUTTE, MEMBER POL