Island Breath: Kauai Property Taxes

SUBJECT: PROPERTY TAX REFORM

SOURCE: CLAIRE MORTIMOR clairebear@aloha.net

POSTED: 29 OCTOBER 2004 - 7:00am HST

Support for Ohana Proposal

[Editor's Note: IslandBreath.org is recommending voting "NO" on the Ohana Tax Amendment, but here is an alternative view]

by Claire Mortimor on 29 October 2004

THE FAIR THING TO DO ON NOVEMBER 2 – VOTE ‘YES’ ON THE CHARTER AMENDMENT

HOMEOWNERS OF KAUAI: Are you paying more property tax now than you were five years ago?

RENTERS OF KAUAI: Are you paying more rent now than you were five years ago?

VOTERS OF KAUAI: If you answered ‘YES’ to either of these questions, then you should VOTE ‘YES’ ON THE OHANA KAUAI CHARTER AMENDMENT ON NOVEMBER 2.

THEN, YOU SHOULD ENCOURAGE THE COUNTY COUNCIL TO ALSO PASS THE RECOMMENDATIONS OF THE PROPERTY TAX TASK FORCE, SO THAT EVERYONE ON KAUAI IS TAXED IN A FAIR MANNER.

Both the Ohana Kauai Charter Amendment and the Property Tax Task Force are excellent proposals which address many of the serious problems we face of rapidly escalating property values leading to unfair increases in property taxes.

Don’t be misled by politicians using last-minute, shameless scare tactics about whether the Ohana Kauai Charter Amendment (OKCA) is ‘legal’. Of course it is legal. Otherwise, how could it have gotten onto the ballot months ago?

3,265 KAUAI VOTERS SIGNED PETITIONS IN ORDER TO PLACE THE OKCA ON THE BALLOT BECAUSE IT IS THE RIGHT OF THE PEOPLE TO DO SO. That is why our elders wrote the County Charter so that voters may place an issue on the ballot for people to vote on when the government does not adequately address the issue of concern.

For years we have been telling our elected County Council and Mayor about the serious hardships and suffering caused by our unfair system of property assessment and property taxation. For years they have done nothing meaningful to address this serious problem. During these years, how many Kauaians have been forced into foreclosure, or forced to sell their family land, or leave Kauai because we can not afford the escalating tax burden?

If the property taxes have not gone up yet in your neighborhood, they will soon. Check the prices of houses and land being sold nearby. Your home assessment will go up after your neighbors sell. Then your taxes will go up, as they already have in some areas of our island. In some neighborhoods, taxes have doubled, tripled, or even increased to five times what the tax used to be. This is simply not fair.

The much-touted ‘circuit breaker’ passed by the Council last year benefits both the poor and the wealthy, but only if you are willing to have your privacy invaded by showing the county your Federal and State income tax returns. The ‘circuit breaker’ assumes that the Adjusted Gross Income (AGI) on your income tax form is an indication of whether you can afford to pay your property tax. Plenty of multi-millionaires have an AGI of zero, so the circuit breaker gives them a break. Is that fair to the working homeowner holding down two or three jobs in order to make ends meet, but whose AGI is just over the limit, so they don’t qualify? Is it fair to families who have been forced to sell their homes and move in with relatives, who are then denied relief because the incomes of everyone in the household are added up? We don’t think so.

The Permanent Home Use Dedication also passed by the Council last year limits annual homeowner tax increases to 6 percent. This does not address the taxes that have already gone up too high. And unless your source of income guarantees to give you a 6 percent raise each year, you will still end up behind.

Concern about the definition of ‘resident’ in the Amendment is overblown. Current county tax law clearly defines who is eligible for the homeowner exemption. Hawaii state income tax law further clarifies who is a resident. If the Council wants a stricter definition of ‘resident’, it is appropriate that they should adopt one that will apply. That is certainly, however, not a reason to reject the Amendment proposal.

The county’s bond rating is another non-issue that has been raised. The financial services director from Los Angeles who wrote a letter of opinion on this matter was misinformed as to the facts of the charter amendment proposal. If his opinion was valid, then the Home Use Dedication passed by the Council last year would have resulted in a downgrade of the county bond rating. When two leading municipal bond rating services were consulted, they advised that the proposed Charter Amendment would have no effect on the county bond rating.

Concerns about the effects on the county budget and services have also been extremely exaggerated. The reduction in revenue to the county as a result of giving relief to homeowners via the Charter Amendment will amount to slightly more than ONE PERCENT of the county budget. Why would a reduction of one percent cause drastic cut-backs and layoffs?

The property taxes that will be collected from newly purchased properties, particularly those purchased for very high prices, may well make up the shortfall. In fact, revenues from property tax collections are 25 percent more this year than last year. It appears that a one percent reduction still may mean that the county could receive a lot more money than last year.

Alarmist predictions that a charter amendment giving tax relief to homeowners will result in cuts in county services and lay-offs are just that – Alarmist – and not substantiated by the facts. When the Council has passed measures that have reduced revenue by greater amounts than the OKCA would, those measures have not been accompanied by such dire predictions.

County politicians, who expect homeowners to pay 6 percent more each year in taxes (they assume businesses and landlords will pay more than 6%), and call it “relief”, now threaten us with service cuts in the face of a one percent reduction in revenues. This amounts to a demand that we trim our household budgets in order to hand over to them more of our hard-earned money, yet they refuse to trim their spending.

County government spending is out of control, and that is the real issue. The Kauai County budget has increased by 60 percent over the past seven years, the highest increase in the state. And has that led to a corresponding increase in services to county residents? Has the quality of services we receive increased as substantially as the budget has? How much has gone to overpriced consultants and outside contractors?

Now the county politicians are escalating their fear tactic further by going to court at the last minute before the election, questioning the constitutionality of the charter amendment. This is an outrageous and disgraceful situation. The mayor reportedly has threatened to file a lawsuit against the Ohana Kauai Charter Amendment if the people of Kauai vote for it, after the people of Kauai put it on the ballot. What a waste of our tax dollars.

Don’t be fooled or scared into voting against your own best interests. VOTE ‘YES’ ON THE CHARTER AMENDMENT ON NOVEMBER 2 so that Kauai homeowners can stop being forced out of their homes by spiraling property taxes. Then we can move on to implement the Tax Task Force recommendations so that renters and farmers and businesses and ranches can also receive fair treatment.

Claire Mortimer: County Chair Green Party of Hawaii
Resident and homeowner of Kilauea

Jill Kimie Sadoyama: State Co-Chair, Green Party of Hawaii
Resident and renter of Kapaa

SUBJECT: PROPERTY TAX REFORM

SOURCE: RAY CHUAN rchuan@aloha.net

POSTED: 20 OCTOBER 2004 - 9:30am HST

Property Tax Proposals

by Ray Chuan 18 October 2004

The SNAFU continues at the Council. Look at this Special Meeting Notice with an Executive Session:

EXECUTIVE SESSION

ES-165 Pursuant to Haw. Rev. Stat. §§92-4 and 92-5(a)(4), the purpose of this executive session is to request Council approval for an additional appropriation for special counsel for election and ballot issues, to consider legal issues pertaining to the proposed Charter amendment, and to consider appropriate legal relief and/or remedies. This consultation involves consideration of the powers, duties, privileges, immunities and/or liabilities of the Council and the County as they relate to this agenda item.

So more of the taxpayers’ money is going to be wasted to hire outside lawyers, when anyone in the Old County Building who is willing to read, carefully, the County Charter, can tell (hopefully without arousing the ire of the Chair) that the Chair, probably deliberately read the Charter wrong to try again to detail the Ohana Charter Amendment. When will the members of this Council start using their heads and stop following blindly their Leader? As they did at the end of the infamous October 14 Council Committee meeting when, one by one, each member dutifully thanked the Chair for his brilliant expose’ of the illegality of the Ohana Charter Amendment. That had to be one of the saddest moment of my years of watching the Council in action. I watched it again last night on Hoike. It made me sadder. I taped the last hour of that memorable event, to remind me from time to time of how bad things can get.

The entire Council also continued the oft repeated deliberate distortion of the meaning of the term “Tax Rate” by implying, over and over again, that lowering the Tax Rate is equivalent to lowering the tax. In obvious reference to my frequent complain about this deliberate distortion the Chair showed, with his elaborately orchestrated slides with such a profusion of numbers in multiple columns (to confuse the audience who couldn’t possibly see all the pertinent data), the Chair showed that the Tax Rates had gone down over the last five years, by as much as 10%, without noting that over the same period the assessments had gone up more than 50%. How long are the members of this Council going to continue to confuse the public by refusing to explain that it is the product of the Assessment times the Tax Rate that yields the number called the Tax; and that number is what appears on the bill the homeowner receives twice a year?!

There is the Annual Ritual during which both the Mayor and the Council pronounce to the public that they have, again, not raised the “Tax”, carefully leaving out the word “Rate”; or, on some occasions like this year, that they have even LOWERED the Tax Rate, hoping the public would not notice that the number on that Tax Bill keeps going up! I’m afraid I have finally come to the conclusion that the Administration and the Council are in this conspiracy together. It is not a momentary lapse of neural clarity that causes them to confuse the meanings of the terms Assessment, Tax Rate and Tax, and to try to implant the same lapse of neural clarity to the taxpayers. I have to conclude, in the face of overwhelming evidence which the Administration and the Council shamelessly display year after year, that there is this conspiracy to keep feeding the insatiable appetite of their friends (and political supporters) in and out of the County Government.

Since this e-mail message is seen by many who are not currently on my mailing list because it is passed around and forwarded a lot, including among County people, including my unknown Whistle Blowers, I challenge the Council (which, after all, is the final arbiter of the property tax amount each year) to read aloud before the TV camera the following:

Kauai County Code Chapter 5A, Section 5A-6.3(c) (1), (2), (3), (4)

If, after reading these paragraphs themselves and, hopefully, understanding them, prior to the public reading, Council members still engage in confusing the terms “assessment”, “rate”, “tax” and “revenue”, either in their own minds or in confusing the public, they should resign and let those who can read and understand take those seven seats on the Council.

Yes, my friends, I am upset and intemperate in my words. But one can stand public stupidity only so long!

With apologies where appropriate, I sign off for now.

by Ray Chuan 16 October 2004

The term SNAFU was coined during the Second World War by troops in the field. Its meaning is more than the more commonly used term “fouled up” or “screwed up”, because of the N in it. The full term spelled out (including, pardon the use of what may or may not be acceptable in today’s society) is:

Situation Normal All Fucked Up.

I stressed the N word because SNAFU fully described the situation with respect to the County Council’s response to the Ohana Kauai Charter Amendment, as displayed at the Thursday, Oct 14 meeting of the Council Committee at the Convention Center. The Council must have anticipated a huge attendance at this presumably important meeting at which the two major property tax measures will be Discussed. With its usual inattention to details, the Council did not adequately advertise the event, depending on the Garden Island to do so. The attendance was actually smaller than the usual small group at the meetings in the Council Chambers in the Old County Building.

The failure to inform the public of what the Council perceived to be an important meeting is Normal.

On the printed Agenda of this meeting the part dealing with the tax measures was worded as follows:

“”W 2004-5 Communication (10/8/2004) from Bill ‘Kaipo’ Asing, Council Chair, requesting discussion regarding the proposed ‘Ohanal Kauai’ Charter Amendment, Bill No. 2108, and the relationship of these and other property tax measures to Chapter 5-A, ‘Real Property Tax,’ Kauai County Code 1987.”

Some Discussion!! It was a broad frontal attack, with all the WMD at its disposal (paid, of course, by the taxpayers) against the Ohanal Charter Amendment. The climax was the expose’, delivered in his usual grand flourish without regard to accuracy or details, by Chair Asing, that the Ohana measure was Illegal!
(The Garden Island front page headline said the Mayor was threatening to sue. Wrong, the Mayor had left the meeting long before the Dramatic End.) From what little I was able to learn ,scurrying in the darkened hall looking for some confirmation, shortly after Kaipo started his show, this claim of the illegality of the Ohana measure apparently had not been reviewed by the legal staff.

Discussion or not, here’s where Kaipo, either inadvertently or deliberately, has cited the wrong article in the Kauai County Charter.

Article 22 of the Charter deals with “Initiative and Referendum”, which gives the public the ability to initiate an ordinance (without the involvement or action of the Council which is normally charged with the responsibility to adopt ordinances) by means of an Initiative; and the Article also gives the public the power to change or amend an existing ordinance by means of a Referendum. This article limits the public from certain areas of the operation of the county government. These are: the budget, the Public Works Department , taxation and financial operations.

The ballot measure put up by Ohana Kauai does not involve the creation of an ordinance or the changes to an ordinance. It is a Charter Amendment. Specifically, it asks the public to approve the addition of a new article to the Kauai County Charter. Amendments of the County Charter are covered by Article 24, not Article 22. Article 24 does not list any prohibited areas of government operation such as listed in Article 22.

Judging by the letters to the Garden Island today – Saturday, October 16 – some members of the public are outraged by the attempt of the Council to thwart the will of the people. Such sentiments could well turn the vote on the Ohana amendment to approval, creating a result not expected or intended by the Council.

Which brings me back to the word Normal in SNAFU. All that has been happening and creating headlines while, at the same time delaying productive activities of the government towards results beneficial to the citizens is not unusual or exceptional; it is quite NORMAL. If Situation is displayed on a colored chart with bars going from green to amber to red, the Kauai Situation would still be at green.

The advantage of being at green may be that the public can settle back and really start some meaningful DISCUSSION, as advertised in the agenda of last Thursday’s meeting, on the various tax measures, before another round of punishing tax bills are received by the public.

Just as the troops during WWII ,after pronouncing SNAFU, went back to fighting the war to save Democracy, the concerned citizens of this island can go back to the battle of saving the Garden Island for posterity.

SUBJECT: PROPERTY TAX REFORM

SOURCE: RAY CHUAN rchuan@aloha.net

POSTED: 14 OCTOBER 2004 - 9:15am HST

Property Tax Proposal Comparison

by Ray Chuan 13 October 2004

Tomorrow the County Council will hold a big meeting at the Convention Center to talk about the various tax bills, and especially one part of the agenda is devoted to a discussion on the relative merits/ relationship/conflict/etc between the Ohana Charter Amendment and the Task Force Plan. Since I was involved at the beginning of the creation of the Ohana Amendment but later withdrew when I was appointed by the Mayor to the Real Property Tax Task Force, I find myself spending more and more time thinking about these two measures, especially since I started receiving questions friends asking questions and my opinions on the issues brought up by these two measures, I’ve decided to take a crack at delving into some of the questions, realizing full well that this is a hazardous undertaking which a politically astute person would not venture into.

As a start , let me say unequivocally that the creators of both measures one primarily the creation of one person and the other the product of months of study analysis and deliberations among seven professionals (meaning people with experience in business and finance) and two non-professionals (I among the latter), worked selflessly for the benefit of one class of property owners (who presumably constitute a significant if not a majority of all property owners on this island) in the case of the Ohana measure, and for all property owners in the case of the Task Force Plan. Here I am merely stating the facts, without dealing with the relative equity as regards to the entire Kauai community.

The Ohana plan covers owner-occupied home properties. (There will likely be some lively debate on what is meant by owner-occupied properties; but I won’t get into that debate prematurely here.) For this class of property owners the Ohana plan would establish a base tax defined as the property tax levied in 1998. By Tax is meant that number that appears on one’s tax bill that he receives from the County around April or May each year, with the option to pay it in two halves in August and February. That number says nothing about how that number (the tax) is arrived at.

In most, if not all property tax systems, the basic idea is that a percentage of the value of the property, usually divided into two segments: the land and the building, should be paid as a tax to support the operation of the government. The process of determining the value of the property is the assessment. The assessed valuation of the property does no yield the amount of the tax to be exacted. The cost of running the government divided by the total value owned by the property owners becomes the Tax Rate. When land and building are evaluated – assessed- separately.the cost of government is divided into two parts, one part divided by the land value to yield the tax rat for the land, and the other part divided into the building value to yield a tax rate for the building. There are then two tax rates. At the present time Kauai County’s Tax Code divides the properties into eight classes, each with two tax rates – for land and for building-, resulting in sixteen tax rates. The County Council decides how to apportion the cost of government among the sixteen categories of property. So the sixteen different classes of property can have sixteen different tax rates, depending on how the Council apportions the cost. The assessed value of a piece of land or a building does not automatically turn into a tax bill. The Council decides that. Once the Council comes to an agreement with the Administration on what the cost of government is, it looks up sources of revenue from other than real property and then decides on how to divvie up the balance of un-met cost among the real properties. The split between reap property tax revenue and all others is roughly fifty-fifty in this county. It is perfectly clear in reading the County’s Tax Code that the final determination of the property tax rests in the hands of the Council through the adoption of the Tax Rates, after it has determined that the cost of running the government is reasonable – a process that can be and is supposed to be contentious-and learns from the Administration what the assessed values are for all the taxable properties on the island; and uses simple arithmetic to arrive at the tax rates after it determines how to apportion the burden of meeting the cost of government among the various classes of properties. However, for reasons I have not figured out, the Council does not seem to understand that it has the final say on the tax. If the assessments fall and the cost of government stays the same or rises the tax rates must go up. Conversely, if the assessments go down the tax rates must go up to generate the necessary revenue to run the government. Since about 1994 the Council has kept the tax rates essentially constant, allowing the steadily rising assessments to control the revenue. In other words, for the last ten years at least, the Administration, by not following its own rules on how to assess property values as set forth in its Tax Code, has deliberately, apparently, allowed the Administration’s assessment figures to drive the ever increasing tax revenue, at a rate far higher than any other county in this state, with obviously nothing to show for it in terms of performance.

That is the basis for the emergence of the Ohana Kauai Charter Amendment.

Under the Ohana Amendment the question of the value of a property is no longer there, because there will be just a number – the tax.-.from the day the Charter Amendment is passed. But the real estate market marches on, unaffected by the Ohana Amendment which does, in some measure, try to keep up with the general economic condition of the island, by allowing the Tax (not the assessed value, because that is not there anymore) to move up to keep up with inflation. If a new property is created or an existing property is sold, after the adoption of the Ohana Amendment,what happens to the property tax? Since the property evaluation process is no longer in existence under the Ohana Amendment there seems to be no method other than the inflation index to change the Tax; but that has nothing to do with the real estate market. If the existing property is sold for more or less than whatever its purchase price was at some time in the past, one could argue that its value is higher or lower than it was. But is this Value related to the sale price or the government’s assessed value for tax purposes? The buyer could argue that under the Ohana Amendment there is only one number that has anything to do with the property tax; and that number could only change with inflation.

The purpose of the Ohana Amendment is to divorce the tax on a property from the market by removing the valuation process from the Tax Code. However, the manner by which the tax determination process reverts back to the evaluation and tax rate system on the occasion of the creation of a new property or the sale of a property is contrary to this purpose; and will likely be challenged – by the buyer. Although California’s Proposition 13 did not extinguish the assessment process it was nevertheless challenged (ultimately to the U.S. Supreme Court) over the issue of re-assessment –without observing the cap of 2% - upon transaction. California prevailed. Whether Kauai County could prevail in a similar challenge when it no longer has a property valuation process for a certain class of property is a question that requires attention of both Ohana Kauai and the County Council.

Another subject in the existing Tax Code that would likely require the reversion of the Ohana Amendment to the extinguished valuation system is the relief entitled by certain taxpayers, by virtue of age and income, by means of a number of Exemptions applied to the building assessment. Under the current Tax Code the total value of these exemptions can amount to $170,000, which for a large majority of home owners in Kauai would effectively eliminate tax on the building. If the revisions to the Tax Code by adoption of Draft Bill 2108 – the Task Force Plan – become operative, the one-to-three ratio of the land tax rate to the building tax rate would further significantly benefit those who become entitled to the age and income exemptions. There is no provision in the Ohana Amendment for effectuating these exemptions; therefore the question arises as to whether the Council, in adopting appropriate ordinance to implement the Ohana Amendment could include provisions for tax relief which at present is achieved through exemptions applied against building assessments.

Next week I will dwell upon the essential features of the Task Force Plan that will apply equitably to all classes of property, in easy to understand language, makes the results of the annual tax burden and revenue predictable, and effectively disconnects the property tax operation from the wildly fluctuating real estate market. I will take some examples and compare the benefits accruing to these by the two tax measures. I will also hazard some guesses as to how this Plan, if adopted by the Council and the Ohana Amendment also passes, may have to be modified to accommodate the superior dictates of the Ohana Amendment; or whether the Plan may have to be abandoned altogether, as intimated by the remarks of Councilman Jay Furfaro at last week’s Council meeting. That would be a real tragedy, because the Task Force Plan is a comprehensive treatment of all the properties, not just one type; and, I have estimated, the relief accruing to that one type of property is nearly the same under both measures.

For detail about Charter Amendment on Property Tax Reform clickhere.

SUBJECT: PROPERTY TAX REFORM

SOURCE: RAY CHUAN rchuan@aloha.net

Property Tax Assessment Appeal

10 April 2004 - 9:00am

Detail of a Tax Map key Plan of Kauai County

The Assessors must really be working ferociously to get their last bite on the property owners on this island. In keeping with the long-standing philosophy of this county government’s of not informing the public, even the Appeal filing date is deliberately confusing. It is one date on the Assessment Notice and a different one on the filing form. After I pointed out the discrepancy the county did its best to make the correction notice, as published in the Garden Island, almost as confusing as the original mistake.

In any case, the due date for filing the appeal is Monday, April 12, 2004, either by delivery in person to the Finance Department or by mail postmarked not later than April 12, 2004. To play safe, one should send along a receipt confirmation copy, asking the department to mail that copy back.

The appeal filing form can be downloaded from the web at www.kauaigov.org/forms

What I have found to be the best grounds for challenging the assessment is to show that the practice and or the process if inconsistent, arbitrary and likely to be capricious. To show this I have, for my own case, researched the assessment history of my neighborhood, taking three or four neighbors on the same block. I then compare the changes from year to year in the land assessment. (There is no significant change in the building assessment unless there is renovation or improvement done on the house. Take examples where there has been no change in the building assessment. Any inflationary rise is insignificant compared with the rises in the and assessment.)

You have your own assessment history from your records of your assessment notices of the past few years. Many have not kept the record. You can find the assessment and tax history on the web for years 2001, 2002 and 2003. The 2004 numbers have not been posted, except that you know your own. The data from the county’s website – www.kauaipropertytax.com – show the land assessment, net building assessment (assessment minus any exemption) for 2003 and the tax for 2003. They show only the tax bills for 2002 and 2001, not the assessments. However, you can back-calculate the assessment from the tax. The tax is made up of two parts: land tax=land assessment x land tax rate + net building assessment x building tax rate.

When you open the property tax website select ‘address’ for a search. Enter the street number and street name. The name of the owner and the address shows up, along with the property I.D. which is the TMK number. On the appeal application form they ask for the TMK as made up by five numbers. Zone is the first digit in the ID. Section the next digit. Plat the next three digits. Parcel the next three digits. And CPR the final four digits. If you are not on CPR land there will be just four zeros in the last four digits of the ID.

Now let’s continue with the arithmetic. For residential property there are two sets of rates. For owner-occupied homes (homestead class) the land rate is $$3.64 per thousand of land assessment and the building rate if $3.64 per thousand of net building assessment.

For non-homestead class the rates are $5.49 for land and $4.50 for building.

Since the building assessment changes very little compared to land, you can assume that the net building assessments for 2003, 2002 and 2001 to be equal. Calculate the building tax based on this assumed building assessment. Subtract this building tax from the total tax shown on the web for 2003, 2002 and 2001, and you get the land tax for those years. Now, divided the land tax by the appropriate land tax rate; and you have the land assessment for those years. These are not exact because there may be some very small changes in the building assessment, of a couple of percent from year to year. So assuming the land assessment is unchanged for 2002 and 2001 is a good enough number to use.

Now you have the land assessment numbers for yourself and your neighbors for the years 2001, 2002, and 2003. You also have your own 2004 assessment numbers but not your 2004 tax. That won’t come out till August.

When you compare the land assessment from year to year, for yourself and your neighbors, you will find the percentage changes vary all over the place. This is the proof that the county does not have a consistent and equitable practice of assessing land values. Let me give you some examples for my neighborhood on Aku Road in Hanalei. Aku is only one block long. The lot sizes are all about the same. The buildings may be different, but we are only dealing with land, since with land is where the assessment changes go crazy.

Year to year percentage change in land assessments

	2001 to 2002	2002 to 2003	2003 to 2004
4412 Aku	204%	20%
4420 Aku	330%	57%
4438 Aku	17%	78%	58% (my house)
4465 Aku	10%	170%

Need one say more about how ‘Arbitrary’, ‘Inconsistent” and ‘Capricious” the actual practice of assessing can be, regardless of what the supposed process or rules or formulas may be?

In the form you are asked to state what you believe should be your assessments and exemptions. I would enter my 2001 figures. Not Exemptions, because this can change, with age reaching trigger points or income decreasing. The important objections are listed as choices at the bottom of the page. I would check items 2 and 4 as a general approach. The first in that list is without much meaning, because you don’t know what they used as “market value.” This mythical value, however it is derived or created, has to be the same used for setting the assessment of properties at least in the same neighborhood. They certainly can’t use different “market values” within one small neighborhood.

The argument against the last item in that list is pretty simple. The value of your property is realized only when there is a transaction involving that property. If you own stocks, a form of property, the value of a particular stock is recognized for tax purposes when there is a sale. Otherwise the IRS would have to track the “market value” of your particular stock on a day by day basis as the “market” changes. Even the federal government wouldn’t be that crazy. The practical consequences of this county’s supposed method of assessing the value of property are the destruction of neighborhoods when old time residents are forced to sell, even when they would rather stay where they are, and have been for many years, and move. This recognition of the destructive effects of the market value method of assessing property is exactly what the U.S. Supreme Court said in turning down challenges to California’s Proposition 13 (which effectively froze the land assessment, and which the Kauai Real Property Tax Task Force’s proposed plan submitted to the County Government closely resembles). The Court said, “….a state has a rational interest in neighborhood preservation, continuity and stability, and that Proposition 13’s system of ‘locking in’ lower tax assessments contribute to such preservation.”

If the ravaged and largely defenseless property owners of this island fail in their appeal against this county’s “arbitrary, inconsistent, capricious and neighborhood-destroying” practice of assessing and taxing real property, the next would have to be to go to federal court.

I hope the above will be useful in your filing your appeal against the crazy assessing practices of this county government. Feel free to call or e-mail me. I’ll be home all weekend. If you have to, you can hand deliver the appeal to the county before closing time on Monday, April 12.

Good luck!

Ray

SUBJECT: PROPERTY TAX REFORM

SOURCE: RAY CHUAN rchuan@aloha.net

POSTED: 31 MARCH 2004 - 9:00am HST

Property Tax and the County Budget

A 1920's plantation house in Kapaa available as a vacation rental

by Ray Chuan on 31 March 2004

Judging from the number of phone calls I have been receiving in the last few weeks I would venture to say that Black March in the year 2004 is without a doubt the blackest in the past five years. March is the month the Kauai County Real Property Assessment Division sends out that little postcard informing you the Division’s decision on how much your property is worth – not to you, but to some mystical entity called the “Market.” The shocker this year is the huge percentage increases in what the Division decides your property is worth according to the “Market.” Many property owners got used to assessment increase of five or ten or fifteen percent, and generally didn’t complain, or even notice. A few percent of the property owners have been getting increases in hundreds of percent in recent years.

What makes 2004 different seems to be that it is no longer the very-unlucky few who get hit in March, but thousands. While I don’t have the exact number of the victims this year yet, one can judge pretty well the magnitude of the problem by observing that the Total Assessment for the whole county went up 29% from 2003 to 2004. I had reported earlier, when the preliminary figures came out of the Finance Dept, that the total assessment increase would be 21-22%. The 29% figure is apparently the updated one when the assessment notices were sent out. The increase last year was only 13%. We are so accustomed to being hit with these shockers that we can actually now say “only 13%!”

If the County Council goes through its usual ritual of adopting the same tax rates year after year the tax revenue for this coming year will be 29% higher than last year.

(The property tax is the product of multiplying your property assessment by the tax rate – something the County does not tell you when you receive your Tax Bill in August. My unscientific survey over the past few years would say that eighty percent of the property tax payers don’t know how the numbers in that little postcard they receive in March relate to the Tax Bills they receive in August. The reason? Very simple. Our county is the only jurisdiction I know of in the nation that does not tell the public how the Little Postcard in March becomes the Big Tax Bill in August!)

On average, then, the tax bill will be 29% higher in 2004 than in 2003. The actual hits could be anywhere from zero to several hundred percent. And if checkout its annual ritual (officially called Budget Making) it will again pronounce near the end of June: “We have again not raised the property tax”, carefully leaving out the word “RATE.” What your elected officials really mean, when pressed for an explanation, is that they have, again, not raised the Property Tax Rates. The reality is that, unless the annual ritual is altered, our county will have about $14 million more to spend without making any “Changes.” Our county derives half of its income from real property tax, over which is has complete control, the other half coming from sources (state, federal, etc.) it does not control.

Pretty neat system based on simple arithmetic: A x R = T. Right! You can play with A and R and make T come out anyway you want. It’s even better than that! You can keep R the same and just play with A. The result? Kauai the highest rate of rise in tax revenue in the state. From 1999 to 2003Kauaiproperty tax revenue went up 50%. The runner-up,Maui, rose only 20%. The state as a whole went DOWN 5%!

California used be pretty much like Kauai, until the taxpayers said, in 1978, “No More!” Under the people’s will, embodied in Proposition 13, the government cannot change A in the simple formula. Any change in R has to be approved by the taxpayers (not by the legislature) with a two thirds vote. But, hey, you have to give credit to our government for trying, because, according to heartens, the Administration has indicated it would consider dropping the TAX RATE by Twenty Cents! Big Deal! Or is it? You have to look at more than just one little bitty number like Twenty Cents. This county has sixteen different tax rates, ranging from $3.64 to $8.55 per thousand dollars of assessed value. Let’s take an in-between number like $4.00 for the tax rate. The reported Big Deal on tax rate reduction of Twenty Cents comes out to be 5%. The anticipated average rise in tax revenue, as we said above, is 29% (based on the 29% increase in A and no change in R in our nifty formula.) This being an election year, at least for the Council, wouldn’t it be politically smart, since the Council makes the final decision on the Tax Rates, for those Council members planning to run for re-election to propose a 29% reduction in the tax rates?!

To be realistic, we know better. There ain’t going to be a 29% reduction in the tax rates, just to achieve a zero increase in property tax. What can the long-suffering taxpayers Okamura?? Not much in the short term or in the immediate future, because, One: we are, on the whole, a pretty laid back bunch when it comes to making important changes; and Two: our government has kept us pretty much in the dark about the Magic Formula A x R = T.    Sure, they will tell you, there are the two Council instituted temporary tax relief measures. There’s the proposed Charter Amendment by the citizens group Ohana Kauai. And there is the Administration and Council appointed Real Property Tax Task Force. But all these are measures that will not, at best, come into effect until 2005 at the earliest. In the mean time, the assessment process continues unabated. Any assessment raised and un-challenged will stay on the books that can affect the tax payer’s future status. Here’s where any tax payer can do something; that something is the Appeal.

On the back side of the Assessment Notice there is a paragraph which says: “Appeals: If you do not agree with the assessment, you have until April 12, 2004to file an appeal to the Board of Review or Tax Appeal Court. …”   The forms for an appeal to the Board of Review can be obtained directly from the County Assessment Division. There is a fee of $10. Normally only a few hundred people (out of about seventeen thousand property tax payers) would file appeals; and about half of them will have their appeals denied. This percentage of denial is, in fact, how the tax office finalizes its computation of the expected revenue. It will make a significant difference if thousands will file appeals this year. This mass appeal not only gives the government notice that the tax payers have had it, it will effectively affect the appeal process itself, causing delays and uncertainty in the final determination of revenue. In other words, a massive response will mean it will no longer be “business as usual”, which is what this county government needs to hear from the people. No more formulaic processing of appeals. No more ritualistic setting of the unchanging tax rates. And, hopefully, no more continual increase in spending by the ordination.

It is important in preparing your appeal to gather your assessment records for at least the past five years. If you have lost the old assessment records, which is most likely the case, go to or write the Assessment Division and ask for the records. This history of assessments will be the best evidence to show, as the basis for your appeal, that the practice and whatever rules or criteria used in arriving at your assessments are Arbitrary. Inconsistent and Capricious. In the great majority of appeals filed on these grounds the government’s own records will (if it can even produce any) indict the government itself.

In summary, the message here is that the nifty formula A x R = T, as employed by the Kauai County Government, is not going to be arbitrarily, inconsistently and capriciously practiced by this government anymore. Wake-up time is now. In addition to joining the Mass Appeals, try to attend some of the budget sessions of the County Council, starting April 1 and running into mid May, and find out how the ritual is played. Most important, watch the adoption of the Tax Rates Resolution by the County Council.   The funny part of this segment of the budget process is that the sixteen tax rates have already been set forth for the Council by the Administration as Resolution No. 2004-19 (the R part of the nifty formula), sitting at the Council, only waiting to have the holy water sprinkled on it some time before June30.

If the tax payers on this island are truly agitated, this year’s Budget Making will be interesting to watch.

In my commentary of March 11 on the murky case before the Planning Commission in which an applicant who is currently operating a Bread and Breakfast in Hanalei without a permit is asking the County to give her a permit. The applicant claimed that she and her husband had moved into the house and intended to live there while offering the rest of the house to tourists. Unknown to the Commission was the discovery by an observant resident that the place was being advertised for sale as a B/B with excellent occupancy. I had asked one of the staff in the Planning Dept about this curious combination of circumstances. In the ensuing discussion I had the impression that the advertising business paper would have the ad withdrawn, claiming that it had been put out by mistake. This reference to the ad might have given the impression to the readers that the Department staff member had made the arrangement for the withdrawal of the ad. If this was the impression some people might have surmised I would like to clear up any possible aspersion on the Planning Dept by stating here that I did not know who specifically initiated the withdrawal of the ad, and certainly did not imply that any of the staff of the Department had advanced the idea.

In the mean time, this matter has not been ruled upon by the Planning Commission, although the public hearing on the application is closed. Whatever the eventual decision of the Commission, it should be an interesting one, considering the puzzling issues surrounding the case. As for the B/B itself, it seems to be operating quite successfully, just as the ad claims. Without a permit, of course. There are up to three rental cars parked in front of the place just about every day.

SUBJECT: PROPERTY TAX REFORM

SOURCE: RAY CHUAN rchuan@aloha.net

POSTED: 7 MARCH 2004 - 8:00pm HST

Kauai Ohana Gets it Wrong!

Now on Maui 90% of home sales are to mainlanders. Something is wrong in Hawaii

by Ray Chuan on 7 March 2004

When Ohana Kauai was first organized last year its mission included several important issues regarding our island. When the efforts were directed to the property tax issue, and I was appointed to the Real Property Tax Task Force by the Mayor I withdrew from any further active participation in the work of Ohana Kauai, for obvious reasons.

I was therefore surprised to find my name attached to the Ohana Kauai letter in heartens, alongside the letter from the Task Force. I had no part whatever in the drafting of the Ohana Kauai letter. On the other hand, the Task Force letter had been circulated several times among the nine members of the Task Force, with several changes and additions, before it was finally sent to heartens publication.

I am very disappointed in the way Ohana Kauai had elected to engage in the dialog on property tax issues on our island.

Please note that in connection with the letter from Ohana Kauai in the Sunday, March 7 Garden Island News, my name was used as a signatory to that letter WITHOUT MY PERMISSION.

I would appreciate it very much if the Garden Island News would publish a correction to that effect, because the appearance of my name on both the Real Property Tax Task Force and the Ohana Kauai letters is causing great confusion.

SUBJECT: PROPERTY TAX REFORM

SOURCE: RAY CHUAN rchuan@aloha.net

POSTED: 18 FEBRUARY 2004 - 10:30pm HST

Property Tax Analysis

Neighborhood around abandoned Kekaka Sugar Mill, once the source of wealth on the westside

by Ray Chuan on 18 February 2004

One of the more vocal pieces of testimony offered at last week’s Council session when the Property Tax Plan was presented was that of Andy Parks who pronounced the Plan was nothing but a conspiracy to cut the taxes for the rich, citing an example out of the dozens offered during the presentation to illustrate how the proposed plan would work for various types of property tax payers.

The example Andy cited no doubt showed a decrease in tax for an individual under the proposed plan when compared to what he would be taxed in the coming 2004 tax bill. That is what one might call a Collateral Benefit, borrowing this convenient phrase from the military.

The reality is that we in the Task Force were not able to devise a way to reduce the tax burden on the less rich (or the poor, if Andy prefers that term) without, under some circumstances, also reduce the tax for the rich. It may be that two of the principles under which we labored – equitability and legality – may not avoid Collateral Benefit. To single out the more affluent not to apply the formula to would not stand legal challenge. On the other hand, for every one of the Collateral Beneficiaries Andy screamed about there will be half a dozen or more locals, including especially Hawaiians, who will benefit, percentage-wise in reduction, much more.

One has to remember that folks who pay multi-millions for properties on Kauai don’t use property tax as one of the criteria in the purchase. Our property tax is so low compared to what people pay on the Mainland that a few thousand dollars one way or the other in the tax bill means absolutely nothing to them. On the other hand, a drop of 75% from $3575 to $891 will save a Hawaiian family that has lived on the North Shore for I don’t know how many generations from having to sell their house and move elsewhere (like to Las Vegas, which has a rapidly increasing Hawaiian population) or move in with relatives.

One of the principal disadvantages residents suffer on this island is the utter lack of mobility, or the ability to seek reasonable accommodations by moving a few tens of miles as people are able to do on the Mainland.

Let me give you two specific examples, in both of which the owners are friends of mine. They both happen to own property where the market value of land is around $3.25 million per acre.

Example 1:
One acre of land assessed at $3.07 million. Tax on land, at $4.4 per thousand = 13,508
                    Building net value (after exemption of $96,000) = 1.072 million
                    Tax on building at $3.6 per thousand = 3,859
                    Total property tax = $17,367 under the current system

                    Under the proposed plan the tax would be: Land assessed at the rolled back value of $1.6 million. Tax rate of $2 per thousand leads to land tax of $3,200.
Tax rate of $6 per thousand applied to building value (unchanged under the proposed plan) of $1.072 million = 6,432. Total tax = $9,632. A reduction of 45% or $7,735

Example 2:
Quarter acre of land assessed at $812,500. Tax on land, at $4.4 per thousand = 3,575
                    Building net value (after exemption of $120,000) = 48,500.
                    Building tax, at $3.6 per thousand = $175
                    Total tax under current system = $3,750 (In year 1998 the tax was about a thousand.)

                    Under the proposed plan the land value would be rolled back to $300,000.
                    At $2 per thousand the land tax would be $600.
                    The building value is unchanged at $48,500.
                    At $6 per thousand, the building tax would be $291
                    Total tax under the proposed plan = $891 (which is even lower than the 1998 tax)
                    A reduction of 75%, or, in dollars, $2,859

The exemptions, in building value, in both cases were based on age. Neither family applied for low income exemption. Family in Example 2, even if it had applied and got an income exemption that would have zeroed out the building value, would still have been stuck with a total tax bill of $3,575.

Here is where you see the real effectiveness of the 1 to 3 ration in the tax rates applied to land versus building. In most cases where families have been hit hard by escalating tax bills the cause was the land tax portion, because the building value often is close to zero because of the up to $120,000 age exemption. Thus a tax rate on building that is three times that applied on land does not influence the final tax bill.

At the moderate income level you will find that the ration of land value to building value is close to one. In that case the combined tax is the same as under a system of a 1-to-1 rate ration. The2 to 6 ratio averages out to 4 when the land and building values are equal. This implies that, overall, taking the island as a whole, the residential property tax revenue under the proposed plan would not change much from its current value.

Now, you can argue that the current property tax revenue of $47 million is too high. Fine, then, it is up to the electorate to get the Council to lower the tax rates to lower to total revenue. The proposed plan does not take from the Council its authority to set the tax rates. The important thing is that, where the assessment process is controlled by the Administration as it is now, the total revenue under the current economic condition can keep on increasing without the Council having to change the Tax Rate.

Thus every year the Kauai County Government can boast that is has again not raised the Tax, which is a true statement if you leave out the word Rate. Under the proposed plan the land assessment is essentially frozen, except for an allowance based on inflation (the Consumer Price Index), so the government, if it has to increase or, horrors, decrease the property tax revenue, it has to be Transparent about it, by the Council doing a meaningful evaluation of the tax rates (of which there are currently 16, 2 each applied to 8 classes of property, whereas the proposed plan has only 4, 2 each applied to 2 classes of properties) before it adopts its annual property tax rate resolution (which in the past decade or more, has been a strictly perfunctory affair, since the Council has not had to change the tax rates!)

If you thought $47 million in property tax revenue is too high, wait till you see what it will be when the numbers come out at mid-year. It will be $57 million, using the current tax system! That is why the Council adopted two relief plans – the Circuit Breaker and the Home Dedication – before the end of 2003 as a stop-gap measure while we wait for the adoption of a tax reform package.

The Council may not like the idea of being transparent in its property taxing, but it will have to learn to live with it, as all other legislative bodies in the country have had to do. This can become an important campaign issue this year, especially if the Council tries to tinker or disable or disapprove the proposed property tax relief plan.

I have to disagree with Andy on his statement that the Real Property Task Force, being made up of realtors, bankers, was destined to produce a plan that would benefit the rich. There is no realtor. There is one banker. One farmer (the real kind). One farmer/land developer. One former Kauai County head assessor, now an independent assessor. One former County Deputy Finance Director and now an independent assessor. One independent assessor. One retired physician living in a very modest house on land he bought many years ago at Anini. The president of Grove Farms. And a leading Nitpicker.

I have to admit that I had some reservations about the make-up of the group at the beginning, seeing so many assessors and financial types. As a matter of fact, we spent the first five or six weeks laboring over the very basic issue of whether we should continue to employ the system of evaluating real property according to the Market Value, as our assessors are mandated to do by our current laws, and how we could modify it to lesson the impact on properties that happen to be near others that have been sold for very high prices, or new mansions being built in the neighborhood. The professionals among us had a hard time deviating with their well entrenched practice, until, as example after example came up telling real life tragedies on this island from Kekaha to Haena, the professionals began thinking as citizens and neighbors.

At a critical vote taken, I believe in the sixth week, a large majority voted to put some kind of freeze on land assessment. After that, it was the professional expertise in the group that produced the plan as it stands today. Without the expertise of the professionals we couldn’t have come up with thousands of lines of figures in dozens of spread sheets to try out various schemes to optimize the resulting system. Here, too, I have to congratulate the staff in the Assessors’ Office for their invaluable help in responding to the requests from the task force for data. As the weeks go by, they, too, caught the spirit of the proceedings and got personally involved, to the point where their volunteered comments contributed immensely to the accelerated pace of work when we realized we had only a few weeks left to deliver a meaningful package to the mayor and council.

If you are a property owner and wish to estimate what your tax may be when the reform plan is implemented here’s what you can do.

Take out your assessment notices going back from 2003 to 1999.
Pull out the land assessed values, before any exemption is applied. Average the five values. This is the base land value that will be used for your 2005 tax year. Your building assessment will be whatever it will be in 2005 as the Assessors’ Office calculates it replacement value minus depreciation. If you live in this property or if you rent it out long-term you apply a tax rate of $2 per thousand to the land value and $6 to the building.

The resulting sum is your tax for the 2005 year. Thereafter the land value will be escalated at the Honolulu CPI (which currently runs about 1 to 2 percent) If the property is in vacation rental or if you don’t live there full time, the tax rates are $3.50 per thousand for land and $10.50 for building. All these tax rate figures are nominal. The actual rates will come out of the budgeting process, although we have advised the county that whatever the final rates they should try to maintain the 1-to-3 ratio for land to building. All the exemptions that are currently on the books will continue, unless the Council changes any by ordinance. If the ratio of your land value to building value is near 1 and has remained so for several years (meaning, practically, between 1998 and now) there will probably be no change in your property tax under the proposed plan.

If a property is sold, under the proposed plan the land value does not change, regardless of the sale price. This is a significant departure from the practice of other jurisdictions that have adopted some form of freeze on the assessment. The rationale behind this is that it would better enable a local young family to buy its first house. If the purchase price is significantly higher than the assessed value in 1999 to 2003 the buyer would not have to pay a higher property tax. This admittedly will benefit someone from the Mainland; but that’s just another Collateral Benefit that we were willing to accept in order to benefit local residents.

If you don’t have your assessment records going back to 1999 you can probably get them from the Assessors’ Office, although, if too many people start calling, they may be overwhelmed and forced to stop giving the info, on demand, over the phone. I will ask the department if they might put the information on the County’s website, where you already can access the current assessments, but tax bills back to 2001.

If you have questions or suggestions about the work of the Task Force and the Plan I will be glad to respond if you contact me at my e-mail address rchuan@verizon.net

SUBJECT: PROPERTY TAX REFORM

SOURCE: RAY CHUAN rchuan@aloha.net

POSTED: 9 FEBRUARY 2004 - 8:00am HST

The Real Property Tax Task Force Report

Restored 1930's plantation cottage in Kapaa now a vacation rental

The Real Property Tax Task Force has wrapped up its work as of this week, after meeting weekly since May; and will present its plan/recommendation to the Mayor on Monday, Feb 2, followed by presentation to the Council on Thursday, Feb 12. There will be a press release of the plan in the news media. I hope the Garden Island, which has assiduously avoided giving any coverage to the proceedings of the Task Force, will publish our press release, at least.

After this there will probably be a series of workshops at which the public and the Council can go into details of the plan, raise questions, offer suggestions, etc., before the Council goes to work to develop the necessary ordinance to implement the plan.
I will also begin a series of fairly detailed explanation of the plan in the next two or three weeks, during which I hope you will respond to me with questions and suggestions.

I think you will like the plan, which might be characterized as a significantly modified form of California’s Proposition of 1978, modified to fit the situation peculiar to this county. I only refer to Prop 13 because many people seem to use that as some kind of standard; though I don’t believe that is truly relevant to our case here. As a matter of fact, I believe this new plan could well be adopted by other communities faced with similar problems created by exploding real estate activities.

I hope I have generated some interest in your considering participating in the deliberative processes at the Council and the Planning Commission. The Police Commission I must admit I don’t understand at all.

On the tax reform, whether you are a home owner or a renter you will be affected, favorably, I’m fairly confident; and I hope you will take an active role in helping the Council to develop the implementing ordinance. In a timely fashion, because we hope the Council action can be completed by a year from now so that the implementation of the plan can begin with the 2005 fiscal year.