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Home My WebLink About02/22/2012 Finance/Parks & Recreation/Public Works Programs Committee Meeting.1; MINUTES FINANCE / PARKS & RECREATION / PUBLIC WORKS PROGRAMS COMMITTEE February 22, 2012 A meeting of the Finance / Parks & Recreation / Public Works Programs Committee of the Council of the County of Kauai, State of Hawaii, was called to order by Councilmember Tim Bynum, Chair, at the Council Chambers, 4396 Rice Street, Suite 201, Lihu`e, Kauai, on Wednesday, February 22, 2012, at 8:50 a.m., after which the following members answered the call of the roll: Honorable KipuKai Kuali`i Honorable Nadine K. Nakamura Honorable JoAnn A. Yukimura Honorable Tim Bynum Honorable Dickie Chang, Ex- Officio Member Honorable Jay Furfaro, Ex- Officio Member Excused: Honorable Mel Rapozo There being no objections, the meeting recessed at 8:50 a.m. The meeting reconvened at 3:22 p.m. and proceeded on its agenda item, as shown in the following Committee Report which is incorporated herein by reference: CR -FPP 2012 -01: on FPP 2012 -01 Communication (02/02/2012) from Committee Chair Bynum, requesting the Administration's presence to provide an overview and status update on the current FY '11 -'12 Capital Improvements Projects (CIP). [Received for the record.] CR -FPP 2012 -02: on Bill No. 2428 A BILL FOR AN ORDINANCE AMENDING ARTICLE 4, SECTION 19 -4.5 OF THE KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO CAMPING AT LYDGATE PARK [Approved.] Bill No. 2425 A BILL FOR AN ORDINANCE TO AMEND CHAPTER 5A OF THE KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO HOME EXEMPTIONS [This item was deferred.] Mr. Bynum: I have an interest in this bill and I have presented on it before. During this I will not re -hash everything I have talked about before but I have another presentation I would like to do today and in order to do that I would like for us to entertain a motion to approve so we can discuss this. Councilmember Yukimura moved to approve Bill No. 2425, seconded by Councilmember Kuali`i. i> COMMITTEE MEETING 2 FEBRUARY 22, 2012 Mr. Bynum: Thank you. If it is okay I would like to turn the floor over to Councilmember Yukimura; Vice Chair Mel Rapozo is not here today. Council Chair: So Mr. Bynum, I just want to make sure it is within our rules, so you are going to turn the meeting over to Vice Chair Yukimura? Mr. Bynum: Yes. Mr. Furfaro: Because you are going to make a presentation and your regular Vice Chair is not here. Mr. Bynum: Mr. Furfaro: presentation? Mr. Bynum: Ms. Yukimura: for the item, but the whole meeting? Correct. So she will run the meeting even after your That is my intention. Just a question. I will run it for the meeting Mr. Furfaro: If he is making a presentation you have to run the whole meeting. Ms. Yukimura: Yes. Mr. Furfaro: The whole agenda item. Ms. Yukimura: Yes. The whole agenda item. But if we come to the next agenda item then I can pass it back. Mr. Furfaro: Ms. Yukimura: you have a presentation? Mr. Bynum: Ms. Yukimura: You get out of jail free. That is all I needed to hear. So Mr. Bynum I do. Please go forward. Mr. Bynum: And actually Scott can you bring up that spreadsheet to start? I want to just start by briefly saying that access to data and information has been really frustrating for me ever since I have been a Councilmember. It took more than four (4) months to get access to the homestead class data and it is a structural problem that I hope we address at this Council that we have independent access to this data that we need to do the analysis that we are mandated to do by the Charter. But eventually I was supplied this spreadsheet that I am going to ... I do not know, we do not have a structure to do this but I have mad_ e this available to all of the Councilmembers on a disc. COMMITTEE MEETING 3 FEBRUARY 22, 2012 So what this spreadsheet has is all 12,200 (inaudible). It has a lot of data for this tax category. This is all for the 2011 tax year so the categories are like actual taxes paid; new market taxes would be if this proposal was adopted by the Council. I will not go into all of these details because I want to (inaudible) but this was a great tool that was made and at the bottom is kind of the results. In order to make changes to the tax system you need to do a macro and a micro kind of an analysis. How does any changes that you might make impact individual homeowners and how does it impact the County's revenues positive or negative? The point I want to make though is that this spreadsheet is available to all the Councilmembers. You can plug in different data like the homeowner's exemption or the tax rate and be able to look at what the impact is on an individual homeowner. So in this part at the bottom of the spreadsheet you can plug in different home exemption numbers, you can plug in different tax rates, and then it recalculates the whole spreadsheet and tells you about individual homeowners and then also the collective impact. So if you go up just a few spaces, the way it is set -up right now this is if the, on this particular tab if the homeowner's exemption was $200,000.00 across the board without graduation for seniors and the tax rate was a certain amount that developed $5.4 million of tax relief, what would-be the impact in terms of how many people would become minimum tax, how many people would have a new PHU calculated. And then onto the right where it says tier 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, those are ten percent (10 %) of each of the 12,200 homeowners that are covered by this. And so in this instance the ten percent (10 %) that have homes valued below in the first ten percent (10 %) of value would get "x" amount of dollars and what percentage of the total relief. I wanted to say this because I believe that I have done a pretty good job of addressing what I think are concerns in the homestead class right now, and I am proposing some solutions. But I do not think... I am encouraging Councilmembers to use this tool and all of the documents that I have sent to analyze what I am proposing and to come up with other proposals because we have I think some very significant problems that need to be addressed. I gave a disc to all Of you that has this spreadsheet, you can get technical assistance from Mr. Hunt I think to the extent that he is available, he has been fantastic about helping with this analysis. So having said that I will move to the PowerPoint. Ms. Yukimura: May I ask a question here just so we understand what we are looking at? So tier 1 is what exactly? Mr. Bynum: There are tabs at the bottom that have different scenarios and I made those based on the questions that I heard from Councilmembers. So this one (1) is set -up with the proposal that I am suggesting where the new homeowner's exemption is $225,000.00, $250,000.00, $275,000.00; it graduates for seniors at a tax rate of 2.75% that would generate $5.4 million of tax relief for the homestead class. On the right are these new calculations that each tier is ten percent (10 %) of the class and it is sorted by home value. So tier 1 are all the homes on Kauai that are $227,000.00, value assessed at $227,000.00 and below. So tier 2 would be all of the homes that are, and then on to the right is the assessed value for that particular tier. Ms. Yukimura: So tier 1... Mr. Bynum: So that is all of the homes on Kauai, the ten percent (10 %) of the homeowners on Kauai have homes valued $227,000.00 and below. That is ten percent (10 %) of the population here and under this scenario $377,000.00 of the relief that is proposed would go to that tier or 6.97 %. Then the next tier are homes valued... C] COMMITTEE MEETING Ms. Yukimura: Mr. Bynum: Ms. Yukimura: M FEBRUARY 22, 2012 6.9% of the $5 million or the total relief? Correct. Okay thank you. Mr. Bynum: This will be germane in a few minutes. So if you do tier 5 and below, that is the mean, that tier 5. So we know from this that the mean of homes that are owned by residents on Kauai is $375,196.00. Is this making sense? So I thought it would be really important to be able to look at how different scenarios would target the tax relief. And so this spreadsheet is available to all Councilmembers. It already has some different scenarios all the way from this end which has kind of a high homeowner's exemption to the other end where if you just use the current exemption and made the relief just with rates. Now you, the Council may not agree that $5.4 million is the right target, hopefully the Council believes that some relief for the homestead class is warranted. You can plug in any amount you want here and then be able to analyze the class both in terms of its impact on our revenues and its impact on individual homeowners that are in different categories. And so what this spreadsheet has in it already is different exemption scenarios but all targeting about $5.4 million of relief. I will have some slides that show the results of those different choices. Any other questions about this spreadsheet? So I have already done ... yes? Ms. Nakamura: Mr. Bynum: in tier 10. Ms. Nakamura: homes? Mr. Bynum: Ms. Nakamura: percent (10 %) increments. Mr. Bynum: Ms. Nakamura: within the ten (10) categories? So the tier 10 category is for homes... $1.9 million and $1.1 million and above are Right. So that is ten percent (10 %) of the That is ten percent (10 %). Because you have broken it down by ten Yes. So they will receive the largest tax relief Mr. Bynum: In terms of dollars and percentage of the total dollars because those are folks that are currently paying $12,000.00 or $14,000.00 of property taxes. Ms. Nakamura: Right. Mr. Bynum: And so if you give some proportional relief, more of the dollars are going to go to the higher valued homes. Ms. Nakamura: Right, because it is an ad valorem. COMMITTEE MEETING Mr. Bynum: right? Ms. Nakamura: 5 FEBRUARY 22, 2012 Because they were paying more to begin with Right. Mr. Bynum: And last we will go to the lower valued homes because they were paying less to begin with so at that tier the average tax bill is several thousand dollars where at the first ten percent (10 %) the average tax bill might be $25.00 to $50.00 to $100.00. But as we will see it is not very predictable right now based on value and that is one (1) of the key problems in my view that we want to have similarly valued homes taxed similarly. Did I answer your question? Ms. Nakamura: . Yes. Mr. Bynum: So I am not going to go through all of this. The last time I was here I did a bunch of examples and you can find them on any home but this is a typical home on Kauai and helps us understand the impact that the two percent (2 %) cap or the permanent home use had on an individual property. So this property is typical, you can find these kinds of scenarios all over the place but this was a property that in 2003 paid a property tax bill of $524.00. As the run -up of values was occurring in the early part of this decade and you calculated the tax based on assessed value minus exemptions times the rate, which is the typical way of doing it, this home's property taxes in one (1) year went from $524.00 to $1,142.00. That is the kind of scenario we were in when the Council passed the two percent (2 %) cap which was very very effective at protecting homeowners in the early years of its inception. You can see that in this chart this homeowner's property taxes were capped at $1,141.00 and for the next six (6) to seven (7) years they went up by only two percent (2 %). So the cap protected this person from having to pay the full assessed value times the rate and the blue line there is showing how much PHU credit was applied in order to keep those taxes at that rate. Is this clear to everyone? Ms. Nakamura: The cap was introduced in 2005? Mr. Bynum: It began in 2004 and it was based on the assessed values from 2003. And so in this case this home the taxes went up two percent (2 %) until 2010 when the home sold. Then the new owner, and that is one (1) of the issues that I hope to address, the new owner's taxes went from $1,260.00 to $2,057.00 because under that cap, when the home sold it got ... the taxes were reset for the new owner at the assessed value times the rate. So on this scenario if this home would have sold anywhere along that purple line, that would be what the new homeowner would pay. Now if that happened in 2005 at $1,694.00 if the home sold then that would become the new cap for that new homeowner and their taxes would not go above $1,694.00 or more than two percent (2 %) a year. But they would be capped at a different rate than the homeowners that started with the program. Once we started to turn down and you see that the trend is down, it is because the assessed values were now going down and if people bought in at that rate at say that $2,187.00 their taxes would have come down with the rates because they were no longer covered by the cap. Ms. Yukimura: Okay, I have a question. COMMITTEE MEETING Mr. Bynum: Ms. Yukimura: it says two percent (2 %) cap. 6 FEBRUARY 22, 2012 Yes? So help me understand that blue line where Mr. Bynum: So the blue line the first year or say 2005 the calculated taxes were $1,694.00 but the cap made their taxes $1,164.00 creating a $530.00. Ms. Yukimura: So that is the difference? Mr. Bynum: So if you look on your tax bill on the County's website you will see the PHU as a credit so if you take the $530.00 plus the $1,164.00 it equals $1,694.00. Ms. Yukimura: by having the cap? It is mainly showing the amount you saved Mr. Bynum: Yes. And so when the last time I presented here I showed dozens and they are all different but pretty much the same because pretty much all homes had an accelerating value that peeked in 2007 and then it came down. So I did not want to repeat myself I wanted to move onto to new things assuming you guys all got this the first time around. Mr. Kuali`i: I just had a quick question. So with that cap having been in place the cap was put in place to keep the rates low when the property values were skyrocketing? Mr. Bynum: Yes. Mr. Kuali`i: But each year the Council could have during the budget process address that problem by changing the rates? As part of the budget process the Council has the power to lower the rates so the analysis could have been done of what the new assessed values were for that year and then... adjust the rates accordingly to keep the actual tax bills from skyrocketing? Mr. Bynum: Actually yes. Mr. Kuali`i: And so had that been done that would have corrected, that would have addressed the problem. But instead, the cap was done and when the cap now is in place for all these years, when a new owner ... when it switches, the cap jolts and then now that is what you say this green line went super up right because the property turned over. Mr. Bynum: Right. The property sold in 2010... Mr. Kuali`i: So the cap only works if people hold on to the profit? I mean the property? Mr. Bynum: If they stay put. Mr. Kuali`i: If they stay put. And so now that they have not, you are proposing another way to fix the problem but why do not we go back to the rates each year, the Council? COMMITTEE MEETING 7 FEBRUARY 22, 2012 Mr. Bynum: Mr. Kuali`i: Well from my own personal view... Comprehensively? Mr. Bynum: It is not just my view it is our tax ordinance. Our tax ordinance instructs the Council to do this each year at budget to say have a discussion Council what are your revenue needs from property tax next year to run the government, that is discussion number one (1). Discussion number two (2): who should pay what portion of that burden; how much should be paid by resident homeowners; how much should be paid by hotels and resorts; how much by commercial properties; how much by ag properties. We have our eight (8) categories right now and so it says Council first determine your revenue needs, next determine who should pay what portion, and then do the math and set the rates accordingly. That is what we are supposed to do every year. The simple fact is our rates have not changed in any category for like six (6) or seven (7) years and when they changed seven (7) years ago they changed by $0.05. And so we have not been engaging in that process, that is just a fact. Mr. Kuali`i: But we can going forward. Mr. Bynum: I hope we do. I believe that our current Chair intends us to do that, why he has given us a budget schedule where we have four (4) days of decision making instead of two (1). I assume that is one (1) of the things. But you are correct. The traditional way of managing the property tax system is just what I said; to look each year what were your assessed values, and you set the rates, and that determines what the tax bill will be. But in 2004 the homestead class went to a different plan for many people which was regardless of your assessed value and rates your bill will not go up more than two percent (2 %). It was very popular because it was predictable which is a really good thing to have for people is predictability and it was not dependent. But without adjusting the rates... because homeowners change and people move. And so since 2003 we have the numbers I just showed you in the chart which I can show you again about one -third (1/3) of the homestead class has turned over. People move because housing has a life cycle and right now I am looking to downsize. My kids are adults I want to move to a smaller home and I want to free up that bigger home for a family that has a lot of kids. And so I know when I move into that smaller home though my taxes are going to be... unless we change something. And so the cap was extremely expensive in protecting homeowners in the early stages in an up market. In a down market even though your assessed values went down, if you are capped you are still going to pay two percent (2 %) more and now with the changes we dust approved it is not a two percent (2 %) cap anymore, it is a Honolulu Cost of Living Cap which this year is around four percent (4 %). So this is kind of complex but to me having predictability and fairness in the tax. system is a very important goal. So I do not know how this chart got in, it is in the wrong place so I am just going to go beyond it. So if we look at the impact this chart is very important to me because we all agreed in the early part of this decade that we thought resident homeowners should pay lower taxes. They were paying close to thirteen percent (13 %) of the tax burden and you can see how effective the cap was in bringing homeowner's taxes down. The cap went into effect in 2004 and the taxes paid by resident homeowners went down pretty dramatically from almost twelve percent (12 %) to eight percent (8 %) and continued to go down. Now this is the class not the individual tax payers, but the impact of the whole 12,250 people who are resident homeowners. But as the COMMITTEE MEETING 8 FEBRUARY 22, 2012 economy turned around it went down and the assessed values started coming down, the combination of homeowners continuing to pay at least two percent (2 %) more and those new homeowners that are coming in paying a lot more reversed the trend. As of the end of last year where we are back up to close to twelve percent (12 %). In 2008 there was a proposal to try to address this change but it did not pass the Council and it is still pending in our file over there. So if you look at the impact, so for the last three (3) years the cap has kind of had the opposite effect that it did in the run -up of values. It has helped create a situation where taxes paid by the homestead class are going up as opposed to going down. I do not think that was anyone's intention and so I think it is important for us to try to address it. I have been concerned about this since 2008 when this was really eloquently illustrated to us by the Finance Department. So what impact that has had in the last three (3) years though is pretty dramatic. Did you have a question Councilmember Yukimura? Ms. Yukimura: Yes I do. You have it in percentages, I was just wondering what it looks like in raw dollar figures. Mr. Bynum: I showed that the last time I was here. Ms. Yukimura: Okay, excuse me. Mr. Bynum: I have those charts but I did not want to take too much time. Ms. Yukimura: Okay. Maybe I can get that later. Mr. Bynum: But if you look at the changes from 2008 to 2011, admittedly during the time where the market is falling, the seven (7) tax categories on the left -hand side of this chart are still tied to assessed value times rate. So as the assessed values have come down and we have not increased or decreased rates, the tax bills have come down. So for the single- family residential class which has residents that are not owner - occupied, so those might be vacation rentals or second homes that are owned by people who live in another state or rental properties; their taxes have come down in a three (3) year period by $6.6 million. So if the taxes were to stay the same as 2008 that would be flat, but that class has had a reduction in taxes of $6.6 million. And then for the apartment class which on Kauai is largely resort properties they have had a reduction of $4 million. Commercial is a smaller class, it has fewer properties but they have also had a reduction. Industrial is the only one (1) in this class that has had an increase and I believe it is primarily by new parcels. I am not presenting everything I did last time because you have to look at the parcel counts too. Are they paying less because there are fewer parcels to collect taxes from? The answer in the first seven (7) categories is they all have increased number of parcels. So even though there are additional tax payers the class has had this reduction in taxes. All told that impact on the County has been a $24 million reduction in taxes in a three (3) year period from these seven (7) tax classes that are not involving resident homeowners. I would have hoped that during that time resident homeowners would enjoy some tax relief as well but because of the factors I just discussed they actually have had an increase of $3.1 million in the same three (3) years. So I am very concerned about this; I think it is inappropriate and I think we need to address it. In addition to that we have increased fees and just for the homestead class the trash fee alone is $1.5 million additional dollars that the County is collecting from resident homeowners. Now other classes are paying higher fees too, tipping fees have gone COMMITTEE MEETING 9 FEBRUARY 22, 2012 up, and I acknowledge that this is the last three (3) years during the downturn. If we looked at those other people like ag, and resort, and apartment, and single- family, they paid a big increase during the run -up that homeowners to some extent shielded from. Now, this is some of the result pages from those different scenarios. The proposal I am putting before the Council really is a two (2) step thing where I am saying this bill I believe we should increase the homeowners exemption. What I am proposing is that that exemption be $225,000.00 for homeowners, $250,000.00 for homeowners aged sixty to sixty -nine (60 to 69), and $275,000.00 for homeowners seventy (70) and above. It has been a long term tradition in most communities around the country to give seniors some additional tax relief. It is just based on the concept that seniors are more likely to be living on fixed incomes and be retired but it is not always the case. We know in individual circumstances seniors just because they turn sixty (60) it does not mean that their financial situation has changed. So when I looked at all of this and said homeowners taxes did not go down by $2 million to $3 million while everyone else has gone down, they went up by $3 million and I believe it was a stated intention of the Council or majority of the Council to keep the homestead class paying in the five to six percent (5% to 6 %) of revenue... that do deal with some of the issues that I am concerned about could be accomplished by targeting about $5.4 million of relief for the homestead class. In the last three (3) years... so to kind of reverse that trend. So what would that accomplish if we were to do this and that is... so you know that this involves 12,246 home exemptions which is down 310 people in the last three (3) years. The only class that has a lower parcel count is resident homeowners and that is a pretty sad statistic to me because those are people who have lost their home through foreclosure. We like to see more of our residents being homeowners and in the last three (3) years we have lost 310. But, and then you see that number the current PHU count or the people who currently are getting a PHU tax credit is 8,733. So that means the difference between that and 12,000 are people who have moved or new homeowners in the time period since the cap started. Is that clear to everyone? So that is why I am saying that is about thirty percent (30 %) of the homes are not covered under the cap right now, they are people who moved or purchased their homes since 2003. Now if we were to employ this home exemption with a homestead rate of $275,000.00 to generate $5.4 million in relief it would in essence lower the taxes for everyone except for 1,100 people would have a lower tax rate than the current PHU. Another goal to me is to reset the cap. We have agreed as a Council that we are going to keep a CPI cap going forward but right now it is not equitably applied to everyone. And so the bill I have introduced does two (2) major things: 1) It changes the homeowners exemption; and 2) It resets the cap based on next year's taxation. That will become clear in a few more slides. But when I was here last time and then the chart on the right I have explained about how that relief is focused. Any questions? If not, I will move on. Ms. Yukimura: You said your bill proposes to do two (2) things: changes the homeowner exemption and then resets the cap based on what? Mr. Bynum: Based on the tax bill next year. So we set_ the base year of the cap based on the assessed values in 2003. This would in essence reset the cap and base it on the assessed values in 2013 or next year, FY 2013. Ms. Yukimura: In example: with the exemption that you are proposing? COMMITTEE MEETING 10 FEBRUARY 22, 2012 Mr. Bynum: Well if this bill were to... it has two (2) major elements: changing the homeowners exemption, increasing it, and saying whatever we end up with a new tax bill next year, that becomes your new base for the cap. Ms. Yukimura: And I am saying that the second part is actually being affected by the first part or is it ... because the next year's taxes if you change the homeowner exemption will be lower because of the homeowner exemption increase. Mr. Bynum: Because of the combination of homeowners exemption... Ms. Yukimura: And whatever tax rate you set? Mr. Bynum: And the tax rate we set. Now what I am trying to do is target $5.4 million in relief because it accomplishes, largely accomplishes these goals of bringing more equity or fairness to the class and reducing homeowners taxes into the five to six percent (5% to 6 %) of the tax burden as opposed to twelve percent (12 %) where it has gone. So I know this is complicated but this is very important because these goals are all important. The other thing that impact that this has right here which is calculated is the number of people paying minimum tax. In the current tax year and this excludes Hawaiian Home Lands for those people covered by this seventy -five (75) of them are paying the current minimum tax; under this proposal that number would go up to 1,300. Some people are really concerned about that, personally I am not that concerned about that because some of those people are going to go from paying $30.00 to $25.00 so they get counted as a new minimum tax person even though their tax bill this year is only $30.00, but these changes would move it. These would exclusively be homes that have the lowest value or the most modest accommodations we have on the island are the ones who would go to minimum tax. Of that 1,300 two - thirds of them are seniors because they are more likely to go to minimum tax because they have a higher exemption. So I am not as concerned, and the fiscal impact of that is about $400,000.00. But that is an important statistic because there are other ways to slice this and what I want to show you are some other proposals that I have heard or other possibilities. What if the homeowners exemption was $200,000.00 and it did not graduate for seniors? Well and in order to get $5.4 million of relief you would have to set the rate at $220,000.00. So I want to compare different scenarios so that makes sense right? So under this scenario fewer people get their PHU corrected or if I could back one (1) just for a minute. That 1,383 I mean I am sorry that 1,000, the new PHU count up there that means that even if you did these large homeowner exemptions and lowered the rate to $275,000.00 there are currently 1,143 people that are doing better under the cap than they would under this proposal. Does this make sense? Let me say that a different way. One (1) of the goals here to me and I said this last time was spread this big of similarly valued homes some paying a lot some paying a little. This proposal would bring down the taxes and would make the spread much smaller but the people who are below the line are doing better under the current cap. So even if you increase these homeowner exemptions and reduce the homestead rate to $275,000.00 and give $5.4 million worth of tax relief to the homestead class there are still 1,100 people whose current PHU credit is better than that. Does that make sense? Ms. Yukimura: That means that they are still way below the line? COMMITTEE MEETING 11 FEBRUARY 22, 2012 Mr. Bynum: Right. And this proposal would not have them pay an increase it would say and that is the section of the bill that resets. the cap says your new base will be the taxes or your current PHU credit, whichever is better. So no one pays an increase as a result of this proposal but a lot of people get a decrease and the range of payment and I am going to illustrate this more graphically in a minute. So there are different ways to do that right? You could do it $200,000.00 and then you see these results. It means fewer people are reset with a new PHU credit but it does reduce the amount of people paying minimum tax because a lot of those seniors are not getting that. So the minimum tax count goes down but the amount of people who are doing better under the current PHU goes up. You can do it at $175,000.00 flat, so there are all these different scenarios that is on that spreadsheet or you can put in your own scenarios. But then it tells you what is the impact. So let us say if you had $175,000.00 flat and you generated $5.4 million that would reduce the minimum tax count considerably but it would leave 2,343 people whose current PHU credit is even better. So it is kind of like there is no way to have it both ways, you cannot reduce the minimum tax, the number of people paying minimum tax and adequately address the inequities in my view. So if you go to the current exemptions it really gets pretty dramatic in terms of, Councilmember Nakamura? Ms. Nakamura: Clarify Councilmember Bynum that, I think what the goal of trying to reduce the inequity from the two percent (2 %) cap is a good one because families with homes next to each other receiving the same Police, Fire protection, road improvements, sewer, water, should not be paying, should not have a huge disparity in the taxes they pay. So the intent is good. I am not, I do not know if I understand under the new PHU count, does that mean that there are ... what number tells me that we are reducing the number of disparities of people... Mr. Bynum: The lower the new PHU count number is the more we are addressing the disparity. Ms. Nakamura: The lower the number? Mr. Bynum: The lower the new PHU count. So like if we just used current exemptions and did the relief with just the rate that is the slide that is up now, you would have to set the rate at a $1.34. Under that you would not create many new minimum tax people but the new PHU count would be 2,887. So 2,887 people would still have a lower rate even after we gave this much relief, they would have a lower tax bill and I have some slides here that will illustrate that better. The question came from Councilmember Kuali`i last time we met, well why not just do it with the rate? Why do the large exemptions? And I am going to address that right next (sic). Here is the reason, with the exemption increase sixty percent (60 %) of the tax relief goes to homes valued $460,000.00 and less. If you do it with rates only, only fourty -six percent (46 %) of that tax relief goes to homes valued at $460,000.00 and less. So now if we look at this if you look on the right you see tier 10, the people whose homes are valued over $1.1 million, with just changing the rate they get $1.5 million of the relief or close to thirty percent (30 %). If you do it the way I am suggesting that upper tier gets sixteen percent (16 %). So the higher homeowners exemption focuses the relief on the low and middle income. Does this make sense? And so that is why I think it is important to do the exemption because it makes this tax more progressive and impacts the people who presumably need the help the most. And you can do it by any scenario you want by looking at these COMMITTEE MEETING 12 FEBRUARY 22, 2012 tiers and how it focused. But generally the lower the homeowners exemption the more of the relief goes to the high -end. The higher the exemption then more of the relief is focused on the low and middle income and I thought is this example here that I...to me it is very significant. I want sixty percent (60 %) of the relief to go to middle and low income people who own homes on Kauai. So if you looked at that spreadsheet and I have asked some of you to do this, just randomly sort it by value and randomly pick anywhere you want because one (1) of the questions I have been asked was well are you cherry picking these examples that are extreme. I want to say no, this is anywhere you want to look. So I did some, I pulled out some little boxes of this chart so if you look at this one, all of these homes these are five (5) homes kind of picked out, they all have an assessed value of $299,000.00. Does this make sense? Or right around $299,000.00 from $298,700.00 to $299,100.00, so within a couple of hundred dollars of each other. But then if you look on the left column, the actual taxes they range from $504.00 to almost $1,000.00. These are all people that have the same values but they are paying very widely different rates. The column that says new market taxes is what the tax bill would be for these very modest homes, this is in the twentieth percentile (20 %) under the proposal that increases the homeowners exemption. You can see here it is giving more relief to these low, more modest homes. You can also see that the range is not that great. So this 'is the same homes illustrated graphically. The blue dots are the current taxes paid by these various homes and so you see it ranges from $379.00 to over $900.00. To me that is huge inequity, it is not appropriate, and as Councilmember Nakamura said they are all accessing the same County services, under the proposal the red dots is what the taxes would be if the proposal that I am suggesting were adopted. So that is how I am saying it is addressing the inequity; in that even the people presumably the person at $379.00 was capped from the beginning it was capped in the neighborhood that had ... but at this low end with higher exemptions everyone's tax bills are going to go down to $203.00 and so everybody is treated the same. Now that may seem like a really low tax rate for a year at $200.00 but these are homes that are valued at $299,000.00; that is $100,000.00 below the median for homeowners. There are very few homes for $299,000.00 and this is not what they are selling for out there, this is the County's assessed value. Any questions about this? I want to show some other examples. Ms. Nakamura: Councilmember Bynum do we know what the median tax that homeowners pay? Mr. Bynum: The median tax? Ms. Nakamura: Median real property tax in the homestead class? Mr. Bynum: It would be really easy, we could calculate that in one minute with that spreadsheet. I know the median value, I said earlier today S &S Research said median home value on Kauai is $480,000.00 well not for resident homeowners. The median is closer to $380,000.00 and so with that spreadsheet I have all 12,000 you just go to the center and there is the median. So I do not know the answer of right off -hand but I can find it out in one minute. Ms. Nakamura: Maybe the Administration might have that answer so I will wait. Mr. Bynum: So what I want to show here is this big discrepancy of who is paying what even though there are values that are ... now why COMMITTEE MEETING 13 FEBRUARY 22, 2012 is that? I have already said some of these folks bought their homes but there is another reason that I have discovered and I think this is totally accurate, in 2003 which was our base year for the cap the assessed values were not very credible. We had not done a very good job. There were neighborhoods that had not been reassessed for several years and there are lucky neighborhoods and their cap base was low. Then there were similarly valued homes that were in unlucky neighborhoods who had had their reassessment done in 2003 and they got capped at a higher rate. Our assessed values under the current leadership and Real Property are much much better. They have credibility and that is not my opinion that is the opinion of many mortgage bankers and realtors and I believe our real property people who really have done a really concerted effort to make our assessed values more credible and appropriate. So this disparity happens because of reset and because of some people got capped low, some people got capped high, even though their homes now have similar values. So go to the fifty -fifth percentile (55 %) which is a home valued at $393,000.00, so what does that mean? That means fifty -five percent (55 %), at the fifty -five percentile (55 %), fifty -five percent (55 %) of the homes are valued less than this and forty -five percent (45 %) are valued more. And so this is near the median for resident homeowners and you can again see, and I guess it is easier to see this graphically which is this slide. The blue dots are what people are actually paying that have very similarly valued homes and you see in this instance it goes from $560.00 up to over $1,300.00. If you are the person paying $1,300.00 and your next door neighbor in the exact same home is paying $564.00 you are probably not very happy. So let me go through a couple more of these at the seventieth percentile (70 %) you still have that kind of disparity. Now the tax rate are higher I mean the tax bills are higher because these are homes that are valued higher. But that disparity is still there and the redline is what it would be if we were to adopt these proposals. So in essence it is kind of fair it is kind of the same which is I think, I will just speak for myself, I may think my taxes are too high or I may think they are too low but I want to know I am being treated the same as everybody else with similar circumstances. In every other tax class that is the case, your assessed value times the rate, if you are an apartment building you are treated like every other apartment building but in a homestead class over time for the reasons I have said, we have this disparity. In the eightieth percentile (80 %) the homes that, eighty percent (80 %) of people on Kauai have homes valued less than this that happens to be $510,000.00 and this one is pretty interesting because you see the one that says $693.00 the blue dot that is below the red dot? That is one of those 1,100 people that under the current PHU are doing even better and most of those are at the high end for whatever reason the current PHU is even lower than if we adopted these rates and exemptions. But this shows where it goes from $693.00 to over $1,500.00, the new tax rate would be at $715.00 and people would be treated the same. So I wanted to show these. Now, this is Kailani Place. I asked the Housing Agency to give me a list of homes that the County our County Agency has sold affordable in the last few years. Three (3) of the homes on this chart in fact all of the homes, Kailani Place in Hanapepe is right across from the Veterans Cemetary and it is self -help housing, the whole neighborhood is self -help housing, everyone that lives there I believe is in self -help housing. So if you look at the lines that are kind of flat on the bottom those are people who completed their homes prior to 2003 so they are capped and their tax rates have been predictable and straight across the board. Now what you cannot see there because I have overlaid a number of homes all on the same block is ... there is one the green one 3403 that was occupied and capped for 2003 and 2004 and then there is no tax record for that address until 2008 and that is because the house was vacant and owned by the County of Kauai and we do not pay taxes apparently so there was no tax bill on that home until the new self -help housing people came in in 2008. In their first year COMMITTEE MEETING 14 FEBRUARY 22, 2012 the tax bill was $2,768.00. Now that is because they did not have a homeowners exemption at all, they came in at the same higher single- family residential rate because when you file a homeowners exemption if you miss the deadline you got wait a year. So then when the homeowners exemption came in they came down to $1,315.00 and their taxes have come down a little bit because they are not under the cap. The cap would only apply if the assessed value went up. So this self -help housing people living in the same house across the street from their neighbors are paying $1,300.00 in taxes when their neighbors across the street are paying $600.00. This is and this is what I said last time when Lisa Ledesma offered testimony who is a mortgage person at Wells Fargo that helps our Housing Agency come up with... why would the people, now the one in the middle there the orange one is somebody that completed their house in 2004 just one (1) year after the cap had come into place. But they got in their first year a $1,300.00 and then they are under the cap but they are under the cap a year later. Is this making sense? So you see that one (1) the yellow line or orange line in the middle where it is like $1,218.00 and they are going up two percent (2 %) a year. We have very real instances where people have not been able to get into their homes because the tax rate gets reset for them. Is this making sense? Under this these are homes that... Ms. Yukimura: Did you just say they cannot, they have not been able to get into their homes? Mr. Bynum: Let me, bare with me for a second and I will answer that. Here is an example that I was talking about earlier today; on Kauai right now not through our Housing Agency there are homes listed sale price for $199,000.00. This is a real home that is currently listed in MLS on Kome Street in Kapa`a. I have looked at this home it is a three (3) bedroom, two (2) bath fixer upper, it looks a little rough it needs some paint and some work but it is $199,000.00. So if I am a young family and I am looking at trying to get into this home and I have gone to our self -help housing workshops and I have put some money down payment and what Jeff was saying earlier today, you have got to look at what can you afford to buy and what your monthly payment impacts that. And so in this home typical and this happens every day talk to Lisa Ledesma because she eloquently has told me how painful it is when somebody comes in and says hey the list price is $199,000.00 and the County taxes are $371.00 and I did the math I can put $5,000.00 down and get this low interest loan and we can afford this house let us get in. And then Lisa says no no no I am sorry because your taxes are not going to be $371.00 they are going to $887.00. Now if she would have been talking to them in 2007 she would say no they are not going to be $343.00 they are going to $1,200.00. But as of today somebody buys this home the current owner is paying $371.00 the new owner is going to pay $887.00; that $40.00 or $50.00 a month can make the difference of qualifying for a home loan or not. The current interest rates $50.00 a month will buy $15,000.00 and we heard Jeff say today how close people are to that margin, that if they have a little bit of debt they can only afford $164,000.00 but if they have been to our homeowners classes and they have acted responsibly and have not got a lot of credit card debt or bought a fancy car it is like oh you can qualify but hey that $15,000.00 can make a difference. I thought these two (2) I mean this is the stuff I lose sleep over. We work so hard to get people into homeownership, our Housing people Agency work so hard; Fay Rapozo who was spoke about here today she is passionate about her work. And so this has many implications. Under the proposal I am putting forward because this home is again at the low end of assessed values even though it is listed for $199,000.00 which is its true value our current assessment is $280,000.00. This home's proposed new taxes COMMITTEE MEETING 15 FEBRUARY 22, 2012 would be $159.00 or giving a potential homeowner $20,000.00 more dollars of potential buying power. Does this make sense? I am almost done believe or not. In 2008 like I said the Administration came here and said hey the cap is great but we need to reassess this we need to reset it or we need to do something about it. This was from their slides, their proposal was to increase the homeowners exemption to $3002000.00, $325,000.00, $350,000.00, and to adjust the rate. At that time they were going to eliminate the cap, they said let us bring taxes down so the majority of people are not going to miss the cap and they were suggesting that this be revenue neutral. This is their chart, they were saying let us lower homestead class thirty -five percent (35 %). So that is at the 2008 levels they said hey it is starting to go back up, let us bring it down into the five or six percent range and keep it low and we are going to make up the revenue by doing increases in some categories because they wanted it to be revenue neutral. This did not pass, homeowners did not get a thirty -five percent (35 %) reduction, and we know from the charts I showed earlier that they actually got at twenty percent (20 %) increase; their taxes did not go down from 2008 as this proposal, they went up as a class. Now I do not think that was intentional so what I am proposing is similar to what has already been proposed but not as big. What I am proposing is that we set the exemptions at $225,000.00, $250,000.00, and $275,000.00 and a tax rate of around $2.75. Now that will change depending on the assessed values we get but targeting $5.4 million of tax reduction. The key difference here though is we have decided as a Council we are going to keep the cap, the cap is a good thing because it gives predictability and it makes sure that even if we do not or if future Council's do not mind the store that the taxes, the tax bill, is not going to go higher than the Honolulu CPI. That is the proposal that we just passed, this Council. So that is why this bill is not suggesting to eliminate the cap, it is suggesting that we deal with these inequities and then make that the new basis; the assessed values that are much more credible and appropriate and that that be the basis for the cap going forward. Does this make sense? So one (1) of the biggest objections I hear, concerns I hear about this proposal is how can we deal with $5.4 million reduced revenues next year? And my answer is two -fold: one (1) is in the last three (3) years we lost $24 million from the other seven (7) tax categories and nobody raised that question, nobody said oh my gosh we are losing $24 million of tax revenue but we did and we somehow coped with it; the second part of that answer and again I go back to this chart, imagine in 2008 if we would have done that thirty -five percent (35 %) reduction and eliminated the cap. The homestead classes would have come down into the six percent (6) range and they would have even gone down and they would have gone down even further if we did not adjust the rates like we have not. So in many ways I am just trying to get back to where we were in 2008 and then manage it going forward. So the other, so when you look at this this is the impact sheet, 10,933 people would have their taxes go lower. The people who currently have the cap and have had it all along would have a small decrease. The people who bought homes or got assessed at a higher... got their caps set higher would have a larger increase. It would average about $500.00 for those 10,900 homeowners. 1,143 people would not have a reduction because their current PHU credit is even better than this proposal. But it would go a long ways to accomplishing the goals that I have in mind: (1) decrease the inequity; (2) reduce taxes for people who live and work here; and (3) have the cap based on these new rates that have new credibility or fairer. Now if the economy returns and values start going up I believe it is our role to address the rates every year just like our tax ordinance says. So let us take this year for example, are the taxes are going to go up four percent (4 %)? Well that is really up to us. If we do COMMITTEE MEETING 15 FEBRUARY 22, 2012 nothing and the assessed values, I mean if we do nothing the homestead people who have the cap will go up four percent (4 %). But if we adjust the rates so the increase is less than four percent (4 %) then the cap just becomes a safety net going forward and we do not allow these inequities to happen again. But that just depends on what we do. So to summarize, this accomplishes three (3) important goals: reducing the inequity in the homestead class so people are paying a fair share; reducing taxes for people who live and work here overall; and resetting the cap at a level that is more credible and appropriate. I hope that the Council will seriously entertain this and pass it. The other question is: how do we deal with the $5.4 million decrease. My answer is in this chart right here that has been updated for the CAFR. We have currently a $51 million unreserved surplus. We have agreed as a Council that $25 million of that will be set aside as an appropriate reserve. That means by my math that there is $25 million above what we have agreed as an appropriate reserve and that this tax decrease can be funded from that for the next four (4) years. This is not my opinion these are facts of our CAFR. Now somebody might say well yes we are going to assign this much to the budget and we are going to do that, we have these other potential uses, and it goes back to the larger discussion that we have been having. We should make our decisions based on what we actually do, not a budget plan that we do not follow. I did not put that chart up here but in the last ten (10) years we have assigned millions of dollars to balance the budget, but at the end of the year when it was all ... the books were done, we did not use those funds. They went back into the reserve and for years this County dealt effectively with a fifteen to twenty percent (15% to 20 %) reserve. The fact is that during this run -up of values our reserve went as high as fifty -three percent (53 %). And so we have agreed as a Council that we are going to have a target of twenty -five percent (25 %), but there is $25 million above that right now. And so I am not suggesting that we increase anybodies taxes this year. Now we may want to address the rates so we do not have, to continue to have a revenue loss. But it is a fact that the non - resident, the categories that are other than residents have had a $24 million reduction in three (3) years. I think local people should have shared in that reduction and I think we can accomplish several important goals by allowing them to have the $3 million back that they paid in addition, and have a decrease similar to the others, and deal with the inequities and all the other things I have said. But it is a two step process; homeowners exemption now and then setting an appropriate rate. Councilmembers may think $5.4 million is too much and that it should be less or that the exemption should not be graduated for seniors. I would just ask, this is my proposal, I think it is modest and appropriate, I think it finds the right balance about trying to reduce the inequities and not skyrocket costs, and focusing the relief on the low and middle income who are struggling. Thank you very much for listening to this. Ms. Yukimura: Thank you very much Councilmember Bynum. I appreciate all the work and thought that has gone into this and it does raise some of the problems with the current situation that we need to address somehow. Now you were speaking in terms of people being able to experiment and look, are you looking for something to pass out of committee today? Or were you wanting to give more time for Councilmembers to understand this and make counter proposals? Mr. Bynum: Personally I have been working on this for three (3) years, I am ready to vote. Obviously this is my proposal, I think this is the appropriate level to set this at, I think it meets the needs, and I am ready to vote "Yes" right now. COMMITTEE MEETING 17 FEBRUARY 22, 2012 Ms. Yukimura: Okay. So there is a motion pending on the floor to approve. I just want to say that there is no one that I can see from the public who might want to testify on this. Chair Furfaro: You are not going to call up anybody from the Administration? They are all sitting there. Ms. Yukimura: Okay you are very right Chair, thank you. Does the Administration want to give some input? Oh I did not even see Wally. The rules are suspended. There being no objections the rules were suspended. WALLY REZENTES, JR., DIRECTOR OF FINANCE: Hello, Wally Rezentes, Jr., Director of Finance. I just saw Councilmember Bynum's last slide and I wanted to correct it only because it says the source is the Department of Finance and what I wanted to do is pass out page 92 of our CAFR and page 124 of the CAFR. Councilmember Bynum's slide states that the unreserved general fund balance, it is a report of unreserved general fund balance, and I think he reported in this slide that the amount was $51.36 million. I wanted to show you on page 124 if you look across to the 2011 table what the proper gadsby 54 terminology is that this amount of $51.36 million is assigned it is not unreserved. It is assigned an assigned fund balance so this is not a report of the Department of Finance. If you go onto page 92 it provides the detail of the $51.36 million and the assigned it is under that term, again assigned and you will see ... I am sorry I forgot my glasses. But you will see that assignment is of $47.619 million to budget future shortfalls, that is to budget, to balance the current Fiscal Year's Budget, Fiscal Year 2012 as well as an assignment of $3.7 million for self - insurance. So I am not sure what the intent of this report is but if the assumption is that there is $51.36 million available for appropriation that is inaccurate from the Department of Finance's perspective. And if you folks or if Councilmember Bynum feels otherwise, I strongly suggest that you talk to your external auditors and get a read from them. Chair Furfaro: I have put in a request Mr. Bynum, when the bill comes to the full Council to have the auditors here, that is for your information. Ms. Yukimura: Any other questions of Mr. Rezentes? Councilmember Bynum. Mr. Bynum: Last year prior to this year how much did we assign... previous year how much did we assign to balance future balance shortfall? Mr. Rezentes: I do not have that information. I can get it to you but we can get it. If you get the CAFR I can look it up, I do not have it with me. Chair Furfaro: Staff get the CAFR. Ms. Yukimura: Other questions? Go ahead. Do you have another question? Mr. Bynum: You need to show everything Wally. Mr. Rezentes: Yes I know we should. COMMITTEE MEETING 18 FEBRUARY 22, 2012 Mr. Bynum: Mr. Rezentes: Mr. Bynum: surplus? Please show everything. We should we really should. I agree. So are you saying we do not have the Mr. Rezentes: I believe you should ask your auditors that because I think they testified to that. Mr. Bynum: I did and they were here. Mr. Rezentes: They were and I believe... Mr. Bynum: And it is in the CAFR on a different page. Mr. Rezentes: I think you should, I think you should really look at the notes or whatever the transcripts of that day. Ms. Yukimura: May I? I have a question Wally. Mr. Rezentes: Sure. Ms. Yukimura: So your Administration opposes, the Administration opposes this bill? Mr. Rezentes: No we are not saying we are opposing the bill. We need to study it further and there is obvious implementation concerns that we would have to deal with if it is passed in its present form. I can have Steve come up and talk about the hoops that we would have to jump through should the bill pass as presented. It would not be something that would be overnight implementable because of the time it would take to have our system programmed appropriately. Ms. Yukimura: Okay I think that it is something we should look at, I mean we should hear about. But I want to further clarify it feels like Wally the Administration does not want this bill to pass. Are you supporting the bill? Mr. Rezentes: I am saying that in the timing of it is such that it would be very difficult to implement without going through a restructuring of our system. We need to study it further, we need to study what the impacts will be on the other categories of real property, who is going to be laden with ... if it is $5 million if its $5.4 million, what tax payer group will end up paying for that? Ms. Yukimura: Okay. So let us hear then while you are looking at the CAFR, let us hear about the problems of implementation. Mr. Rezentes: Steve could you? STEVEN HUNT, REAL PROPERTY ASSESSMENT: Steve Hunt, Real Property Assessment for the record. One (1) of the biggest problems we have with implementation is within our software contract we are on a sole source. This is not COMMITTEE MEETING 19 FEBRUARY 22, 2012 something that can be sent to outside programmers to help us with so we are sort of strapped with all other Counties that are requesting modifications to their software. There is a que, we have to get in line, we have to get a cost estimate, we have to define the scope of work; none of this can be done obviously until we know if and when a bill is going to be passed and what the bill that comes out is it going to require us to do. Initially when we asked about a timeframe without a cost tag they were giving us a minimum of four (4) months, possibly five (5) to do the programming changes. Ms. Yukimura: So what is the name of the contractor? Mr. Hunt: Tyler Technologies. Ms. Yukimura: And how long have they been with us? Mr. Hunt: I believe we converted to the current version of the IAS software around 2000 or 2001. Ms. Yukimura: And you said their estimate was four to five (4 to 5) months, was there also a cost estimate? Mr. Hunt: We did not get a cost estimate at that time because we could not get our hands around the parameters of what the define scope of work would be. It is not as simple as just putting higher exemptions because we have to look at the calculation of both the market taxes with the higher exemptions as opposed to not using that increased exemption amount to the PHU. Under the current calculation of the PHU credits when additional exemptions are given there is a reduction to the PHU tax as well. So when someone say hits a new age threshold it is not just two percent (2 %) anymore it is two percent (2 %) plus a reduction of the additional 48,000 that they hit times the tax rate at the time as a reduction to their PHU taxes. Ms. Yukimura: And so what does that have to do with implementation? Mr. Hunt: Well under this proposal what we are proposing is not allowing. So if you have a current exemption of $48,000.00 and it is calculating both your market taxes and your PHU tax which essentially estimates the credit between the two (2), we are saying the additional exemption amount going from $48,000.00 to $225,000.00, for the PHU calculation we do not want it to calculate that; do not include the additional to even further reduce the PHU because one (1) of the problems that Councilmember Bynum was talking about is the disparity. All this does is push the entire bar down. There still will be the disparity between the PHU and the market taxes between people who got into the program at different times. But by not using the PHU additional exemption calculation it holds stagnant at least a floor of what the taxes will be. You would still get the better of the two (2) market tax calculation or PHU but it would never go below and take the PHU which maybe is already below the recalculation and further reduce that number. That is a major change from the way we are currently operating. Any time there is an adjustment for an additional building, for a gain or loss of exemption, if you had an income exemption, you no longer qualify there is an adjustment upward to the PHU tax. So exemptions, additions, dedications, all these things that are changing characteristics of the property come into play when we calculate the PHU tax. COMMITTEE MEETING 20 FEBRUARY 22, 2012 Ms. Yukimura: But you still have to do it today right when they get older or ... there are changes you are already having to adjust to. Mr. Hunt: And that is the way the program is set -up. Anytime there is a change in the exemption we are including that as a recalculation of the PHU tax as well. And under Councilmember Bynum's proposal he did not want that he did not want to continue the disparity by not only lowering the ones that are paying at a higher rate that got in late into the PHU and lowering the PHU to continue that disparity but it will lower benchmark that $5.4 million would be even a much higher figure if we gave that credit, additional credit to the PHU tax calculation. Ms. Yukimura: So what if, Mr. Bynum has been proposing this for over a year so what if it was just postponed to next year can you do it? Mr. Hunt: If we are given lead time as to it has passed and we are implementing the following year I believe it can be done. Ms. Yukimura: Okay, alright. Any other questions? Chair Furfaro: I am a non - committee member. Ms. Yukimura: We will let Councilmember Bynum and then Council Chair. Mr. Bynum: Forgive me Steve if I have lost my patience with this discussion because I have lost my patience with this discussion. Earlier last tax year when we certified our tax rolls I put a homeowners exemption bill on and the answer was we do not have enough time we cannot do it, even though we had just gotten the data we cannot do it. When my other proposal oh we cannot do it we do not have enough time. Now I am talking about recalculating taxes for next Fiscal Year before we even enter the budget and you are saying we cannot do this because we do not have enough time to recalculate our tax software right? Mr. Hunt: I am telling you that yes it takes a long lead time for implementation of these. Mr. Bynum: So even though we can calculate it up there on this spreadsheet and we can say yes this homeowner will have this rate we cannot do it with our tax calculating software. And so that is what you are saying right? Mr. Hunt: What I am saying is the spreadsheet that you have is a stagnant picture of what that PHU credit. That credit changes every time you change the rate, every time you change... that is not programmed in there. Mr. Bynum: I hope all the Councilmembers understand what you are saying because you have characterized it correctly. I am saying reset the whole cap, calculate the whole tax class based on this new criteria, that brings all of these people down. If you are doing better fine but what you are saying is the way our current calculator, if you lower the homeowners exemption those people that are doing even better will go down even more. COMMITTEE MEETING 21 FEBRUARY 22, 2012 Mr. Hunt: That is correct. Mr. Bynum: So we will not cure the inequity and that will happen Steve if we make any changes to the homeowners exemption? Mr. Hunt: That is correct. Mr. Bynum: And so you are basically taking this tool off the table. Took it off the table last year because when I made the proposal in April it was too late to implement by July. Now I am trying to make this proposal and was held up by not having the tax data for months, data that is public record that we are entitled to right? And then I am making the proposal now months before the budget process even happens and you are saying oh I am sorry because of tax calculations and software we cannot do it. You have taken this tool off the table a tool that we need. And so it is really hard for me to believe that in this day and age several months is not enough time to reprogram tax calculation software. That is not a good reason not to do the right thing. This is like the fourth time I have been told "too late, too late." So then I say okay I want to give plenty of time so give me access to this data — no. I would have had this proposal here five (5) months ago and so I have lost my patience with this. The Council should set and do what they believe is right and then it becomes your problem to get your tax calculated data done properly. It is hard, you tell the IT people out there listening to this, four (4) months is not enough time to reprogram our tax data that is what your are telling US. Mr. Hunt: I am telling you I cannot speak to all the IT people I can only speak directly to our Sole Source vendor, I cannot have our IT Department I cannot have ... this is proprietary software, only they can do it, it is one (1) of the larger vendors in the United States hundreds if not thousands of municipalities use them. We are given the que. Mr. Bynum: So Steve I have my "it is too late file" and I have all these documents back and forth from Finance and your tax vendors saying why they cannot get this done in time. You have known this is a problem for a long time so if this Council decides that this is the right way to go it is unacceptable to me to say, for the Administration to say no do not give tax relief for one (1) more year do not do it this year because we cannot calculate our tax calculator. Mr. Hunt: Let me talk about some of the statutory requirements by ordinance for us. One (1) is delivering to you on or before I think it is March 31 or is April 1 but we are delivering March 31 the certified (roll or role ?). I do not know the timing if this came out of Committee, got approved at the body and we did do those exemptions we would have the amounts but during budget process we could not tell you the impact of that. The current system the way it is programmed is going to give the additional relief to all the PHU calculations. So we are now entering into the budget and it is not my realm obviously but there are times for the first submittal of budget and then assuming we can get everything implemented, tested, and know the financial impact before the rate setting process which depending on timing may or may not happen, then we will be able to analyze and tell you the impact and what we would have to do to rates in order to be revenue neutral or how much we would lose in revenue. If we cannot do that now we have pushed it into the next Fiscal Year where people are already beginning to pay their first half bill beginning it goes out in July and so now they have already made payments so now we are looking into if it was enacted by this body we would COMMITTEE MEETING 22 FEBRUARY 22, 2012 have to retroactively give credits back. So now we are talking about collections issuing refunds especially those that say someone who is paying $300.00 in annual taxes pays their first half installment of $150.00 but because of the additional exemption now they go to minimum tax so $25.00 so it is not just adjusting the second -half, they overpaid by $125.00 first half for the year already. So now we actually have to issue refunds. Mr. Bynum: May I interject and I will put an end to my questions quickly? Ms. Yukimura: Thank you, yes. Mr. Bynum: Last year I made a proposal to adjust the homeowners exemption in order to give relief to the homestead class and I was told "too late..." Mr. Hunt: Post certification. Mr. Bynum: Cannot do it. Mr. Hunt: Correct. Mr. Bynum: You acknowledge that right? Mr. Hunt: I acknowledge that. Now we did the actual opposite at the same time they tried to reduce too late they had to wait to this year to drop from 300 to 200. Mr. Bynum: So have known for more than a year that this is an issue right and that Councilmembers were going to propose potentially homeowners exemptions. When I could not do it that I said let us credit the next tax bill, let us give some relief last year last year because these increases were happening, let us give some relief to the people who live and work here every day and are losing their homes and are struggling right? Let us do it, you cannot do it with an exemption too late, let us do it with a tax credit. Mr. Hunt: Correct. Mr. Bynum: What response did I get from the Administration? Mr. Hunt: I cannot recall that is collections. Mr. Bynum: Too late cannot do it. It is too late you would have had to propose that earlier. So it is like I am tired of this it is too late because our tax calculation cannot be done. If we determine we need relief, and now you are saying do not do it this year but maybe we can do it next year. Well you knew a year ago that this was an issue, what did you do in the intervening year to give use control over our own destiny? Mr. Rezentes: Obviously we would not have, we could have come to the Council and ask for an appropriation or the Council could have appropriated funds in order for us to reprogram the system. But I just wanted to go back to the issue of tax relief. Tax relief could have come from resetting of rates for COMMITTEE MEETING 23 FEBRUARY 22, 2012 this Fiscal Year. It is the Administration's job to propose a rate in the course of the budget and it is the Council's job to decide what rate structure they want. If rate relief can be voted up or down in the course of the budget. And again to effectuate relief if that is what is being sought by this body that can be done quite easily with rate restructuring. Ms. Yukimura: Okay excuse me I am just going to let Councilmember Kuali`i who has to leave right now ask his question and then we will come back to this. I apologize but we have no other choice. Mr. Kuali`i: Aloha and mahalo. I actually appreciate what you were just saying Wally because that addresses my question. I was going to say, so if we are talking exemptions versus rates the process and the additional work or whatever the complications that you were talking about comes into play with the exemptions but it would not be so with the rates? Mr. Hunt: Correct. Mr. Kuali`i: And that in many ways I think what Wally just said is that we could do what we want to do as a Council to provide relief by addressing the rates. Mr. Hunt: That is correct. When we submit the certified roll on March 31 all we are attesting to is value, exemptions, net value, and appeals on file. From there you can set your rates. Mr. Kuali`i: And then also if we believed now that the cap has been in place for several years and because it did provide the relief but now because properties are selling and jumping, that is creating some of the inequity. He showed us many examples so it is actually creating the inequity, the cap itself. So this cap was not really the solution in the long run so this Council can also remove the cap and replace something else that would still provide relief and maybe we should be looking at these exemptions not just the homestead exemption but the income exemption. Maybe what we need is a new exemption such as long time residency, if you are here for more than ten (10) years you get "x" amount of dollars, if you are here for more than twenty (20) years, then that is not going to change... the whole idea about selling when you sell and it is a new owner, you earn your long term residency over time. Would not you think something like that would work and that we should really be looking at this as a part of the budget process comprehensively, because otherwise in the long run we are creating more inequity because unless we consider all comprehensively the eight categories. The fact that yes there are, not everybody is in the same similar circumstance if their property values are so drastically different. So that is all things that we have to consider on the policy side and that you have to implement on the Real Property Tax side. But there is a lot more to this than just singling out one (1) ... would not you agree? Mr. Hunt: Yes. The only thing I would add, and I am not here to discuss policy or what the ride move or what the decisions were going to be as rate setting, but what I can tell you is what the cap has become somewhat problematic in doing is predicting taxes. You will get the certified roll and the roll will state the value and the net value but you will not be able at least for those that are capped you will not be able to determine the rate from just looking at the value. You internally will not be able to say well if I just multiply the net assessed times the rate I am going to get the taxes, that is not the case. As long as there are PHU COMMITTEE MEETING 24 FEBRUARY 22, 2012 credits that still need to be calculated that has to be run internally within the software. So rate setting will definitely bridge that gap of inequities but I am not going to say whether the ones that are capped may be too low or the ones are too high, finding that happy ground might be more of challenge. Ms. Yukimura: Thank you have a good trip. Chair Furfaro: Have a good trip. Mr. Kuali`i: Thank you. (Councilmember Kuali`i was noted excused at: 6:32 p.m.) Ms. Yukimura: Alright we will go back to the discussion that I interrupted. I am sorry again but I think the dialog was important. I think Mr. Rezentes was up. Mr. Bynum: proposed any rate change? Mr. Rezentes: Mr. Bynum: Mr. Rezentes: Mr. Bynum: Mr. Rezentes: When is the last time the Administration I am not sure. I am not sure. Well it is a part of public record. Yes. We can look it up. Has it been more than five (5) years? I believe so, and even the Council. Mr. Bynum: Did you know that these inequities were occurring and that local people were paying more while everybody else was paying less? Mr. Rezentes: Well I think that is a • pretty dynamic question with a lot of puts and takes into the system. Again we follow the law and the law is what it is. If there is going to be a change in policy then I believe that is what we are trying to discuss today, what is the appropriate change in policy? Mr. Bynum: Was the Administration aware that local people in the homestead class was paying increases while each other class was paying decreases? Did you know that? Mr. Rezentes: Because of the cap...you are correct. But... Mr. Bynum: So you knew that what did you propose to address it? Chair Furfaro: I do not like the temperament happening here. Ms. Yukimura: I agree. Chair Furfaro: Let us all calm down. COMMITTEE MEETING Ms. Yukimura: Chair Furfaro: Mr. Bynum: Chair Furfaro: some decorum. Mr. Bynum: Ms. Yukimura: Mr. Bynum: 25 FEBRUARY 22, 2012 Yes. Take a five (5) minute break or something. Excuse me I am sorry excuse you is correct let us use Excuse me. Wait hold on. I want to know an answer to the question. Ms. Yukimura: Yes. Councilmember Bynum I would prefer if we focus on the different alternatives and what we are going to do rather than the motive of the Administration. Mr. Bynum: off the table except this one. Mr. Rezentes: Mr. Bynum: on a high end. They are trying to take all the alternatives No we are not. Which will focus all the big bulk of the relief Ms. Yukimura: Let me say that I do believe that your proposal does address certain things that rates cannot address but I think we were veering off course by getting, talking about motives and it was getting combative. So I think we will take a ten (10) minute break. Wait we are at a dinner break. Let me ask if maybe we finish right now unless there is more discussion and I think Councilmember Nakamura had some questions. So, yes? Mr. Rezentes: speak to some of the issue. Ms. Yukimura: will return at 7:30 p.m. Alright? Mr. Chang: Ms. Yukimura: I think we have a spreadsheet that will Okay. We will take a dinner break and we 7:35 p.m. 7:35 p.m. Thank you. There being no objections the meeting recessed at 6:35 p.m. The meeting reconvened at 7:40 p.m. and proceeded as follows: Ms. Yukimura: So the Finance Committee is back in order and I have asked that Mr. Rezentes be back here so that we can get some answers that were pending. But in the mean time where were we when we ended? I think the Finance had just passed out some sheets? Were those your sheets Steve? COMMITTEE MEETING 26 FEBRUARY 22, 2012 Mr. Hunt: Again for the record Steve Hunt, Real Property Assessment. The sheet that you have before you has several columns. At the very top is the gross valuations by class for the properties, taxable properties on Kauai from 2002 to 2011. Below that is the net valuation which considers all the exemptions relief that were given to come up with the taxable amount. And then we have the taxes in the third box by class and these are the actual taxes that were paid. The percentages that are in these boxes and these will initially focus on the first three (3) boxes. The percentages in these boxes to the right of each year represent the percentage of the total. For instance if we begin in 2002 and we look down to the homestead class near the bottom of box number one (1) up there you would see that it represents roughly about 26.28% of the total valuation gross value. And then if you were to track that down to the third column in the red you see it represented about 12.94% of the taxes that were paid. This is sort of the transitioning from year -to -year. The low if you look at 2007 also in the third column in red it shows that the taxes paid by the homestead class had dropped as low as 7.38% while their value on the gross had grown from 26.28% to over a 30.69% so values were increasing but their contribution in taxes by enlarged due to the cap reduced their contribution to the total revenue that the County had been receiving. When you think about taxes, taxes really begin with ad valorem which is tax on value. Anything else, any reductions relief becomes policy but initially you need to think of a value tax. The cap has got us away from value tax; we cannot determine taxes without taking into consideration the cap and when those properties were entered into the cap. So it is much more difficult to determine the revenue that we can receive unless we run our programs, set our cap rates, and understand what revenue we are going to receive. What I wanted to focus I guess on the next one is the fourth set of boxes called the effective rate. This essentially says if you were to remove all of the exemptions and you were to go strictly by the revenue received by each class and divide that by the value or in other words if you took the total revenue that the County was budgeting from taxes and divided it by the gross value and appropriated that by category, this is how much they actually pay. So if you look at the homestead effective rate across in red, beginning in 2002 their effective rate was $2.73. The stated tax rate may have been $3.50 and $4.00 whatever the rates were in 2002, but the actual rate considering the exemptions in that time was really $2.73 per $1,000.00. The average rate which essentially says if everything was neutral and was pure ad valorem what we would need to charge a rate across all categories is $5.54 in 2002. And if you follow that trend across the various years you look in 2007 the homestead class was really paying an effective rate of $1.00. So even though we had stated rates of $3.44 for the buildings and $4.00 for the land, because of the cap and the credits they received, because of the circuit breaker, because of the exemptions they were receiving, the taxes that they were paying essentially represented an effective tax rate of $1.00. So if we removed all of those considerations and just set the tax rate, the real tax rate at $1.00 we would receive the same amount of revenue from that class. Now we can see the trend lines are beginning to increase and as values are increasing so too is the revenue we are receiving and you are seeing that effective rate for the average starting to decline. Essentially that is because more of the burden is being shifted to the non - capped classes; they are beginning to pay more and more and more and their stated rates are much closer to their effective rates. And then this trend line begins to change beginning in 2008 and continues up. Right now the last year that we have been discussing which is the data Councilmember Bynum has been presenting the essential effective rate for the homestead class was $1.91. COMMITTEE MEETING 27 FEBRUARY 22, 2012 So in terms of relief it is my position this category is receiving very preferential treatment to begin with. It is not as preferential as it was in 2007 when it was effective rate of $1.00 but also the values have been declining so the combination of declining values and the two percent (2 %) cap kicking in and the resets that are going on has shifted that effective rate to about $1.91. Ms. Yukimura: Questions of Mr. Hunt? Councilmember Nakamura. Ms. Nakamura: Hi Steve. I have a question. What is the median homestead real property tax rate? Mr. Hunt: Ms. Nakamura: Mr. Hunt: Ms. Nakamura: The tax rate or the taxes? Excuse me tax. The taxes that they pay? Tax paid yes. Mr. Hunt: I will be able to answer, I cannot say homestead because there are other properties outside of homestead that also receive the exemption and the cap. So of the 12,154 parcels that received exemptions, home use exemptions, not all of those are contained within the homestead class but I can tell you of the homeowners that receive home use exemptions the median tax was $876.40. The median value prior to exemptions was $389,500.00. Ms. Nakamura: Thank you. Mr. Bynum: You are reporting median not average. Mr. Hunt: Correct. I have average if you want that as well. Ms. Nakamura: No I want median. Mr. Hunt: Okay. Ms. Nakamura: Just recently we passed some tax reform bills. When will we know the impact of those bills? I know we did two (2) separate bills. Mr. Hunt: Correct. Ms. Nakamura: One (1) would be implemented this Fiscal Year? Mr. Hunt: Correct. Ms. Nakamura: And one (2) the following? Mr. Hunt: Yes. Ms. Nakamura: So... COMMITTEE MEETING 28 FEBRUARY 22, 2012 Mr. Hunt: I can report on what I know so far. The income exemption is the increase to $120,000.00 from $55,000.00, I am sorry from $55,000.00 to $120,000.00. That one (1) as of last week Wednesday the number of approved applicants was 1,760 as opposed to the previous year when we had 1,481. So the removal of the AGI and going to gross has encouraged more people to participate and we believe it has also weeded out those that probably should not be applying. Ms. Nakamura: In terms of the total impact of the first bill that we passed... Mr. Hunt: Tax revenue? Ms. Nakamura: Yes on the revenue side. Mr. Hunt: I will not be able to do that. Ms. Nakamura: Will we know that on March 31? Mr. Hunt: No. We will know the number and the exemption amounts. Until we actually plug it in to the ones that have caps some of them by getting an additional 120 that they may not have had before may actually go to minimum tax. There may be some that will cap out and they will not use all of the 120 because they will get to minimum tax and that will be done. So we do not know the impact until we actually start plugging in tax rates and if I want for assumption purposes and scenarios I can use the current tax rates, run it to see where it is, once we get the appeals logged in we will be able to sort of have a impact of what revenue is. But isolating it specifically to the additional income exemption is going to be very difficult because of the PHU. Ms. Nakamura: Right right. But by March 31 we will have, we will be able to play with different scenarios? Mr. Hunt: Yes when we get the certified roll we will begin to play with different scenarios. Ms. Nakamura: Okay. That is helpful. Ms. Yukimura: Are you done with questions? Ms. Nakamura: You can go ahead. Ms. Yukimura: Councilmember Bynum. Mr. Bynum: We have not set the rates. Mr. Hunt: Correct. Mr. Bynum: But we did change the cap right? Mr. Hunt: That is correct. COMMITTEE MEETING 29 FEBRUARY 22, 2012 Mr. Bynum: And so I think you told me the other day what the Honolulu CPI will be for next year. Mr. Hunt: Yes that is public record now. The cap is rounded to 3.73 %. The second half to second half was reported at four percent (4 %) but the mid -year annualized is 3.73 %. Mr. Bynum: So those who are currently under the cap if the rates remain the same will not have a two percent (2 %) increase (inaudible) 3.73 %. Mr. Hunt: Mr. Bynum: Correct. So that will impact revenues as well? Mr. Hunt: Yes. That will likely push up the PHU participants and depending on the rate setting potentially narrow the gap of disparity-if the rate were lower but I am not going to speculate what the rates are going to be. Mr. Bynum: Right because everything is tied to rates. Mr. Hunt: Correct. Mr. Bynum: You got $120,000.00 low income exemption will be worth less if we lower the rates. Mr. Hunt: Correct. Mr. Bynum: Other things we did to impact taxes do not come next year right? Mr. Hunt: Right. Mr. Bynum: So the longterm rental one... Mr. Hunt: Will be in 2013. Mr. Bynum: Right. So that will not be impacting our taxes next year but it will previous year? Mr. Hunt: Correct. Mr. Bynum: And the new class of... Mr. Hunt: Tax on use. Mr. Bynum: Tax on use goes into effect? Mr. Hunt: For 2013 also. Mr. Bynum: Right. So that will be a significant change up and down. COMMITTEE MEETING 30 FEBRUARY 22, 2012 Mr. Hunt: It will and really we have no way to measure until we are complete with that survey. We hope to send the surveys out mass mailing sometime in late April and then process them all before again our date of value is now October 1, so we have compressed that window now for us this year. Mr. Bynum: So we are going through a couple of years where we are going to have wait and see? Mr. Hunt: Mr. Bynum: Yes. To get the total impact. Mr. Hunt: Rate setting will mean a whole different game for you guys because it is going to be a lot of new shifting of properties, new rate classes for short -term vacation rental, people moving from ag that are being used residentially into the residential class, same with the conservation; there is going to be lots of movement. It would be difficult to gauge until we actually get those boxed in the right categories. Mr. Bynum: -So I will leave it at that for now. Mr. Hunt: Okay. Ms. Yukimura: Councilmember Chang do you have any questions? Chair. Chair Furfaro: Steve let us call this difference the rate potential for people that have homeowners exemptions. Mr. Hunt: Okay. Chair Furfaro: How much in the last three (3) years of the rate potential did we discount? Mr. Hunt: You are talking about what they would have received if they did not have the cap? Chair Furfaro: Yes because we are saying everybody else got all of this but homeowners, my calculations from my files is one (1) year was 5.1, one (1) year was 6.4, one (1) year was 7.4. Mr. Hunt: I think the peak was close to 14. Chair Furfaro: Okay I am not going back to 2007 which was the peak I am just going back the last three (3) years. Mr. Hunt: Correct. I do not have an aggregate of that. Chair Furfaro: Could you prepare one (1) for us saying... Mr. Hunt: Yes I can do that. Chair Furfaro: So this is the rate potential and quite frankly that was the rate relief, that was the reductions. I followed it for a while because COMMITTEE MEETING 31 FEBRUARY 22, 2012 the cap was my piece. So when I read things and letters that come in and people indicate that we have this disparity that all these others got this discount, none of those people qualified for anything else like the credits for homestead, the caps; they were subject to market trends. Mr. Hunt: All the other categories, absolutely. Chair Furfaro: Yes that is correct. Where only the homestead ownership did this in the sense that until we understand the rate potential the money we left on the table that was tax relief. So you could do that for us? Mr. Hunt: Yes. You want since the inception of the cap? Chair Furfaro: Yes. Mr. Hunt: Okay. Ms. Yukimura: Councilmember Nakamura. Ms. Nakamura: Thank you. Steve one (1) of the, I think this handout that you just went over pretty much shows the overtime from 2002 to 2011 that the rate, the effective tax rate for homestead class has decreased. It kind of went down to $1.00 but then went up to $1.91 today effective rate. So your point here is that it is not necessary to reduce taxes for this class because of this effective... Mr. Hunt: I do not want to take a position saying what is necessary. What I just want to say factually they are paying an effective rate that is much much lower relative to value. If we are looking at ad valorem and really that is what we start with and if you start with value relative to their value how much do they pay? And when you consider the effects of the exemptions and the cap formerly the circuit breaker this measures that. This is essentially a measure of the relief that they are still remaining to receive because if you look at the actual rates Of $3.44 and $4.00 this rate is not even close to that. So the stated rate is much much higher than what people are actually paying. Ms. Nakamura: Okay. Because of the exemptions allowed? Mr. Hunt: Right. Correct. But there is a diversion of those two (2) people who are recently purchased or on a downward trend bought in late are actually paying the actual rate less the exemption but are not benefiting from the cap. There are some people that have an effective rate much much lower than this $1.91 because of the benefits of the cap. So there is still a dichotomy within the group but as a whole that group is paying much much less than what the value would indicate. Ms. Nakamura: So the then the second point of this legislation in front of us was to reduce the inequities neighbor to neighbor. Do you agree that that is an issue out there? Than one (1) neighbor on Unahe Street one (1) pays $1,260.00 while next door that person pays $2,057.00 for the similar services they receive? Is that fair to you? COMMITTEE MEETING 32 FEBRUARY 22, 2012 Mr. Hunt: Is it fair? That is, kind of a loaded question. It is a policy call. Much like KipuKai said earlier the person who has lived there ten (10) years and the person who moved there two (2) years ago, should they receive the same benefits in terms of the taxes that they pay? Are we trying to bridge that? Ms. Nakamura: Yes. Okay. So I think that is a policy call and for me I think that is unfair and I have some concerns about that because in my opinion they are receiving similar services. One (1) side is some group of tax payers are subsidizing others so that is something I would say is a policy call and I think I want to explore that some more. Mr. Hunt: Okay. Ms. Nakamura: Okay thank you. Ms. Yukimura: I want to ask a question first which relates actually to Councilmember Nakamura's because I am too very concern about the inequities. In terms of addressing the inequities does not the exemption work better than a rate change? Mr. Hunt: They both have effective measures and I am speaking hypothetically if there were no cap then the exemption may play a bigger part in making taxes progressive by giving more to the less fortunate. Ms. Yukimura: But I did not ask about that question. Mr. Hunt: Right. Okay. I do not know as a tool because of the existing cap whether that is the case. I think the first question you have to ask is are the taxes that are being paid by the capped, some very very low capped amounts, appropriate? They may be too low to begin with. If we are talking about taking the ones that are paying higher down to the super low levels, then the exemption may be the trick. But you have to make the assumption that that low level for the person that is capped is the correct tax. We have no vehicle without the removal of the cap to bring that person up, so we are going to have that disparity so long as the cap remains. Ms. Yukimura: But if you are assuming the cap then the exemption does, using the exemption mechanism does close the gap in this economy. Mr. Hunt: The tax rate could do the same. It is just not as progressive to the people with the lower valued properties. But that is also a big assumption that lower valued properties equal lower income. I think we have addressed that with a more targeted approach in giving larger income exemptions. Think about the person who... Ms. Yukimura: But if you go to income then you are getting away from ad valorem. Mr. Hunt: Well income is a measure of ability to pay. The amount of the exemption is still, whether it is basic home use exemption or one that you actually qualify for by means, to me that is more targeted to say we are going to give. Ms. Yukimura: That is correct. COMMITTEE MEETING 33 FEBRUARY 22, 2012 Mr. Hunt: Because if you compound them, say you have a basic home exemption someone who gets the now $225,000.00 that is under 60 and he also qualifies, the family also qualifies for income that is another $120,000.00 on top of that, so now potentially the combination of these exemptions is going to have a much greater effect than just the larger home use exemption by itself. Councilmember Bynum is only looking at the home use not potentially what else the income exemption now may impact. So the potential revenue loss could be greater and could be even more at minimum tax with the combining of these two (2) exemptions. Ms. Yukimura: So not using anymore income exemptions but talking between the income measures but exemption and tax rate, can you explain how the tax rate can eliminate or remove the inequities? Mr. Hunt: Well the disparity exists because the people that are not getting the cap, say someone bought in in 2007 or 2008 at a much higher value than someone who started their cap in 2004 from the 2003 value. They already started with this inequity and the one who the 2004 is capping along six percent (6 %) first year 2, 2, 2, and the one who bought in started at that 2008 level where this person who got to 2008 compounding capping was much much lower. All of sudden values are going down so they are already, the market is correcting the point, tax rates have not changed, there are already been some bridging of that gap. The way to bridge this person who is paying more closer to the one lower is to lower the tax rate, that is one option. Mr. Bynum: Ms. Yukimura: Mr. Bynum: Ms. Yukimura: May I interject. Yes, if it is on this subject. It is on this subject. Okay. Mr. Bynum: The answer to this is math. I showed it earlier. With the exemption the way I am suggesting... Ms. Yukimura: You want to refer to the page? Mr. Bynum: Page 6 is the proposal I am suggesting and it says new PHU count 1,143. So 750 people the inequity is cured, 1,143 are even paying less. Then go to rate only on page, if we just use the rate, current exemptions on page 10, now there is 2,887. So we are at 1,100 if we use the exemptions, with just the rate there are almost 3,000 people who are paying even less and a lot of that relief gets focused on the high -end people who have homes valued over $500,000.00 as opposed to putting that relief on the homes that are more moderate and middle income. Mr. Hunt: Councilmember Bynum with all do respect, all that does is take the ones that are paying more and push them down to the ones that are paying a lot lower. That does not answer the question whether the ones that are a lot lower are the appropriate tax. Mr. Bynum: Yes, and that you are right, it is a policy call. COMMITTEE MEETING 34 FEBRUARY 22, 2012 Mr. Hunt: It is. Mr. Bynum: I look at your effective tax rate and say it went as low as a $1.00 and it is back up to almost $2.00, you just make my point because I believe that it is good policy for people who live and work here to pay a very low tax rate. That is consistent all over the Country. There are very few places where homeowners are paying an effective tax rate much less than business class. Ms. Yukimura: I want to continue my question about, I want to know what are all the different ways we eliminate the inequities. Mr. Hunt: We are tied to the cap at the moment so there is no way you can increase higher than the CPIU those that are capped. The only way to truly eliminate all the inequities is to remove the cap. Ms. Yukimura: And you could remove the cap and then you would not have to reset anything then? Mr. Hunt: Well they would all be reset. Ms. Yukimura: Right. The cap is the thing that militates toward the need to reset because it is constantly creating... Mr. Hunt: The cap is a very effective way to take care of properties that I consider outliers and no exemption amount increase unless you throw out everything and essentially set eighty percent (80 %) of the property, I do not want to use that number, but a large percent of the properties at minimum tax by giving them so much relief can you take care of the outliers. Ms. Yukimura: Define outliers. Mr. Hunt: I am talking about properties that had very low values in 2003 that skyrocketed and still even after the recession we have had still have significantly higher values, multiples of what they were in 2003. Those properties cannot be protected any other way as I see it with just an exemption and tax rate. There is nothing that can accommodate that. The cap was very effective and remains effective for those. Ms. Yukimura: But outliers you make it sound like they are a small percentage of homeowners, is that true? Mr. Hunt: They probably are. Ms. Yukimura: What percentage? Mr. Hunt: If we look at the tiers I think when we get up to tier 10 we are talking and I believe Tim if I am not mistaken that is an average not a threshold for the tiers correct? Mr. Bynum: The assessed value. Mr. Hunt: I remember when we were doing the numbers we were averaging the tiers, I do not think it is a threshold above or below. COMMITTEE MEETING 35 FEBRUARY 22, 2012 Mr. Bynum: together. I think it is a threshold. Well we did that Mr. Hunt: The it is an average. It is an average because I was averaging the columns, the total value of those properties in these tiers. So we are saying that tier 10 which is the top ten (1) percent has an average of $1.1 million and that is significantly higher than the tier just below that. From $655,000.00 it nearly doubles just for the last ten percent (10 %). I am sure at the top end one percent (1 %) probably or even off the charts. So there are some that are going to be impacted. I do not know when the properties even fall within these tiers were purchased or owned, that is another issue, some may have gotten in the cap late and they may not even be benefiting from the cap. Other properties are well protected because of the cap. Ms. Yukimura: So what other, so you said that actually the main way to remove the inequities is to remove the cap. Mr. Hunt: I am not suggesting removing the cap. Ms. Yukimura: I know you are not but you are just saying, I am asking you what are the various techniques and how. So that is one of the techniques. Mr. Hunt: Yes. From my perspective to bridge the disparity with the current system we have I believe rates will be more effective for the ones that are not protected under the PHU at the moment; that will bridge them more. Ms. Yukimura: Okay anything else? Yes? Mr. Hunt: The other one would be to eliminate exemptions. That actually creates inequities. When you think about it really does create inequities it is not ad valorem, you are giving one homeowner, they are both homeowners but you are giving one who has a lower valued home greater relief overall as a percent of their value. Ms. Yukimura: Right. And the reason why we have done exemptions is because we want to mitigate some of the impact on people with low incomes. Mr. Hunt: Right. Ms. Yukimura: Okay. Mr. Hunt: Which I think which is why I am such a proponent of the income exemption. I think that is the target. People who qualify for that get a substantial now. The $120,000.00 is not a token, when property values now the median was at $389,500.00, when you are getting $120,000.00 exemption plus if you have age now you are at $240,000.00, if you have a disability you are at $290,000.00 so you have whittled the actual taxable amount down considerably. COMMITTEE MEETING 36 FEBRUARY 22, 2012 Ms. Yukimura: Okay. And what about these other ideas like length of residency, that actually would increase disparities but it would mitigate ... you know I am the one who instituted the, what did we call it? Mr. Hunt: dedicated permanent home use. Ms. Yukimura: your house for ten (10) years... Mr. Hunt: Ms. Yukimura: a low rate was it? Mr. Hunt: Ms. Yukimura: that you dedicated it I think. Mr. Hunt: time. It was the former PHU it was actually the Right where if you said you would not sell Anti - speculation. It was an anti - speculation that you could get Well there was a cap. That is right. You were capped at the year I think it was a six percent (6 %) cap at the Ms. Yukimura: But it was anti - speculation which is what we are having to deal with on this island. Mr. Hunt: Right. Ms. Yukimura: Yes go ahead. Mr. Bynum: I just want to propose, there is another way. I discussed this with Councilmember Nakamura. It is going back to the proposal I am putting forward. It leaves 1,100 people who are doing better. Ms. Yukimura: What page? Mr. Bynum: Page 6. So I thought this was a good proposal because it eliminated 7,590 people from the inequity. But it leaves 1,143 that are even paying less. So a way to cure the inequity completely would be to have those 1,143 people pay the effective tax rate, pay more. I did the math, so if this proposal passed those 1,143 would have to pay an additional roughly $400,000.00. So then the fiscal impact would be $5 million right, because it would be even less. It would be $5 million but then everyone would be the same and we could keep the cap going forward and everyone next year can pay the new market rate and then they are capped at CPI above that. So there is another way to do this and maintain the cap. It is that wherever you draw that line you say okay we are going to bring these people down that are paying the biggest and highest inequity and wherever that line is, if you say okay new people are going to pay more so everybody same -same then everybody would be paying market rate based on the current exemptions right? So you would deal with the inequities that are built into this and then if the cap going forward if we adjusted the rates so they were less than CPI the cap will just be a safety net and work for those outliers. So I just wanted to say there is another way. COMMITTEE MEETING 37 FEBRUARY 22, 2012 Ms. Yukimura: So let me carry this forward then because one of the concerns is that where you set the exemptions would create a lot of minimum tax people and lower it what might be by a policy call too low. So if you were to lessen the exemption you would close the gap but for not as many as Tim's proposal would, but then you reset everybody who is lower bringing them up to the ... what are we bringing them up to? Mr. Hunt: Well that is the question. Is there a dollar figure that this tax group has to pay? Is there a predefined amount saying we have a target and we are going to set that target and the ones that are paying too much will come down, and the ones that are paying too little will come up and we will hit that target? Ms. Yukimura: You would be setting it wherever the exemption brings people to wherever it has closed the gap and then the people that would still be low would be brought up to that, that is not a defined point. Mr. Hunt: the cap and I am not... Ms. Yukimura: Mr. Hunt: cap. Ms. Yukimura: Mr. Hunt: are capped? You cannot. Ms. Yukimura: very very low. No and that would involve policy removal of I am sorry? I said that would involve the removal of the No no no. Initially, how do you bring the people up that It would remove the cap for those who are Mr. Hunt: Right. So you have to remove the cap at least one (1) cycle and then re- establish it if that is the policy. Regardless of what you do with rates, exemptions, anything else, you cannot bring it up more than the 3.73% CPIU this year. It does not matter what you do with rates, it does not matter what you do with exemptions. Mr. Bynum: Yes you can. Jennifer who is in the audience helped write this because it is complicated right, and the provision that is in the bill says, I do not have the exact language, but basically regardless of all of this for this one (1) year we are going to reset. And you could do that to say this year we are going to do a clean reset is what I was calling it right? If you are at this line and you are above it you come down, if you are below it you come up, and now going forward you go back to the cap as established. So there is a way to do it. Mr. Hunt: It is. It brings in a whole lot of other issues too like the grandfathering of the circuit breaker that we have had some touchy discussions already with. People who have received that that had been rolled into the cap which now we are saying if we are going to remove it, you get a reset and you lose both your PHU benefits and your circuit breaker benefits you formally had for this one (1) year to reset and then you get capped. That is going to bring a lot of people up. COMMITTEE MEETING 38 FEBRUARY 22, 2012 Mr. Bynum: I have been convinced by the attorneys that even though it might be complicated we are pretty smart people and we can find language to accomplish what we want. I have not been able to convince the tax department that you can get your tax software people to recalculate in time but that is a separate issue. So there is a way to do a clean reset and deal with those circuit breaker issues. Where there is a will there is a way. But you know then again it is a policy, you have the political courage to say to some rate owners you are going to pay an increase, and I have analyzed who those 1,100 are and they are almost all with homes valued over $600,000.00. Mr. Hunt: The other issue I guess is the minimum tax because even with a clean reset, and I do not know what the new exemptions and the rates and combinations are going to be, but there are going to be a whole lot more people that are going to be in that minimum tax based on these larger exemptions at least where I see values right now. Once they have been reset and the cap re- established if that is the plan, there is no way to recoup. You have taken someone who is paying $200.00 or $300.00 a year and you knocked them down to $25.00 at two or four percent (2% or 4 %) a year you are collecting maybe $0.80 to $0.90 every year additionally and that is it. Mr. Bynum: You know what if those were people that live in a $225,000.00 valued six - hundred square foot condo I am fine with that. I mean we are talking about the people who have the most modest accommodations that exist. Mr. Hunt: Does not that, just as we are talking about, are not they receiving some of the same level of services and now they are really not contributing to it? Mr. Bynum: Yes. No question. It is a policy call that almost every community in this Country has made that says resident homeowners should pay a lower effective tax rate and those people in the most modest homes should pay even lower. I mean if we wanted to change that we would go to the flat tax and everybody on Kauai would pay a huge increase, all the resident homeowners would pay a huge increase. Flat tax is being proposed in Texas and Alabama but I live in (inaudible). Ms. Yukimura: Actually the situation you just described is already in effect where homeowners are paying the least and the people with the lower property assessments are paying low. I mean it is actually in effect. Any more questions for Steve? If not Wally I think we just wanted you to answer I think it was the first question about the CAFR and the balance future budget shortfalls and what that has been in the past. Mr. Rezentes: Wally Rezentes, Jr., Director of Finance for the record again. I believe the question was as of June 30 what was the assigned fund balance. I think on page 83 this is the copy of the June 30 financial statement information. On the first column General Fund it shows the assigned balance balancing future budget shortfalls $15,514,951.00. COMMITTEE MEETING 39 FEBRUARY 22, 2012 Ms. Yukimura: Are you looking at a piece of paper that we have in front of us? Mr. Rezentes: I am sorry I thought they handed it out. Ms. Yukimura: Okay but we have got a lot of paper handed out so the one that was just passed out? Mr. Rezentes: Page 83. Yes. Note 15 it says fund balance constrains as of June 30, 2010. Ms. Yukimura: Alright. 2010? I have 2011. Mr. Rezentes: There was another one that was passed out. I am sorry they have it right there. On the first column the assigned fund balance general fund balancing future budget shortfalls $15.5 million and the self insurance provision $3.551 million total assigned fund balance in the General Fund $19 million. And then you have an unassigned fund balance as of June 30, 2010 at $43,098,792.00. Ms. Yukimura: Okay I thought we were going back for several years? Mr. Rezentes: I was only told June 30, 2010. Ms. Yukimura: Is there one going back years? Mr. Bynum: Is there CAFR numbers for the last ten (10) years. Ms. Yukimura: So on the chart that is up on the screen what is the assigned balance? Let us see. You pointed to the, it was 19 or 15 that you were reading? Mr. Bynum: Nineteen (19) right here. Ms. Yukimura: Oh nineteen. So where is that? Mr. Bynum: That is the next Fiscal Year that is not on this chart. Ms. Yukimura: Okay. But total assigned balance is what column I am sorry? Mr. Bynum: May I? These are all for the CAFR, shows the total General Fund balance, the part that was unreserved and of that unreserved in 2009 -2010, $15 million was assigned to balance the budget, but when the CAFR was done none of that $15 million was used and in fact we had an additional $14 million. Ms. Yukimura: Okay so... Mr. Bynum: So when we assign these funds, the point is we most often do not use them. This year they have assigned every penny. COMMITTEE MEETING 40 FEBRUARY 22, 2012 Ms. Yukimura: Let me just, so where it says unreserved funds assigned to budget that is what you are calling the assigned, is that correct? Mr. Bynum: Well this year... Mr. Rezentes: The amounts that are assigned as of June 30, 2011 were assigned for the purposes that is stated here. We needed General Fund balance of $47.6 million to balance the Fiscal Year, current Fiscal Year's budget as well as make the appropriation for self insurance purposes of $3.7 million. The real question that I am really happy that the external auditors will be here but the real question goes back to how much money is available for appropriation? How much money is unassigned and available for appropriation legally under GASB, under all accounting rules as of June 30? As of June 30 what was available, come July 1 what was available for appropriation. I believe what Mr. Bynum has said and again we can have this clarified and I am not going to debate it, but I believe what Mr. Bynum is saying is there is $51.36 million available as of June 30, 2011. Ms. Yukimura: the assigned funds. Mr. Rezentes: Ms. Yukimura: history of the assigned funds. Mr. Rezentes: Ms. Yukimura: $1.3 million right? Okay I am just trying to get the history of That is not what you are saying? Oh good. Wait. Hold it. I am just trying to get the Okay. For 2010 it was $19 million, for 2011 it is Mr. Rezentes: I am sorry for 2011 it is not on there, but the 2011 is on the page 92 that I gave you. Ms. Yukimura: Yes that is what I am looking at. Mr. Rezentes: The total assigned fund balance... Ms. Yukimura: Oh it is $51 million. Mr. Rezentes: It is $51 million. Ms. Yukimura: I am sorry I thought that was a dollar sign. Mr. Rezentes: You are correct. Ms. Yukimura: $51 million. Mr. Rezentes: Correct. Ms. Yukimura: So it was $19 million in 2010, $51 million in 2011 assigned, $9 million in 2009 is that right? $10 million in 2008, $11.5 million, COMMITTEE MEETING 41 FEBRUARY 22, 2012 that is the column right we are looking at? The column entitled unreserved funds assigned to budget. Is that correct? Mr. Rezentes: That is what it looks like yes. Mr. Bynum: Assigned to budget. There was also an additional $3 million assigned for self insurance. So this is about what was assigned to balance the budget. Mr. Rezentes: Correct. But again, I should hold off. I will wait for a question. Mr. Bynum: May I? Ms. Yukimura: No. I am also wanting to then what was the unassigned amounts. Is that on this thing? On your page 83 of the financial statement dated June 30, 2010 the unassigned is $43 million is that right? Mr. Rezentes: Correct. Ms. Yukimura: And on the June 30, 2011 statement the unassigned is zero (0). Mr. Rezentes: Correct. Ms. Yukimura: And is there a column showing unassigned here on this sheet? No. Just yes or no and we can go on. Mr. Rezentes: As a result of GASB -54 the accounting profession reclassified what is considered assigned fund balances and they have various categories, restricted fund balances, assigned fund balances, and there is a number of them based on the new GASB -54 pronouncement. It is to provide more clarity as to the intent of the funds, the commitment of those funds, so that all Counties, it is more comparable from County to County. It is more of a I would like to say more of an open book so you can provide more details, you provide more clarity as to how much money is committed, how much money is restricted, how much money is available again for appropriation. Ms. Yukimura: Is that your explanation for why the assigned from 2010 -2011 went from $19 million to $51 million? Are you saying that GASB is causing us to categorize... Mr. Rezentes: GASB and policy decisions of the County, for example what was done a good portion of money that was unassigned went to the reserve fund. Ms. Yukimura: Right. Mr. Rezentes: So that policy decision by ordinance basically moved the money from what was once unassigned and assigned it to the reserve. It is restricted, you cannot use that funds unless the Council takes action to appropriate it out of the reserve to the General Fund or whatever other fund that the Council deems appropriate to appropriate the money to. But until that is done COMMITTEE MEETING 42 FEBRUARY 22, 2012 the money that are in the reserve is, you cannot consider that funds as being "unassigned." Ms. Yukimura: Thank you. Any questions of Wally? Yes go ahead Tim. Mr. Bynum: So you have assigned every penny right? At the end of the Fiscal Year you predict right now are we going to use all those assigned funds? Mr. Rezentes: Usually not definitely. In the course of the Fiscal Year we normally will have funds that lapse. In all the respective funds we normally never spend up to the budgeted amount, and in the course of the budget that is the analytics that go into determining how much money will lapse from one (1) year to the next year. We have to estimate that by fund, general, highway, waste water, all the respective funds we have to estimate what will lapse from one (1) Fiscal Year to the next and we rely on that source of funds to balance the ensuing Fiscal Year's budget. Mr. Bynum: Right. And we are going to look at that very closely. Mr. Rezentes: Yes absolutely and we need to. Mr. Bynum: I can guarantee you. Here has been my objection for five (5) years I have been saying this, assignment is a budget plan, it is a stated intention right? Mr. Rezentes: Yes. Mr. Bynum: , That we historically do not actually do right? And so we should make our decisions, in my opinion, based on the CAFR what we actually do. So all of those years that we assigned $15 million, $9 million, $10 million, $11 million to the budget, at the end of the year we did not actually do that. Not only did we not do that, we had additional funds of $12 million, $2 million, $8 million, $14 million, that grew our surplus correct? Mr. Rezentes: Yes. But that does not matter today. Mr. Bynum: It does not matter today because we have stated an intention to assign all $51 million. Mr. Rezentes: And it is not just ... we, it is all of us because we decided as a group and I think that was a prudent fiscal decision, in large part the reason why we have a zero (0) fund balance as of June 30 in the General Fund, an unassigned fund balance of zero (0) in the General Fund, by in large the reason for that is we made the policy decision and I think a very prudent fiscal decision to create a reserve of $25 some odd million. That is again, I think was a prudent thing to do. Ms. Yukimura: that some of the General probably the right word, funds. I believe it was Fund balance zero is due to our estimation of money that too Wally, but I also think our assignment, that is not we are assigning to special COMMITTEE MEETING 43 FEBRUARY 22, 2012 Mr. Rezentes: You are correct in that we needed to use ... our portions of the General Fund fund balance to support the deficit funds like Solid Waste, like Waste Water, like many others. Ms. Yukimura: Right but I think we are still asking whether we have overdone that and we will take more scrutiny this year. Mr. Rezentes: Absolutely. And again that is why you have auditors, and that is why you have audits done annually and they can answer your questions. Ms. Yukimura: Another question Councilmember Bynum and then we are going to tie up for tonight. Mr. Bynum: Last year when we did budget and you put the reserve in the budget I asked then why are we doing this is it necessary? Now I understand what your motive was. Mr. Rezentes: My motive was to create a reserve fund. Mr. Bynum: We have always had a reserve fund. Mr. Rezentes: No we have not. Ms. Yukimura: Now we have a formal reserve fund. Mr. Rezentes: Yes correct, right. Mr. Bynum: But we do not have to restrict it. Mr. Rezentes: By law it is approved by ordinance, by law we have to restrict it. By GASB rules we have to... Mr. Bynum: We have to restrict it because we put it in the budget but we do not have to do that. Mr. Rezentes: You are correct if we did not want to create the reserve we could have let that money just stay in that pot. Mr. Bynum: Stay in the General Fund balance. Mr. Rezentes: An unassigned. Correct, you are right. But the decision was made to create a reserve fund for the specific purposes that is laid forth in the reserve policy. And as a result of that and as a result of the ordinance that was approved those funds can no longer be considered unassigned. By approval of this County Council the funds in the reserve can be moved out of the reserve by a money bill and once it is moved out of the reserve fund it can be considered unassigned fund balance, a balance that is available for appropriation. But not until the ordinance is approved. Mr. Bynum: May I respond. Ms. Yukimura: Yes but I want to move toward closure. COMMITTEE MEETING 44 FEBRUARY 22, 2012 Mr. Bynum: I am trying to shut this down. I do not thing we should have this discussion tonight because it is not really on point but that was a big mistake on my opinion, to actually put it in the budget. What you have done is said we need this $25 million and we need another $20 million to assign for other purposes and the reserve is just a fact of the CAFR. A policy can be to manage that reserve that is what the most of them are that I have reviewed around the Country, a policy to manage your General Fund balance. It is not necessary to put it in the budget and restrict it in the ways you are saying. Mr. Rezentes: With all do respect to you Mr. Bynum I believe you are incorrect and that most of the policies that are recommended by the GFOA is to approve a reserve policy by ordinance. Once you do that by ordinance GASB rules will apply and the rules say that if the Council as the policy body determines by ordinance that you are setting up a reserve for a specific purpose of a reserve you can no longer call that funds unassigned. Ms. Yukimura: Okay I think that... Mr. Bynum: We do not have an ordinance. Ms. Yukimura: We do have an ordinance. Mr. Rezentes: We do have an ordinance. Ms. Yukimura: No we do not have an ordinance we have a resolution. Mr. Rezentes: We have an ordinance. If you look at the ordinance provisals, the reserve policy is set -up in the budget ordinance. Ms. Yukimura: You are correct. Mr. Rezentes: You are also correct, but I believe the Council also approved it by resolution as well later. Ms. Yukimura: With an ordinance to follow so there was something to be more specific than a budget provisal. Mr. Rezentes: It is in the budget ordinance. Ms. Yukimura: But the point is that we have made a couple of preliminary policy decisions on this and we are not going to debate that tonight and I think there are differing opinions about whether we should, or should not, or should have, or should not have. I think we have come to a close we have a motion pending on the floor, what should we do with that? What is the pleasure of the Committee? Mr. Bynum: We have three (3) of five (5) members here, I know what my pleasure is. Ms. Yukimura: Well I do not feel there is a consensus yet but I think there is some really very good information and issues that were raised. So perhaps we should just defer this item and I do not know if it is a vehicle, we could COMMITTEE MEETING 45 FEBRUARY 22, 2012 try to amend it or if there are solutions or proposals that do not quite fit the framework of the bill, we introduce new legislation. I would suggest at this late date we just defer it to the next Finance Committee meeting when hopefully we are fresh and there is more members. Oh you will not be here? Alright let us defer it to the next Committee when you will be here which is the March 14, is that correct? The 21St. Mr. Bynum: This is my file called too late. I am going to share this documents with my Council colleagues. I have been trying to in one (1) way or another give tax relief to the resident homeowners for three (3) years. I have made proposals, I will not go into all these details, when I make a proposal and I get a memo back from Finance saying it is too late we cannot get that done in three (3) months, we cannot get that done in six (6) weeks, let us do a tax credit on the next bill that is six (6) months away, well no we cannot get it done in time. So we had no tax relief for the last couple of years. The Mayor says hey Tim I am going to address it at budget wait until you see what I propose. The public record will show that the Mayor has proposed nothing to address these issues that we discussed here tonight. Now I am saying hey it is before budget, it is before we do anything, let us pass a change in homeowners exemption and we hear tonight it is too late, we do not know if we can get it calculated by then. So I want us to have a richer dialogue, I would like to see other proposals of how to address this issue. I think I mentioned one tonight if we did a 200 flat and had people pay—those 1,400 pay more that would be a way to go. There are many, but if we defer this for a month there is no way this is going to happen. We already heard the Administration well we can do it next year, well that is what we heard last year, I have got it in writing. When I say I want the data to make this analysis it took five (5) months to get it right? I cannot come to any other conclusion that this is just obfuscation and delay to prevent anything from happening. It is just, I am not making this up, it is a public record. They said it here tonight, even if you pass any changes to the exemption, if you use this tool Council at all, we do not think we can do it for next tax year. The meeting was called back to order, and proceeded as follows: Ms. Yukimura: Thank you. So I want to say, we are through with discussion, so I am sorry. We are going to, we are actually, I am sorry Wally I should have made it clear we are back in Committee but you can sit there. I do want to say that if the Administration has concerns about the policy I think we would really want to hear them and you have given them. I do find it disturbing that technicalities over a year's time have been an excuse. If that is the reason I would prefer to have substantive reasons for opposing the policy rather than technical difficulties used as an excuse not to implement the policy. And even if, I think the policy is worth discussing we need to take a vote on it, I do not know if there are enough votes to pass it but if it does pass and if it has to take effect by next year then so be it. But you will get the policy established. I think we have to stay focused on whether or not we want this policy not whether it is technically feasible because somehow the technicians have to figure this out. Any further discussion? If not then the Chair would entertain a motion to defer to March 21. Is that the next Committee meeting when Chair will be here? Mr. Bynum: I would like to make one (1) statement. Ms. Yukimura: Alright go ahead. COMMITTEE MEETING 46 FEBRUARY 22, 2012 Mr. Bynum: I want to say this for the record. At some point we may want to make changes to the homeowners exemption, please expedite getting a tax software system that you can actually use. I said that a year ago, fix it. If it is going to cost money come and tell us how much money it is going to cost to fix so we can manage our system with some sanity. It is not okay to me to say we have certified the tax rolls but it is too late for you to use these tools that are routine all over the Country, it is too late. There is something fundamentally wrong with that. Ms. Yukimura: So you want to make a motion? Upon motion duly made by Councilmember Nakamura, seconded by Councilmember Bynum, and unanimously carried, Bill No. 2425 was deferred to the March 21, 2012 Finance / Parks & Recreation / Public Works Programs Committee meeting. There being no further business, the meeting was adjourned at 8:45 p.m. Respectfully submitted, Ihilani C.J. Laureta Secretary APPROVED at the Committee Meeting held on April 18, 2012: TIM IYYNUM CHAIR, FINANCE /PARKS & RECREATION /PUBLIC WORKS PROGRAMS COMMITTEE