HomeMy WebLinkAbout08/28/2014 Special Committee of the Whole minutes SPECIAL COMMITTEE OF THE WHOLE MEETING
REAL PROPERTY TAX WORKSHOP
AUGUST 28, 2014
The Special Committee of the Whole Meeting, Real Property Tax Workshop,
of the Council of the County of Kaua`i was called to order by Council Chair Jay
Furfaro at the Council Chambers, 4396 Rice Street, Suite 201, Lihu`e, Kaua`i, on
Thursday, August 28, 2014 at 9:04 a.m., after which the following members
answered the call of the roll:
Honorable Tim Bynum (present at 9:11 a.m.)
Honorable Mason K. Chock, Sr.
Honorable Gary L. Hooser
Honorable Ross Kagawa
Honorable Mel Rapozo (present at 9:06 a.m.)
Honorable JoAnn A. Yukimura (present at 9:06 a.m.)
Honorable Jay Furfaro
Chair Furfaro: Next, can I get an approval of the agenda?
APPROVAL OF AGENDA.
Mr. Kagawa moved for approval of the agenda as circulated, seconded by
Mr. Rapozo, and carried by a vote of 7:0:0 (Mr. Bynum, Mr. Rapozo, and
Ms. Yukimura were not present).
Chair Furfaro: Before I go any further, I see a hand raised.
Ken, can you come up? This is only on the agenda.
There being no objections, the rules were suspended.
KEN TAYLOR: Chair and Members of the Council, my name
is Ken Taylor. I want to ask for consideration of some change to the agenda this
morning. The agenda, as prepared, seems ambiguous to me and that the changes
mentioned are not identified. I would request that the agenda be clarified. To me,
the 2013 Council Ordinance affecting the homestead class of taxpayers that
repealed the Permanent Home Use (PHU) provision and no other unrelated changes
that have been made in the tax law. I would like you to consider the change in the
agenda.
(Mr. Rapozo and Ms. Yukimura were noted as present.)
The meeting was called back to order, and proceeded as follows:
Chair Furfaro: Yvette, may you take that testimony from
Ken, please? Ken, I am going to ask you for a little patience. I have had somewhat
of a full week. As you know, I shared with you yesterday my testimony on the
Transient Accommodations Tax (TAT) in Honolulu, but I have outlined a template
that I am hoping to use with the members today to be focused first on a parameter
of items that deal with the current exemptions. Then, a number of items that focus
with various rate plans that have been discussed in particular with the residential
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REAL PROPERTY TAX WORKSHOP
and homestead class. I am going to be asking members to stay focused on the
workshop on those items. I have had this discussion with Mr. Louis, who surfaced a
similar item as you did. For us to have a tax workshop and say it is only focused on
a couple of items would be very difficult, but I do understand your testimony. Also,
I want to remind Councilmembers that items dealing with the condominium class,
time share class, and other fractional ownership, as well as resort categories, are
current, live agenda items and have been deferred to Committee. We should really
just focus on homestead and residential, but I appreciate your testimony on the
agenda. Thank you. For the members, I will be presenting this on the screen. The
worksheet I referred to has already been distributed to you. For the public, there is
a period here for time that would allow you to have three (3) minutes to give
testimony unquestioned from the Council, but purely testimony for the purpose of
your time. If you choose to give your testimony now because you are not planning to
stay the whole day, this time in our rules is provided for exactly that. There will be
no question and answer back and forth from the Council. Clerk, could you please
read the public comment portion, please?
PUBLIC COMMENT.
Pursuant to Council Rule 13(e), members of the public shall be allowed a total of
eighteen (18) minutes on a first come, first served basis to speak on any agenda
item. Each speaker shall be limited to three (3) minutes at the discretion of the
Chair to discuss the agenda item and shall not be allowed additional time to speak
during the meeting. This rule is designed to accommodate those who cannot be
present throughout the meeting to speak when the agenda items are heard. After
the conclusion of the eighteen (18) minutes, other members of the public shall be
allowed to speak pursuant to Council Rule 12(e).
SCOTT K. SATO, Council Services Review Officer: We have four (4)
registered speakers during the public comment period. The first speaker is Claudia
Herfurt, followed by Terry Wells.
Chair Furfaro: Claudia, you may come up. Again, you will
be given three (3) minutes. There will be no question and answer, but we will
receive your testimony.
There being no objections, the rules were suspended.
CLAUDIA HERFURT: Aloha Councilmembers. My name is Claudia
Herfurt. I have lived on this island for thirty-five (35) years. I first lived in Hanalei
and now I live in Kalihiwai. My taxes have tripled this year and that is forcing me
to sell my home. I have conducted a small homestay in one small part of my home
and paid all of the taxes since 1987; however I have to close that down and
discontinue that because it is not feasible anymore. I used to pride myself for not
being dependent on either government or my children, but as I said, I have to close
my business and sell my home. Many of us are wondering why we residential
people are being targeted, rather than the multinational agribusinesses, which have
State subsidies or National subsidies and tax breaks. That is really all I have to
say. This new rule, which dropped on me basically out of the sky, and to change my
status from business to residential, I had no forewarning. I have to do this by the
end of the month. I wish I had known and I would have done it last year. Thank
you for your time.
(Mr. Bynum was noted as present.)
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Chair Furfaro: Thank you, Claudia. Next registered
speaker.
Mr. Sato: The next speaker is Terry Wells, followed by
Ian Miles.
Chair Furfaro: Terry, you have to sit and identify yourself
first for the record.
TERRY WELLS: My name is Terry Wells. I would like to
apologize to the Council first. I have written a brief letter and some of the items
may not pertain to the agenda as intended. Though brief, I can defer if you prefer
to read it later.
Chair Furfaro: You cannot defer to later, Terry, if you want
to come and speak again.
Mr. Wells: May I read it now?
Chair Furfaro: Yes.
Mr. Wells: Okay. May I pass out a copy of it to the
Councilmembers?
Chair Furfaro: Yes. Please reset the time until after we
have collected his testimony.
Mr. Wells: This letter, though written in a somewhat
negative approach, is intended to be positive. Here is what I have: "Dear
Councilmembers, if I wanted to create a property tax system that was inherently
unfair, here is how I would go about it: I would create a valuation system that
nobody can decipher. I would publish a little public information as possible, not
enough to give a person a clear understanding of how their taxes or their neighbors
were arrived at. For example, I would only make available the total evaluation and
not break it down into land and buildings." I am referring to the information
available online. "This would make it nearly impossible for someone to build a
defense against unfair practices without multiple trips to the County Building to
beg for information. I would make changes to an individual's tax status without
informing him prior to making assessments, not giving him the right to discuss the
changes with a group of assessors and perhaps arriving at an equitable solution.
Instead, I would create a `kangaroo court' held after the fact with a predetermined
outcome. Number two, I would only publish important tax policy announcements in
the local newspaper, as seldom as possible and with the smallest headline possible,
knowing that the paper is only read by a small percentage of the island. Three, I
would create false and misleading documents like the one titled `2012-13 Real
Property Tax Relief Program Updates,' which refers to the Permanent Home Use
Cap Program. I would later cancel the permanent program, thus creating a breach
of contract with the public. I would establish a tax department that gives assessors
a free hand as how they go about collecting and with very little oversight. I would
allow each individual assessor the right to choose which individuals he applies the
law to and which he chooses to ignore. Instead of requiring each assessor to visit
each household individually, I would adopt a system that uses photography from
space to determine how many families are living under a single roof or how many
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buildings on a property are being occupied. I would allow the assessor to visit the
same properties year after year and never visit the neighbor down the street, as
opposed to doing a scheduled and properly recorded visit of every property on a
routine schedule. I would allow the assessor to base a new market valuation on a
single sale, often not even in the same neighborhood, instead of taking an average of
at the least six (6) sales in the same neighborhood or the next door neighborhoods
equally above and below in the neighborhood class."
Mr. Sato: Three (3) minutes.
Chair Furfaro: That is three (3) minutes. At the discretion
of the Chair, I will give you one (1) additional minute. Go ahead.
Mr. Wells: I would like to continue. "I would allow the
assessor to value properties at the same dollars per acre, whether the price is less
than one (1) acre or greater than five (5), even though he should know that anything
larger than four (4) acres is harder to sell and worth less per acre. I would allow the
assessor to inadvertently make mistakes on the valuation sheet, i.e., building size,
building quality, et cetera, hoping that the homeowner will not catch the mistake. I
would develop a system that monetarily punishes an individual for giving someone
else a roof over their head because they cannot afford even the minimum dollar
amount recognized as low-income rental fees. I would ignore the practice used in
Europe of rewarding a property owner for doing so. I would create a Home
Preservation Tax limitation policy that automatically excludes most of those who
deserve it. For example, I would exclude those individuals whose lifesavings are in
another piece of real estate instead of a bank account."
Mr. Sato: One (1) minute.
Chair Furfaro: Thank you. Please summarize.
Mr. Wells: "In conclusion, if I wanted to create an
extremely unfair tax system and create a huge animosity towards my County
government, that is how would I go about. On the other hand, if I wanted to create
a fair system that, in the end, would give the County more tax dollars, I would
overhaul the current system giving careful treatment to every neighbor equally. I
would require better oversight on individual assessors and give more careful
thought as to how the bills are written." The above observations are made with
careful thought. Though written in a negative approach, they are intended as
positive suggestions as to what is needed to be fixed. Each and every one of the
above has happened to us over the years, usually many times over. If the
Councilmembers want to discuss them further, please contact us. Thank you.
Chair Furfaro: Thank you.
Mr. Sato: The next speaker is Ian Miles...
Chair Furfaro: Excuse me. There is a rule in my Chambers
that if you want to express support of the testimony, you raise your hand, please.
We need to stay focused on the agenda today. If you want to show support for that
testimony, raise your hand. Thank you very much.
Mr. Sato: The next speaker is Ian Miles, followed by
Rosalina Lopez.
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IAN MILES: Approximately one (1) month ago, I got my
new tax bill, which increased from approximately three thousand six hundred
dollars ($3,600) to ten thousand five hundred dollars ($10,500). It was like a six
thousand four hundred dollar ($6,400) increase and they said they were going back
one (1) year, which means it was like thirteen thousand dollars ($13,000) more. I
was not even expecting that. It just dropped on us out of the blue. I came home and
my wife started to tell me and actually started crying. This severely impacts
people's lives. There are inherent injustices in this system. I do not know what is
going on in this Council, but I have just begun to fight, believe me, and there are a
lot of people like that out there. I have not really listened to the Council and I do
not read the paper that much. The last time I was here, I told JoAnn-
Councilmembers Kouchi and Baptiste were here honoring my son's team for
winning the State Championship in soccer. I do not really get involved, but this
thirteen thousand dollars ($13,000) extra bill out of the blue really upset me. I am
just beginning to understand how that could have come about. As our children were
leaving home, my wife decided to rent out one (1) room. The first year, we probably
only made three thousand dollars ($3,000) or four thousand dollars ($4,000), but for
that year, apparently we were paying six thousand five hundred dollars ($6,500) in
taxes. You need something in the system that stops that kind of thing from
happening. I understand that everybody's taxes are going up a little with budget
shortfalls, but not individuals happening to this. Sure, apparently I have the right
to rent out in Princeville and that is a problem I see with my children renting out—
not being available rentals, but I do not know if that is part of this. I have some of
my children, married children, and grandchildren stay with me. Essentially, what
is happening is because I have a big house and I am able to take care of that, I am
getting charged at a commercial rate for all of this, even though I have people under
my roof for free. My wife's idea was just to make a little extra money because we
needed it because we are just coming into retirement. Instead, it is costing us
money. This year, we may come out slightly ahead, but we are not making a
fortune. We are not renting out the whole place. We are getting charged the same
rate as the people that have one hundred percent (100%) rentals. This just seems
like an entire injustice to me. That is the fundamental thing.
Chair Furfaro: That is your three (3) minutes. Thank you
for your testimony. Next speaker.
Mr. Sato: The last registered speaker for the public
comment period is Rosalina Lopez.
Chair Furfaro: Rosalina, please come up.
SHEILA GARCIA LOUIS: Good morning, Council. My name is Sheila
Garcia Louis. I E-mailed all of you Councilmembers about the increase of tax.
Three (3) of you replied. Thank you, Mr. Furfaro. I know you were not here.
Chair Furfaro: I was happy to respond.
Ms. Louis: My concern is that we, the people of Kaua`i,
bought our properties. We own our properties. Who died and made everybody God
to tax us on our land? It is ours. When you go to the store and buy a loaf of bread,
it is yours. You do not pay by the slice. I feel that because we pay three hundred
thousand dollars ($300,000) to four hundred thousand dollars ($400,000), why
should we get taxed on our property? The Federal, State, and County does not do
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anything on our properties but us, yet we get taxed when we have a dwelling that
we put our families in, do not charge them, and we get charged for doing business.
There are a lot of retirees that cannot afford this tax increase, and so do we. So
people do put dwellings on their property to make extra income, yet doing that, we
get punished and we get taxed high. I feel that the Federal, State, and County have
properties that we cannot tell them what to do on it, but yet, they can tell us what
to do on ours. I feel that taxing the properties— it does not drive on the roadway. I
can see our cars because we are driving on the road, but our land does not go
anywhere but stay where it is. I feel they should get taxed. If it does, it should be a
little amount, not where we cannot afford it. In the end, elderly people are going to
have to start selling their property because they cannot make a "go" on it, and then
their families will lose out on that. I would like to have the Council people consider
about the increase on the properties and try to make something where— I think the
County took out the exemptions. That helped the people a lot. Now there are no
exemptions on it. When I went to pay my taxes, they said the County Council took
the exemptions off. I am asking you to please reconsider and not bring the taxes up
higher. Thank you.
Chair Furfaro: Thank you. I want to make a housekeeping
announcement. I see many people raising their hands and so forth. We are on the
public comment portion. This allows a total of eighteen (18) minutes made up of
six (6) speakers of three (3) minutes each with no comments. If you signed up for
that and you are part of the first eighteen (18) minutes of speakers, then that is
fine. You are being recognized. But other public testimony will be taken at the end
of the day with other presentations. Who are the individuals that have signed up
for the public comment portion?
Mr. Sato: The last registered speaker in the public
comment period is Rosalina Lopez.
Chair Furfaro: Okay. Rosalina Lopez is our next speaker.
Councilmember Yukimura.
Ms. Yukimura: I think many who were raising their hands
were trying to, instead of clapping, show their support. Actually, during
Bill No. 2491, it was like this.
Chair Furfaro: Okay. I appreciate that and I did recognize
that, but we also had a number of people who walked in after I read the public
comment portion. Rosalina, you have the mic.
ROSALINA LOPEZ: Hi, my name is Rosalina Lopez. I live in
what they call "Keapana Valley." I had three (3) acres of land and I gave each of my
children one (1) acre. Right now, I have four (4) of my children that live there. I
have one (1) acre that belongs to me that I have an `ohana that my grandson lives
in. When I got my bill last year, it was six hundred dollars ($600). This year, for
the first six (6) months, it is one thousand four hundred fifty-three dollars ($1,453).
I have no intention of selling that place. Forty-five (45) years ago, my husband and
I bought that place with the intention that my children and my children's children
were going to live there. I tell them today that if I knew all of this damn crap that
was coming up, I would have sold my property a long time ago. Children cannot
make it here on Kaua`i because there is no opportunity for them, but we try to be a
close-knit family. My family is a very close-knit family. Right now, I have ten (10)
grandchildren and ten (10) great-grandchildren. I have my sons and daughters that
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live there. You are not there to pay the six thousand dollars ($6,000) of insurance
that I have to pay for the two (2) houses every year. You guys keep on raising taxes
after taxes, after taxes. You are strangling the locals. We are dying. I tell my
grandchildren and I am going to tell my great-grandchildren that you guys have to
get out of this island. This is not paradise for us locals. They are killing us. Every
week, you guys are putting something up. Now it is the trash. What else? It does
not come out of your pockets. It comes out of our pockets. What I have today, I
worked hard. When my husband and I bought the place from— we worked at the
pigpen with my kids. We raised hogs. My husband and I built the pigpen by
ourselves. Nobody was there to help us except our children and nobody is there to
help us now except my children and my grandchildren. I went in one time and
asked, "Why is my tax rate so high?" They said, "Because you sold a lot of land
down in Keapana Valley." I do not own a valley house. I do not own the land that
McClusky has or Kealia Kai. You guys need to research the land.
Mr. Sato: Three (3) minutes.
Ms. Lopez: Who— not just the people that come here
and buy the land and rent up. My daughter has eight (8) children. Seven (7) of
them are home with her because when you go to rent someplace, it costs one
thousand five hundred dollars ($1,500) or one thousand four hundred dollars
($1,400) just to rent a little room that you cannot even fit one (1) bed in.
Chair Furfaro: Rosalina, you three (3) minutes are up, but I
will let you summarize.
Ms. Lopez: That is not right. You are killing the local
families. Affordable housing— what affordable housing? What family can pay five
hundred thousand dollars ($500,000)? I have my grandkids who work like animals
to survive on this island. It is sad; sad, sad, sad. Even sadder is what you guys did
to us senior citizens. I am fighting for the senior people who are trying to survive
day by day. It is not easy. I came from a local family. I learned how to survive
because my father was Portuguese and my mother was Hawaiian. They taught us
how to make things stretch. That is what you have to do. You have to research
what you are doing in the County. That is not our fault. When I went in to find out
about my taxes, they said, "The County needs money." We all need money, not only
the County. If they cannot handle the situation, that is their problem. Do not put it
on us.
The meeting was called back to order, and proceeded as follows:
Chair Furfaro: Thank you, Rosalina. On that note, our
public comment portion is complete. As we go through the workshop, we will end
with public testimony from the others who will be given six (6) minutes after the
presentations. Can we move to the next item on our agenda, please?
REAL PROPERTY TAX WORKSHOP:
1. The Kaua`i County Council's Committee of the Whole will hold a non-decision
making, informational workshop to discuss the changes to the real property tax
structure to include, but not be limited to, real property tax exemptions, tax on
use, real property tax rates, the implications of the repeal of the Permanent
Home Use (PHU) Tax Limit, the assessment and assessed value of real property
in the County of Kaua`i, potential real property tax reform to address increases
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being experienced by property owners in the County of Kaua`i, and educational
efforts that have occurred and are planned for the future.
Chair Furfaro: On that note, would I like to put up on the
overhead a presentation of the "Order of Business" for today. We will be starting
with a presentation from the Administration. The Administration is the most
familiar with the actual tax bill and will give us a general overview. I will then go
around the table for specific Councilmembers' questions. I will allocate time to each
Councilmember of ten (10) minutes. If they use those ten (10) minutes for their
presentation and so forth, that is their particular choice. An opportunity for
questions and a discussion on the general educational opportunities will follow. I
am prepared to share the outline that we have here, as well as the number of
exemptions that the taxpayer has to apply for, and we are finding that many people
perhaps were not aware of their need to actually apply each year for certain
exemptions. After that discussion, we will go back to public testimony, which we
will allow the people six (6) minutes for testimony on the items that we have seen.
Those of you who have given your testimony under the public comment portion, you
will not be allowed to speak again. Those of you that do plan to give testimony after
the presentation, I ask you to please signup now. There is a signup sheet on the
corner desk by the laptop. Mr. Kagawa.
Mr. Kagawa: In looking at the Order of Business, I was
just wondering if there is any section under which there would be some proposals
possibly to try and rectify some of the bad situations. What I mean by that is are
there any amendments that may be proposed as coming in the future to help correct
some of the problems such as lack of education, et cetera or even some proposals
that may reinstall the cap and things like that?
Chair Furfaro: We are not entertaining any amendments
and so forth, but I have allowed the date of September 10th for those changes to be
introduced by the Council, along with any changes that after the workshop and the
public hearing, that the Administration would like to introduce. That will be the
date we have scheduled to receive those. Thank you for the excellent question.
Mr. Bynum.
Mr. Bynum: How much time did you say Councilmembers
will have?
Chair Furfaro: The rules say five (5), but I will give each
Councilmember ten (10) minutes.
Mr. Bynum: I have prepared a PowerPoint presentation
that I think will take twenty (20) minutes, but we will see what happens. Thank
you.
Chair Furfaro: I will yield you my ten (10) minutes.
Mr. Bynum: Thank you.
Chair Furfaro: Is Mr. Hunt in the audience? I would like to
ask everyone to please have this time to absorb something that might be
informative to you in your particular situation. Perhaps there was an exemption
that you did not realize was there that you did not apply for or you missed a
previous date. Along the same lines, we do have this worksheet laid out and we
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have copies for the public. This will be our focus of our discussion today. Do the
members already have this worksheet, Yvette? It is circulated. Okay. Mr. Hunt,
the floor is yours.
There being no objections, the rules were suspended.
STEVEN A. HUNT, Director of Finance: For the record, Steve Hunt,
Director of Finance. Good morning, Council Chair, Councilmembers, and aggrieved
taxpayers. Thank you for participating and taking time out of your day to be here.
I want to review what we did in terms of the removal of the cap, what the goals and
objectives were, and what the projected outcomes were versus what the actual
outcomes were. The "Goals and Objectives"— this is revisited from a presentation
that was done in 2013, which was to "return to a more simplistic property tax
system where taxes were once again related to value." I check-marked that because
I believe that is what this has done. The second is to "assure equity and fairness
among the taxpayers of the same tax class." That essentially says that we are
turning into an ad valorem system that people all within the homestead class are
all paying based on their net value, less all of their exemptions and/or relief
programs. Third bullet point is to "provide taxpayers with the options to reduce
their taxes and/or change their tax classifications." This was done, but you also see
a question mark there. Certainly, based on the number of people here and some of
the results, I believe that not everyone is taking full advantage of what they would
have been eligible. Some of that, of course, we will take the responsibility for;
although the website, newspapers, HS'ike, and direct mailers were done, some
people still did not take the opportunity. Again, could we have done more? We
always could have done more. "Establish a more reasonable minimum tax." Again,
the minimum tax was twenty-five dollars ($25). For this year, it is one hundred
dollars ($100) with some exceptions. Those who are in low-income exemption
category actually pay fifty dollars ($50) of minimum tax. Finally, "follow through on
tax reforms that were articulated by Councilmembers during our Fiscal 14 Budget,
and then were hence incorporated into the Fiscal 15 Budget," which included the
removal of the cap.
The initiatives that were approved— again, "eliminate the Permanent Home
Use cap on taxes and provide alternative measures that result in the same financial
outcome in totality." Again, we were shooting for either revenue-neutral or
reduction in taxes by homestead taxpayers. The "increase to the minimum tax from
twenty-five dollars ($25) to one hundred dollars ($100), and for Fiscal 15, increasing
to one hundred fifty dollars ($150) as the minimum tax"— sorry, Fiscal 16. The
increase and the home exemptions— home exemptions were established at
forty-eight thousand dollars ($48,000) for those homeowners that were
owner-occupants under age sixty (60). Between sixty (60) and sixty-nine (69), it was
at ninety-six thousand dollars ($96,000). For age seventy (70) and above, it was one
hundred twenty thousand dollars ($120,000). Those were changed to exemptions of
one hundred sixty thousand dollars ($160,000), one hundred eighty thousand
dollars ($180,000), and two hundred thousand dollars (200,000), respectively. There
was no application process. That was just a conversion of existing exemptions
based on age to the new higher levels. Finally, "create a Home Preservation Tax
limit to assure that some of the outliers that would have the major tax hikes would
have the options to insulate themselves with the removal of the Permanent Home
Use cap." Again, I think several did not take advantage of that and some because of
the onerous nature of not owning additional properties did not qualify.
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Measuring the impacts— within the homestead class, we projected that the
difference on an average tax base would drop about forty-three dollars ($43), but the
median tax base, which is skewed more towards the lower valued properties, would
actually drop about one hundred twenty-one dollars ($121). We were projecting
that the total impact would be a reduction of four hundred fifty-two thousand
dollars ($452,000). The actual results were a little bit less. As you see the values or
the taxes in the "before" are actually higher than the projected. That simply is a
matter of there are more properties in that and people are always changing classes.
Buyers come in from year-to-year. It is the taxes of the new buyers that are
compared to the results after the removal of the cap. In totality, it was close. There
actually was a reduction in taxes from the homestead group of about four hundred
thirty-two thousand dollars ($432,000).
Of the increases— these are just speaking to the increases. We projected that
those increases that would be less than one hundred dollars ($100) would be about
thirty-five percent (35%). In actuality, there were thirty-four percent (34%); under
two hundred fifty dollars ($250) at sixty-six point five percent (66.5%) and there was
sixty-six point six percent (66.6%); and under five hundred dollars ($500),
eighty-nine point three percent (89.3%) versus eighty-eight point eight percent
(88.8%). So more or less tracking around the same lines, although you can see in
the actual counts that the numbers in there are higher, so as a percentage basis,
they mirror what the projected results were, but in the number count, there were
actually more that got increases than originally projected. That is a function of both
value increases, as well as some changes in exemptions.
Here are the same results, sort of looking at a pie chart of that: the big blue
section represents those that got increases less than five hundred dollars ($500).
Again, I am not going to be so glib as to say that a five hundred dollar ($500)
increase would not impact certain taxpayers, but I do want to point out that is
threshold, that most of that increase again was in the less than five hundred dollars
($500) category.
Taking that out a little further, we projected about a sixty-two point five
percent (62.5%) population base that would have gotten decreases and a
thirty-seven point four percent (37.4%) that would have gotten increases. The
actual results were fifty-one point five percent (51.5%) got decreases whereas
forty-eight point two percent (48.2%) got the increases. Again, the average increase
was projected at about two hundred forty-three dollars ($243) and the actual
average increase was two hundred fifty dollars ($250). The median increase was
projected at one hundred fifty-four dollars ($154) and actually it was one hundred
sixty-one dollars ($161). We did have projected maximum increase in this category
of about twelve thousand seven hundred dollars ($12,700). The actual maximum
increase was nine thousand dollars ($9,000). Some of the changes between 2013
and 2014 assessments— again, the data included a different set of properties.
There were more properties initially in the homestead class in 2013: ten thousand
five hundred ten (10,510) versus ten thousand nine hundred seventy-six (10,976),
which means a different set of owners as well for some of those properties. The
gross assessments for the homestead increased by about nine point one five percent
(9.15%) between 2013 and 2014 with this new data, and properties that had use
classification changes including long-term affordable rentals are now being
incorporated into this homestead class.
Again, "putting the increases in perspective." With the homestead class as a
whole, it actually benefited by a reduction of four hundred thirty-two thousand
SPECIAL COW MEETING 11 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
dollars ($432,000) between 2013 and 2014. There were slightly more owners in this
class that received decreases of fifty-one point five percent (51.5%) compared to
forty-eight point two percent (48.2%). Of the five thousand two hundred
ninety-three (5,293) owners that received increases, one hundred twenty-seven
(127) of those were simply moving from the twenty-five dollar ($25) minimum tax to
the one hundred dollar ($100) minimum tax. In account, there are two hundred
forty-six (246) property owners within the homestead tax class that received
increases that were greater than five hundred dollars ($500), which represents
about four point six percent (4.6%) of the group as a whole. Again, only five
hundred ninety-one (591) or eleven point one six percent (11.16%) had increases
that were greater than two hundred fifty dollars ($250). Many of the outliers may
have been qualified, but did not apply for additional relief, such as the low-income
exemption and/or the Home Preservation Tax credit, leading to some of those
outliers with the higher taxes. Then taking this island-wide, these are properties
where the homeowner has an exemption because they claim it as their primary
residence, but also include properties that have multiple uses, which could be
vacation rental, commercial, industrial, and other uses outside. For example,
homes where there is a home and a rental and that rental is not part of the
long-term affordable rental program, rather than being in the homestead is
classified as residential. As you know, the rates for residential were also increased
this year, so that adds to the impact.
Looking at all of the homeowners in all classes, those that were greater than
the five hundred dollar ($500) increase is still the bigger portion— sorry, less than
five hundred dollars ($500) is the bigger portion. You start to see more in that
category in the orange in that five hundred dollars ($500) to one thousand dollars
($1,000). These primarily are properties that are probably in the residential or
vacation rental class, getting higher tax bills.
Continuing on to the measured results island-wide— again, the predictions
were about fifty-seven percent (57%) would receive decreases and about forty-three
percent (43%) roughly would have increases. The actual amounts ended up being
about forty-six point three percent (46.3%) got decreases as opposed to fifty-three
percent (53%) that got increases. Again, this is the whole category homestead
combined with those that are outside of the homestead class with exemptions. The
projected average increase was about three hundred eighty-seven dollars ($387).
The actual average increase was about four hundred fifty-four dollars ($454). The
median increase, which is the sort of midpoint, was projected at about a two
hundred eight dollars ($208) increase as opposed to an actual two hundred
twenty-one dollars ($221). The maximum increase was projected at about thirteen
thousand five hundred dollars ($13,500) and actually it ended up being a vacation
rental going over nineteen thousand seven hundred dollars ($19,700). Again,
vacation rental also has an owner-occupant in it. So the changes between 2013 and
2014 include different sets of data. Twelve thousand three hundred forty (12,340)
were used in the 2013 analysis with the actual 2014 assessments included twelve
thousand six hundred seventy-nine (12,679) owners that had exemptions. Gross
assessments in the totality increase by about eight point six eight percent (8.68%).
The tax rates for residential and vacation rental classes were increased and there
also had properties that had use changes between 2013 and 2014.
Removing the PHU for all classes based on the 2013 assessments and
applying the proposed new exemption amounts and the Fiscal 14 rates: the
projected total impact for removing PHU is estimated at approximately four
hundred ninety-six thousand dollars ($496,000). That was not a revenue-neutral
SPECIAL COW MEETING 12 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
proposal and included all classes. It was actually an increase. There was a
decrease to the homestead, but that was made up by increasing all classes, and
again, this was somewhat of a buffer because we anticipated more decreases coming
in through the Home Preservation Limit. At the time of the certification of the tax
roll, we only had three (3) approved Home Preservation Limits, totaling a little over
twenty-nine thousand dollars ($29,000), so it was roughly about ten thousand
dollars ($10,000) per exemption or tax credit, if you will. That buffer was meant
there to absorb some of those increases we anticipated that did not come. I do not
have figures. I know the extend deadline was August 8th, so there are some that
could still be in the pike that would be additional reductions to taxes for those that
qualified for the Home Preservation Limit, and I hope to get those figures to you
soon.
The actual results, when we compare what was estimated from the 2013
values to the 2014, the increase showed about one million two hundred thirty-six
thousand dollars ($1,236,000) more, so that is seven hundred forty thousand dollars
($740,000) more than had been anticipated over the four hundred ninety-six
thousand dollars ($496,000). The several factors that led to the variance including
higher valuations, new properties in the grouping with the homeowners; there are
four hundred twenty-nine (429) new properties; and changes to the classifications
between years. There were one thousand forty-nine (1,049) properties or about
fifteen point three seven percent (15.37%) of the tax increases that were greater
than five hundred dollars ($500) when all owners were considered. So removing the
two hundred forty-six (246) in the homestead class that got increases greater than
five hundred dollars ($500); that means eight hundred three (803) of the increases
greater than five hundred dollars ($500) were coming from other classes, primarily
vacation rental and residential classifications.
In comparing homeowners' taxes and household income by County, the
average homeowner bill on Maui is eight hundred twenty dollars ($820). Their
average net assessment is about two hundred ninety-five thousand dollars
($295,000). Their Median Household Income (MHI) is about eighty-four thousand
nine hundred dollars ($84,900), and as a percentage of their real property tax, they
are paying roughly a little less than point nine seven percent (0.97%). Hawai`i
County has an average tax bill of about nine hundred thirty dollars ($930), but that
is based on a much lower assessment, average of one hundred fifty-one dollars
($151). They have a Median Household Income of about sixty-nine thousand eight
hundred dollars ($69,800) and they are paying roughly as percentage of their
income, one point thirty-three percent (1.33%). On Kaua`i, our average homeowner
tax bill is nine hundred sixty-eight dollars ($968). Our Median Household Income is
sixty-two thousand seven hundred dollars ($62,700). As an average, we are paying
about one point five four percent (1.54%) on a value of about three hundred
seventeen thousand six hundred dollars ($317,600). City and County homeowners
pay roughly one thousand seven hundred fifty-five dollars ($1755). Their median
income is significantly higher at ninety-seven thousand nine hundred dollars
($97,900), but so too is their real property tax percentage of income. They are
paying roughly one point seven nine percent (1.79%) with an average net taxable of
about five hundred one thousand eight hundred dollars ($501,800). Again,
comparing statewide, if we look at our values compared to other Counties
exemptions and tax rate programs; for properties that are two hundred fifty
thousand dollars ($250,000) valued, that would be the gross value for an owner that
is under sixty (60) years of age. In the City and County, you would be paying
roughly five hundred ninety-five dollars ($595) in taxes. In Maui County, you would
be paying two hundred fifty dollars ($250) in taxes. In Hawaii County, would be
SPECIAL COW MEETING 13 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
roughly one thousand two hundred ninety-one dollars ($1,291) in taxes. For Kaua`i,
you would be paying about two hundred seventy-four dollars and fifty cents
($274.50), but if you were to get an income exemption added on as a low-income
exemption, your minimum tax bill would be fifty dollars ($50) under this scenario.
Doing the same comparison at the same price rate or gross value rate, you can see
that the age exemption for those over seventy (70) kicks it down a little bit more, so
your tax bill drops to one hundred fifty-two dollars and fifty cents ($152.50). That
would be your annual bill without an income exemption for a house that is assessed
at two hundred fifty thousand dollars ($250,000). If we take the same analysis and
look at it for a house that is five hundred thousand dollars ($500,000) dropping
down to the bottom line— Kaua`i, if you have an income exemption, we have the
most favorable program. You would be paying about six hundred seventy-one
dollars ($671) in taxes. But if you were on Maui without an income exemption
compared to Kaua`i without an income exemption, you would pay slightly lower at
eight hundred thirty-four dollars ($834) versus one thousand thirty-seven dollars
($1,037). That is for age under sixty (60). Again, under seventy (70) and over, that
bill drops a little bit further down to nine hundred fifteen dollars ($915).
Here is a sample of a removal of the Permanent Home Use cap for a long time
homeowner: the one in bold is the one that has been the longtime homeowner. If
you look at the very far right corner, you will see "owner since." These are all local
people who all have home use exemptions and are in the homestead class. None of
them have other uses. The homeowner in the bold bought the property as vacant
land in 1960, built the house in 1963, and has lived there since. You can see the
sampling where the value actually in 2013 of the four (4) properties had the highest
value slightly at four hundred eighty-five thousand one hundred dollars ($485,100),
maintained an age exemption of one hundred twenty thousand dollars ($120,000),
and had a taxable amount of three hundred sixty-five thousand one hundred dollars
($365,100). In comparison to what his neighbors were paying all on the same street,
this owner was paying three hundred eighty-nine dollars and fifty-eight cents
($389.58), whereas the property that had the next highest value and also had an
age exemption, but did not acquire it until 2008 was paying nine hundred
forty-seven dollars and ninety cents ($947.90).
Without the cap, which is the 2014, you can see that the values changed
slightly from year-to-year, so there was an increase in valuation. The next
exemption amounts now were increased to reflect the higher exemptions. The net
taxable amounts are decreased. The taxes now for the first three (3) owners have
dropped, but the fourth owner, who had the house the longest, has increased from
three hundred eighty-nine dollars ($389) to nine hundred four dollars ($904). That
is about a five hundred fifteen dollar ($515) increase in taxes between 2014, but if
you look at the group in total taxes and compared all four (4) taxpayers collectively,
their tax bill as a group actually went down twenty-one dollars and fifteen cents
($21.15). In this case, the length of ownership is not always indicative of the ability
to pay taxes. It creates certainly a system of entitlements and removing those can
be very difficult.
"Proposed Interim Solutions"— the Administration is looking at proposing a
tax credit for the current year for those who are most aggrieved. This would be
based on a dollar amount and not a percentage. The proposal would include an
allowance of five hundred dollars ($500) in the increase and a discount of seventy
percent (70%) for all taxes above five hundred dollars ($500). It would be available
without application to those properties with Home Use Exemptions that are within
the homestead and residential classes only and would not be applied to owners that
SPECIAL COW MEETING 14 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
purchased after October 1st, which would be comparing it to the former owner's tax
bill, built a second home or had a major addition to the property, or received a Home
Use Exemption for the first time in 2014. It would also be extending the deadline
for the payment for the first-half tax bills for all owners with Home Use
Exemptions. The first-half payment deadline for Fiscal Year 15, which is 2014-2015
tax billing, would be moved from August 20, 2014 to December 31, 2014 and we
would waive all penalties and interest for that period. The preliminary cost
estimates of implementing this solution would range from about seven hundred
thousand dollars ($700,000) to seven hundred fifty thousand dollars ($750,000), and
would likely be funded by drawing down moneys from the Unassigned Fund
Balance.
I have provided some examples of how those credits might work. If your tax
bill went in Fiscal 14-15 from twenty-five dollars ($25) to one hundred dollars
($100), seventy-five dollar ($75) increase would still be within the allowable
increase of five hundred dollars ($500). There would be no tax credit and your bill
would remain at one hundred dollars ($100) minimum tax. In an instance where it
went from two hundred dollars ($200) to eight hundred dollars ($800), where there
was a six hundred dollar ($600) increase, the first five hundred dollars ($500) would
be recognized. The excess or the one hundred dollars ($100) above that five
hundred dollars ($500) would only be paid at a thirty cent ($0.30) on a dollar
amount, seventy percent (70%) discounted. That would be an adjusted bill, which
would be the five hundred dollar ($500) increase plus the original two hundred
dollars ($200) or seven hundred dollars ($700), and the thirty dollars ($30) would be
the additional discount, so there would be a tax credit applied to this of seventy
dollars ($70). Taking it out to the extreme, when you had a five thousand dollar
($5,000) tax bill and say it went to twenty thousand dollars ($20,000) you had a
fifteen thousand dollars ($15,000) increase— the allowable increase is five hundred
dollars ($500). The excess would be fourteen thousand five hundred dollars
($14,500). So in this case, the adjusted increase would be four thousand eight
hundred fifty dollars ($4,850) and a new tax bill of nine thousand eight hundred
fifty dollars ($9,850) and a credit of ten thousand one hundred fifty dollars ($10,150)
would be applied to that individual taxpayer.
Proposals for longer term solutions: consider having a third income-based
relief measure for the very low-income property owners that could fill the gap where
the low-income exemption is insufficient to provide meaningful relief. The net
taxable threshold of the Home Preservation Limit cannot be reached, so these would
be sort of the gap where you have a net taxable of five hundred thousand dollars
($500,000) or six hundred thousand dollars ($600,000), up to seven hundred fifty
thousand dollars ($750,000) where the Home Preservation comes into play, but your
income is very limited. We would continue to educate taxpayers on all potential tax
relief measures that are available, as well as the application deadlines for such tax
relief, refine the definitions of "use" for each tax classification by adopting
Administrative Rules pertaining to each use classification.
I think there are some strong compelling reasons why we would not want to
bring back the PHU cap: one, it is not a targeted solution and provides tax credits
indiscriminately, including those who can afford to pay higher taxes. Is it fair that
a "bottom-fisher" that acquired a home in poor economic times, but has the
wherewithal to pay higher taxes receives a lower tax bill in perpetuity, while a
struggling young family that purchased at the peak of the market continually pays
more? The PHU cap is a concern to our bond rating agency and could lead to
further erosion of the County's credit rating, as it restricts the ability to raise taxes.
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REAL PROPERTY TAX WORKSHOP
The PHU cap perpetuates inequities arising from inaccuracy, such as
undervaluation in prior years and without a means of rectifying the resulting taxes.
If the PHU is to be established on the purchase price or the assessment
immediately following the purchase; what happens when the owner completes
major renovations, adds square footage, builds a second home on the property,
subdivides a portion of property, or gets additional exemptions? It creates tax
disparities between taxpayers within the same tax classification solely based on
what the taxes were when the homeowner acquires the residence. It is a system
that is extremely difficult to manage, especially if adjustments to the tax rates are
required for changes such a new construction, tax class changes, gains or losses of
exemptions, changes in agricultural dedications status, etcetera. It becomes
extremely difficult to give accurate tax revenue forecasts or to convey the overall
impacts of changing tax rates or exemption amounts. From a financial stability
standpoint, the PHU cap allows taxes to drop without limits when values are falling
or when additional exemptions are received, but severely limits the recovery of
taxes when values begin to rise again. I have provided an example of just that
scenario. This is a property where the initial blue line that converges into the green
line at the top, where the taxes assuming a two percent (2%) cap in perpetuity. In
this case, it began in 2006 and values continued to fall, so the red line is the actual
taxes each year, the market taxes. Every year that the market taxes dropped, it
creates a new cap ceiling. If you take it all the way out to the far end, that light
green line above the short red line is the new cap if we were to carry this out to
2014. In this case, the property in 2006 had been paying four thousand nine
hundred twenty-one dollars ($4,921). Today, they are paying two thousand five
hundred thirty-two dollars ($2,532). The ability to recoup to ever get back to
revenues is severely hampered because the cap follows the market down.
These are states in the 1980s that had limits on assessment: California,
Arizona, and Colorado; just three (3) states. In the 2000s, that has been increased
to eleven (11) states plus the District of Columbia. Here is what happens when
taxes become capped. As you can see, the top blue line is fees/charges. When
property taxes begin to drop as a percentage of income— in the case of California in
1977, property taxes represented sixty-six percent (66%) of their revenue base. In
2011, it was only forty percent (40%), while fees went from fifteen percent (15%) to
thirty-five percent (35%).
Now I want to review just the current tax relief measures that are out there
and the benefits, as well as the deadlines, just for the public that is watching as
well. The first is the Home Use Exemption. Again, this is your primary residence;
you live there. You are entitled to exemptions one hundred sixty thousand dollars
($160,000) for those under sixty (60); between sixty (60) and sixty-nine (69), one
hundred eighty thousand dollars ($180,000); and for those seventy (70) and older,
two hundred thousand dollars ($200,000). It is a one-time application. You do not
have to reapply when your date changes. The property owner's birthdates are
collected at the time of application and the older of the property owner who
establishes the age differential first will automatically get the property exemption
increased at the time that happens. Again, that is on or before October 1st, which is
our date of valuation.
The next one is the low-income exemption. That is one hundred twenty
thousand dollars ($120,000) exemption and is based on the eighty percent (80%) of
the Gross Median Household Income, which is provided by Housing and Urban
Development (HUD), through the Kaua`i Housing Agency provides us that
information for the 2015 application, which is coming up for September 30th
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REAL PROPERTY TAX WORKSHOP
deadline. That amount is a gross income of fifty-six thousand two hundred dollars
($56,200) or less. That is an annual application because incomes change
year-to-year, as well as the amount in the thresholds will be changing year-to-year.
That is one that you have to apply for annually. There are exemptions for Totally
Disabled Veterans. If you are a Totally Disabled Veteran, you are actually one
hundred percent (100%) exempt from property taxation with the exception of
minimum tax, and that is also a one-time application by September 30th.
For blind deaf or totally disabled, there is a fifty thousand dollar ($50,000)
additional exemption and that is also a one-time application by September 30th.
Those who suffered from Hansen's Disease, that is also a fifty thousand dollar
($50,000) exemptions with a one-time application by September 30th. There is a
Safe Room Exemption of forty thousand dollars ($40,000). Those have to be in by
September 30th and require an architect stamp that it meets their criteria of being
a safe room.
Kuleana exemptions: these are also one hundred percent (100%) exempt
except for minimum taxation. They have to be used for agricultural or residential
purposes, not vacation rentals or commercial use. You also have to establish that
the bloodline lineage between the owner and the original Kuleana Grant are within
the same family. The Office of Hawaiian Affairs (OHA) certifies that.
The Home Preservation Limit: this is essentially a break from paying based
on ad valorem. Taxes are based on three percent (3%) of gross income. It is an
annual application by September 30th. The maximum gross income to be eligible is
one hundred thousand dollars ($100,000) and it is for all property owners, so if all
titleholders who have an interest in the property, you would collect their gross
income, and as long as it is lower than one hundred thousand dollars ($100,000),
they would pay an in lieu of tax of three percent (3%) of the gross income. There is
a floor of five hundred dollars ($500) and essentially a ceiling of three thousand
dollars ($3,000) since one hundred thousand dollars ($100,000) is the income limit
at the moment.
Hawaiian Homelands pay no real property tax, but they do pay their trash
collection fees and there is no application required for that. Agricultural
Dedications have to be applied for July 1st and they are either on a ten (10) or
twenty (20) year program. That is when the renewals come up. Those decrease the
value of the property in its agricultural use value as opposed to its market value,
primarily a tool for vacant land once the home is built. The difference between
excess land and dedicated land is somewhat nominal, but for vacant land, it is very
effective tool to reduce taxes, but you do have to have a bona fide agricultural use.
The Long-Term Affordable Rental: this is not a break in terms of an
exemption, but it does get you into the homestead tax class, which is the most
preferred rate. It can be a combination of a property that has multiple homes,
provided all of them either have an exemption and/or a Long-Term Affordable
Rental Agreement. They are one (1) year agreements that have to be executed prior
to September 30th, so it is within the calendar year of the assessment and it is an
annual application process. Those rents are determined by room count/bedroom
count and you can either do them as a gross rent where the landlord pays all
utilities or a net rent where the tenant pays all utilities. There are thresholds for
that based on bedroom count.
SPECIAL COW MEETING 17 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Also, information that should be out there that the public should know about
is that anyone who records— and it has to be recorded in the Bureau of Conveyance,
but anyone who records a fifteen (15) year lease for residential use on the property
has the same rights as an owner. So specifically in those properties where maybe a
family member resides in a second home, a recorded fifteen (15) year lease, without
deeding them an interest in the property, gives them the same rights as owners,
which would entitle them to an additional exemption on the property for living
there and also could wrap it into the homestead class, if there are only two (2)
homes, and both are either owner-occupied or occupied with a fifteen (15) year
tenant. Of course, the other option is deeding a small percentage interest to
another family member living on the property. Again, it means giving them full
ownership rights provided that they live there and that again can get them into the
homestead tax class.
Important dates to remember: September 30th is the deadline for filing all
exemption claims, income-based relief, affordable rental applications, and
ownership changes for the next coming year. October 1st is the date of valuation for
the 2015 year. December 1st is when the notices of assessment will be mailed to the
taxpayers. December 31st is the deadline for appeals, and that is appeals on
assessed value, exemptions that they feel they are entitled to, and the use
classification. You can appeal value, loss of an exemption, or your use classification.
It has to be done by December 31st. January 20, 2015 is actually the second half
billing for our current fiscal. February 20th is the due date for that payment, so you
have one (1) month from billing until the due date. March 31st is, by Charter, the
certification of the assessment roll that goes to Council. June 20th is when the
deadline that Council has to set the rates. July 1st is the deadline for filing for next
year's agricultural dedications, also the beginning of the next Fiscal Year.
July 20th is the first-half billing for the next fiscal, Fiscal Year 16 and August 20th
is the payment for that first-half due. Again, these are very important dates to
remember for taxpayers.
On our website, we continually post what is new. The most recent one was
extending of the deadline for filing for Home Preservation Tax Limit to August 8th.
All the tax changes were included as well. There were direct-mailers and this was
the information contained in those mailers as well. This is a reminder that real
property taxes in our General Fund contribute about eighty-one percent (81%) of
our budget; TAT being the next highest contributor in revenues at about eleven
percent (11%.) So between the two, ninety-two point four percent (92.4%) of our
General Fund revenue comes from two (2) sources: property taxes and TAT.
In conclusion, structural changes to reassign the tax burden within the
homestead class meant that some owners would pay more and some owners would
pay less. But as a whole, they would collect fewer taxes from this group and that
the method of determining the taxes would be equal and fair to all taxpayers within
the same class. Because our PHU cap program kept the real property taxes for
certain homeowners extremely low for such a prolonged period of time, those same
homeowners that benefitted the greatest from the PHU cap also received the largest
percentage increases to their 2014 bills. The good news is despite the large
percentage increases, the actual dollar amount increases in the homestead class
remain relatively low with thirty-four percent (34%) receiving increases in their
taxes that were less than one hundred dollars ($100); sixty-seven percent (67%) less
than two hundred fifty dollars ($250); and eighty-nine percent (89%) less than five
hundred dollars ($500). Many homeowners failed to take advantage of the tax relief
measures that were made available to them. Again, I believe that we certainly
SPECIAL COW MEETING 18 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
could have done a better job communicating, but the bottom line is that there are
advantages out there that were probably not taken to get their taxes lowered.
It is the Administration's position that targeting tax relief should be based on
need and an income-based approach that is more effective than a blanket approach
that ties tax relief to the date of purchase or length of ownership. The proposed tax
credits for 2014 or Fiscal Year 15 Budget would help bridge taxpayers in to the next
year where additional relief can be sought through getting the right exemptions,
applying for income-based relief measures, or changing tax classes by taking the
appropriate steps necessary. These tax credits would be applied to those most
aggrieved in actual dollar increases by setting a five hundred dollar ($500) floor and
discounting amounts above that threshold by seventy percent (70%). Real property
tax revenue continues to comprise about eighty-one percent (81%) of our General
Fund moneys and the inability to re-stake the County of Kaua`i's claim to over ten
million dollars ($10,000,000) in lost revenue from TAT due to the State's cap for the
County share has left a hole in our funding sources. It should be noted that the
total collection from the homestead group is just over ten million dollars
($10,000,000), so it is roughly the same amount lost to TAT from the cap is what we
collect from our homeowners.
Chair Furfaro: Steve, since you touched on the TAT, could
you just explain by legislation what we are entitled to, but what we were capped?
Could you just explain?
Mr. Hunt: Yes. The original sharing agreement had the
four (4) Counties sharing a total of forty-four point eight percent (44.8%) of the TAT
collected statewide. Of that forty-four point eight percent (44.8%), the County of
Kaua`i's share was fourteen point five percent (14.5%). The cap, which went into
effect in 2010 I believe, capped the County of Kaua`i's share at thirteen million four
hundred eighty-five thousand dollars ($13,485,000). The legislation for the next two
(2) years, Fiscal 15 and Fiscal 16, provided one million four hundred fifty thousand
dollars ($1,450,000) in additional cap revenue, but well short of the ten million
dollars ($10,000,000) million that we likely would have received absent the cap.
Chair Furfaro: Steve, I do not want to do this because I
want to finish the presentation, but the point is by legislation, we are entitled to
twenty-four million one hundred thousand dollars ($24,100,000). We are getting
what now?
Mr. Hunt: Fourteen million nine hundred thousand
dollars ($14,900,000).
Chair Furfaro: A difference of ten million dollars
($10,000,000). Please go on with your presentation.
Mr. Hunt: Sure. In an attempt to make up the lost TAT
revenue, the decision to increase tax rates on residential and vacation rental classes
has only further exasperated the removal of the PHU cap for those homeowners
since it meant recalculating the market taxes at the new higher tax rates.
Reviewing the two income-based relief measures, the Home Preservation Limit and
the low-income exemption, we believe a third measure is warranted to cover those
homeowners with very low-incomes, but whose property values have a relatively
high next net taxable value. That is the conclusion.
SPECIAL COW MEETING 19 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Chair Furfaro: For the general audience and members, if we
could stay on track here, please. The next section is going to be questions to the
Mayor's Administration and the Finance Director. They will have questions
regarding the presentation. I have decided to also make copies, and it will be
available to you at the break time, of the presentation that is there. There are three
(3) sheets. Please do not reach for it now. We will get to it at break time. There is
the summary of the options, and then for those who had heard about the
requirement to apply, there are the applications. There are three (3) parts there.
Now we are going to do questions from the Councilmembers. I am going to
recognize Mr. Bynum, Mr. Kagawa, and then Mr. Chock.
Mr. Bynum: Thank you, Mr. Hunt, for the presentation
today. It is clear— I think I am just going to have a couple of questions for now.
One is that all of this information you have presented was presented to this Council
at budget, correct?
Mr. Hunt: In the Fiscal 14 Budget.
Mr. Bynum: Right. So part of your presentation there is
"here is what we predicted" and "here is what actually happened."
Mr. Hunt: Correct.
Mr. Bynum: The predictions were all presented by you at
budget? Correct?
Mr. Hunt: Correct?
Mr. Bynum: So the Mayor's proposal this year was to
keep the homestead tax rate the same, correct?
Mr. Hunt: Correct.
Mr. Bynum: He knew, and you told us, that over six
hundred (600) people for instance would get more than five hundred dollar ($500)
increases, correct?
Mr. Hunt: Correct.
Mr. Bynum: In looking at your presentation today, your
predictions were not that far off. Correct?
Mr. Hunt: Correct.
Mr. Bynum: But some of those predictions were changed,
outcomes were changed, because of Council actions to increase, for instance, the
single-family residential rates slightly this year. In terms of what you told us about
removal of the cap, and how it would impact different homeowners, you shared that
with us, right?
Mr. Hunt: Yes.
Mr. Bynum: The Mayor's proposal was not to do any relief
when he presented that. He knew what the outcome would be. You have explained
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REAL PROPERTY TAX WORKSHOP
it that a lot of people had tax decreases who are probably not here today, and a lot
of people have tax increases in order to make the taxes fair. But you presented to
us what those impacts would be, correct?
Mr. Hunt: Yes.
Mr. Bynum: There were proposals presented at Council
that would have ameliorated the impacts.
Mr. Hunt: Some of them. The outliers probably still
would have been impacted to some degree.
Mr. Bynum: Okay. That is the first point I wanted to
make because— and then changes in assessed values, you also predicted for us.
You did not present that right now, but your predictions were pretty accurate,
correct?
Mr. Hunt: Yes. The predictions that were made from
the 2013 tax data included the changes to exemptions and market values relative to
the tax rates at that time. Those were the predictions that did not incorporate a
prediction of appreciation or expansion of the group that there were going to be
more taxpayers in that group or different owners. We could not predict that. We
did have an estimated prediction of what the total tax base might grow at the
budget, but that was further along; not part of the presentation regarding the PHU
removal.
Mr. Bynum: Many of the tax relief measures that you
shared with the community today were proposed by the Mayor in late 2011 and
discussed in 2012, right? During those presentations, you shared that there would
be many people who had tax increases if the rate remained the same, correct?
Mr. Hunt: Yes.
Mr. Bynum: I am just trying to... I went through those
budget sessions and I have read all of the minutes. I think in a sense that the
Administration was not clear with the Council about what they were proposing and
what the outcomes would be— I just wanted to dispel that on your behalf because
you came here and presented this information, correct?
Mr. Hunt: I think there was a detailed spreadsheet that
had a parcel by parcel analysis of what those changes would be.
Mr. Bynum: That is my last question. You remember
that during budget, I put up a live spreadsheet on here that we could plug in
different rates and see the outcome for every single taxpayer in the County; that
this tool was made available to all of us and any of us— I spent hours and hours
with it, but any of us could plug in tax rates, plug in different scenarios, and
understand the outcome and measure it. How many people get increases? How
many get decreases? This was presented on the floor, correct?
Mr. Hunt: Yes.
Mr. Bynum: That is all I have for now, Chair.
SPECIAL COW MEETING 21 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Chair Furfaro: Mr. Kagawa, you are next.
Mr. Kagawa: Steve, how long has the cap been in place?
Mr. Hunt: Since 2004.
Mr. Kagawa: Why was it done?
Mr. Hunt: I believe the stated purpose was to stop the
taxes increasing while other relief measures were looked at to come up with a
comprehensive program.
Mr. Kagawa: So it was not done to kind of balance the
crazy real estate market?
Mr. Hunt: I would not call it "balance the crazy," but I
think there was sort of a timeout to say that "the values are increasing rapidly and
we need comprehensive tax measures that address this."
Mr. Kagawa: So it was done because people were
complaining back in 2004?
Mr. Hunt: Right.
Mr. Kagawa: Because of tax bills that were just doing the
same thing as now?
Mr. Hunt: Right. Again, I believe the values were
increasing and the rates remained the same, so the outcome was that tax bills were
increasing.
Mr. Kagawa: I voted "no" on removing the cap because I
felt rushed. If we had a cap in place for ten (10) years, why would we rush to
remove it? Something that has been done for ten (10) years and people are used to
it— and then we rushed to remove it because... what did we do? Did we decide all
of a sudden that this is the year? What is the reason?
Mr. Hunt: It actually was a series of changes that
occurred throughout. It started with adopting many of the recommendations, which
included the Kuleana lands. That was an exemption. There were other changes
that... it was a year-to-year-to-year and really we stripped almost all of the
recommendations except the removal of the PHU, which was the last one. The
increase of exemptions was the one that was tied to that, as well as the tax rate had
been dropped by Council in, I think, in the two (2) subsequent years at the three
dollars and five cents ($3.05). I think we deemed that it was time to come off and
we had to rip the bandage off at some point. Again, it was not something that was
just thought of in short order; it had been something that worked on a whole
comprehensive set of plans and this was the last measure. In order to actually
make it effective for the tax year, we had to do it. There was a time constraint on
that.
Mr. Kagawa: That is what I guess my question was. Why
did we not spend a little bit more time educating us and educating the public, so
that at least that bill was not a surprise? Because I have people that are sitting
SPECIAL COW MEETING 22 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
here that they opened their bill, came right up here, and said, "I cannot pay this." I
think one of the reasons is that people that have that "old style," that have that lot
over ten thousand (10,000) square feet...
Mr. Hunt: The `Ghana.
Mr. Kagawa: We had that Additional Dwelling Unit
(ADU), possibly for our kids. What happened when we removed the cap that made
these people with the second home...
Mr. Hunt: More aggrieved?
Mr. Kagawa: Yes. What happened?
Mr. Kagawa: In those scenarios, it was the tax rate more
than anything else. When the cap had been established, the rates were much lower
in the residential the category than it is today, so it was a combination of removing
both the cap that protected the value increase and the rate increase. It was sort of a
double whammy at one time. In those instances, really, the relief is if it is a family
member, get them a fifteen (15) year lease and put them on deed. There are
measures that would bring that back into the homestead fold and that could provide
very meaningful relief. The tax rate for homestead is almost half what the
residential rate is.
Mr. Kagawa: I think back in the 80s or early 90s, there
was not a homestead rate, right? It was just a residential rate.
Mr. Hunt: Yes. The year 1991 was the first year that
the homestead rate came out.
Mr. Kagawa: The year 1991 was the first year of the
homestead rate.
Mr. Hunt: Yes, the year 1991 or 1992.
Mr. Kagawa: Basically what you are saying is that the cap
protected the ADU from— because now what they are saying is that my ADU is
taxed more than my home. In a lot of cases, the home is a lot bigger or what have
you. Is that the case?
Mr. Hunt: It really is a case-by-case. You have to look
at what happened to the characteristics of the property. If it started as a
single-family residence in the homestead, and then they built a second home, we
had a formula, which we call Future Use Permanent Home Use Exemption
(FUPHUX), Future Use Permanent Home Base (FUPHUB)... you remember it,
right Tim? The PHU is the "FU," and then one is dealing with exemptions, one is
dealing with new construction, and one is dealing with exemptions, construction,
and tax rates. If there are changes that had to be done to a property because they
have changed characteristics, then we would have to go back to the original base
year and we would have to determine what that change meant in terms of a rate
change to the value? It is like carrying forward the cap tax at a different rate if
their use class changed.
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REAL PROPERTY TAX WORKSHOP
Mr. Kagawa: Since that seems to be the target, like the
Haraguchi's and the other ones, can you explain to me— you have a home and you
are getting the homestead rate on it. Last year, you decide to put an additional unit
on your property. How are you being taxed now?
Mr. Hunt: Once the unit is built, if it is not an owner-
occupant that has an exemption...
Mr. Kagawa: It is brand new. It does not have a renter
yet.
Mr. Hunt: It would be residential.
Mr. Kagawa: The whole lot would be residential?
Mr. Hunt: Yes.
Mr. Kagawa: Both houses?
Mr. Hunt: Yes.
Mr. Kagawa: So the house that you live in is no longer
homestead?
Mr. Hunt: You still get the exemption, but the whole
class applies to one (1) property. We do not have a separation of value between land
and house and ADU versus the main— you could create that by "CPR-ing" the
property, so if you wanted to have two (2) separate; keep one (1) in homestead and
one as a long-term rental, you could do that. But you would have to create that
division for assessment purposes.
Mr. Kagawa: What if in that additional house, your college
child lives in it. Does two (2) become homestead?
Mr. Hunt: Not if he is not leased in there or if he is not
an owner in any way. He has to be qualified as an owner-occupant.
Mr. Kagawa: So instead of paying three dollars and five
cents ($3.05) per thousand, you would pay six dollars and five cents ($6.05)?
Mr. Hunt: Yes.
Mr. Kagawa: You pay three dollars ($3) more.
Mr. Hunt: Right. If you wanted to do a one (1) year
lease with him under the Long-Term Affordable Rental Program, if you wanted to,
you could create a one dollar ($1) a month lease, hand that to us, and say, "My son
lives here." Then it becomes homestead again.
Mr. Kagawa: I am done for now, Chair. Thank you, Steve.
Chair Furfaro: Thank you. I am going to go to Mr. Chock
now.
SPECIAL COW MEETING 24 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Mr. Chock: Thank you, Steve, for your presentation. I
appreciate it. I was not here—this was the first time I saw a lot of information, and
I am sure for many people here also. Not everyone watches the show here and I
was not here at the time, so it was good to kind of get a sense of what the reasoning
was as you moved into removing the cap. I think people are probably relieved that
the opportunity of a seventy percent (70%) discount here— I am calling it a
"discount" because my question is around— it sounds like this is a one (1) year
deferral of the actual payments, which would still put people in a year's time in the
same predicament of having this huge bill.
Mr. Hunt: Potentially. Again, I view this was a credit
to give them the opportunity to now seek all potential relief measures available to
them. There may be some that went from twenty-five dollars ($25) to seven
hundred dollars ($700) and have all of the measures. Again, if my mantra is if we
are looking at additional relief, it certainly has to be income-based. It cannot be a
carte blanche. There are people on a fixed income that are low-income and there are
people on a fixed income that are very high, so it does not measure the ability to
pay. I really think the targeted approach should be "show us the need," and if there
is a need, I am certainly willing to help. The whole issue of just because you have
owned the property longer, you get some sort of benefit and relief within the
taxpayers of the same class— that is a philosophical question, but that is what
removal of the cap has done is make it equal for all taxpayers within the category.
Mr. Chock: Are there any ideas in terms of how we
might phase this incurring bill over a longer period, so that we could have it become
more equitable and affordable for our taxpayers.
Mr. Hunt: I think one of the proposals that you will be
receiving is the measure to extend the payment deadline retroactively, so anybody
who has not made payment yet or has not paid their half would be waived from all
penalties and interest, and at time that credits are calculated, they would have a
revised tax bill and have up until December 31st to pay that first-half. Of course,
the second-half is not too far behind, so I do not know if you wanted to consider
some sort of a program in the second-half. It also ties within cash flow that the
County needs to pay its obligations with debt service, payroll, and etcetera.
Mr. Chock: So the tax exemptions that you spoke of are
now going to be open until September 30th. Is that correct?
Mr. Hunt: Yes. The current exemptions that we have
in play are open through September 30th. The one that I spoke about that I believe
the Chair is working on a draft of has to do with a targeted income for the very
low-income that would be able to qualify to break the tie between value and
taxation based on need. That could be done after the fact because it does not affect
exemptions. It is a credit, not an exemption. It does not affect the classification or
assessed values; it affects the backend taxes, so it could still be done after the
September 30th date.
Mr. Chock: Okay. I know you mentioned it in terms of
education and communicating these changes in the future, but I did not hear
anything new that obviously we did not get to people. Are there any new strategies
in terms of trying to get to people and educating what the changes may be?
SPECIAL COW MEETING 25 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Mr. Hunt: We offer to have after hours consulting for
people who are working. Myself and Kim Hester would gladly meet with taxpayers
to go over their individual circumstance and see about making recommendations.
Thus far, I have not had anybody take me up on that offer.
Mr. Chock: Okay. Thank you.
Chair Furfaro: Mr. Rapozo, and then Mr. Hooser.
Mr. Rapozo: How many of you in the audience knew that
they were doing after hour consulting? That is my point, Steve. I think we are not
getting the word out. That is the first question. I did not know about that, but I
wish I did because we could transfer a lot of the calls that we get straight to you. I
am glad you made that offer on television, so that the millions of people who are
watching will know. It is not a criticism. It is just the reality that they do not get
the word. What did you say? Ho`ike...
Mr. Hunt: The newspaper...
Mr. Rapozo: Okay, The Garden Island. No offense to The
Garden Island newspaper, but their readership is not the best.
Mr. Hunt: Ho`ike and I believe there is radio spot as
well.
Mr. Rapozo: Which Ho`ike? The Mayor's show? How
many of you watch Ho`ike? I do not know what the mechanism is, I really do not.
But this is a good one. I think we just need to get the word out. Let me just preface
my questions: when I use the term "local," that means a resident. It does not mean
a race, color, or creed. It means that you live here the entire year; not a part-time
resident. I do not care if you vote here and live somewhere else. I am talking about
the a twelve (12) month resident of Kaua`i, to me, is a local person when I use that
term. If we could put up slide number 12, I just want you to go over your first bullet
point. My. Bynum talked about that your projections were almost right on target.
Like Mr. Kagawa, I did not support the cap removal; not because I thought it was a
bad idea, but because I was not ready and because I was not convinced that the
numbers were right. There was something in me saying, "Mel, not yet." I think
that is quite telling and maybe you can explain— I know it is there in the bullet,
but if you could explain to the public that the projected impact for removing the
PHU for all classes was estimated at just slightly under five hundred thousand
dollars ($500,000). But the actual was one million two hundred thousand dollars
($1,200,000). That is not almost...
Mr. Hunt: No, but you could take... let me get the other
bullet. There are four hundred twenty-nine (429) new properties in there, so if you
take the four hundred twenty-nine (429) new properties times the average tax bill
for... this is the non...
Mr. Rapozo: Steve, my point is when we did the
estimation of four hundred ninety-six thousand dollars ($496,000).
Mr. Hunt: Yes.
SPECIAL COW MEETING 26 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Mr. Rapozo: Did that include any perspective new
properties? Did that take into account any...
Mr. Hunt: No. It was a stagnant analysis based on
2013.
Mr. Rapozo: Right. That is why I was uncomfortable
because I knew that property values were going to go up. I knew that new
properties were going to be built. In essence, the County enjoyed a benefit of almost
three quarters of a million dollars ($750,000), when the public, if they were paying
attention, was looking at a benefit of about half a million dollars ($500,000).
Mr. Hunt: Right.
Mr. Rapozo: That is substantial, in my opinion.
Mr. Hunt: Coincidently, the tax relief credits would be
about seven hundred thousand dollars ($700,000) to seven hundred fifty thousand
dollars ($750,000).
Mr. Rapozo: Right. The only other question that I have at
this point is— we talked a lot about the cap. I think only Councilmembers
Yukimura, Furfaro, and myself were here when we actually put that cap in, right
Mr. Chair? I believe that was your initiative.
Chair Furfaro: Yes. It was mine and I will review it in my
comments.
Mr. Rapozo: At the time, you said it best. There was
aggressive increase of property values. It was going through the roof and these
people— you think they are pissed off or upset now, but it was worse back then
because it was just exponentially increasing. These people were getting tax bills...
everyone... so the Council, at that time, did what I believe we had to do is stop the
bleeding with the cap. You did talk earlier and I just want to know your opinion.
You put up a whole list of reasons why the cap would not be effective now, and one
of the, which I agree with, is that you set up this inequity because someone that
lives on the property for a long time gets an additional benefit. I would agree that
in some cases, it causes a huge inequity. What if there was a reset provision? If
someone decided to expand their home and they wanted to build another unit or do
something different with the property, then it resets. That brings back the equality.
That brings back the equity when as we do with Planning, you get a permit, put a
fence— I know this because I put up a chain-link fence. I wish I did not because it
increased my value more than the fence cost. But that is fair. It added value. I am
saying when that happens, is it possible to restore the cap with a reset clause, and
the public would know, that if you want to build an expansion or build out your
house, it will come with an increased property value and you will be taxed on it.
Mr. Hunt: To some degree, that is how the system was
managed. The cap protected the original structure and property, but the addition
would then be valued at market just for the addition, calculated the taxes on that,
and then added to the base, and the whole thing would be recapped. It became very
complicated to explain someone's bill, especially when people would compare bills.
"Why is my neighbor who has a higher value paying lower than I am?" A lot of that
SPECIAL COW MEETING 27 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
was information that we got from the public too. Again, those are the ones who
probably got decreases and are not here today.
Mr. Rapozo: Or a lot of them with increases that
unfortunately have to work. Steve, that is the reality when you do a workshop at
9:00 a.m.
Mr. Hunt: I understand.
Mr. Rapozo: All of the calls that I get are, "Mel, I cannot
make it because I have to work. I am upset." That is the reality. Granted that it
would cause, I guess, some difficulties to implement, but I think Mr. Chock just
asked the question— this is just a band-aid with what the proposal is right now
because in one (1) year or six (6) months, or whenever the next tax bill rolls around,
we will be here again.
Mr. Hunt: Again, it is the Administration's position
that we are supportive of the removal of the cap. It creates fairness between "like
taxpayers." Anyone who is... this is probably not a good example because it is
(inaudible) within a tax, but if you were to go to the movie theater, you have a
children's rate, general fare, and a senior citizen rate, right? If you were to go and
you brought your children and your children pay five dollars ($5) and my children
pay two dollars ($2) because I have been here longer; I have seen more movies, so I
get a discount. It would not seem fair.
Mr. Rapozo: That is what the airlines do, right? You get
the mileage plus and I have the guy sitting next to me. The guy sitting next to me
never paid a penny because he flies a lot and I do not, so I pay three hundred
dollars ($300) roundtrip and he gets a free ride. Steve, I can pick an analogy for
every one that you put out. I am just saying let us do something that is fair,
something that is right, and something that fixes it and not prolongs— I am not the
guy to do that because I am not that bright and I am looking to you folks in Finance
to try... I am just thinking that the cap provides the most stability. Yes, it comes
with some disadvantages, but that is up to the people to decide. I do not know how
many people would be upset if they understand the cap. The problem is education.
But if the neighbor understood the cap process— yes, it is unfortunate that if you
just bought your house yesterday, you are going to pay a higher tax. Is that fair?
No. But is there a fairer way? I think that is what we are all looking for, including
your office.
Mr. Hunt: Yes.
Mr. Rapozo: So if the cap resets, is it too difficult in your
opinion?
Mr. Hunt: Too difficult and I think it will just create the
same problems that we prolong with the ten (10) year cap that we had. I think the
longer it exists, the more those inequities would build up again.
Mr. Rapozo: Okay. Thank you.
Chair Furfaro: By the way, Mel, they do that at hotels too
for frequent stay. Mr. Hooser, you have the floor.
SPECIAL COW MEETING 28 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Mr. Hooser: Thank you, Mr. Hunt, for the discussion. I
think it is an informative and important discussion to have. Frankly, I think it just
reinforces Mr. Wells' testimony that he made earlier today that we need a complete
overhaul. This is no blame on anybody. This is what happens after years and years
of piecing things together. I keep thinking about the slide with all of the important
dates and you mentioned that these are all dates we need to pay attention to. There
were twelve (12) of them up there or something... there was a whole bunch. I think
we need a complete overhaul. I would be happy to work on that with the
Administration and with this Council. If we look at the main points— the history is
important, I think, in how we came to this place, but I think the people that are
here today want to hear about what we are going to do about it and how we are
going fix it. At the end of the day, I think an overhaul is important. Let us look at
the main points. The main points seem to be the exemptions. Can we put the slide
with the exemptions up, please? There are a whole lot of them. They are all well-
intended. The deadline for those exemptions is September 30th. Is that correct?
Mr. Hunt: Correct.
Mr. Hooser: I have been on the Council for a while and I
get any envelopes like everybody else. So I go to apply for an exemption and they
say it is September 30th, but that is not until next to year, so it does not impact this
year. Is that correct?
Mr. Hunt: If you are applying for this year, your next
tax billing, which would be in July, would be the impact of applying for an
exemption now. Correct.
Mr. Hooser: So all of those exemptions of benefit will not
help anyone with the bills that they have at this point?
Mr. Hunt: Correct.
Mr. Hooser: They would have to know to apply and apply
for September 30th for next year.
Mr. Hunt: Correct.
Mr. Hooser: The exemptions section— there are a lot of
helpful tools for people there that people are not aware of. I think since we are
looking for solutions down the road... not down the road— we are looking for
solutions now. Councilmember Bynum and I met with you a couple of days ago or
last week about this issue and we are going to be introducing a bill to make those
exemptions retroactive. So anyone who applies September 30th for the coming year
will be applicable to their year that they are on now... with the billing that we have.
Your Administration is able to administer that if, in fact, the Council supported
that?
Mr. Hunt: I would likely need additional staff to
administer that because we are currently working on the assessments for 2015.
Mr. Hooser: I think everyone should understand that
their resources are limited.
Mr. Hunt: Very limited.
SPECIAL COW MEETING 29 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Mr. Hooser: Let us say that he needs additional support.
I can support that. But is it doable?
Mr. Hunt: Yes.
Mr. Hooser: So those folks, who might have an affordable
rental or some kind of other income exemption that did not know about it, could
then apply and it would be applied retroactively. They would get a credit or maybe
save money in their tax bill. That is a possibility. Is that correct?
Mr. Hunt: It is a possibility. I would think that the
most difficult part of administering that would be able to show what the use was as
of October 1st of last year.
Mr. Hooser: But if the Council passed a bill like that,
which Councilmember Bynum and I will be introducing, then that is a possible way
to get immediate relief... we are looking for immediate relief. I just want to make
sure that it is possible. The second area is the caps. I agree that I felt rushed this
last time and I think we need a long-term discussion on the caps, and take it into
consideration that it is a complete overhaul. I want to put that on the side for now.
The other big issue that seems to be impacting a lot of people is this use provision
where a person has a home, and then they have a little, tiny place that they might
use as an office. They checked the form "Office Use," and all of a sudden, their
whole property gets designated. That can be done proportionately. Can it not? So
we could amend the law, and then ten percent (10%) of the properties is commercial
use, then it could be ten percent (10%) commercial and rest could be homestead. We
have the ability to amend the law to implement that.
Mr. Hunt: You have the ability to amend the law. To
implement that, the biggest challenge I would see in that is if we are going it on a
square foot basis or pro-rata basis, does that ten percent (10%) of the property
represent ten percent (10%) of the property value? It may not. It may be thirty
percent (30%) of the property value because it contributes more in revenue or
whatever. It is going to become a challenge, especially from the appeals standpoint
because how are we going to justify an assessment for a portion of a property that
cannot be sold separately that does not have a defined land area? In that situation,
we would have to create two (2) separate assessments with two (2) separate classes.
You would have an assessment for the commercial and an assessment for the
residential or homestead. Both would have separate values and both would have
separate tax rates to arrive at that. Defending the portion value would be very
challenging.
Mr. Hooser: We do not have to debate it here. We can
debate it when the bill hits the floor, but I understand that it might take some work
to work out the details. I believe that is a huge source of a problem that we are
facing now is people that were not aware, number one. They are filling out the
form, checked the box, and all of a sudden their bill goes through the roof. We have
had this conversation before where people never really rented it out. They were
going to rent it out, so they checked it, and they never rented it out for one (1)
month, so there are some inequities in the system that needs to be fixed. No
question about that. Chair, I will conclude with this if we could put up the slide of
the Administration's proposal. I believe if I can restate it, the Administration and
SPECIAL COW MEETING 30 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
the Mayor saying that all of the increases... everyone had an increase. They would
have to pay the first five hundred dollars ($500).
Mr. Hunt: Right.
Mr. Hooser: Any increase above that, they would have to
pay seventy percent (70%) of that increase.
Mr. Hunt: Thirty percent (30%).
Mr. Hooser: Okay, for that one (1) year. You had a term
up there— I am not looking at the slide now, but you mentioned... that is the slide
that lays out how it would impact those categories. I think you mentioned in a
previous slide the words you used for the cost of this program. The cost to
implement was how much?
Mr. Hunt: Between seven hundred thousand dollars
($700,000) to seven hundred fifty thousand dollars ($750,000).
Mr. Hooser: He did not say lost revenue; he said the cost
to implement. That is my point I want to make is that the people in the audience
may not understand the nomenclature. The cost to implement is really the loss of
money to the County. It is not money that we have to hire people to implement.
Mr. Hunt: Correct.
Mr. Hooser: I just want to make that clear, so that people
understand that. This seven hundred fifty thousand dollar ($750,000) estimate is
an estimate on the County budget if we gave this relief.
Mr. Hunt: Correct.
Mr. Hooser: Also, Councilmember Bynum and I, in our
conversations with you, made it clear that it was not enough and that we intend to
amend this to put possibly a two hundred fifty dollar ($250) cap, replacing the five
hundred dollar ($500) figure with a two hundred fifty dollar ($250). The maximum
increase would be two hundred fifty dollars ($250) and no thirty percent (30%). Do
you know what the estimate on the budget that would be?
Mr. Hunt: I believe it is close to two million dollars
($2,000,000).
Mr. Hooser: If we did that, as a Council approved that,
that would cost the taxpayers two million dollars ($2,000,000), but would grant
immediate relief to everyone, and then we can have a long-term overhaul discussion
and work on next year, if the County wanted to spend the two million dollars
($2,000,000) basically. So two million dollars ($2,000,000) is your estimate of the
impacts of that particular measure?
Mr. Hunt: Close to that.
Mr. Hooser: Okay. Thank you very much.
SPECIAL COW MEETING 31 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Chair Furfaro: JoAnn, I am going to give you a chance
before I take the floor, and then I plan to take a break at 11:00 a.m. and let the
people in the audience get copies of the presentation. JoAnn, you have the floor.
Ms. Yukimura: Thank you, Chair. Thank you everyone for
being here today. Thank you, Steve, for all of the work that you have done. I think
you pointed out that the cap really created a lot of problems in terms of inequities
and the longer that it goes on, the bigger people's taxes will be when we remove it,
and that has been the problem. So you have really tried to, with Councilmember
Bynum's help and Chair, remove the cap, but tried to make it in a way that people
could adjust to it. I think we see that the publicity has been deficient, not from lack
of effort, but it just has not worked and people have not been aware of the remedies
that are available to them. It is really good that we are having a chance to
understand it. The first question that I have is— you have in your PowerPoint the
fact... I think it is on PowerPoint slide number 11 that— we do not have to show it,
but tax rates for residential and vacation rental categories were increased. Did the
Administration recommend tax increases to the residential and vacation rental?
Mr. Hunt: Not to those categories. Ours was limited to
hotel and resort.
Ms. Yukimura: In fact, it was the County Council that did
that and I actually recall that Councilmembers Rapozo and Kagawa wanted to raise
it so we could lower the rates on hotels. That was one of the generators of these
consequences. Mr. Haraguchi's situation was announced all over the newspaper
and it horrified everyone to a person, but you have actually worked with the family.
Can you tell us some of the measures that were used so that people might know it to
be applicable to their situations to see if— I think it might be applicable to
Mrs. Lopez's situation, where she has a family member... I think she said her
grandson lives in her ADU. Could you explain how families could use the existing
provisions to lower their taxes?
Mr. Hunt: Sure. In the instance of the Haraguchi's
property, they have two (2) homes on the property, but only one (1) exemption. So it
is currently classified as residential. The second home is occupied by
Mr. Haraguchi's son and there are really two options to get that property into
homestead: one is a long-term affordable lease. They could lease it to him at
minimal rents, as long as it is below the cap amounts for that. They would get
immediate relief by getting into the homestead classification just from the
Long-Term Affordable Rental. As a longer term fix, what I recommended was
looking at a fifteen (15) year lease for them because they have no intention of
leaving the property. The fifteen (15) year lease would then entitle the whole
property to the Home Preservation Limit, as long as it is homestead and both have
owner-occupant home exemptions. The fifteen (15) year lease would entitle the son
to an additional exemption off of the property, which in an oceanfront Hanalei
property, the exemption itself is not very meaningful, but the fact that it is now
eligible because they have maintained the property for more than ten (10) years of
having at least one (1) home exemption on that property, they meet all the other
criteria in terms of not owning other properties, income qualifications, and
everything else. Their taxes will actually go down below what they paid based on
the 2013 bill.
Ms. Yukimura: So it will go below what they paid in the
previous tax year.
SPECIAL COW MEETING 32 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Mr. Hunt: Yes.
Ms. Yukimura: Just so that I understand, there is first the
long-term affordable lease.
Mr. Hunt: Correct.
Ms. Yukimura: So it does not have to be a family member.
But if it is rented to somebody at below the rates that we have established, then it
does not get any extra exemptions, but it gets the homestead tax rate, so the lowest
tax rate of three dollars and five cents ($3.05). We are getting some real property
experts here now.
Mr. Hunt: If I could take the time to broadcast what
those rates are, so the people who are watching and the people who are wanting to
know what that is for the 2015 application...
Chair Furfaro: Steve, why do you not go ahead and do that
and I will share with Councilmember Yukimura, the particulars on that property
that I relieved to the family in writing. Why do you not do exactly that?
Mr. Hunt: For the Long-Term Affordable Rentals for
the upcoming year, which has a deadline of application of September 30th, as long
as you have a one (1) year lease in place that begins on or before September 30th:
your rents for studio where tenant pays all the utilities is one thousand twenty-six
dollars ($1,026) a month. For a one (1) bedroom, it is one thousand one hundred
eighty-one dollars ($1,181) a month. For a two (2) bedroom, it is one thousand two
hundred ninety-one dollars ($1,291) a month. For a three (3) bedroom, it is one
thousand five hundred fifty-two dollars ($1,552) a month. For a four (4) bedroom, it
is one thousand six hundred thirty-three dollars ($1,633). For a five (5) bedroom, it
is one thousand eight hundred seventy-five dollars ($1,875). Anything above five (5)
bedrooms is still one thousand eight hundred seventy-five dollars ($1,875).
Ms. Yukimura: Is that on the website?
Mr. Hunt: Yes.
Ms. Yukimura: For some places such as Hanalei, those are
very low rents and unlikely, unless it is a family member— I have actually been
working with the realtors to see if we could actually have higher rental levels in
high-priced places that would qualify for low, affordable rental. This is a provision
that we put in place a couple of years ago and Councilmember Bynum was a really
big advocate of it, but it came from the Administration as an effort to reward or give
incentives to landlords to rent property at low rates or not penalize them if they are
renting at low rates.
Mr. Hunt: Correct.
Ms. Yukimura: So that is our first effort. We may need to
tweak it, but it is a really good thing in terms of trying to have private sector help in
providing affordable housing or at least giving some tax relief to those who are
already doing this act of community-mindedness by renting at low rates.
SPECIAL COW MEETING 33 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Mr. Hunt: Yes.
Ms. Yukimura: Okay. The other one that the Haraguchi
family qualified for, which some people may qualify for, is...
Mr. Hunt: The Home Preservation Limit, which is
actually a tax credit program.
Ms. Yukimura: Okay, so explain the Home Preservation
Limit.
Mr. Hunt: Okay. For the Home Preservation Limit, you
have to have lived in your property and maintained an exemption on that property
for a minimum of ten (10) years.
Ms. Yukimura: Okay, ten (10) years.
Mr. Hunt: I will get the exact bullet points to cover
them all.
Ms. Yukimura: So lived in that property as an
owner-occupant for ten (10) years.
Mr. Hunt: Yes, ten (10) year minimum and no break.
Those ten (10) years with an owner-occupancy can be considered a family member
transfer. For example, if five (5) years in, the grandfather dies and the son moves
in and maintains it without a break in losing the exemption— they do not rent it
out or do anything, then that ten (10) years is applicable to the family, if you will.
So you have to have that ten (10) year minimum. It has to be eligible for
homestead, so you cannot have a vacation rental as a second home. You cannot be
generating income other than... really it is a family member. If it is a long-term
lease for fifteen (15) years, that is the only one that would qualify as homestead
under this provision. Both dwellings, in that case, would have to have home use
exemptions intact. The gross income between all owners— so if you did a fifteen
(15) year lease and made that tenant an owner for taxation purposes, we would
include the income from that tenant as part of the gross income calc. The maximum
again is one hundred thousand dollars ($100,000) gross income to qualify. The
property has to have a net taxable value, which is the gross value, less all of their
exemptions, of at least seven hundred fifty thousand dollars ($750,000) or more. So
this is really to take care of the extremes.
Ms. Yukimura: This is for homes in high-priced places.
Mr. Hunt: Correct.
Ms. Yukimura: Okay.
Mr. Hunt: In lieu of property taxes, they pay a
percentage of income or a floor. It is a five hundred dollar ($500) minimum tax, but
three percent (3%) of the reported gross income from all owners.
Ms. Yukimura: Okay, so whichever is more.
SPECIAL COW MEETING 34 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Mr. Hunt: Whichever is higher. It caps at three
thousand dollars ($3,000).
Ms. Yukimura: So where people qualify for this particular
program, they either pay five hundred dollars ($500) or ten percent (10%)?
Mr. Hunt: Three percent (3%).
Ms. Yukimura: Three percent (3%) of their gross income,
whichever is higher.
Mr. Hunt: Yes.
Ms. Yukimura: Okay.
Mr. Hunt: The other is that they cannot own other
properties, which is again for some taxpayers, a challenge.
Ms. Yukimura: Okay. This has to be their only hope.
Mr. Hunt: Yes.
Ms. Yukimura: So that may or may not apply to people.
There was one more that they could use and that would be simply giving him a
fifteen (15) year lease makes him an owner... he gives his son all of the benefits of
an owner-occupied home, and therefore, they would qualify for exemptions twice
because...
Mr. Hunt: Again, the main exemption for use— each
home independently can apply for income exemptions, so they could qualify for
income.
Ms. Yukimura: They will also then regain the lowest tax rate
because when you had another home/dwelling, you lose that.
Mr. Hunt: It becomes residential...
Ms. Yukimura: Unless you leave it vacant?
Mr. Hunt: No. If it is vacant, there is no established
use and it is available for rental, so the default is it is residential.
Ms. Yukimura: Okay, but if both people have
owner-occupant status, they get the lowest rate of three dollars and five cents
($3.05).
Mr. Hunt: Correct.
Ms. Yukimura: That got restored to Mr. Haraguchi?
Mr. Hunt: It will be.
SPECIAL COW MEETING 35 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Ms. Yukimura: Okay. Or anybody in his situation, which
they may not qualify for the Home Preservation category, but they could still get
back the lowest tax rate.
Mr. Hunt: If they do the affordable rental.
Ms. Yukimura: Okay.
Mr. Hunt: One more caveat to the fifteen (15) year lease
is that it has to be recorded at the Bureau of Conveyances. There is a recording
requirement for that.
Ms. Yukimura: Okay.
Chair Furfaro: We have ten (10) minutes before we have to
go into a break.
Ms. Yukimura: Okay. I have two more questions.
Chair Furfaro: I get none.
Ms. Yukimura: This question about "how do we inform
people about these various programs?" For one thing, because people's taxes were
so low, nobody really cared, right? Nobody bothered about what the tax provisions
were. We found that out— I have been part of this... Steve, you were also a part of
this group in 2004 along with Walter Lewis, Mike Dyer, and I, and we addressed
the issue of the cap.
Chair Furfaro: By the way, I was involved because I was the
Finance Chair then.
Ms. Yukimura: Excuse me, Chair.
Mr. Rapozo: I was involved because I was a resident.
Ms. Yukimura: But just so we know, we have been
struggling with this for many years. We found out that in Florida, where there is
this cap, and the taxes were really, really low, nobody cares what their county
government is doing and the level of participation... because nobody really has a
stake in what is happening. Now when you have to, you need to know. Let me tell
you what is at stake are your parks, roads, and police service. We do not always
deliver them very well, but if they were not there at all, your property would have
much less value than it does now. I think one of the questions should be asked to
everyone is, "How would you like to be informed and what is the best way to inform
you?" You did send a flier to every single taxpayer, right?
Mr. Hunt: Yes.
Ms. Yukimura: It was sent with all the assessments. If you
got your assessments, it was in that file.
Mr. Hunt: It was sent in the 2013...
SPECIAL COW MEETING 36 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Chair Furfaro: To the audience, please let this dialogue
happen between the Councilmember and the Finance Director.
Ms. Yukimura: Thank you. For those of you saying "no,"
please let me know in the break. I would like to know.
Mr. Hunt: Let me clarify— it was sent in 2013, so with
the 2014 assessments, there was no additional information provided.
Ms. Yukimura: Thank you for that clarification. That was a
major problem and we apologize to all of you. I think if there was a big mistake,
and I take responsibility as a Councilmember, it was in how we notified people. We
have to figure out how to rectify that. I think there is also a problem with the
surveys that went out because I think they resulted in inaccurate classifications or
changing classifications that did get registered. So I guess I want to ask your
department to look at use of that tool. I know you were trying to use it as a way to
do your job better, but there is a real problem there, so if you have any comments
now or maybe you want to go back to your staff and work on that particular issue.
Do you know?
Mr. Hunt: It is something that we are actually working
on Administrative Rules for because frankly, we did not know... there were so many
gray areas that cross between uses and how we are going to define the differences
between those gray areas, so part of that is waiting to see what uses were reported
and what uses were established. Things like agritourism have not even really come
to the table yet, but how do you classify that? Homestays are another one. Is that
different from vacation rental? A lot of that still needs to be worked on as part of
the use classification.
Ms. Yukimura: Okay. I think we have to recognize that the
survey is a way that we communicate with people and we have to be very clear in
how we communicate with people. The last question is if you gave me a figure that
if we divided all the parcels on this island into the real property taxes that we
collect, what is the average?
Mr. Hunt: I do not want to misquote this.
Ms. Yukimura: I think it was something like five thousand
dollars ($5,000).
Mr. Hunt: It is roughly about three thousand one
hundred forty-five dollars ($3,145).
Ms. Yukimura: Okay.
Mr. Hunt: Three thousand one hundred forty-five
dollars ($3,145) plus or minus.
Ms. Yukimura: Yes. Obviously, they are large parcels and
small parcels and that is a really rough thing, but if I talked to my sister in Seattle
or my father-in-law in Chicago, for comparable-sized properties and values, they are
paying higher taxes than we are. I think it is like "what is the cost of running this
County?" Yes, there are issues of waste, but the average is three thousand dollars
($3,000) and some of us are paying less than that because hotels may be paying
SPECIAL COW MEETING 37 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
more and commercial may be paying more, etcetera, because they can pay more and
they do maybe generate more use of our resources: our roads, our fire, our police,
and etcetera. But that is kind of a rough benchmark, and it is true (inaudible)
because this is ad valorem, the higher properties pay more. That is it. Thank you.
Chair Furfaro: Steve, I have about five (5) minutes here
before we break. To the audience, I want you to know that when we take a break,
the Administration's presentation is available in hard copy form on the table. Help
yourself. There is a worksheet that the Council has in front of you that talks about
the kind of tax credits that are available, along with another pile of actual
applications that Steve has been referring to. Now, I have a couple of questions
from myself for you, Steve.
Mr. Hunt: Yes, Chair.
Chair Furfaro: First of all, I want to thank Mr. Kagawa for
joining me to sponsor this forum. This is a way to get information out, so I want to
thank him for joining me in doing that with this informational piece. I also want to
make sure that we all understand, as the Administration, some of the proposals
that you have talked about in your presentation, I will entertain on the agenda on
September 10th, along with proposals that come from Members of the Council. I am
working with the staff to find a way that we could fast-track some of these new
pieces, should they pass. Both you and Mr. Kagawa were not here during 2006 and
the Kuleana Bill. That was my Bill, as well as the cap; that was my Bill as well.
But I keep hearing from the Administration the ability to pay a lot of things and I
just want to make sure that we all understand that those caps in the Kuleana Bill,
for me in my philosophy, it was introduced for the ability to own. We had people in
Wainiha, (inaudible) Valley, Ha'ena— they did not have a very substantial home,
but their property taxes were going up to the point that they could not pay. I want
to confirm that is my reason for introducing it and you concurred that was one of
the benefits.
Mr. Hunt: Yes.
Chair Furfaro: It did help people own. The other part to
that was certainly the concern that when the market is accelerating like it was, I
believe, and it is my math, that from that 2006 period and the Tax Task Force,
which people like Mike Dyer served on, confirmed that we actually... I am not going
to use the word "discounted," but we deferred almost seventy-one million dollars
($71,000,000) worth of taxes for people that could qualify for the cap. It was a
savings to them. Would you agree with that amount?
Mr. Hunt: I believe those are accurate numbers.
Chair Furfaro: I am pretty much in the ballpark. But the
problem was when we had the cap was as the market declined, we did not have
anything that said, "No, if you bought into the cap, that was your tax and it goes up
every two (2) years," and, in fact, we might also tie that to the Consumer Price
Index (CPI). That did not happen, so when real estate values fell, the cap really
turned out to be a big challenge for the Administration. The challenge needs to be
you get your tax capped, but in fact— and you might go with the Consumer Price
Index going forward because we have old timers. We have kupuna that they know
they are only going to get a one point nine percent (1.9%) increase on their social
security. That is it. That is the only increase they are going to have. In the cap,
SPECIAL COW MEETING 38 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
that was a problem. Again, I want to come back to not the ability to pay, but for me,
the ability to own. These are close families on the north shore for me. My family is
1/16th Hawaiian, but the reality is that we have plenty of family that was finding
themselves that they could not hold on to their property and that was an immediate
benefit for them. Also, it helped with the Kuleana tax and that was something that
was discussed in the Tax Task Force. Maybe we should revisit those things, but we
have to be very careful with anything that we do with the cap going forward. If we
go through a declining cycle again, it is going to hurt the County of Kaua`i. If you
buy into a cap, you have to buy into that permanently having that increase tied to
the Consumer Price Index. In my opinion, I also want to say very sincerely to the
Administration, thank you for being here and spending time with us today. I am
going to take a fifteen (15) minute break, ladies and gentlemen. Please be back in
fifteen (15) minutes. We are going to allow people to pick up copies of what was
shared so far. We are on a recess.
There being no objections, the meeting recessed at 11:12 a.m.
The meeting reconvened at 11:29 a.m., and proceeded as follows:
(Mr. Rapozo is noted as not present at 11:29 a.m.)
(Mr. Kagawa is noted as not present at 11:29 a.m.)
Chair Furfaro: I am making another decision as Chair. I am
going to go to an item that I put on the agenda for Councilmembers if there were
any presentations. I only have one presentation that was requested to be made and
I am going to give that to Mr. Bynum. I am going to allow Mr. Bynum twenty (20)
minutes for that presentation. When Mr. Bynum is finished, we are going to go to
public testimony, so I have kind of shifted the order here. Then at the end, I am
going to invite the Finance Director back, so we can have individual question and
answer for him. On that note, we have enough members to start. Mr. Rapozo had
to leave shortly for a personal matter, and then somewhere in the next twenty (20)
minutes or so, Mr. Chock will be stepping out, but everyone will be back for the
public testimony portion. On that note, Mr. Bynum, you have the floor.
Mr. Bynum: Thank you, Chair. I am going to go into my
fast forward mode because I have a lot of information to share. To the best of my
ability, what I am sharing is public record, figures from our audited reports and
from our public record of what we actually did. In politics, there is a lot of rhetoric.
A lot of people say a lot of things and you can even say things that are accurate that
do not enlighten. I wanted, to the best of my ability, present what we actually did
as a County and the decisions we actually made that led us to this.
If we go to the first slide: I want you to look at the red and green lines. That
is our General Fund income versus Expenditures for the last fifteen (15) years. You
can see that the County of Kaua`i grew dramatically. The County expanded in size
dramatically. This tells you about the Department of Parks and Recreation and
Office of Boards and Commissions that was created by the taxpayers that
substantially added to our costs. But no question that the County grew. There is
no question that the economic downturn happened— the tide started turning in
2008. We knew that was happening. Now, so you look at the spending. This red
line is spending. It went up, up, and up. This is right when Mayor Bernard came in
and you have heard people say that we have spent the surplus, but it is not true.
We did not spend it because Mayor Bernard gave us two (2) years where spending
SPECIAL COW MEETING 39 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
actually went down. That is very difficult to do because you have unions that get
raises and a lot of fixed costs. We did respond to this economic downturn by
tightening the belt by looking at savings. Look at what happened to revenue.
Revenue was going up. This little bump down here is the result of the cap coming
in place, primarily. It did protect a number of homeowners, but at the expense of
others. As a class, that relief was short-lived and that is why we needed to revisit
it. So you look at this green— look at this right here. Let us go to the next slide.
This is the last few years since 2008. The General Fund revenues went down
dramatically. There is the three (3) years that the Mayor actually lowered our
spending each year. Look at what happened and this gap— that is the hole because
we were not managing our government. We were not managing our revenues.
Then we had a second hole. This is the TAT effect over the last three (3) Fiscal
Years. The first three million dollars ($3,000,000) million; then seven million
dollars ($7,000,000); then this year nine million dollars ($9,000,000); and this year
we are dealing with right now, that is last year at nine million dollars ($9,000,000).
So we had decreased revenue, spending flat; decreased revenue chipping away. Let
us look at that a little bit year-by-year. How did we deal with that? In 2008, we
had a four million dollar ($4,000,000) difference between spending and revenue.
That should have been a red flag for us. The General Fund Balance at that time
was forty-five million dollars ($45,000,000). What significant tax proposals came in
that year? There was no rate change, but there was a Combat Veterans Tax Credit
that Councilmember Rapozo put forward that passed, and there was a major tax
reform proposal by Mayor Baptiste called "Real Property Initiative."
Ms. Yukimura: You have "Combat Tax failed."
Mr. Bynum: Yes, it was a real property tax proposal— it
did not fail, it passed. I am sorry— that is an error. It passed unanimously.
However, Mayor Baptiste came here and told us, "Hey, the cap is not working for
us. It is protecting some people." Let me tell you right now, we set the cap based on
2003 assessed values and they were lousy. There were neighborhoods that got
capped so low that people paid twenty-five dollars ($25) or thirty dollars ($30) for
the next fifteen (15) years. There were other neighborhoods that got reassessed
that year and got capped higher. How much the cap affected you was based on luck.
Were you in a lucky neighborhood or unlucky neighborhood? Say your child, your
son buys a property, their taxes will get reset because they were not protected by
the cap and that caused these inequities and we will see how big they were in a
minute. In 2008, we know the term is coming. Mayor Baptiste comes to us and
says, "We have to lower taxes for all of the people who live and work here. The
hotels and resorts have not been paying enough. We need to lower taxes and we
will eliminate the cap by lowering everybody's taxes, so when we remove it, it will
not be a problem." The cap was one way to deal with this, but our Tax Ordinance
requires this Council to set the tax rates every year. If the values go up, we should
reduce the rates, so you do not get an increased bill. Our Ordinance requires this
body to do that calculation each year at budget. I supported this. This would have
reduced taxes by thirty-five percent (35%) for the people in the homestead...
Ms. Yukimura: You are talking about...
Mr. Bynum: I am talking about Mayor Baptiste's proposal
in 2008 that was rejected by this Council. The vote was... I think there were four
(4) in support and it was a long story. The reality is that Mayor Baptiste identified
these inequities and gave us a solution, but we chose not to do it. So here we go into
the next year; no changes in the rates or no significant tax proposals. Our revenues
SPECIAL COW MEETING 40 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
were closer. We only went down about one million dollars ($1,000,000) that year.
Okay. So then we go to the next year. We are losing revenue now in 2010. We are
losing revenue and I will show you in a minute where we lost it. I proposed that we
increased the hotel tax rate sixty cents ($0.60) because their taxes were falling.
Assessed values were coming down, we did not adjust the rate, and that meant
hotel and resorts paid a lot less. This sixty cent ($0.60) increase would not have
been an increase in their tax bill. It just would have kept us from losing more
revenue. We are just kind of cruising along here, watching these things happen,
and not doing anything about it. Every year, the Mayor put forward a proposal that
had no rate changes. It had nothing to address this problem. What is the problem?
Here is what I showed when we established the three dollars and five cents ($3.05)
tax rate. This is what we are talking about here. At three dollars and five cents
($3.05), these are the market taxes on a half a million dollar ($500,000) house; the
red dots. The changes that you see are about senior discounts or low-income things
that we understand, but people are in a reasonable range. This lucky guy got
capped at five hundred seventy-two dollars ($572) in 2003. Now, this guy is paying
one thousand seven hundred dollars ($1,700) because he was in an unlucky
neighborhood or they purchased the home later and were reset at a different— so
this is the inequities that we were talking about. What I proposed one year was,
"Let us just do what Baptiste said. Let us lower taxes for everyone." These dots are
taxpayers. These are real people. I can put a thing on there and find out who they
are. What Baptiste said is, "Hey, let us do this. Let us lower the lines down
further, and then give these people"— because look at this guy. How do we justify
this guy paying one thousand seven hundred dollars ($1,700) and an equally valued
home at five hundred dollars ($500)? This is all over the map, but the Council said
"no." So now when we come up to 2011... now the gap between Revenue and
Expenditures is getting huge: seventeen million dollars ($17,000,000) in one (1)
year. That means our Fund Balance is going to start going down because when
there is a gap, how do you fill it? You fill it with your reserves, and we had
substantial reserves in 2011. Finally, people were paying attention. Real property
rates— nobody is still trying to change the rates, but there were two proposals
introduced: one was by me to increase the exemptions, right? They were at
forty-eight (48) and I wanted to go to ninety-six (96). That would have meant tax
relief for people who live and work here. It did not happen. The Administration did
introduce tax reform bills late in that year. From 2008 to 2011, we had all of this
lost revenue, right? Let us look at it by class. This is single-family residential
without homeowners. These are people who use their rent... they own their home,
but they use it for commercial purposes; long-term rentals. Those people had a six
million dollar ($6,000,000) reduction in three (3) years. If their taxes would have
stayed the same, they went down six million dollars ($6,000,000). These are
apartments or vacation rentals. They went down four million dollars ($4,000,000).
Commercial and industrial— not much change. Agricultural land: that is the big
landowners that own huge parcels and other agricultural lands. Their taxes went
down six million eight hundred seventy thousand dollars ($6,870,000). If they
would have paid the same as 2008, but they paid six million eight hundred seventy
thousand dollars ($6,870,000) less. Conservation: less homeowners. Hotel and
resort came down two million six hundred thousand dollars ($2,600,000) during
that period. What happened to the residents? How much did we come down during
that period? We went up two million one hundred fifty thousand dollars
($2,150,000). So the three (3) year difference: twenty million dollars ($20,000,000)
million of lost revenue that went to non-residents; people who live elsewhere. There
might be a resident who owned the property, but they were using it for commercial
purposes, right? I had it with that. I came here every year and put these charts up
every year and said, "Hey, what is going on?" So I introduced Bill No. 2425 in 2012
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when we lost seventeen million dollars ($17,000,000) and what I said at the front of
the year is there was no will to remove the cap. The Mayor did not want to remove
the cap. The Councilmembers have made it clear that this cap was now— I am
telling you that the cap was protecting some of you at the expense of many others. I
do not think you like that. But that cap provides all of this predictability. By 2012,
look at these numbers: five million dollars ($5,000,000) to resorts; almost ten
million dollars ($10,000,000) to the large landowners here in agriculture, less taxes.
Here is an example that I presented in 2010. You own a vacation rental,
paying twenty thousand dollars ($20,000), and your taxes have gone down to
seventeen thousand dollars ($17,000). Or this one went from ten thousand dollars
($10,000) to six thousand dollars ($6,000). So people who got just automatically.
What would Bill No. 2425 have done? I worked hard with the County Attorney and
presented a Bill that would have reset the cap and left it in place. Everybody that
had the cap taxes would continue to pay them and the people who were up here
would come down and get the cap established for them. Let me show you that
graphically again. This is an example that this would have brought this line down
much further, right? Let us look at this. That Bill would have said "this guy's taxes
comes down to one thousand two hundred fifty dollars ($1,250)." "This guy comes
down to one thousand two hundred fifty dollars ($1,250); reasonable. This guy is
below the cap; he gets grandfathered and stays there." The taxes just come up
gradually two percent (2%) a year like the cap was or this person sells, and then it
gets reset at the market rate. I put forward a proposal here that said, "Let us do
what Baptiste said. Let us lower taxes for everyone because these hotels and
resorts are not paying enough." By this, we were losing money from that sector.
We were losing ten million dollars ($10,000,000) that visitors used to pay and we
got that from you, right? I disagreed with that and I put this Bill forward. JoAnn
voted for that Bill and five (5) Councilmembers did not. That proposal at the time
said, "Let us also reduce the tax rate. Let us do the homeowners exemption and
reduce the rate to bring the line down," like this two dollars and twenty-five cents
($2.25) rate would have done. This blue line is what we were told for five (5) years
was the impact of the cap; that it dramatically decreased taxes, but then in 2008,
they started going back up. That is why I put this proposal forward. It is like the
cap is not working for everyone anymore. It is not doing that.
Later, I demanded that we see all of the data for all homeowners and when I
got that data— because I wanted to see how these changes impacts each and every
one of you individually. I wanted to be able to plug in a name or a Tax Map Key
(TMK) and say, "What is that taxpayer going to experience in order to make
informed decisions?" We found out that the actual numbers, if you include all of the
homeowners under the cap, it reduced taxes from eleven percent (11%) to ten
percent (10%), but then right way started going back up. We were not even given
accurate information, so by 2013— so I put this proposal forward that would have
kept the cap in place and grandfathered everybody else in, but I could not get the
votes. Then we did that year— I was also proposing lowering the tax rates like I
had repeatedly, and this year, the Council agreed. At our budget, we set the three
dollars and five cents ($3.05) tax rate that reduced taxes about one million four
hundred thousand dollars ($1,400,000), I think. But I was seeking a five million
dollar ($5,000,000) adjustment, not one million four hundred thousand dollars
($1,400,000) to get justice. So now all of a sudden, you see rate changes happening.
This is the one, homestead class went from— now, Mayor opposed that. We would
not have gotten those tax reliefs. This Council agreed on a 4:3 vote to lower the
taxes. That is the only tax decrease that the homestead class has seen in all of
these years. Who voted for this and who voted against it is public record. Other
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changes were made because we used to have land and there was some increase, but
these were kind of revenue-neutral for hotel and resort. No changes in these others.
But then you start seeing the things that Steve was talking about today: the
targeted tax relief, the minimum real property tax, or low and moderate income.
That same year, I tried to reduce the rate from three dollars and five cents ($3.05)
to two dollars and twenty-five cents ($2.25). That is two (2) years ago, right?
Remember these charts? I said, "Let us do this. Let us bring taxes down because
we are in the reset year." So 2013 though, this rate reduction proposal from three
dollars and five cents ($3.05) to two dollars and twenty-five cents ($2.25), failed 3:4.
Councilmembers Hooser and Yukimura joined me in that proposal just two (2) years
ago. The Council rejected the idea of grandfathering everyone, so there were no
increases. I said, "Let us lower the rate for everybody, so at least the increases are
fewer people and less dramatic." Unfortunately, that did not pass. Remember I
said that Mayor Baptiste wanted to change taxes in 2008? This is a slide from what
he presented in 2008. It says "equal and fair treatment of first time homebuyers
versus PHU program." We had dramatic testimony here. Home values actually
fell. Your taxes kept going up and everybody else went down, but our young
people— some of them could have gotten homes then and you look in the Multiple
Listing Service (MLS) listing it says their taxes are seven hundred dollars ($700).
They go to their mortgage guy and say, "Hey, I can qualify for this loan," and then
they find out that the taxes will actually get reset to two thousand dollars ($2,000).
Your taxes are going to be one hundred dollars ($100) a month more than this
person and suddenly could not qualify for the loan. This has real world impact
when you have these huge discrepancies. He wanted to put the homeowners
exemption at three hundred (300), three hundred twenty-five (325), and three
hundred fifty (350). That is a progressive tax system that says people that have
modest homes and low-income are going to pay the least. People that have large,
huge homes that are valued at millions will pay a little more. That is when our
exemptions were only forty-eight (48). He gave us this proposal. He said, "Look, I
am proposing that homestead homeowners go down thirty-five percent (35%). How
do we pay for that? Hotels go up twenty-five percent (25%). Apartments, which are
vacation rentals, go up fifteen percent (15%). Improved residential that is not
owner-occupied that is used commercially, goes up twenty-one percent (21%), but we
will reduce taxes for people who live and work here. This proposal failed and I have
been trying to do a version of this proposal ever since. For one example, this is
what the cap did: this is a nice home in Lihu`e, a real place, five hundred twenty-
four dollar ($524) taxes and that went up five hundred dollars ($500). That is why
people were screaming. That is when the cap went in place because of this increase.
That did not have to happen. Remember our Tax Ordinance says that if the values
go up, Council, set the rate accordingly, so that the bills do not go up. Well, we did
not do that. We did not change tax rates in this County for like thirteen (13) years.
We were asleep at the wheel. But we protected this homeowner and you can see
what their taxes did, predictable; all those things that we like...
Mr. Sato: Twenty (20) minutes.
Mr. Bynum: But this is what happened to the market tax.
Now your son buys a home, the neighbors are paying one thousand two hundred
dollars ($1,200), but he is paying two thousand fifty-seven dollars ($2,057). That is
why this happened. In order to do that, we had to have this credit. I liked that
idea. That is why I said, "Let us reset it and make more equitable on current values
and make it work for new people going forward, but protect those people below."
But then— this is in the public record: Councilmembers at this table said, "No, we
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REAL PROPERTY TAX WORKSHOP
are not going to do that. The cap is the problem. We are going to get rid of the cap."
The Mayor came back here with a proposal to get rid of the cap.
Chair Furfaro: I just want to share with you that the twenty
(20) minutes is finished, so if you could summarize.
Mr. Bynum: I want to go back to this. That is our current
market taxes at the three dollars and five cents ($3.05) rate. We can lower the rate
and change the outcomes. I am not going to have time, but it is over there on the
live spreadsheet, but I can look at every one of you and your taxes and tell you what
happened this year and why. That is the spreadsheet I gave to every
Councilmember here and I showed it on the thing during budget when I said that if
we do not make these changes now, you all would be here today. I predicted this. It
is in the public record. The Council chose— this year, Councilmember Hooser and I
put forward a proposal to reduce the rates that would have lowered the number of
people that had increases by over two thousand (2,000) and it would have made
those people who had increases have much smaller ones. It is on the public record
that Gary and I had two (2) votes for that and we did not have the other five (5).
This Council decided to say, "No, we need to protect hotels and resorts more because
the Mayor said eleven dollars ($11) for hotels and resorts." Councilmembers around
this table said, "No, that is too much for hotels to pay," even though this ten million
dollars ($10,000,000) came out from the TAT. That is too much. "We have to
protect the hotels, so no tax rate cuts for local people for the fifth year in a row."
Thank you. Those are facts.
(Mr. Kagawa is noted as present at 11:45 a.m.)
Chair Furfaro: Thank you for your presentation. Yes, those
are facts, but obviously many of us had proposed other tax schemes that we
supported on our own and maybe we will have an opportunity for all of us to visit
different versions. I would like to get to a point and say Mr. Bynum's presentation
is also available for you to pick up from the table. On that note, I would like to start
taking public testimony.
Mr. Sato: The first registered speaker is John
Palmeira, Jr., followed by Carl Imparato.
There being no objections, the rules were suspended.
JOHN PALMEIRA, JR.: I will make this short. I got my bills the
other day and I almost flipped out. I could not believe it.
Chair Furfaro: Excuse me. For the record, this is
Mr. Palmeira. Go ahead. I had to introduce you.
Mr. Palmeira: When I saw that I have to pay seven
hundred thirty-eight thousand dollars ($738,000) estimated value for a house that
is over thirty (30) years old, I think somebody is doing something wrong there. My
other house is about three hundred forty thousand dollars ($340,000) that they
think it is worth. I have family there. I do not have houses for rent. I have houses
for family. When I look at this rate, I am military retired. I cannot get anymore big
pays. When I look at this thing the way our house is going, me and my family are
going to wind up on the beach one of these days. But I tell you what, we are going
to come out fighting. The way this is going, we are going to lose our house. Another
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thing that I cannot see is why do you put the garbage with our homes? You are
putting a lean on our homes with garbage. That makes things more confusing.
When you look at your tax bill and see how much you paid for it, and then they add
seventy dollars ($70) for garbage and all of that. That does not belong there.
Everybody in a business sends you a card or paper that says "pay this." We get it
from the Department of Water. We get it from the television bills. We pay the bills
one at a time when they send it. The County ought to do the same. Do not make
this damn thing so confusing. Like I say, at my house, I have a whole bunch of
family there; otherwise, they would be out on the street. They did not have a place
to go. They cannot rent anything, so they are living at home with me. My other boy
is living in the other old house in Hanama`ulu because he could not find a place
either. All I can say is that somebody better straighten some of this out. This is not
right. I do not care what anybody says. When you look at the people, all they want
is a better government, not a bigger government, dammit. All we keep seeing is a
bigger government. Every time I look in the paper, they are hiring more people.
Where are they coming from? The government is doing the biggest hiring in the
Country. We do not have enough people working out there. They cannot find jobs.
What are we going to do? Our people cannot go to the army. They are taking
everybody out already.
Mr. Sato: Three (3) minutes.
Mr. Palmeira: So there will be thousands more of us out in
the streets here. Do you guys have any more jobs for them coming out? For the
soldiers and sailors coming out? You are full already. This County and the State is
full. One of the big reasons is pay raises. When I see in the jobs that are put in the
newspaper, they got fifty (50) something people on retirement that are drawing one
hundred twenty thousand dollars ($120,000) a year; retirement money. That is all I
can say.
Chair Furfaro: Mr. Kagawa, you have the floor.
Mr. Kagawa: Mr. Palmeira, how much did your taxes go
up for each property?
Mr. Palmeira: My Olohena house went up to seven
hundred...
Mr. Kagawa: No, the taxes you pay, not the value. How
much does your bill say on the bottom to "pay this amount?" We can get staff to
check on it later.
Mr. Palmeira: For this one here, I paid eight hundred
ninety-three dollars ($893).
Mr. Kagawa: What was it before?
Mr. Palmeira: I do not have the other one.
Mr. Kagawa: On your other house, how much did you pay?
Mr. Palmeira: It was not that high before.
Mr. Kagawa: Okay. How much for the other house?
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Mr. Palmeira: The other one went up two hundred
forty-two dollars ($242).
Mr. Kagawa: Okay.
Mr. Palmeira: See, they all went over one thousand dollars
($1,000) in estimated values on both houses. Neither house is the same. One is
thirty (30) something years old and the other is fifty (50) something years old. They
are old houses and they were not that much. I tell you what— I will sell you people
those two (2) houses for that price you say, and I will help you take it away. Put it
in one of the ballparks, and then you have cheap renters there.
Chair Furfaro: Mr. Palmeira, if you would like, I will let
someone from the staff to give you information to contact me and I will get together
with you to go over your application with the tax office to see if there is another way
because you have family occupying your units, if you can qualify for some of the
other exemptions. I will be happy to do that with you. I will have the staff get
ahold of you.
Mr. Palmeira: If I can, I will have to have you call me and
let me know because I cannot get out every day.
Chair Furfaro: I can come to your house. I want to make
sure you qualify for your entitlements and I will make arrangements.
Mr. Palmeira: Okay, I appreciate that.
Chair Furfaro: Yvette, please get his phone number for me
to make contact with him next week. Thank you. Next speaker, please.
Mr. Sato: The next speaker is Carl Imparato, followed
by Glenn Mickens.
CARL IMPARATO: Aloha, County Councilmembers, on the one
(1) year anniversary of your repeal of the property tax cap. My name is Carl
Imparato. The key public policy question before the Council today, I think, is a
really simple one: "Should each homeowner's property taxes be based primarily on
what the homeowner paid for his or her home or should homeowner's property taxes
be based on what others, including future investors and speculators, later pay for
other houses in the neighborhood?" Every other fix that we hear about like
exemptions, phase-ins, home preservation credits, and et cetera, are by comparison,
insignificant and every other fix of this nature will prove to be an ineffective
band-aid when property values escalate, as they will, during the next real estate
boom. What we are seeing this year is just the tip of the iceberg. The problem is
that the old ad valorem tax system that was discarded in 2005 and reinstated in
2014, did not protect homeowners from large unfair tax increases in the past, and it
cannot protect them as real estate prices jump in the future. That tax system is
simply bad public policy. Its foundation is diseased. Its foundation is the
questionable premise that a homeowner's property taxes should be based on what
newcomers pay for houses in the area years and years later. It establishes
homeowners' property taxes based on the whims of real estate markets, speculation,
and international demand for Kaua`i property. Almost by definition, the ad valorem
tax system is going to result in large, unpredictable, and inequitable increases in
SPECIAL COW MEETING 46 AUGUST 28, 2014
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property taxes when land values escalate rapidly due to international demand,
investment real estate speculation, and other market forces. By definition, it will
always inequitably shift property tax burdens for some other neighborhoods to other
neighborhoods based on those same external forces. The ad valorem tax system is
an anachronistic system that was soundly reject by two-thirds of Kaua`i's voters in
2004, and for that reason alone, it was wrong for the County Council to reinstate it
last year in defiance of that clear public sentiment. I cannot think of any other tax
system that works that. Sales taxes are based on the actual prices of goods and
services bought. Income taxes are based on what a person actually earns and not
what other people in the same occupation earn. Capital gains taxes are paid on
actual real-life profits. Motor vehicle taxes are not based on what other classic car
buyers are willing to pay for my old car. One Councilmember stated earlier this
month that it is essentially okay that market forces drive property taxes. Now I
agree that market forces are in general very difficult to control, but that precisely
why it is wrong to base homeowners' property tax...
Chair Furfaro: That was your first three (3) minutes.
Please continue.
Mr. Imparato: That why it is wrong to base tax policy on
market forces as the ad valorem system does. It makes much more sense for the
foundation for tax policy to be based on something more equitable and controllable,
such as a cap on the annual increase in property taxes. It is very ironic and
inconsistent that several of the Councilmembers have been arguing for the past
several weeks that the proposed "Pay As You Throw" system is equitable because
one pays for service based on what one uses. Those same Council people want the
ad valorem system where one pays for services not based on what one uses, but
based on what somebody in the real estate market paid for the house next door to
you. It is not consistent. That system is not equitable. The solution, I think... you
need long-term property tax reform, and long-term property tax reform should give
serious thought to a property tax system like "Pay As You Throw," assesses
property taxes based on the cost of the services consumed by a household: a five (5)
bedroom house here and a five (5) bedroom household in another neighborhood—
well, they use the same services, so they should pay the same possibly. But I am
not advocating that; I am advocating something in between; something far less
innovative, which is a return to a system in with each and every homeowner's
property tax is based on what the homeowner paid for his or her home. Escalated
for reasonable inflation— for example, two percent (2%) per year plus "x" percent to
account for exceptional increases in the County's budget. I am advocating that you
return to the system that the system in which a homeowner's property taxes are
based on what he or she paid for his home, not only what other corporations, real
estate investors, or speculators later pay. That kind of system is stable, predictable,
and is what homeowners need. It is simple. There is no reason why it needs to be
complex. There is no reason for this absurd home preservation tax limit, which is
based on very arbitrary and unfair premises. That system will produce sufficient
revenues for the County, but in a transparent way because the County Council
would decide every year what the "x" percent factor is to increase above the cap.
The only arguable downside of a system that bases property taxes on the purchase
price of the home is the one that Councilmember Bynum has raised, which is that
later homebuyer's taxes may indeed be higher than the taxes of the person who
bought a similar home five (5) years earlier. That is an inequality; that is not an
inequity. We have to remember that the system protects the new homeowners
because the new homeowners, basically five (5) years down the road, are protected
from the next round of real estate increases. Everybody gets protected: new
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homeowners and old homeowners, when they are paying taxes that are based on
what they paid for the house plus reasonable inflation. In conclusion, I am asking
that the Council focuses its attention on the big-picture and address the real
problem, rather than trying to come up with little mitigations of the damage and
half-baked measures that are only going to work for one (1) year. You need to
address the underlying problem.
Mr. Sato: Six (6) minutes.
Mr. Imparato: The ad valorem system is simply inequitable,
cancerous, and needs to go. You cannot keep placing band-aids on it. I ask that you
reinstate, refund, and reform. Reinstate the cap on annual increases in homeowner
property taxes, refund or reverse the large increases that we saw in the 2014 tax
bills, and only after that, consider true reform; not a return to this ad valorem
system. Get rid of this system. It does no work. Do something that is more
innovative and that really protects Kaua`i homeowners reasonably and equitably.
Thank you.
Chair Furfaro: Please put your hands up if you support that
testimony. Mr. Chock, you have the floor, and then Mr. Bynum.
Mr. Chock: My only question was in terms of the
scenario that you are posing, do you think it is fair that if the market drops, as it
typically does and at the prices that they are at the low-end, should be valued the
same way... not valued, but rather taxed the same way?
Mr. Imparato: I am not exactly sure, but let me try to
respond to what I think you are asking. When the market dropped, let us say
properties that had a capped value of five hundred thousand dollars ($500,000), but
the assessed value was one million dollars ($1,000,000). If the market dropped to
eight hundred thousand dollars ($800,000), the houses that were capped until their
taxes went to a level consistent with an eight hundred thousand dollar ($800,000)
house, their taxes continue to go up. For example, my property taxes continue to go
up during the recession, which was fair... until the... what I paid for my house plus
reasonable inflation, year-by-year inflation, actually hit the true market value, I
should continue to pay more. That is the way a rational property tax cap system
works. That is the way it works in California and that is generally the way it works
here, except for some very strange ways that people have implemented it here. For
example, you have these other credits, where if you for example had the income
circuit breaker based on your income, your property taxes might drop one year, and
then the next year you make five million dollars ($5,000,000) or whatever it is.
Well, your taxes got capped at that low level. That was a strange, inequitable, and
foolish way, in my opinion, to implement that sort of thing. That is what created
some of the inequities that we supposedly saw. I think a rationally, managed
properly tax system with a cap would work much better than what we had and
would require people who were paying below market rate taxes to continue to pay
higher taxes during the recession until their houses hit market rate.
Chair Furfaro: Mr. Bynum, you have the floor next.
Mr. Bynum: Thanks as always, Carl, for your thoughtful
testimony. If assessed values go up, does that automatically lead to increased
taxes?
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REAL PROPERTY TAX WORKSHOP
Mr. Imparato: It does not have to lead to increased taxes if,
as you have said, that the County basically wants to reduce the tax rate. But the
problem is that what that does, reducing the tax rate, shifts the tax burden then
from the neighborhoods that have not experienced the major price appreciation to
the other neighborhoods. We have situations now after the tax "reform" of last year,
where houses that at two hundred fifty thousand dollars ($250,000) or three
hundred thousand dollar ($300,000) assessed values pay close to zero taxes.
Mr. Bynum: That is correct.
Mr. Imparato: Is it equitable to say that people that use the
same amount of services— I will go back to "Pay As You Throw" here now— some
people should pay nothing for the service and other people should pay through the
nose because they happen to live in a neighborhood where external speculation has
driven up the prices. I do not think that is equitable.
Mr. Bynum: But you know that when assessed values...
you know that our Tax Ordinance requires to us set rates every year.
Mr. Imparato: Yes.
Mr. Bynum: And that we are required, as the Council, to
do an analysis and set the rates.
Mr. Imparato: Yes.
Mr. Bynum: Do you know that we also went seventeen
(17) years without changing the rates?
Mr. Imparato: Okay.
Mr. Bynum: Okay. My point is if you wanted to reinstate
the cap— when we did it last time, we said, "Based on your 2003 assessed values,
here is your cap." How would you do it now? If you wanted to reestablish it, what
would be the baseline?
Mr. Imparato: At the easy way to start this is to say we just
undo the damage we did in 2013.
Mr. Bynum: Okay.
Mr. Imparato: We still have the 2003 baseline now. If one
wants to make the argument that there were certain neighborhoods that were
tremendously inappropriately reassessed in 2003, then I think one needs to target a
solution there, which says because we can show, because this is the claim, that in
2003 neighborhood "x" was under-assessed and undervalued, then possibly there is
a legitimate rationale to go back to those neighborhoods and say, "We are going to
redo what should have happened in 2003." If that cannot be done, I would say that
we live with the fact that some people got a good deal by not being reassessed in
2003 because the benefits of having the cap like stability and protection for the
future for everyone far exceed the free ride that some people got by virtue of being
in neighborhoods that were under-assessed in 2003.
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Mr. Bynum: I will close with this because you and I could
go on forever. I agree with you that the ad valorem cannot control for neighborhood
shifts like the north shore, which goes up in value more than Lihu`e. But it can
control for changes in the economy and avoid big spikes by managing the rates,
correct?
(Mr. Chock is noted as excused at 12:10 p.m.)
Mr. Imparato: It can control the impacts— if the tool that
you have at your disposal— the two tools are homeowner exemption levels and the
overall tax rate for the class.
Mr. Bynum: Right.
Mr. Imparato: With those tools, you can mitigate or
eliminate the damage and the impacts of the market on those neighborhoods that
have appreciated less than the average for the island.
Mr. Bynum: Okay. Thank you.
Mr. Imparato: Only for those neighborhoods.
Mr. Bynum: Those are the tools we have: exemptions,
which target the relief more at homeowner exemptions, more at low-income and
moderate income. I cannot remember, Carl, but you must have been a big
supporter of Bill No. 2425 in 2012 because that did exactly that. It said, "Okay, let
us reestablish the cap based on credible values and include everyone. For those
people who got a better deal, we will grandfather them." So you must have been
supportive of that Bill, yes?
Mr. Imparato: My recollection from our conversations at the
time was that there were certain aspects of that that were a reasonable thing to do,
that basically if one lowered the rates— it would never really amount to a resetting
of the cap. Lowering the rates implicitly changed the way the caps would be and it
got rid of the gap. Lowering rates had that affect, but it was not a question of, I
would say, resetting the cap de facto.
Mr. Bynum: That is my word because it left the cap in
place, but for those new people based on assessed values in that year, which were
much more credible... my point is what you just advocated is exactly what that Bill
would have done, and it was a structural Bill. I additionally said that we need to
lower the rates to make this work. But basically it said that whatever this Council
sets this market rate at this year, the people below are grandfathered and the
people above come down.
Chair Furfaro: On that point, I have nineteen (19) people
that are signed up to testify. This is time for us to take public testimony; not to
share philosophies. You can ask a question and so forth. You can always call up for
a coffee and talk story with Carl on philosophy. I do want to make sure, and I have
to ask the staff right now, if they are willing to go to 1:30 p.m. Can I get an
acknowledgment without the break? At that point, I just want to remind everybody
that we will keep our questions very focused, but this period is for testimony from
the public.
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Mr. Bynum: I am pau. Thank you, Carl.
Chair Furfaro: Anyone else for Carl?
Ms. Yukimura: Hi, Carl. Thank you. What happens when
you have a cap and the assessed value goes down, but those people with the cap are
set at what they bought it at?
Mr. Imparato: There are two ways to implement that: one is
to basically say that it stays up there. The other is to say that when the assessed
value drops, then that sets your new cap.
Ms. Yukimura: But you are saying that do not base it on
value; base it on when people buy, and then you are going to change it for one
situation, but not another?
Mr. Imparato: No, I am saying that there are two ways to
do that. One way to do is to say that you stay where you were.
Ms. Yukimura: But then the inequities are just tremendous.
Chair Furfaro: This is becoming philosophical now. Thank
you.
Ms. Yukimura: Thank you.
Chair Furfaro: Carl, I am having coffee with you next week.
Are there any more questions for Carl before I excuse him? Mr. Kagawa.
Mr. Kagawa: Carl, do you think this whole tax— you have
been around for a while— do you think it is a complicated or simple problem?
Mr. Imparato: I think it becomes overly complicated by
virtue of using the ad valorem system. I think it becomes a simpler tax system
when one goes to basically paying based on what you paid for something.
Mr. Kagawa: I guess my question is do you not think we
should have took a lot more time and at least maybe we would not have this kind of
meeting where we have a lot of people asking what is going on?
Mr. Imparato: That is why it was shocking last August that
from the time of public hearing to the time of passage of this Bill was three (3)
weeks. I do not think anything has gone through Council, in my experience, that
fast.
Mr. Kagawa: Chair, I do not think we are going to make
that 1:30 p.m. end time. If you times that by five (5) minutes...
Chair Furfaro: Well, some people may want to give their
testimony only within the three (3) minutes, but I want to get as much testimony
done, and I am going to stick around as long as it takes.
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REAL PROPERTY TAX WORKSHOP
Mr. Kagawa: I do not want to rush them either. We had a
Councilmember talk for twenty (20) minutes and to try and rush these people
through it— to me, that is not fair.
Chair Furfaro: Well, that is in our rules and we will find
ourselves, Carl, probably following up with some questions. I would like to move on
with the testimony. Thank you very much for being here. Next speaker, please.
Please call the next speaker after that also.
Mr. Sato: The next speaker is Glenn Mickens, followed
by Ken Taylor.
GLENN MICKENS: This testimony is from my friend Walter
Lewis. He could not be here today, so he asked me to read it for him. I have read
his testimony and I agree with it one hundred percent (100%). Let me read it as
much as I can. "This workshop involves issues of fundamental importance to our
citizens and our governance. It concerns basic questions of fairness and the
imposition of the primary revenue source of County income: the real property tax.
It arises because of major changes in that law last year, which were made to carry
out the agenda of certain government officials without an opportunity for adequate
examination by the taxpayers; without sufficient consideration the impact that the
changes would have. In my view, the workshop would focus on three main issues:
first and paramount importance is the question of whether taxation of the resident
owned and occupied properties should be based on the property's value at the time
of acquisition or some fixed commensurate point, and adjusted thereafter by a
predetermined formula or whether taxation should be based on annual
reassessments. There is virtually no disagreement among taxpayers at this point.
In 2004, Kaua`i taxpayers were given an opportunity to vote on a measure that
would limit property taxes for resident homeowners to the tax applicable in a base
year with only two percent (2%) annual increase allowable for future years. The
measure was approved by nearly a 2:1 margin. Similarly in 1978, California
taxpayers, California Proposition 13, approved a comparable tax law also by about a
2:1 margin. Taxpayers typically acquire their homes with a budget for the purchase
price in the servicing expenses as a predominate consideration, and they need
assurances that the taxes will not suddenly and massively increase. This comfort
can only be achieved by a system that limits tax increases by preset criteria. It is a
simple fact. Homeowners predominantly believe that the obligation they have, have
arisen out of homeownership, should best be tied to the circumstances prevailing
when the home is bought. Usually, the acquisition price also has a significant
administrative advantage. I think this is important. At present, our Real Property
Tax Department annually assesses to determine current market value of about
fifteen thousand (15,000) properties that are resident-owned and occupied. With
the use of the acquisition price data, the annual reassessment would not be
required. For new owners in most instances, purchase price data would avoid the
need for an assessment. A way to save cost to the government and reduce the
taxpayer burden is always welcomed. The repeal of the 2013 tax law portion that
ended the two percent (2%) cap should be accompanied by a refund to taxpayers of
amounts paid greater than the amount that would have been due without the
repeal. Second, assuming that the first issue is resolved in favor of the acquisition
cost provide a tax base, we must consider what the allowable adjustment annual
should be. In both the 2004 citizen measure, the California Proposition 13 and the
annual adjustment from the base was limited to two percent (2%). A fix percentage
lends certainty and assurances that taxes will not be unduly increased at any time
on Kaua`i. On Kaua`i, there are two important additional factors to consider in
SPECIAL COW MEETING 52 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
regard to an allowable tax increase. One, tax revenues must be sufficient to be able
to meet budgeted expenses each year. Under applicable Hawaiian State Law,
Kaua`i is limited to the real property tax as its primary revenue source and
typically, real property taxes generate up to two-thirds of the County's income.
Two, the Kaua`i real property tax applied to owner-occupied property only
comprises about ten percent (10%) of the total revenues and the real property tax.
Thus, in any year that the County required a significant increase in real property
tax revenue to comply with its balanced budget requirement, the County could,
without any major distortion, seek supplemental revenue from the taxpayers now
paying the other ninety percent (90%) of real property tax totals. Because such
action could well be considered unfair to taxpayers, other than owners of occupied
resident properties, I would suggest that an emergency provision be included. I
recommend that the annual adjustment of two percent (2%) be reenacted, but it
should also be provided that in the event that the Council makes a determination
that circumstances require a further adjustment, that for such year that only in
addition to the two percent (2%) allowance, a further adjustment be authorized that
would make the total annual adjustment not greater than the percentage increase
that the proposed budget is in relation to the prior year's budget. Third, again
assuming that the first issue is resolved in favor of the acquisition cost, providing a
tax base, the 2014 Home Preservation Tax Limitation Ordinance should be
repealed. This would put a merciful end to one of the worst legislation actions ever
approved by the County. The defects in this law included all of those mentioned by
Carl Imparato's fine testimony at the April 6, 2014 Council Meeting. In particular,
it wrongly earmarked for assistance a select few of the taxpayers aggrieved by the
repeal of the two percent (2%) cap rather than to aid all of them and an adopted,
poorly conceived and ill-defined criteria for eligibility. There does not seem to be
any supportable reason for exclusion from the law's benefits for taxpayers with
residents having a net..."
Mr. Sato: Six (6) minutes.
Chair Furfaro: Glenn, that is your six (6) minutes.
Mr. Mickens: Okay.
Chair Furfaro: We all have copies of that as well.
Mr. Mickens: Okay. I only got about another paragraph.
Can I finish it?
Chair Furfaro: I want you to summarize. We have a lot of
other people who want to testify as well, and I have given your allocated time.
Mr. Mickens: Okay. "It should also be noted that the relief
to be provided under the Home Preservation Tax law would be measured by the
taxpayer's income. All the tax relates to real property. If its amount is determined
as the taxpayer's income, it may well be found to be in a net income tax. The
County of Kauai is not (inaudible) to an active income tax." Last paragraph:
"Having held a workshop of..."
Chair Furfaro: I cannot do that, Glenn. We all have copies
that. I allowed you to read it and use your six (6) minutes for his testimony.
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REAL PROPERTY TAX WORKSHOP
Mr. Sato: The next speaker is Ken Taylor, followed by
Jerry Louis.
Chair Furfaro: Ken asked me to be the last speaker, if
possible. Let us go to Jerry Louis.
Mr. Sato: Jerry Louis, followed by Tom LaCour.
Chair Furfaro: Jerry is present. While I am waiting, I have
cut off the sign-up sheets. Put a note that Jerry was not present. Next speaker,
please.
Mr. Sato: The next speaker is Tom LaCour, followed by
Frieda Gayle.
TOM LACOUR: This is really in the neighborhood of a
personal problem and my wife and I have been very fortunate to be able to come to
the island to live here. We have lived here permanently now for fifteen (15) years.
We bought a piece of property on Hanalei Bay shortly after Hurricane `Iniki, and
developed that with our own home and also with a Transient Vacation Rental
(TVR). The object of the Transient Vacation Rental is to provide additional income
in retirement. My taxes for the 2012-2013 year were six thousand eleven dollars
($6,011). For 2013-2014, it went up to fourteen thousand four hundred eighteen
dollars ($14,418). This last year's tax bill for 2014-2015 was thirty-three thousand
nine hundred one dollars ($33,901). That is almost ludicrous. I just cannot conceive
any properly designed tax bill could put that kind of an increase on anybody's
shoulder. That makes the TVR something that is supposed to be providing a little
additional income for us in retirement into a complete loss. There seems to be scant
justification for that kind of increase. I will not bore you with any more time. If you
have any more questions, I would be glad to answer.
Chair Furfaro: You have a question from Mr. Bynum.
Mr. Bynum: Hi, Tom. Forgive me for asking these
questions, but I think the public would like to know. Your TVR when you rented it
out, what is the rental rate per night?
Mr. LaCour: It depends. It was two thousand three
hundred dollars ($2,300) a night during high season and it was two thousand one
hundred dollars ($2,100) for low season. I have turned it over to Bali Hai Realty
and they did change the rates somewhat, but I am not sure what they are now.
Mr. Bynum: So you have a management company right
now?
Mr. LaCour: Yes.
Mr. Bynum: What is the assessed value of your home?
Mr. LaCour: It is around three million dollars
($3,000,000).
Mr. Bynum: Thank you very much.
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Chair Furfaro: JoAnn, do you have a question?
Ms. Yukimura: No. Thank you.
Chair Furfaro: Okay. Tom, would you leave your number
for me with the Clerk's Office?
Mr. LaCour: I would be pleased to. Thank you.
Chair Furfaro: If you could leave the tax map key number, I
would appreciate that too.
Mr. LaCour: Okay.
Chair Furfaro: Thank you.
Mr. Sato: The next speaker is Frieda Gayle, followed
by Toni Martin.
FRIEDA GAYLE: Aloha. I am Freida Gayle and I did send a
letter last night or yesterday. I do not know if you had a chance to review it. It was
longer than I wanted it to be, but I did not know how to summarize the hot mess
that I ended up in with the Real Property Tax office. The problem was caused by a
survey when I went in to file an income and exemption form— to summarize this...
this survey was presented to me, and trying to be really honest, I was thinking
about a little home office. I have a life estate on my property and I am responsible
for the property taxes. I checked the box for residential. I have a long-term rental
and commercial, thinking of my little office space, but not realizing— I thought it
was more of an inquiry, not an assessment. When I went to see my accountant in
2013, she said she looked at property tax and said, "Why is your property valued at
commercial rate?" I said, "That is news to me." I went into the Real Property Tax
office and explained that was an error in understanding this form, which was not
explained to me that commercial, as we have been explained to later, constitutes
twenty-five percent (25%) of your home use signage and designated parking, none of
which applied to me. I have never even had a customer come to my home. None of
this was told to me. Anyway, they refused to change it. They said that the time for
the appeal had passed and I was there for zoned commercial. I was so upset, I went
back again to try and reason with them over this clerical error and it was too bad. I
was zoned commercial. I will not go into the details of how I was treated, but I was
really disheartened and dismayed. I immediately filled out a form to change it back
to residential for the upcoming year. I called numerous times during the year to
make sure that it would be changed back. When you call to check, the pat answer
is, "Well, we cannot change anything until the rates are set. We will know when
the rates are set." So you wonder, "Are these papers in a file? Can they not have a
line in their computer system where they update in real time, so they can tell you
something has been edited?" So you can believe that I now look at every line on
that little card that they mail out with that the bottom thing. Who would have ever
thought that it would have been changed to commercial? At any rate, it still was
not changed to commercial. I filed an appeal. Through all of the preparation, when
I went to the appeal, it was obvious that my home is not a commercial on any level.
It was instantly changed and the appeal letter came to me and the Real Property
Tax office, which still did not change it back despite several phone calls and me
taking in a copy of the letter, which they said they already had...
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Mr. Sato: Three (3) minutes.
Chair Furfaro: Continue.
Ms. Gayle: Okay. At any rate, the bills came out
commercial. I went in and it got changed. They signed it the night before. It was
just a hot mess and a real cluster. My concern is now— and the reason I wrote the
letter— I ate it on the extra one thousand seven hundred dollars ($1,700) last year.
Then when my property taxes were changed back from commercial, I thought I
would get relief, but it was still one thousand seven hundred dollars ($1,700) more.
I said, "Why is that?" They said, "The cap was removed. My value was reassessed
at a higher rate and the rates went up." We are still paying the same amount that
we were paying at commercial rate, only if I paid at commercial rate, it would have
been more. The bottom line is that I was paying almost double, at least a third
more than I had been used to paying for the twenty-seven (27) years I have lived in
the home. Where are we now? I am hoping for some relief, not only short-term, but
long-term. I do like the proposal made by Mr. Hunt, although I still feel like I am
going to be an outlier because if they revert back to it the 2013 property taxes for
this seventy percent (70%) discount over five hundred dollars ($500) using last
year's assessment, I am zoned at commercial, which I am not even commercial, so
you are getting a false positive on me. It looks like I do not have an increase, but I
have actually almost doubled because I was never even really commercial. The
other part besides the financial burden of this is how it was handled and the process
over an obvious, simple error. It was just this hardline appeal state. My solution
suggestions for the future and for people who might get caught— I am probably not
the only one in a situation such as this, is when you use a survey, a survey does not
mean a reclassification. Let people be clear about what that is, have the working
distinct, and tell people what it is. If your classification or zoning changes, put in
big red letters on the thing, "Your zoning has changed." There is such a short
window of time where until those cards come out and your appeal rates time is not
an accurate amount of time for people to deal with it, so do something in big red
letters— not long letters that people are not going to read, but lets people know that
you have a window of time to deal with what is happening or what has happened to
you. The other thing is maybe customer service training for the office, as well as— I
think I can qualify for homestead, but I have been given two different answers
about what qualifies for homestead from the Real Property Tax office. Training
needs to be implemented, so everybody is up to speed, and I realize that it is
complicated and changing. Also, empower the staff there to change simple clerical—
use some good sense and... I think to use common sense and good judgment and
empowering staff to fix things like this and also...
Mr. Sato: Six (6) minutes.
Ms. Gayle: Also, change things in real time, not like "we
will change it after the rates come out next year, and then you might know whether
it is in the stack that got changed or not." I would want some kind of special
consideration if the rates roll back for that seventy percent (70%) discount because I
was not commercial in the first place, even though it was zoned such, so I would
need some kind of remedy for that. Thank you for listening and I hope for the best
for all of us.
Chair Furfaro: I am going to tell you something now, and I
do not want to have a lot of dialogue from the Councilmembers. First of all, the
Council cannot direct service delivery to the Mayor's staff, but if you come and see
SPECIAL COW MEETING 56 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
me, I will write concerns to them. On the classification of your building, did you feel
necessary to talk to the building appeals department?
Ms. Gayle: I do not even know what that is about.
Chair Furfaro: Okay. I will be glad to see you on that one,
as well as a tax appeal. Did you actually file one?
Ms. Gayle: For property taxes?
Chair Furfaro: Yes.
Ms. Gayle: Yes, for the following year.
Chair Furfaro: Good, I just wanted to know. But you did not
do one on the buildings, so that they could assess your home.
Ms. Gayle: No.
Chair Furfaro: Okay.
Ms. Gayle: I just wanted to appeal... the only thing I
was concerned about is the property tax for commercial.
Chair Furfaro: I understand, but if you have them look at
your building as well that it is not commercial, that is a good document to have from
the building appeals.
Ms. Gayle: I do not want to go through all of that for a
simple box.
Chair Furfaro: Okay. It is your choice. I am just saying
that I am willing to help.
Ms. Gayle: Okay. Thank you.
Chair Furfaro: Any other questions?
Mr. Bynum: Thank you for your testimony. You are
illustrating actually two issues: one is folks who got in the wrong class by mistake
for whatever reason. There are lots of reasons. I am one of them. The other is the
reset of the cap. I just want to know because you said if I go back to this, I also lost
the cap. I just wanted to know if you heard Councilmember Hooser say our
intention is to introduce a Bill that would allow people to get the proper exemptions
retroactively. Did you hear that?
Ms. Gayle: Yes, but I am getting lost in the
computation. This is getting so complex. I am a paralegal, so I consider myself
somewhat of an intelligent person. Removing the cap really hurt me, but I do not
know what the long-term ramifications and proper answers are. I just know this
big discrepancy, short-term or long-term, does not help.
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Mr. Bynum: I just wanted to hear what Councilmember
Hooser said, that both stop-loss on the cap and being able to get in (inaudible) is
something that we intend to address. I just wanted to make sure you heard that.
Ms. Gayle: I just do not want to be left out again
because of that silly classification.
Chair Furfaro: This might be a conversation that you can
have directly with Mr. Bynum. JoAnn.
Ms. Yukimura: Frieda, thank you so much for coming up to
testify. I feel very badly about what you had to go through. Your experience does
highlight a lot of the things that I think the Real Property Tax Division has to
address, so I want to encourage you to talk to Steve, who is the head.
Ms. Gayle: I will.
Ms. Yukimura: Are you not a consultant?
Ms. Gayle: Yes.
Ms. Yukimura: Steve, you should hire her for customer
service. I hope that things will get straightened out and I want to know the results
of it. If Steve does not let me know, will you please let me know?
Ms. Gayle: Yes. Thank you.
Chair Furfaro: You have a lot of us reaching out to you on a
personal basis. You can talk to me, Mr. Bynum, Mr. Hooser, or JoAnn. Thank you
for your testimony.
Ms. Gayle: I appreciate that because I will be honest;
my faith in our local government— I have been very active in a lot of nonprofit
organizations here and my faith in the local government was seriously damaged;
not just the amount of time, energy, and not to mention the money that I had to
spend. I do not want to feel that way and I was also concerned that I would be,
again, an outlier if they changed it to last year because it still would not apply to
me, but bigger than that, my long-term going on future here as I age, see incomes,
and everything. To be able to afford living here, being a part of this citizenry, and
caring about our Kaua`i and our aloha— I just wanted to step up.
Chair Furfaro: Thank you for coming, Frieda. Thank you
very much.
Mr. Sato: The next speaker is Toni Martin, followed by
Linda Garrett.
TONI MARTIN: Thank you, Council. My name is Toni
Martin. I have a similar problem to Mr. LaCour when the cap did affect us, where
we had an increase. When I checked the box that we had a four hundred sixty (460)
square foot vacation rental on our property, I had no idea what was going to
happen. The way I found out was not by my tax bill, but I got this wonderful letter
from my mortgage company saying that my house payment had gone up
dramatically, and that was my first notice because they collect my taxes and I do
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REAL PROPERTY TAX WORKSHOP
not see a tax bill. I am very familiar with the ways and means to appeal property
taxes. I have appealed on numerous times regarding our property tax, and I have
been rewarded with my research in what I have done in order to have changes
made. When this happened, I went in to, once again, the Real Property Tax
Department and asked if there was an appeal or if there was any other way I could
go about this. I was very bluntly told "no" and to "go pound sand," basically. It was
not even done politely. It was, "I am sorry. This is it. You do not have a choice." I
have talked to several people that are in the same position that I am or that have a
reference, and the only thing that we have been told was that we could CPR the
property. Well, my husband and I are both retired and on limited income; we are on
social security. We never intended to rent that additional unit when we bought our
home. We have been there for fifteen (15) years. When property taxes started going
up, we started renting it and did an official TVR. We have gone and we have
submitted everything that they have asked for. We have paid our fees. We do
pay— I know that you are not for some of the TVRs, but we are contributing
tax-wise as far as the TAT because we pay our TAT and the General Excise Tax
(GET) on that, and now we are penalized for having it. This small rental unit is not
going to compensate for the increase that we are now zoned as "resort," our whole
property. We have lost our homestead. We are no longer resort, yet we have lived
there and it is our permanent residence. It has always been our permanent
residence. I have no way of making up the income. If we go ahead and try to come
up with the money...
Chair Furfaro: That is three (3) minutes. Keep going.
Ms. Martin: I only have a couple more sentences. If we
try and go ahead and do a CPR on this property, which is very costly, I do not know
that this Council will not change, once again, the rules. The Council has changed
the rules on low-income. At one point, it was net income, and then it was changed
to your gross income. The rules keep changing and I do not know whether we
should come up with the money in order to do a CPR, which is going to be very
difficult for us, to have you change the rules again. I think the indecision that you
have left us with and the consequences of not knowing what your taxes are going to
be and where they are going to go has been a huge imposition on all of us people
who are retired, specifically, and ones that are on very limited income or specified
income. I thank you for your time.
Chair Furfaro: I do want to share with you that if you leave
your information, I would be glad to talk to you about the one change in the
reporting of net versus the gross. It was a very delicate item, but people were
writing off large tax investments, and then finding themselves dropping tax
categories. It was very challenging, but it was very awkward for us as well.
Ms. Martin: Okay
Chair Furfaro: Mr. Hooser.
Mr. Hooser: Thank you for your testimony. The theme
has been repeated and I have gotten many calls from people. This is a particular
issue of the use. Small use, four hundred (400) square foot: the classification being
applied to the entire property. I will be proposing a measure that is intended to
make it allocated by the percentage of the value, not the entire value. It has got
some process to go through, and the Council would have to pass it, but I agree with
you that that is a large inequity, and we will try to fix that.
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Ms. Martin: I think that they should be able to do that.
In the beginning, for our property, part of it is conservation and part of it is an R-2
property. In the beginning, our property was taxed completely as conservation, and
at that time as you say the tax rates had not changed and conservation was high,
we went in and appealed finally after I really realized what was going on and they
split our properties into two (2) tax bills: one as conservation and the other is R-2.
Our home and our small vacation rental are on the R-2 portion. If they are able to
do two (2) tax bills and two (2) assessments at that time, I do not understand why
they cannot do it at this time. The system was run that way before, and upon
appeal, they did that for me. It seems like this should not be that difficult to make
that change.
Chair Furfaro: I want to get some clarity. You said in the
beginning that your entire property was conservation.
Ms. Martin: It was taxed at conservation.
Chair Furfaro: Was it zoned conservation?
Ms. Martin: No, it was zoned partially conservation and
partially R-2, but it was taxed one hundred percent (100%).
Chair Furfaro: I am clear now. Thank you. JoAnn.
Ms. Yukimura: Thank you for being here. Where is your
property?
Ms. Martin: Ha`ena, not beachfront. We have a small one
thousand five (1,500) square foot house.
Ms. Yukimura: Okay. Thank you.
Chair Furfaro: Thank you very much for your testimony.
Next speaker.
Mr. Sato: The next speaker is Linda Garrett, followed
by Sue and Kim McLaughlin.
Chair Furfaro: Linda Garrett? She is not present.
Mr. Sato: Next up are Sue and Kim McLaughlin,
followed by Joe Rosa.
KIMBERLY MCLAUGHLIN: Aloha, esteemed County Councilmembers.
First of all, thank you for all that you do for all of us on Kaua`i. I am Kimberly
McLaughlin. This is my mother Sue McLaughlin. We wrote a letter to you a few
days ago. We have copies if you need it.
Chair Furfaro: You can give it to Yvette and she will
distribute it.
Ms. Yukimura: We have it.
SPECIAL COW MEETING 60 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Chair Furfaro: I think some of us have it either here or
down in our office.
Ms. K. McLaughlin: Thank you. We have owned a family home
in Hanalei. We are one of those people in Hanalei that own a beautiful family
home. We have owned it for twenty-eight (28) years and we have a five hundred
(500) square foot vacation rental on it. There are two (2) homes on it: one (1) main
house where we live and one (1) five hundred (500) square foot vacation rental, two
(2) bedroom that we have rented out for a long time.
SUE MCLAUGHLIN: Since 1986.
Ms. K. McLaughlin: This is my mother's income, which is from
the vacation rental. She is seventy-four (74) years old and retired. She volunteers
at Hanalei School. We firmly believe in paying our property taxes, and we are in
the highest bracket. We are in Hanalei and we believe we should be in the highest
bracket; however, we see the benefits of property taxes in fixing roads and in
education. My husband and I are educators ourselves. I am an elementary school
teacher. We like to share personally how this has affected us and that we are here
for the second year in a row. From 2011 to 2012, our property taxes have increased
fifty-eight percent (58%). From 2012 to 2013, it increased seventy percent (70%).
That is why we were here last year. We are here again. This last year, it has
increased thirty-seven percent (37%), a total in the last three (3) years of three
hundred sixty-eight percent (368%). When we looked into it, we used to pay as
residential four dollars and forty cents ($4.40) per one thousand dollars ($1,000) of
assessed value. Now we are paying eight dollars and eighty cents ($8.80), so it has
doubled in value, but the percentage has quadrupled in the last three (3) years.
Mr. Sato: Three (3) minutes.
Ms. K. McLaughlin: We budget what we are going to be paying
for the rest of her life. Of course, standard of living has increased an average of two
percent (2%), so we budget that into the future years, but we do not budget in a
three hundred sixty-eight percent (368%) property value increase. Let us tell you
how this is affecting our family. Go ahead, mom.
Ms. S. McLaughlin: I have rented out that vacation rental, two
(2) bedrooms, one (1) bath, since 1986. The most I have ever gotten out of it was
gross thirty thousand dollars ($30,000), which I pay TAT and Excise. So that today
would not even pay one-third of what the taxes are.
Ms. K. McLaughlin: Yes, we are paying TAT and Excise, and then
we are paying property tax as well. We are probably going to be possibly shutting
down our vacation rental because it does not make any money anymore for us. It
goes to property taxes. The same amount will go to you, but I think you lose out in
the fact that there will not be tourists coming to our property anymore, and Hanalei
is a big attraction to them. We just thank you for hearing us out. We think it is
unfair for constituents to raise taxes beyond the capacity to pay with very little
warning. We were pretty shocked last year, as you can imagine, and then again
this year. We appreciate you presenting this workshop. It is very informative. It
still looks like we probably need to shut down our rental and go back to the category
of residential.
•
SPECIAL COW MEETING 61 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
Ms. S. McLaughlin: Or possibly sell the property, which the new
guy would have to pay the higher taxes.
Ms. K. McLaughlin: Or today, we could possibly for a homestead
exemption.
Chair Furfaro: You could possibly qualify for homestead.
You could also look into the long-term residential or leasing of the two (2) bedroom
house, which would change your tax category.
Ms. K. McLaughlin: Long-term residential?
Chair Furfaro: Yes.
Ms. K. McLaughlin: What was the second part that you said after
that?
Chair Furfaro: The homestead for owner-occupied. The
particulars are explained in the various applications. I do not know your place in
particular. Are you on Weke Road?
Ms. K. McLaughlin: Yes.
Chair Furfaro: You should take a look at that. We are
trying to move along here, but I will recognize Councilmember Yukimura, and then
Mr. Bynum. Please take a look at that as well.
Ms. K. McLaughlin: Yes.
Ms. Yukimura: Thank you, both of you. I have known your
mom, Kim, for a long, long time and I talked to her during the break. There is this
home preservation. You are right that you would probably give up the vacation
rental idea, but do a long-term affordable or a long-term lease...
Ms. K. McLaughlin: Fifteen (15) years?
Ms. Yukimura: Yes. You would probably feel most
comfortable to a family member. The home preservation, which is the one
Mr. Haraguchi used would be five hundred dollars ($500) or three percent (3%) of
one hundred thousand dollars ($100,000) income, whichever is greater. I know your
mom said you have to check on the income thing, but those may be some options
and they sure would be worthwhile looking at if they can allow you to hold on to
your place and live there.
Ms. K. McLaughlin: Thank you.
Chair Furfaro: Did you have anything, Tim?
Mr. Bynum: I want to make sure that everybody has time
to testify, but give me a call. I said earlier that I have a spreadsheet. I can really
map out anybody's options. I have done that for hundreds, so give me a call. I want
to make sure that everybody has time to testify.
Ms. K. McLaughlin: Thank you.
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REAL PROPERTY TAX WORKSHOP
Mr. Bynum: There are options, and they may not be great
ones, but...
Ms. K. McLaughlin: It is great to hear that there are options.
Chair Furfaro: Mr. Kagawa has a question for you.
Mr. Kagawa: So in 2009 and 2010, things were okay as far
as taxes?
Ms. K. McLaughlin: Yes.
Mr. Kagawa: So the vacation rental could operate and the
taxes were manageable where you were at least comfortable?
Ms. K. McLaughlin: Yes.
Mr. Kagawa: So from 2011, there was just a downhill
slide, I guess.
Ms. K. McLaughlin: Big time.
Mr. Kagawa: Do you think it is fair that government is
taxing you so much that it is forcing you to move in certain directions? As a
homeowner or as an individual, you want to do basically what you want to do. You
put a lot of effort into acquiring your home and putting in that vacation rental.
Ms. K. McLaughlin: Yes.
Mr. Kagawa: Do you think it is really unfair that these
taxes are now telling you what you have to do?
Ms. K. McLaughlin: Yes. We think it is very unfair between
properties. We feel unfair for our whole property— and our vacation rental is
twenty percent (20%) of our property, so we feel unfair for our residential property
to be taxed in vacation rental status. Actually, when I looked into it, we are paying
more than commercial rates. I feel that we feel that is unfair.
Mr. Kagawa: Thank you. I agree.
Chair Furfaro: Just a quick glimpse on that. If you fall into
a two (2) bedroom, one (1) bath category, and category of one thousand six hundred
ninety-five dollars ($1,695) a month tax or generating twenty-one thousand dollars
($21,000) a year, you could probably qualify for these exemptions long-term. I just
wanted to give you an idea before you left.
Ms. K. McLaughlin: Okay. Thank you.
Chair Furfaro: Next speaker.
Mr. Sato: The next speaker is Joe Rosa, followed by
Steve Lindsey.
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REAL PROPERTY TAX WORKSHOP
JOE ROSA: Good afternoon, members of the Council. For
the record, Joe Rosa. I am basically here to see what I can present this thing to
something with the taxes. The thing I see and the problem is, is that we do not
have land classification or zoning for resort area, commercial, and residential. It
seems that tax rates are based on one rate, which is organization. There is no room,
and yet the people in certain areas have all the conveniences of government
services, shopping centers, airports, harbors, you name it. If you go up Wailua
Homesteads, there is just one (1) convenience store, and yet they pay the same
amount of taxes in people in Molokoa or in Lihu`e. I myself, bought property in
Isenberg tract in the early 60s, and when I came back from the service, the
Hanama`ulu, Laukona area, were selling houses over there; package deals for
mostly plantation people that were costing them up the high of fifteen thousand
dollars ($15,000) for house and lot. When I bought my place, it was not anything
what they were paying there. Just because one (1) house sold in that Laukona area
for a certain price, we got penalized. You could set it in your taxes. It comes up
right away. Later on, it went up again. That is why I made two (2) appeals when
the thing happened. Why do we have to be penalized for a house that was sold in
Molokoa or Ulukukui or Pua Loke. If the people were willing to pay those high
prices, which were ridiculous, and like they say was "fair market value," then let
those people pay those taxes. Do not penalize the other people that bought those
houses at the price they bought their homes. If those people can pay the higher
prices while it is worth it, then you tax it on that rate. The average person over
here cannot afford it. That is why they stay within their limits. You take Molokoa,
it should be a little higher basically because it is surround by businesses. Look
right around you. There is Walmart, the Tip Top area, Rice Street, and the
industrial tract area.
Mr. Sato: Three (3) minutes.
Mr. Rosa: Molokoa is surrounded by industry or
business.
Chair Furfaro: Joe, that is your first three (3) minutes.
Mr. Rosa: Yes, Sir. Thank you. Those are the kind of
things like I say, tax rates should be appropriate for area or residential use at the
most. Think about it— the people in Molokoa are going to be choking when the
business encounter them right around because all they need is the airport road area
and the small lot that they have from Walmart to the Kapule Highway. They are
only going to be ending up paying more taxes because they are in an area that from
the old time that I can remember, the land below Kuhio Highway to the ocean was
supposed to always be zoned as light industry or business because of the airport and
the harbor facility that they had. Anything above Kuhio going mauka would have
been residential. These subtle changes— I have seen it all in my lifetime living
here on Kaua`i all of these years. This part zoning that is going on here and there
has contributed to a lot of these inflationary taxes that people have to pay because
of one thing that comes up. I will leave that with the Real Property Tax
Department to look into it. We also need land classification. You have the resort
area, residential, business/commercial, et cetera. I think the taxes should be based
on the use of the land. I do not own a beachfront property. If you want a beachfront
property, you pay the tax. That is what people like; they like the beachfront.
Beachfront properties are scarce and you always hear the real estate people saying
that land is scarce on Kaua`i, which I doubt, because when you look in the papers,
there are a lot of ads. The only thing is that I look at the prices and they are beyond
SPECIAL COW MEETING 64 AUGUST 28, 2014
REAL PROPERTY TAX WORKSHOP
the reach of the average person. That is why the real estate is high. It is scarce on
the beach land, but not on the other residential lands. To me, do not penalize the
average taxpayer an amount that someone is willing to pay, which would be like a
speculator would come in and buy it, and then they bought it at that price and they
pay the tax, but do not penalize the average person because somebody is willing to
pay a high price. Thank you.
Mr. Sato: Six (6) minutes.
Chair Furfaro: Thank you, Joe.
Mr. Sato: The next speaker is Steve Lindsey, followed
by Andy Haas.
Chair Furfaro: Just a follow-up on Joe's comment. We do
have eight (8) zoned categories in the area. Part of our problem is that we have
areas that are not intended for resort use, but we have challenges with the visitor
destination areas as such, which is a separate agenda item, and we also should
make note that during my time on the Council, tax rates have changed four times,
contrary to what you might have heard. The floor is yours, Sir. I just wanted to
clarify some points.
STEVE LINDSEY: Aloha. My name is Steve Lindsey and I have
been a Kaua`i resident for twenty-seven (27) years. I built my house with partners
in 1979 for eighty-five thousand dollars ($85,000). That was land and house
together. Our mortgage was eight hundred fifty dollars ($850) a month and this
included the property taxes. So through two (2) hurricanes, my property taxes did
not go down. I paid the same mortgage all the way through; nothing changed. In
2013, my property taxes were two thousand four hundred forty-one dollars ($2,441).
In 2014, they jumped to five thousand one hundred forty-seven dollars ($5,147)—
excuse me— that was increase. I am sorry. They went from two thousand four
hundred eighty-two dollars ($2,482) to seven thousand five hundred eighty-nine
dollars ($7,589), which is a two hundred eleven percent (211%) increase. The actual
increase from 2012 to 2013 was a three hundred twelve percent (312%) increase.
Now, I was a bus boy at the Princeville Hotel and you might recognize me because I
took your ashtrays and carried your dirty dishes for seventeen (17) years. My wife
was a substitute teacher and she usually went down to Kapa'a High School and was
put into the class with all of the juvenile delinquents and people that would turn on
the television of "Rambo" to educate those kids for the hour that she would be in
charge of that class. My daughter went to Aloha School Early Learning preschool,
Hanalei Middle School, Kapa'a High School, and graduated from the University of
Hawai`i and now lives in Honolulu and works for The Gas Company. When I moved
to Hanalei, there was no shopping center. The Ching Young stores provided us with
some essentials. We drove to Kapa'a for groceries, gas, and hardware items. My
house was one of the first five (5) homes in Hanalei Palms. I choose Hanalei for the
seclusion. It took to the present for all the lots, minus one, to be developed into
housing. Most of my neighbors who live in the Palms are retired and came to
Hanalei for similar reasons. Most Kaua`i people could not figure out why we would
live in a swamp where it rained all of the time. Now we are being punished for
living in Hanalei. What happened to us will however happen to all of you, just like
people that live in London now. A one (1) bedroom flat starts at one million dollars
($1,000,000).
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Chair Furfaro: That is your first three (3) minutes. You
may continue.
Mr. Lindsey: We actually hate to see people that move into
Hanalei Palms because we know that they are only going to be there for a short
time, turn over their property, and move out. We know that our property taxes are
going to go up based on that. I am supporting Carl and Walter Lewis in their
proposals that we "cap" or "circuit break" our increases in property taxes. We
realize that the government needs money to run, but the way that they should do it
is by setting a factor that is tied to the budget on any given year. A house is not an
asset unless you sell it. I think we all know that, that houses cost more the longer
we own them. One last thing is that I have always rented out my `ohana unit to
either a HUD or low-income, and I was never made aware of the possibility to reap
the benefit of taking advantage of that. I go into the Real Property Tax office every
year. I used to take in my Hawai`i State Tax form and my Federal Tax form and
ask them if there were any new laws. I was never given any counsel at all. We just
do what we are told. It took me ten (10) days to find out the time and place of this
meeting. This is the first time I have addressed the Council. I have called
Mr. Hooser and The Garden Island. I finally was walked through the County's
website. I had to go through three (3) menus to find the time and place of this
meeting. I noticed that The Garden Island just published the time and place of the
meeting in yesterday's paper. I do not think a lot of people here would have even
known. As far as being notified and understanding is a very complicated process. I
feel that we are left out in the cold. Thank you.
Chair Furfaro: JoAnn and Mr. Kagawa.
Ms. Yukimura: Thank you so much, Mr. Lindsey. I am sorry
that you have gone through so much trouble. We really do have to improve our
website access. Knowing now about that long-term rental, do you know whether
you would be qualified for this Long-Term Affordable Rental that would cut your
rate in half?
Mr. Lindsey: Actually, my partner is going to move here
and I am going to have to evict a low-income... not a low-income, but the person
who is living there to take advantage of just the homeowners. Right now, I do not
believe in your one (1) year lease. I own some property very, low-income rental
property, on the mainland, and I have never given anybody a lease because when I
get a bad renter, then I have to go to court and try to get money out of somebody
that could not pay their rent in the first place.
Ms. Yukimura: Well, if your partner is coming, are you still
planning to hold on to that piece? But your partner is now going to live in it?
Mr. Lindsey: Yes. It will be totally owner-occupied. I will
be homeowners and not homestead.
Ms. Yukimura: If you are living in one (1) unit and your
`ohana unit is either on a one (1) year affordable rental...
Mr. Lindsey: No, my partner will be living in it. Before it
was... well, actually it is on hundred dollars ($100). I did not even realize what the
limits were.
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Ms. Yukimura: What I am saying is that depending on your
agreement with your partner, you could either qualify for the long-term rental
agreement or if you feel confident giving a fifteen (15) year lease with some outs— it
does not mean that you do not have any provisions for it falling apart, but you could
drop your rate in half.
Mr. Lindsey: In other words, I could write a one dollar ($1)
per year lease with my partner who already owns the house and drop my taxes in
half?
Ms. Yukimura: Oh I see. If it is already also an owner, then
you already are going to have the owner-occupant. You will definitely have the
owner-occupant status with exemptions in each one and the lowest tax rate.
Mr. Lindsey: Which will be six dollars ($6), right?
Ms. Yukimura: Three dollars ($3) per thousand. Please
check with Mr. Hunt.
Mr. Lindsey: Yes. I would like to know how to sign up to
get a lesson, if you will.
Ms. Yukimura: If you are both owners and you are both
living in it as owner-occupants, you both qualify for the exemptions. Steve is
nodding his head. You both quality for the three dollars ($3) per thousand tax rate.
Mr. Lindsey: Will that be retroactive?
Ms. Yukimura: No, but we have some interim relief that is
available for this year, so that you can get into those classifications, which should
give you long-term relief.
Mr. Lindsey: Do I have to hire a lawyer?
Ms. Yukimura: No.
Chair Furfaro: Can I say at this point that if you are going
to continue the dialogue with Councilmember Yukimura about these options for
you, I am sure she would be glad to talk to you offline.
Mr. Lindsey: That is fine.
Ms. Yukimura: I am.
Chair Furfaro: I am available to talk to you offline too if you
would like. Mr. Hooser has a question for you.
Mr. Hooser: It is not really a question, but I wanted to let
you know that we are working on some retroactive relief and hopefully that will
come through. In addition to you moving forward, qualifying for these exemptions,
hopefully there will be some retroactive relief. I am confident that there will be.
Mr. Lindsey: Thank you.
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REAL PROPERTY TAX WORKSHOP
Chair Furfaro: I just want to share with you that I will
follow-up with this. The announcement was made on August 6th by the Council.
We also had a posting on August 21st. I am trying to answer your question.
Mr. Lindsey: I am sorry. I did not know you were
addressing them to me.
Chair Furfaro: This is the question and answer portion, but
I wanted to tell you that the lack of notice bothered me, but I just checked with our
records and we did have something on August 6th and August 21st, but obviously,
we need to improve it and I am glad you brought it to our attention.
Mr. Lindsey: The date was published, but not the time or
location.
Chair Furfaro: I am indicating on the 6th that the location
was announced here. On the 21st, it showed a time from 9:00 a.m. — 1:00 p.m., but I
will check into it.
Mr. Lindsey: When I called the Council and talked to the
different operators, they had to go and ask somebody else and nobody had the
answer for them.
Chair Furfaro: Very good feedback. We will follow-up.
Mr. Sato: The next speaker is Andy Haas, followed by
Rowena Pangan.
Chair Furfaro: Andy is not here.
Mr. Sato: The next speaker is Rowena Pangan,
followed by Carole Wells.
ROWENA PANGAN: Aloha, Council. My name is Rowena
Contrades-Pangan for the minutes. The reason I am here is because I am a Native
Hawaiian and I am a proud Native Hawaiian, who inherited my
great-grandmother's land that is located on Kawaihau Road, directly across the
St. Catherine's School. My great-grandmother, who was a pure Native Hawaiian,
was very proud to have property once upon a time, and owned forty (40) acres where
we reside now, which we only have half an acre left. The reason for that is because
she sold property so that she could, in those days, pay her property taxes. My
grandfather, who was Jacob Kaumana Morrisburg, granted me this property in
beloved to my great-grandmother, Annie Keawe. Annie Keawe was a proud
Hawaiian who believed that the people of Hawai`i should take care of their family
and their ohana. My children and grandchildren, whom we all live on the property;
there is eleven (11) of us living in the home. It is a five (5) bedroom, three (3) bath,
which we just finished building because I had a piece of property, and I still have it,
in the Kawaihau Estates area. This property was given to me from my great-
grandmother, who made sure that I would take care of our family, and that is also
known as the ohana home that if anybody came from outer-island, that they could
come and stay with us without any questions asked. My grandchildren are the
sixth generation to live on the property. Do you think that there will the seventh
generation with the way property taxes are going? I am not sure about that. Will I
be able to live there and have my great-grandchildren live there? If the prices of the
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property keeps going up, my grandmother's dream of having an ohana home and
`ohana property will die. Yes, she will never be able to see it, but it is my
responsibility as a Native Hawaiian to make sure that this will continue to continue
with our family. It will be a bitter shame to see that the next generation, which
would be my great-grandchildren, never to live on the property. Why? Because we
cannot afford the property taxes. That is a shame. I am a Native Hawaiian, like I
said, and I am proud to be it. My grandmother was a very, very humble Hawaiian,
and she is probably turning in her grave to see how much I have to work so that I
can provide a home for my family. Thank you for your time.
Chair Furfaro: Thank you very much. Before we go any
further, JoAnn, I want to share with members that we have nine (9) speakers left.
We only have a captioner until 2:00 p.m., so I want to make sure we are focused on
questions rather than individual discussions about personal property.
Ms. Pangan: I also have another comment. I called in sick
today because I needed to be here. Where are the Hawaiians in here? There are no
other Hawaiians. The saddest thing is because we have to work. If we do not come
out and partake in this— and a lot of my friends are Native Hawaiians. They told
me, "Ro, I cannot come. I have to work." I work three (3) jobs, so that I can provide
for my children and my `ohana. Thank you.
Chair Furfaro: JoAnn, had a question for you. As you know,
I am very familiar with the Morrisburg `ohana. JoAnn, you have the floor.
Ms. Yukimura: Thank you very much. I just want to
understand your situation. You have one (1) home on Kawaihau Road, and then
another ohana home. You live in the Kawaihau Road...
Ms. Pangan: I finally built my five (5) bedroom.
Ms. Yukimura: Congratulations.
Ms. Pangan: There were just way too many of us. My
children all moved out and they had to move back in because rent is just
outrageous.
Ms. Yukimura: Yes, so eleven (11) of you living in a five (5)
bedroom home?
Ms. Pangan: Yes.
Ms. Yukimura: But your ohana home does not have anybody
living in it, but you use it as family home?
Ms. Pangan: No, that is my home. I call my home my
ohana home. When my family comes from near or far, from Moloka`i, they will
come. If we have to throw the hali`i on the floor, that is what we do. That is what
you call `ohana.
Ms. Yukimura: So you are just talking about one (1) home?
Ms. Pangan: Yes. I am just saying, will my grandchildren
be able to continue to pay for the taxes? My husband and I sat down last night and
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said, "Can you imagine the millions of dollars that our `ohana has paid on County
taxes?" I am now the fourth generation to live there. How many years? My
great-grandmother owned the property one hundred twenty (120) years ago.
Ms. Yukimura: How much are your taxes this year?
Ms. Pangan: I do not feel like I have to disclose my
amount, but it has gone up. It will continue to go up. We just go school-zoned
across St. Catherine's. My grandchildren will be attending St. Catherine's, and
they do attend.
Ms. Yukimura: That is wonderful that they can walk to
school now.
Ms. Pangan: Thank you.
Chair Furfaro: We are going to take a break right now. I am
going to be at this table at the ten (10) minute mark and I will start testimony
again when we come back because we only have a captioner until 2:00 p.m.
There being no objections, the meeting recessed at 1:21 p.m.
The meeting reconvened at 1:30 p.m., and proceeded as follows:
Chair Furfaro: We are back from our break. May we
continue with speakers, please?
Mr. Sato: The next registered speaker is Carole Wells,
followed by Mike Dyer.
Chair Furfaro: Members, I want to remind you that we will
lose a captioner at 2:00 p.m., so let us take testimony from the many people in the
audience. Go right ahead.
CAROLE WELLS: I am Carole Wells. Thank you for listening
to me. I am here because my rates of my taxes have gone sky-high. My husband
and I moved to our property... we bought it in 1987. We built a barn and a house.
Over the years, we farmed. We had a farm agreement. We got dedicated for ten
(10) years and they gave us another twenty (20) years. In the meantime, our taxes,
even if we get our dedication for agriculture, our taxes have increased so much.
Over this last year, we lost our cap and the income. Since last year to this year,
somebody sold the piece of properties, so the value on our land increased four
hundred sixty-seven thousand five hundred dollars ($467,500). That is almost half
million dollars ($500,000) in one (1) year. Between last year and this year, we lost
our cap, we lost our low-income, and our land has increased a half million dollars
($500,000). It is a shock. Luckily, I went in and they told me— well, we have
entered barn over the years because we are a farm. We had farm help that was
allowed to stay in the barn and did not exchange money. They did stuff around.
When we raised horses, we needed people on property 24/7, especially since were a
breeding farm and we had sick horses and we needed somebody there. In 2000 is
when the dedication came in and said that you needed to dedicate your land if you
want to farm. Fine. We are farmers. We are going to do it. My husband and I
looked at each other and said, "What? Raise horses? We are getting pretty old."
For another ten (10) years, our bodies could not handle it, so we dedicated our land
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into forestry. We planted trees and we are happy they are growing and we are
there. This time, my husband retired from a real job. We had a cap. We knew how
much money we had. We decided, "Okay, we can do this. This is where we want to
be for the rest of our lives. We raised our kids there." My son is still on the island.
My daughter went off to college. In the meantime, our own preservation of
homestead. We were told through our lawyer that if we did a living estate on the
property, which means that we could live in our home until the day we die. If my
husband died, then I could live in it and my children would take that property when
we die. We did that for reasons. We wanted to make sure that we were there and
we are going to live there for the rest of our lives. Anyways, our property— if we
did not take the long-term rental for low-income, our taxes went up three hundred
eighteen percent (318%) in one (1) year. By leasing the property, it would increase
our property sixty-five percent (65%); our income. That is a big jump. That was not
figured into our lifestyle, I guess you would call it. I said, "Do not worry. We can go
for preservation or homestead class." I go in to file my form. Anyways, we do not
qualify. The number one reason is by doing the living estate on our property, my
son and daughter are on title as owners of the property. Now, instead of my
husband and I, my income, we have to show all four (4) of us. Even if my children
have no rights to the property, no income, cannot mortgage, cannot sell it, and
cannot do anything with it. My husband and I have all the rights and pay all the
bills. We pay the taxes. We were told that we would get the taxes for us living
there and our benefits. Obviously, we are not going to because all four (4) of us are
now on title. I think that is wrong. I think something has to be done. They say sell
the property— you cannot sell the property. I have no right to. In our agreements
in this, we are stuck in that step. It is a big problem. Our income could do it if it
was just my husband and myself. The other problem is that we have a renter in the
barn, which is this one (1) room because we needed the homestead to lower it down
to sixty-five percent (65%). Luckily, her lease is coming up for next year. We
wanted to know if there is any way we could get preservation of homestead because
we can ask her to move out. We will take out the kitchen and bring it back to
nothing.
Chair Furfaro: I am going to have to stop you. I gave you
some leverage. We do not have Steve here, but I think there are people in this office
that you can ask those particular questions of. Members, we have twenty-four (24)
minutes to take testimony today. We want to hear the issues and direct them to our
September 10, 2014 Council Meeting. Next speaker, please.
Mr. Sato: The next speaker is Mike Dyer, followed by
Sara Sloan.
MIKE DYER: For the record, my name is Mike Dyer. We
have been doing this for a long time. It seems like our system is involving into sort
of "catch as catch can" and into kind of a really byzantine thing right now. It has
been very interesting for me in listening to the stories in how property taxes are
really affecting people's lives. Somebody said that we have this thing about
property taxes and inability to pay, but I think Chair Furfaro said it too, that we
are also talking about the ability to pay and we are getting to the point where we
are really stretching a lot of people in their ability to pay. I agree with those who
said that a lot of our problems have to do with the ad valorem taxation. My good
friend Steve Hunt and I argued at great length over this in the task force days
because of course, Steve is a lifetime appraiser, so market value is the big thing for
him, but I think market value is one of the big things that drive our problems here.
One of the things that I would like to suggest, and it is probably way too late, but
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you guys might go back into the dusty, old files and dust off the task force
recommendations. We had long, long debates over how to get around the problems
with using market value. We chose a way of setting a value, and then going
forward with each property on a Consumer Price Index (CPI) based process instead
of market value. It should seem obvious what a super problem is, as Mr. Rosa said,
to have a house sell in your neighborhood that does not have anything to do with
you and all of a sudden, it changes your whole life and you suddenly cannot pay
your taxes anymore. I think we really need to look at that fundamental part of
what we are doing. I also stated some concerns about other things that do not
relate to all of these residents who have come in today; all this perforation of new
classifications as a concern to me. That is something else that we should really talk
about. The appeal process has gotten a lot harden since we moved to combining
land and buildings together. It is really hard for the taxpayer to know where you ae
because you do not know where the dollars are coming from; where the valuations
are coming from. The appeal process was really hard to prevail in in the old days
and it is much worse now. The appeal board has a ninety-five percent (95%)
acceptance of whatever the assessor said and the public is almost defenseless in face
of the complexity of the system and the way it is setup. As far as the cap goes,
obviously through the task force, we were in favor of removing the cap, but not
removing the cap and leaving market value assessment in place. That was a big
problem. The cap has gone off. We are not a really rapidly increasing market, but
it could happen, and it could happen really fast. If you think it is bad now, if the
market starts going up and the market value start really ticking in again, you will
really have a problem. The cap probably needed to come off partly because it was a
cap on taxes, not on assessments. The other people who have done caps have been
on assessments on not taxes. You guys have to make decisions on budget matters if
you have caps on taxes on the majority of your taxpayers, the residents— where are
you? They may not care what kind of money you are spending. You need to make
heroic, hard decisions on budgets and if you have all of your residents capped on
taxes, what can you do? You cannot move anything. Where are you going to find
the money? That is it. I will get out of here and hopefully you can finish in your
timeframe.
Chair Furfaro: Mike, thank you for your suggestions on
dusting off the old report. Hold on, Mike. We have a question for you.
Ms. Yukimura: Mike, what is your suggestion for what we
use if we remove the cap?
Mr. Dyer: Again, we have removed the cap. That is a
done deal. I think what you have to look at is the way we are doing our
assessments. Market value assessments with the cap off is extremely dangerous for
everybody, not just residential, but everybody across the board.
Ms. Yukimura: You say that somebody who sells next door
does not have anything to do with you, but in fact, it increases what you can sell
your property for when you sell.
Mr. Dyer: Exactly.
Ms. Yukimura: So maybe we need to tie it to time of sale.
Mr. Dyer: Maybe. What we chose to do on the tax force
was to say that we will take a certain block of years right around the time that the
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task force was operating, average those out, and say, "Okay, that is the best data we
have on valuation. Let us set it at that." Then we go forward on a CPI basis. We
do not go forward on market value. We had that valuation run with the land. We
did not worry about what somebody came in and paid later. We went forward
strictly on an inflation basis and the assumption that your costs to run this County,
more or less, should go along with inflation. If it did not, you had to come and
explain to us why you went five percent (5%) instead of three percent (3%).
Ms. Yukimura: Thank you. I think we need to have a task
force meeting.
Chair Furfaro: Thank you very much. Next speaker, please.
Mr. Sato: The next speaker is Sara Sloan, followed by
Felicia Cowden.
SARA SLOAN: Aloha, Council. Thank you for being here to
hear the testimony of the people concerned about this. My husband and I moved
here over twenty-five (25) years ago as horticulture students and fifteen (15) years
ago, we were able to buy a piece of agriculture land where we moved to plantation
houses with the intention of building a family farm. That year, the agricultural
laws changed. While we were in the process of making this farm, we were not even
finished with our house. The agriculture laws changed and our taxes went up. I
wrote a letter and I said, "Please, we want to put this money into agriculture, not
taxes." I got a response back saying basically, "You need to comply." When I talked
to them before, the agency said, "Just do what everybody does. Put a fence and put
cattle." Well, we did not do that. My husband is the President of the Tropical Fruit
Growers Association. We went ahead and grew fruit trees. We are just starting to
be able to market our fruit and we built two (2) houses; one (1), my elderly parents
live on. We do not rent. We just got our tax bill and I have been paying the taxes
all along, thinking I wish we could comply with these laws someday, and our tax
rate went up one hundred percent (100%). We have kids in college. We have
expenses like anybody else. Our elderly parents do not pay rent. They help pay
their insurance, the taxes, and their utilities. I just wanted to share my story
because, yes, there has been no recourse on what to do now; who knows about this;
who knows about this meeting; and who knew about this increase? Our neighbors
down the line are all "CPR-ing" their property and dividing it up and selling it. But
that is not in our intention and that never was our intention. I think we have
embraced what you say you are embracing: how to raise our kids here, how to make
a place for them, and how to make that happen.
Mr. Sato: Three (3) minutes.
Ms. Sloan: Thank you.
Chair Furfaro: Thank you. Next speaker.
Mr. Sato: The next speaker is Felicia Cowden, followed
by Robert Girald.
FELICIA COWDEN: My name is Felicia Cowden and I want to
thank everybody for their efforts and their presentations, and the Administration
with ideas. I feel like we need to holistically review or tax structure and before
that, we need to put some sort of a stay on— I appreciate this push out until
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December that the Administration was suggesting, but we have to be very, very
careful. People that cannot afford a ten thousand dollar ($10,000) bill in September
or August probably cannot afford it in December. What I would like to see is a pie
chart— I liked all of the presentations that we saw, but I would like to see a pie
chart of where we get our Real Property Tax assessments from: business, industrial,
small ag, big ag, mixed use, and the exempted areas. I would like to know what
those are, if those are airports, Pacific Missile Range Facility (PMRF), hospitals, or
schools. I would like to really see where all the money is coming from because it is
important for us to see how big of a percentage are the housing holding of the cost.
Are the residents holding most of the cost or it is really that more business— I
would like to see how that is all split out because I think it would help everybody
feel more comfortable about what it is. Bottom line, I am in agreement with the
people who I have heard saying that the ad valorem system of taxes is not the best
way. I feel like that is just pushing people out of their neighborhoods and off the
islands. Every time there is a bump in the real estate market, it bumps people off of
the island. Being from the north shore— I used to live in Hanalei... Hanalei has
moved from being a community to largely a motel, and that can happen everywhere.
I am in agreement with what Jay Furfaro said that the pieces about our ability to
own more than about how much we can tax. I think we need to focus on our ability
to own. I believe, as I watch this time of growth in the big burst of the real property
values prior to 2006 in that window, our government grew while we were fat. We
made a bunch of money and just like people who had all this money from getting
home equity lines of credit... was like the County grew. A lot of that was in new
divisions that came through Charter Amendments. I do not ever remember
petitions being sent around with thousands of people meeting to sign to say,
"Should we split Public Works from Parks?" I think that those were internal
decisions from the County. The County decided to get bigger while there was a lot
of money, best that I can remember.
Mr. Sato: Three (3) minutes.
Ms. Cowden: We have to figure out a way to bring the cost
down, but make sure that there is equitability around all of the different elements.
I appreciated Tim's charts that showed the different groups of where there was
growth and where there was not. I guess my brain works a little more in a pie
chart, so I appreciate that. I just need to think longer on looking at where the
money is actually coming from. It comes down to priorities of whether we want to
replace our population or not. I think when we do this ad valorem taxes, we can
replace our population with people who can cough up enough money to support a
government as large as we want to grow it— I just do not think that is what we
want to do. I heard a little piece there from Mike Dyer... or maybe it was JoAnn...
a little bit about the time of sale. That is something that I wondered, if there is a
deferral that can be placed because we see people who have owned their homes from
the time they spent thirty thousand dollars ($30,000) on it in Hanalei, and they sell
it for four million dollars ($4,000,000); maybe there can be a little bit of a bump that
comes out, so that the goal being how do we keep people in their houses, how do we
keep people on the farms, and how do we not replace our population. I think we
always need to be supporting people's ability to live here, more than big companies
ability to come in. What I see happen is yes, jobs are created, but they are created
for people who do not live here, so that accelerates the housing market too. We
have the outside investor accelerating the housing market, but we also have big
brand name companies that come in and bring their best paid people in who get
another couple hundred thousand dollar jobs that can afford these high-end houses.
I also have a whole lot of ideas on how to get the word out, so people will come in
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and be aware of when there is teaching. That is essentially my testimony. Thank
you so much.
Chair Furfaro: Felicia, you have a question from
Mr. Bynum.
Mr. Bynum: I think you made a lot of really good
observations. There is just one thing... because I heard it said here for years, "The
values went up, so my taxes went up." You know that our Tax Ordinance requires
us to set that percentage each year, right? You understand that increased values do
not lead to increased tax bills— only when the rates are not set; only when we do
not follow the Ordinance.
Ms. Cowden: I get that. I do understand that. We should
make a point to make sure if we are in a spike, then there must be some sort of
mechanism that calls attention to that, so that we actually reduce it. I think it is
always easier to be on the receiving side, so if you are going to get a big burst, shot
in the arm of cash, you are not going to jump in to stop it. We want to do it before it
is a crisis.
Mr. Bynum: I just want people to get that out of their
mind that increased values automatically lead to increased taxes.
Ms. Cowden: It does if no change is put in place. It takes
an action step to protect.
Mr. Bynum: If the people who are required by Ordinance
to make that analysis "do not do it," then the taxes go up.
Ms. Cowden: Right, so we need to make sure that we are
always conscious for that.
Chair Furfaro: Felicia, thank you for your comments and
statements. This is a communication between Mr. Hunt and myself, but you can
get that copy that answers your question.
(Mr. Rapozo is noted as present.)
Ms. Cowden: Thank you so much.
Mr. Sato: The next speaker is Robert Girald, followed
by Linda Garrell.
Chair Furfaro: Mr. Kagawa, do you want to say something?
Mr. Kagawa: Yes. I know we have a couple more
speakers. Like I said, I do not know if I am angry or what, that I am not going to
get my chance to summarize because some members have had time. The plan is
that we are going to take the rest of the speakers and the captioner is gone at
2:00 p.m.?
Chair Furfaro: I do have another plan for other members. I
sincerely sympathize with what your comment is. Go right ahead, Sir.
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ROBERT GIRALD: Good afternoon, Chair Furfaro and Members
of the Council. My name is Robert Girald. I am a resident of Puhi. I too was
surprised when I received my property tax bill. I had a ninety-seven percent (97%)
increase. Lucky for me, I have been afforded the protection of the cap for all of
these years. My increase dollar wise was not all that great as some of the people
have expressed here, but nevertheless, it did double from where I was. By a few
dollars, it would have doubled. The thing I look at is that the cap was put in with
the intent of trying to protect people from other inflations that took place, which
caused property values to increase. For a homeowner like myself, which I think are
probably the majority of homeowners, we look at depreciation as just paper. It is
not enough value to us because we are not there to sell our homes. I am living in
my home for forty-three (43) years, which I bought forty-three (43) years ago, so I
have no intent of selling my home. It may be going to my children when I pass on,
but I look at that as paper; value is no value to me. Now, when you look at the
statements that have been made— yes, we can adjust taxes, in respect of whether
the appreciation went up. It is how you set the tax rate. It is interesting to note
that from the information given to us today, amongst the neighbor islands, Kaua`i
has the highest average homeowner tax bill, lowest household median income, and
our real property percent is the highest amongst the neighbor islands. When I look
at that, it tells you that we are not in the best position at this point on a statewide
basis through the neighbor islands. I think that what I feel is important that if the
caps need to be adjusted, they should be done in a much smaller matter, but they
should be capped. I think the cap was important. When I go over and look at what
has happened, I feel for all of you because I know this is not an easy job. People
come here, criticize you, and say whatever, but if I was on that side of the fence, I
guess I have to look at things the way you are looking at it because you have to
meet that budget. You have to find money. I know it is very difficult, but I think in
the past, there has been a lot of talk about— I think Councilmember Rapozo talked
about this before, about doing an audit of Public Works to see how things are going.
I think he called for that years ago. This County has a lot of good employees. I
think most of you know that I spent the majority of my adult life representing
unionized and non-unionized workers. I am a strong advocate of the workforce, but
I think in private industry, the people that work for our company has to meet
certain production standards, including being there at work. In this area here, in
Public Works in the County, I see a lot of good workers, but then there are a lot of
guys that are sliding. I think that it will be worthwhile to find out whether we
really need the number of people we have because otherwise, this is what you are
going to be looking at. In another four (4) or five (5) years, Kaua`i County— today's
headline, "HHSC to begin layoffs." You are going to be faced with this. I think that
if you can recognize the issue now by normal attrition, you can prevent having
layoffs. I think you needed to look down the road. I know some people are saying,
"What the heck am I saying something like that," but I think it is a fact. I would
rather see normal attrition take place and not cause layoffs. You have to look at
that. I think for those of you who come back on this table next year should really
start looking because do not wait until the time of the budget. I just heard the
County Engineer, a couple of days ago, say, "Well, we have reduced overtime way
down." What causes overtime? Absence? Maybe the production itself? I think they
need to look at what is causing it. Private service or private industry cannot
operate with some of the things that I see happening here. The other thing I
wanted to say is that I think this workshop should have been done before this came
about. This is like the "horse out of the barn" and now "we are closing the door." It
is too late. Everybody is upset. I think for those of you who have been around here
long enough, you remember Nukoli`i. People were so upset. Something drastic
happened and it took years to rectify that. Let us not wait until we reach that
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point. I think that we should pay attention to the public and pay attention to the
issues that they are concerned about. I am not saying that you do not. I know you
guys try your best. Finding money to meet the needs of the County budget is not an
easy thing because I do not care where you take it from, you are going to get
somebody upset. I understand that you are trying to find that balance and I
recognize and respect you guys for that. That does not do enough. You have to show
some action that is positive that people can feel comfortable with.
Chair Furfaro: You hit your six (6) minute time.
Mr. Girald: Okay. Thank you.
Chair Furfaro: Thank you very much.
Mr. Sato: The next speaker is Linda Garrell, followed
by Ronald Pizullo.
Chair Furfaro: I am going to share something with everyone
in the audience. We have four (4) speakers left to hear your testimony. Please come
up. I want to be fair and equitable in dealing with the Council. I gave Mr. Bynum
his ten (10) minutes and I gave him my ten (10) minutes as well. Whoever the next
speaker is, please come up. What is the name again?
Mr. Sato: Linda Garrell.
Chair Furfaro: She is not here. Next one, please.
Mr. Sato: Ronald Pizullo.
Chair Furfaro: He is not here. Next one, please.
Mr. Sato: Carmela DeMarco.
Chair Furfaro: Carmela, come right up. Let me finish my
housekeeping item. When we conclude with all of those speakers giving testimony, I
will go around the table giving each member their ten (10) minutes to summarize,
starting with Mr. Kagawa, Mr. Rapozo, Mr. Hooser, and Ms. Yukimura. I have
given up my ten (10) minutes to Mr. Bynum who had a twenty (20) minute
presentation, so I will not speak. Go ahead and introduce yourself.
CARMELA DEMARCO: My name is Carmela DeMarco. I live in
Po`ipu. I thank the Council for having this workshop, even though it was really
hard to find out about it. I even called the Assessor's office to let him know when it
would be. What I can say first of all is that we lost our safety net. That is what you
took away from us. I have owned my house since 1985. I have a long-term rental
downstairs that I keep under market. I am on social security because I am retired.
This going from... it rose about one thousand two hundred dollars ($1,200) to five
thousand dollars ($5,000) in two (2) years. Last year, they decided to assess me as a
vacation rental, which I never had, and they did not give me any notice about it.
They just did it. The only time I found out about it is when my tax bill came in and
they said, "Well, it is too late to do an appeal." Why is the information not done up
front? We all have mailing addresses. Even if they did not have my phone number,
they had my mailing address and they could have sent something before they did
that. Even with that, last year, it was three thousand dollars ($3,000), which was
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the year before, and this year, it doubled again to five thousand dollars ($5,000)— it
was not doubled, but still. That is a lot of money. For me to pay it, I had to use my
credit card. On top of that tax, I had my interest to pay and all of that stuff, which I
did not intend to have. To take away the safety net from all of us is just not right. I
think this workshop— yes, you should have it before you did it and address some
other ways to do it. Now, you have got so many different classifications and we
have to go through all of this stuff to get our taxes down where we can afford them.
This does not make sense. In California, they had that Proposition 13 and they had
it for a reason, because of the ad valorem taxes and people being taxed out of their
homes. In addition to that, they had the supplemental taxes, so that any
improvements to the property, and they would find out from the building
department, they would reassess it. They did have just that cap, but in addition to
that, in improvements. You could do that here: have the supplemental tax increase.
That thing goes out automatically anytime somebody does it.
Mr. Sato: Three (3) minutes.
Ms. DeMarco: That has been working in California for
many years. Why can you not have something like that? Again, I appreciate your
hard work, but this is really a hardship. It is a very big hardship. I hope you
address it. Thank you.
Chair Furfaro: Thank you for being here today. We have
one question for you.
Mr. Bynum: If you could leave your full name and
property address with the Staff, I would like to look more specifically into what you
are saying, please.
Ms. DeMarco: I did.
Mr. Bynum: Okay. Thank you.
Chair Furfaro: You have one more question from
Mr. Hooser.
Mr. Hooser: Mr. Hunt is in the back of the room also, so I
am sure he would be happy to meet with you, at least briefly.
Ms. DeMarco: I had these things mailed to us and it said
that the tax circuit breaker was going to be carried forward and grandfathered in,
and that is not what happened.
Mr. Hooser: Thank you.
Mr. Sato: Our last registered speaker is Ken Taylor.
Chair Furfaro: Ken, you are our last speaker, and then we
are going to go around the table with the members that did not have a presentation,
or in my case, the time I transferred over. Ken, you have the floor.
KEN TAYLOR: Chair and Members of the Council, my name
is Ken Taylor. A few weeks ago, you asked me to shed some light on California's
Proposition 13 and I tried to summarize some of the information in the packet I
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turned in. In 1978, California voters approved initiative Proposition 13 by a 2:1
margin, amending its Constitution to provide that real property tax shall not exceed
one percent (1%) of market value of the property and shall not increase by more
than two percent (2%) for any year. The amendment has been a target of criticism,
but it has remained enforced for merely forty (40) years and no efforts to
supplement it have been successful...
Chair Furfaro: Excuse me just a second. Steve, can you take
your conversation outside because we are picking it up here on the mics. Thank
you. Go ahead, Ken.
Mr. Taylor: Before I get into making comparisons
between Proposition 13 and Kaua`i taxes, I would like to just talk briefly about some
of the situations that came out of Proposition 13 or even led up to it. The disparities
in the property tax system are nothing new. In the 66 report entitled "Problems of
Property Tax Administration in California," the assembly Committee on Revenue
and Taxation was informed that equalization of assessments is more a myth than a
reality. They go on to say that under this hypothetical revenue neutrality tax
change described for Los Angeles County, forty-three percent (43%) of the
households with a 1975 base year would find their property tax bills increased by
over one hundred sixty percent (160%). The report goes on to talk about stability
and during the years from 1980 through 1991-1992 was an average annual growth
rate of nine point eight percent (9.8%). Acquisition value assessments provided
sustainability, greater predictability, and certainty of revenue flow to local agencies
with property tax revenues growing at a steadier clip than any other revenue
source. Since the adoption of Proposition 13, property tax revenues have grown at a
rate of approximately ten percent (10%), compounded annually over a ten (10) year
period.
Chair Furfaro: Ken, that was your first three (3) minutes.
You have three (3) additional minutes.
Mr. Taylor: Getting back to comparison of the
Proposition 13 to the local situation— Proposition 13 contained a limit on a
percentage of property tax can be assessed value of the property one percent (1%);
no such provision arise on Kaua`i. Proposition 13 included a provision of an annual
tax increase of two percent (2%). Until this year, Kaua`i Real Property Tax also
included such a provision. Proposition 13 covered all taxable real property. The
Kaua`i tax cap only covered the properties of owner-occupied residents. The
revenue from such properties constitutes only about ten percent (10%) of Kaua`i's
Real Property Tax revenue. In California, Real Property Tax are only one of the
State's several revenue sources. California also has income tax, sales, and other
taxes. On Kaua`i, Real Property Tax is a principal source of Kaua`i tax revenue.
Kaua`i has no other major tax revenue source. In California, no annual assessment
of taxable properties is made. When a property is acquired, its market value at that
time becomes a base for tax purposes. This value is typically determined by the
property sell price. The avoidance of the need for annual evaluations of property
results in a substantial administrative cost savings. The elimination of the need for
annual assessments... only about twenty thousand (20,000) Kaua`i owner-occupied
residents' residential properties would also result in some administrative cost
savings. Under Proposition 13, the amount of taxes basically determined by the
value of the property at the time of acquisition subsequently values increased and
does not affect tax amounts. This may result in a property having comparable
value, which are acquired at different times, having different tax liabilities. This
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disparity is not a significant concern to California taxpayers. In my case, the year
before Proposition 13— my area was reassessed. My taxes went from four hundred
sixty-five dollars ($465) to one thousand eight hundred fifty dollars ($1,850).
Chair Furfaro: Ken, that was your six (6) minutes. It looks
like you are reading from a script. May we have a copy of that script?
Mr. Taylor: You do.
Chair Furfaro: Okay. I am sorry. I have several pieces in
front of me.
Mr. Taylor: It has been turned it.
Chair Furfaro: Thank you.
Mr. Taylor: I notice that a few pages are mixed up, so if
you get to a point, there are a few pages out of sequence.
Chair Furfaro: Okay. Thank you, Ken.
Mr. Bynum: Ken, you said your taxes went from four
hundred dollars ($400) to one thousand eight hundred dollars ($1,800)?
Mr. Taylor: Four hundred sixty-five dollars ($465) to one
thousand eight hundred fifty dollars ($1,850).
Mr. Bynum: Then Proposition 13 came in, right?
Mr. Taylor: Then it went back down to four hundred
sixty-five dollars ($465).
Mr. Bynum: Okay. Thank you.
Chair Furfaro: Thank you, Ken. For everyone here, I am
going to allow or ask four (4) Councilmembers who, other than myself did not speak
or conceded their time, for comments for today. We are going to start with
Mr. Kagawa, Mr. Rapozo, Mr. Hooser, and then JoAnn. It is very clear for all of us
to note that on September 10th, if there are any new bills to introduce and so forth,
that is the date we are looking at. We will also entertain some bills from the
Administration. I am trying to keep that agenda as minimized as possible. Again,
although we will post the date, it is almost impossible for us to actually announce
the time, but the date will be September 10th. Mr. Kagawa, the floor is yours.
Mr. Kagawa: Thank you, Chair. In today's workshop, I
think my job here was to observe and listen to this big problem that is out there. I
think Steve Hunt did a nice job of explaining from the Administration side of what
is going on and what may have caused problems, and I appreciate that. I think the
part of the workshop that I was not pleased with is that we have had speakers come
up and we tried to dissect the problems individually. There are hundreds of people
who could not make it today that really are experiencing similar or even worse
problems. I think we are not going to solve anything in a workshop by dissecting
people's case-by-case. This is a job of the Real Property Tax office that needs to sit
down with them and find real solutions, not hypothetical solutions coming out of the
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air. What we needed to do today was observe and listen to what is going on. Is ad
valorem the way to go? Is it the fair way? Was the removal of the cap really
necessary at this time? If I look at this map here, it shows how much people had
the cap in the 80s. There are three (3) states. In 2000, I believe there are thirteen
(13), fourteen (14), or more that have cap limits. Now, Kaua`i County is deciding
not to follow the trend. Do we know something that they do not? These other states
are all moving towards capping the crazy real estate market that is happening all
over the world, or all over the Country, and Kaua`i County is deciding, "No, we are
going to get away from that. We know better." I do not know what is better or what
is fairer? Apparently, things are not all good on Kaua`i. I am seeing a lot of... and I
have heard and listened and I am getting through E-mails of a lot of complaints,
especially about the mixed use properties. These are people that have bought a
while ago, lived and operated, and TVRs. I think the cap protected them, but now,
they are out of the homestead class. They are being thrown into highest and best
use, residential class or TVR class, and they are just getting killed by taxes. Is that
fair? We have some people from the Administration and some on the Council that is
telling you, "It is what it is. Accept it. We will try to help you with some
exemptions here and there." I am not like that. I say let us put the cap back on,
take our time, whether it takes one (1) year or two (2) years for real tax reform that
everybody is clear and understands, and we do not have meetings like this where
we are trying to dissect individual people's complaints. I think this is ridiculous to
try to digest one-by-one their complaints. We do not have all the facts in front of us.
This Real Property Tax reform is not an easy job and I do not know why we tried to
"slam dunk" the removal of the cap immediately. I know why; because it is easy for
the Real Property Tax office to just use ad valerom, multiply by the rate, and boom,
there is your tax bill. Real reform in this crazy real estate market is going to take a
lot more effort than us, if we want to make the community as a whole happy and at
peace with the way government has handled this situation. I like Carl Imparato's
suggestion. I want to work with Carl in real tax reform and I will work with
anybody else who is open minded and who does not believe that ad valorem is the
way to go. "Here you go residents. Pay your bill." I am not like that. That is why I
voted "no" on the removal of the cap because I was not comfortable. I do not know
where we are going from here. My suggestion is let us get back to the cap and until
we take our time and find a thorough analysis of what kind of tax system we want
here on Kaua`i, I will always not support just going back to ad valorem because it is
easy for us to administer. Thank you, Chair.
Chair Furfaro: Mr. Rapozo, you have the floor.
Mr. Rapozo: First of all, I want to apologize for having to
leave. I am just trying to take care a lot of personal issues at this time and trying to
get back as quick as I can. I apologize, but I assure you that I will listen to
everybody's testimony that was made today as soon as they are available. I kind of
agree with Mr. Kagawa. Fairness and equity—we keep saying that and I think the
system as it sits today is not fair and equitable. I think that was stated today, even
before I left the room. Our job is to balance the budget. I understand that. I think
when we look at revenue enhancements, I think it is what it is called, but in my
dictionary, it is called "tax increases." Revenue enhancements have to be balanced
with some sort of spending cuts. That has always been my position. Mr. Girald is
correct— I have been an advocate of an audit of Public Works, Solid Waste. In fact,
check the record, I have made numerous requests and all have been denied. It
never made it passed the Council. But that is the only way we are going to find out
if we, in fact, are running this government in an efficient manner. I agree that
attrition is the best way, but you are right. There is going to come a point that if we
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continue on this road where pink slips are going to have to be handed out,
furloughs— and no one wants to do that. We cannot continue to sustain this budget
by continuing to raise taxes. That has always been my position. Like Mr. Kagawa
stated earlier, I did not support the cap because I kind of saw this coming down the
road. I am not a financial expert, so I could not say that with any certainty, but I
think even as a layperson looking at that, you could tell that the amount of money
that was to be generated based on the removal of the cap was going to hit some
people very hard. You did not have to be a financial expert to see that coming. So I
voted against that, and unfortunately, we were in the minority. Nonetheless, we
have been dealt this hand and now we have to deal with it. As Mr. Kagawa stated,
the cap must be restored. I do not know if Mr. Kagawa talked about this while I
was gone, but we are introducing an amendment that will restore the cap. I agree
that there are issues. A reset clause may have to be added. I think there is some
tweaking that needs to be done. Nonetheless, I believe that is the only way that we
are going to put the stability on our taxpayers; not just the taxpayers, but also the
government. I remember that I was at a business conference or seminar and one of
the training sessions was about "what do you do when you make your first one
hundred thousand dollars ($100,000) a year, and I remember the speaker saying,
"That one day is going to make one hundred thousand dollars ($100,000) a year, but
just know this: the more you make, the more you will spend, unless you become
disciplined; unless you understand that you have to save some of that." This
County spends what they make. In fact, in the last four (4) years, we have spent
more than we have made. The problem with that is that we become a County that
is chasing that debt. We are chasing. What we are trying to do—you saw this here
yesterday as well— we are trying to find any which way we can to somehow raise
our revenue, whether it is trash or whatever fees we can get a handle on and justify
it. We try to do that because we need to feed the beast. We have to stop feeding the
beast is my point. We have to come up with a solution that is an equitable solution;
a balanced proposal that is not just revenue enhancements or increases, but also
some spending cuts. Believe me, the community will be upset with some of the
services that get reduced, but you cannot be upset with raising taxes, and then
upset with services are cut. You cannot have your cake and eat it too. That is the
harsh reality. I do not want to be "party pooper," but reality is reality. If you want
to pay fewer taxes, then expect some of the services to be reduced at this time. We
cannot pretend that we are going to continue the level of service at a lessor rate.
We are not going to do it unless we take some drastic actions, which again, the
audit would definitely show. These band-aid fixes: temporary, very short lived,
come with some unintended consequences, which we are seeing today. The only
thing that provides stability that we know what the outcome will be is the cap. We
know what hand will be dealt if we restore the cap, and then the County needs to
make the adjustment. We should not expect you to now go and figure out how you
are going to come up with that extra thirteen thousand dollars ($13,000). No, the
County has to come up with a way to figure out how we are going to do that with
thirteen thousand dollars ($13,000) less. That is the way government is supposed to
work, not just compounding the problems on you folks. That is what is happening.
We have to fix the problem. It may take two (2) years or three (3) years. We spend
hundreds and hundreds, if not, millions of dollars on studies throughout the year:
studies for the Lihu`e Town Core Plan, studies for this, and studies for that. We
study everything to death, but I do not ever recall approving money for a study on
Real Property Tax reform. I do not recall and maybe I am wrong. There are many
jurisdictions out there that have figured it out. There are many jurisdictions, as
Mr. Kagawa pointed out on his little map there, that made that transition. Why
would we not want to follow or at least learn from them? That is not something for
this body to do; that is something for the Administration to do; the Finance
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Department. That is what I am challenging them to do. We can sit here, and I
guess this proposal by the Administration will cut seven hundred thousand dollars
($700,000) or so. Maybe we should have spent one hundred fifty thousand dollars
($150,000) of that to study this and study the models available for a county like ours
to see what kind of tax system is available. I apologize, again, for not hearing your
testimony. I am anxious to read it. Predictability— I think someone called it a
"safety net." I think on both sides of the aisle— for the taxpayer, it is great to know
what your tax liability will be. For us as Councilmembers, I would much rather
know how much we have to have available for the budget, then find ourselves in a
position where we are wondering, "Where are we going to find nine million dollars
($9,000,000)? Let us go and raise the tax." The charts you saw today— although,
maybe if you look at the general theme of it, the average increase may have not
been that much, but to someone that is on a fixed income or to someone that got hit
on the higher range of the thirteen thousand dollars ($13,000) or the twenty
thousand dollars ($20,000) or twenty-five thousand dollars ($25,000)— that is a big
deal. That is huge deal. It is the difference between whether they keep their home
or not. That is traumatic. At least the cap puts the predictability back knowing
that "at least I know I am not going to lose my home." Yes, it is going to put the
County in a predicament because now we have to figure out how we have to do it,
but after the hurricane, we figured it out. There was no bigger disaster on this
island than Hurricane Iniki, but we figured it out and we got it to work with less
tax revenue. We can do it again. That is all I am soliciting from the Administration
is let us come up with a balance. I remember joking with the Mayor months back
saying, "For every dollar you want to raise the tax, show me a dollar decrease.
Show me a dollar where you are going to cut. That way, at least the public will
have two dollars ($2) of value for the dollar that they gave up." I cannot give you
that today. That is what bothers me. That is what I am looking for. Until we can
sort everything out to go with these proposals that I saw, I am not convinced
today... maybe some of you are... that the results will be as stated. I cannot tell you
that. I am concerned that we redo this whole proposal all over again and we end up
in a similar situation or worse. I do not know that and I will not support that
because I do not like the fear of the unknown. Again, that is why I did not support
the cap because I figured that something like this would happen. So as we move
forward, I think Councilmember Kagawa and I will be introducing an amendment
on September 10th. I just heard today that the Chair is going to allow it on
September 10th. It will be to restore the cap retroactively and figure out a way that
the County is going to manage that. It is our kuleana and that is something that we
need to do. Thank you for your time. Mr. Chair, I appreciate you allowing me to
speak and I apologize for my absence. I look forward to September 10th. Thank
you.
Mr. Hooser: Thank you, Mr. Chair. I would like to thank
all of the people who came out today to testify. Thank you to the Director of
Finance, Steve Hunt, for an excellent job and for hanging out all day and talking to
people one-on-one. I think it is important that people get treated as individuals and
I am glad to see that some of that happened here today and I look forward to more
of that happening in the future because it is really an individual situation and
people's individual financial situations that matter. I agree a lot with what said
earlier. I think we really need to take a long view at this. Mr. Wells was here
earlier and said that he thought we needed an overhaul, and I agree with that. I
agree that it might take a year or more, but I do not agree that it is simply the
Administration's responsibility. I think it is the Council's responsibility to work
with the Administration. I think the Council is a policy setting body and we should
take responsibility today for the situation that is here and we should take the
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responsibility tomorrow for the situation we create. I would be advocating for the
Council to work hand-in-hand with the Administration to look at the future and
how we might better formulate our tax policy in the future. I am inclined to be open
to restoring the cap, but I want to hear the options around the table. Mr. Dyer
made some good recommendations and there are different ways to do this when you
take a long view. In the meantime, I think what the people who testified here today
and the people that are most concerned about this need to know what is going to
happen today, not what is going to happen next year or the year after that. What is
going to happen today to help you write the ship of your financial situation?
Councilmember Bynum and I met with the Finance Department and I think that is
where these proposals should work; the Council working hand-in-hand with the
Administration. We will be proposing some immediate relief. That relief I
described a little bit earlier would be: number one, extending the exemption
deadlines and making them retroactive; number two, would be to take the
Administration's proposal for the capping of those increases by making it much
more aggressive and providing much greater relief; and number 3, would be looking
at the use classification. That seems to be the biggest problem where ten percent
(10%) or twenty percent (20%) of the use is commercial in the entire property. I
believe we can fix that relatively easy. If it takes additional staff to implement it, so
be it, but I do not believe that it is fair and equitable by any stretch of the
imagination for a person to be taxed on their entire property for a use that is only
ten percent (10%) of that property. Those are the three (3) main provisions. At the
end of the day, I think that would require a complete overhaul. It is something that
this Council is responsible for and this Council should stay engage and continue
working on it with the Administration and wit the community. There is a lot of
individual situations; this life estate issue, that one (1) person gets affected
dramatically. The tax office needs to be able to structure it, so it is more
responsible to individual situations. That is a difficult line to tread because if you
get too much discretion, then there is abuse. But they need to be able to deal with
individual situations, so if there are changes, it does not take an act of the Council
to fix one (1) person's situation. I am committed to this and I believe that our
Council is committed. At the end of the day, we are going to provide some
immediate relief to those who are dramatically impacted in these last couple of
months; people that have had unexpected— like the people said: it is one thing to
have your taxes go up a little bit, but it is a whole other thing to have an expected
large increase, which are just uncalled for. This Council needs to be responsible for
fixing that and you have my commitment as an individual Councilmember to do
what I can to make that happen. I am confident that the majority of the Council
will feel the same way. Thank you.
Ms. Yukimura: Thank you, Chair. I am deeply appreciative
for this workshop, first of all. I want to thank Councilmember Kagawa and Chair
Furfaro for initiating it. It certainly does not get us to the relief that some of you
are looking for, but it is important that we all understand what is presently
available and we hear from you as to what your specific issues are. I appreciate the
workshop. I greatly appreciate Steve Hunt and his effort to explain to us and to
manage the Department and to manage this major change that has been in the
works. I really appreciate all of you who are here and those who have had to leave
for coming forth. I hope people understand that in this system that we are in the
process of moving toward, there were five thousand (5,000) plus taxpayers who had
lower taxes this year, and those were the ones that Councilmember Bynum showed
as very high taxes that they have been paying over many years now, while others of
comparable value were paying less. While that may not bother some of you, it does
bother me because I do not think that is a fair way to go and when you think about
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young families buying in, they are some of our children. The cap has two (2)
problems: one, discrepancy, and two, the lack of adequate resources. What
happened in California is that fees started getting raised and so my fellow
colleagues here... some of them... refused to raise fees, and without that, we would
not have a balanced budget this year. I hope people understand that our services,
whether it is Police, Fire, or Parks... the expansion of the Black Pot Beach Park,
which we recently did; traffic congestion; the rescue of the one hundred twenty-five
(125) people from Hanakapi`ai— those are all part of our commonwealth. Without
those workable systems, our property would not mean much to us or would be much
of worth. That is what makes our community goal and we have to pay into that in
order to get those services. The challenge for all of us is to find a source of money
that we can collectively bring together that keeps this community prosperous and
functioning, while at the same time, doing that assessment of moneys fairly. That
is a huge challenge. What we just did by removing the cap and trying to bring in all
of these other programs is an effort to address that. As we look at those individual
situations, you can see that the thought that Steve and others have given to it are
actually giving real solutions to people that will keep those long-term residents here
living here on Kaua`i. Actually, I feel that this is real tax reform. I want to say that
those who opposed removing the cap did not propose any other alternative system
at the time that the cap was removed. I also want to say that during the budget
previously, there were Councilmembers who are now speaking for the cap that said
we have to get rid of the cap. The two places where we did terribly was getting the
information out to people. I do apologize and we have to find better ways to be in
communication. Again, I cringe at some of the stories about how people were
treated at the counter or in phone calls in terms of these problems that they
brought forth that were caused by us, and how we responded to them was not
proper. I think we have to look carefully at the interim relief that is being proposed
and look at some of the more long-term solutions, whether it is raising the
Affordable Long-Term Rental limits in high priced areas or allowing a deferral of
some portion of real property taxes where it is high to time of sale. We have to look
at some of these things, but I believe the system that has been brought forth by the
Administration is actually real tax reform and I would like all of us to apply it to
the situations and find out how they actually work or do not work, and whether
tweaking is needed or whether we really do not have a good system in place.
Chair Furfaro: I want to give some general information to
the public here. My plan is to adjourn this period. I think we got a pretty good
sample of some of the issues that are out there. Since I control the agenda, my plan
is to allow budget bills to be introduced on September 10th. I want to point out that
we have some members that are traveling, but I want to point out that the first
reading on the bill will only generate a public hearing. You should mark your
calendars for the introduction of the bills on the 10th and the public hearing will be
on the 17th. Did I get the right date? Okay, it will be on the 24th. I am going to
reiterate that we can plan for the public hearings to specify for 1:30 p.m. for those
times. I want to recognize all of the Councilmembers here today that interacted
with you. Thank you for being here. I would, as we approach this, to find
ourselves— I know I used to say it pretty good in the fourth grade, but let us not be
pointing fingers at one another. When we get to the bills, the bottom line is let us
not be pointing out those shortfalls. We have to do Kaua`i first. We have to focus on
Kaua`i and its needs. Please take my strong recommendation that we work
together going forward on doing the right thing, for the right reason, and for our
community. It is difficult because everything is not in our control. We have one (1)
vote on bargaining units in the State. We have no control over the TAT, which used
to be seventeen percent (17%) of our income and it was cut in half. We do not have
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a say unless we get legislative action on the GET. We need to be very focused for
the curing of things that turn out right for our community. I want to thank the
members and thank those in the audience for being here. It sounds like even
though I voted silent on the removal of the cap because it was my introduction, it
might be something that comes back. Until then, please read through the material
that we left out here. It may answer a lot of your questions. Last, Steve, I want to
make sure that the Real Property Tax Assessment office is still open to setting up
appointments for the public. Can I just have a nod of the head? For people who
have individual issues, the tax office has given that extension, and they can be
reached at 241-4224. Mahalo to everybody today.
Mr. Hooser moved to adjourn the August 28, 2014 Special Committee of the
Whole Real Property Tax Workshop, seconded by Mr. Kagawa, and carried by
a vote of 6:0:1 (Mr. Chock was excused).
Chair Furfaro: Thank you. We are now adjourned.
ADJOURNMENT:
There being no further business, the meeting was adjourned at 2:43 p.m.
Respectfully submitted,
S OTT K. SATO
Council Services Review Officer
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