Slashing tax rates best way to offset higher property assessments
from Grassroot Institute of Hawaii, January 17, 2023
It looks like property taxes in Hawaii are going to go up this year, and if that’s getting you rattled, you’re not alone.
On Johnny Miro’s radio show this past Sunday on the H. Hawaii Media radio network, Grassroot Institute of Hawaii Policy Director Malia Hill noted that property taxes are based on property assessments, and on Oahu, the latter went up by an average of 12.4% this year.
On the North Shore, Oahu property assessments increased by an average of 20.4%, while Residential A properties went up 39.9%.
Hill clarified that, “When we say that property taxes are going up this year, we’re not saying that they increased tax rates. We’re saying that how much people are going to be billed is going to go up because those property values have gone up a lot.”
She said those values have increased partly because of inflation, but also because of the state’s acute lack of housing, which is due largely to state and county policies that restrict homebuilding.
From one perspective, she said, the counties “contribute to and also benefit from this housing crisis in the terms of the additional revenues that they get from the property taxes. I’m not saying that this is a conspiracy or intentional, but it is … frustrating.”
Hill acknowledged that Hawaii property taxes are low compared to other states. But, she said, “that is sort of mitigated by the fact that Hawaii has these really high property values and they push up the actual bill for property taxes. So … don’t let anyone tell you that you pay low property taxes. You do not. … You’re pretty much in the average for the whole country.”
Asked by Miro what Hawaii’s counties could do to counter the possible higher taxes, Hill recommended foremost an “across-the-board cut in the property tax rate, just to offset these valuation increases.”
Other possible actions include increasing the homeowner exemption, which is currently $100,000 for Honolulu; amending or getting rid of altogether the Residential A classification, which applies to all non owner-occupied residential properties; and capping how much counties can increase property tax revenues in a given year.
1-8-23 Johnny Miro hosts Malia Hill on the H. Hawaii Media radio network
Johnny Miro: Good Sunday morning to you. This is Johnny Miro. Time once again for our H. Hawaii Media public access programming here on our six Oahu radio stations: 101.1 FM, 101.5 FM, 107.5 FM, 103.9 FM, 97.1 FM and 96.7 FM.
Once again, we are joined by a member of Grassroot Institute of Hawaii. And this would be the policy director, Malia Hill. Good morning to you, Malia.
Malia Hill: Good morning.
Miro: Well, we have a topic that’s gotten a lot of folks rattled out there. They’re looking at what they possibly will owe for property taxes and they’re getting a little worried. Everything is much more expensive these days. [And now there is] the possibility of the property tax Honolulu going up.
Now, Keliʻi Akina, president of the Grassroot Institute of Hawaii, recently wrote a column about the property tax situation on Oahu and statewide also. He said they went up for 2023, which means property taxes might be going up, and that has a lot of people upset, as I just mentioned. Could you give the listeners a little more background on that?
Hill: Oh, absolutely. You know, we talked about property taxes. And you know there’s really two sorts of halves to that. There’s the tax rate, which you’ll hear is relatively low in Hawaii, compared to other states — which is true — but that’s also only half of it, because we also have extremely high property values. And that really affects how much you pay.
So you take those two — low tax rate, really high tax property value — and what you end up is Hawaii residents really put more in the middle.
So, don’t be fooled by people saying, “Property taxes are really low, we have the lowest tax rate.”
Yeah, but you still pay a lot in taxes because of the high property values.
And that kind of gets to the heart of the problem, because when we say that their property taxes are going up this year, we’re not saying that they increased tax rates — they haven’t — but we’re saying that how much people are going to be billed, how much they will actually have to pay, is going to go up because those property values have gone up a lot.
Now, that’s not unusual. This is Hawaii. Property is expensive, but the property tax assessments — the amount that the county determines your property’s worth — have been really, really high this year.
For example, on Oahu, assessments went up by an average of 12.4% compared to the last year, and that’s just on average. East Honolulu only went up by about 10.1%, but North Shore, they went up by an average of 20.4% and Residential A properties, which is a whole other category of problem, that went up 39.9%.
So even though no one hiked your tax rate, people are still going to see bigger tax bills. And that’s just something a lot of people can’t afford.
I’m not just talking about — you know, a lot of the focus, you know, we can’t afford, we talk about people on fixed incomes, people who are really struggling. And yes, obviously, it’s going to be really, really difficult for them, but this is enough that it really hits just across the board. You know, ordinary families just trying to make ends meet and deal with inflation. They’re going to be hit hard by this, too.
Miro: Alright, Malia. We’re not just talking about property owners. How will rising property taxes affect renters?
Hill: You know, that’s a good point too, because it’s, you know, we have this tendency to just think that this is about, you know, the actual people who own property. But no, renters aren’t immune from these hikes and costs.
You know, if you see a lot of the conversation about this, you’ll see that some of the people who are calling out for property tax relief are actually local landlords who are basically trying to tell the county that these huge increases in tax is going to give them no choice but to hike rents.
They just can’t absorb that higher cost, and they’re going to have to pass some of that onto renters. So, you know, it’s not just that people are going to see higher tax bills; renters are probably going to see a hike in their rent.
Miro: OK. For the layperson, can you explain a little bit about how the city decides how much each property is worth?
Hill: Yes. To be honest, I find this a little bit confusing myself. So, to put it simply, the way that these assessments work is that the county looks at recent sales prices of similar housing units. So, since housing prices have been going up, because of inflation and materials costs and interest rates and buyers’ demand and all those factors, your assessment will increase based on the way that sales prices of homes in your area are going up.
Every county reassesses their property annually, so the assessments are supposed to sort of keep track and stay with the current market. But, you know, if you’ve been following Hawaii and are aware of the housing crisis — and I honestly don’t know anyone who isn’t — it’s a little bit frustrating, because these property values, they go up partially because of the housing crisis. There’s just not enough housing to meet demand.
And, you know, the counties, they could embrace policies and zoning policies that would encourage housing growth and, they haven’t really done that, you know, not out of malice. There’s a bunch of factors to that. But there haven’t been any really heavy, serious efforts to encourage a lot of housing growth.
So, from a certain point of view, the counties both contribute to and also benefit from this housing crisis in the terms of the additional revenues that they get from the property taxes.
I’m not saying that this is, you know, a conspiracy or intentional or anything like that, but it is a little frustrating to watch.
Miro: The policy director of Grassroot Institute of Hawaii; they can be found at grassrootinstitute.org. Its policy director, Malia Hill.
Does Honolulu offer any protection for homeowners against a big increase in property taxes?
Hill: There is some protection, some small protection. I wouldn’t call it very serious insulation. But Honolulu homeowners do have a lower tax rate — 0.35% — and they can apply for exemptions that lower the overall bill.
For example, there’s the homeowner’s exemption. In Honolulu, that’s a hundred thousand dollars. And so that means if you’re a homeowner, you apply for this exemption and if you’re approved, you can deduct a hundred thousand dollars from the assessed value of your property. And that factors into how they calculate how much you have to pay the tax.
So if you had a $1 million home and you get the exemption, you really only get taxed as if it’s worth $900,000.
There’s also additional protections for kupuna. Their exemption is larger than a hundred thousand dollars, depending on age, and there are other exemptions. These can vary by county. And so it’s really kind of worth looking at this list to see if you qualify for a homeowner’s exemption or even other exemptions as well.
Miro: Now, this property tax, is this exclusive to Hawaii? Does the Hawaii property tax work differently than other states?
Hill: Yes. The Hawaii property tax is a little bit different. For one thing, it’s exclusive to the counties. So in Hawaii, only the counties can levy property taxes. In fact, it’s actually in the Constitution that state government is prohibited from creating a state property tax or interfering with the county property taxes.
In addition, unlike the rest of the nation, Hawaii is the only state that pays for public schools through state taxes. Most of the rest of the nation — pretty much all everyone else — uses their property taxes to fund the schools.
This is partially why the property tax rate is technically low, because it funds county services, but it’s not required to pay for the entire school system.
But all of that is sort of mitigated by the fact that Hawaii has these really high property values and they push up the actual bill for property taxes.
So, you know, I guess it’s like my little drum that I like to beat: Don’t let anyone tell you that you pay low property taxes. You do not. You’re pretty much in the average for the whole country.
Miro: Malia Hill from the Grassroot Institute of Hawaii, grassrootinstitute.org. Got a lot of big thinkers over there.
What are some of the reforms Grassroot is suggesting for Hawaii County Councils to address the likely increase in property taxes? What are you folks thinking about?
Hill: Well, we have a couple of different suggestions and, you know, being the kind of organization we are, some of them are a little more long-term, and you could even say maybe more optimistic [laughs], you know, more or less likely to be embraced by the different [county] councils.
Given the high property values in Hawaii, we really think it’s worth looking at just an across-the-board cut in the property tax rate, just to offset these valuation increases.
Admittedly, there doesn’t seem to be a lot of support for just the idea of slashing the tax rates in general, especially at a Honolulu City Council. But objectively, that’s the most certain definitive way to decrease taxes, especially if we think that these property values are just going to keep climbing.
Another thing that might be more immediately embraced — and we’ve certainly seen some conversation about it — is increasing the homeowner exemption. As I mentioned before, that exemption is $100,000 for Honolulu, but they could raise it, and raise it enough to offset these big assessments that we’ve seen this year.
Another thing they might want to do is amend that Residential A classification. It’s not very old, it’s only been in place for a few years now, and it applies to all non owner-occupied residential properties.
I think it would be better just to get rid of it altogether, because it’s the one that’s, those property taxes are going up substantially based on these high valuations. But at a minimum they should raise the threshold for it. The Tier 2 threshold for this Residential A classification is $1 million, and that is just much too close to what’s really just the median Hawaii home price.
You know, you can’t sell people anymore on the idea that you’re getting just the rich or whatever with a $1 million home when we all know, no, a $1 million home is in the average range in Honolulu.
Another thing that could happen is that counties could put a cap on how much the property tax revenue can increase in any given year, and this is putting the cap on how much the counties can take in.
So, for example, on Oahu, the average annual revenue increase over the past decade was 6.05%. So if we put a 5% cap on how much that could grow, then Oahu would just be, I mean, Honolulu would just be forbidden to collect more than that, and that the property owners would really see the results from that as well.
Miro: Well, you read about the frustration of property owners in the news, you read letters to the editor, you folks in other organizations putting forth your ideas. Now, are City Council members listening? What’s the chance that they give some property tax relief this year?
Hill: Well, you know, I think they are listening. In fairness, the Council had a hearing on property tax assessments just last week.
They’re still finalizing the bullet budget, so we haven’t seen any real concrete, you know, here is the exact terms, kind of proposals yet, but there have been some Council members who’ve talked about increasing the homeowner’s deduction.
Some have suggested expanding the low-income tax credit. This is a credit where homeowners are exempted from taxes that exceed 3% of their income if they meet certain qualifications, like receiving a homeowner’s exemption, how much the tax owed;it has to be more than 3% of their income, they cannot have a combined income of more than $60,000, they can only have one home; and they have to pay at least $300 in tax.
If that was a little overwhelming, essentially what it means is if you have a couple making $60,000 a year, and they have a house that’s valued at $800,000 after the homeowner’s exemption is applied, they would owe $2,800 in tax. But because 3% of their income is $1,800, they would be protected from having to pay that extra $1,000. That’s over 3% of their income.
So some people are saying, “Well, we should broaden that, we should maybe expand that a little bit.”
Once the officials said they might look at a $100 tax rebate, for what that’s worth [laughs]. There is this discussion, there’s this idea of reform in the air, but we just don’t know which reform it will take and, you know, how big it will be.
Miro: OK, I understand. Although we’re talking about Oahu exclusively right now, but what do property taxes look like in the neighbor islands? Are they also going up?
Hill: Well, every county has a slightly different timeline for these assessments. So Maui and Hawaii, their assessments won’t be sent out to property owners until March. So we won’t really know what the situation is going to be like there until a few months from now.
Kauai sent out their assessments in December. We haven’t seen a lot of news coverage of the property tax there like we have seen in Honolulu, but we have heard from people in Kauai that the assessments are up.
And every county has different exemptions and protections for lower-income homeowners. For example, both Kauai and Hawaii counties, they both saw their property tax rental jump last year, and it’s reasonable to expect similar increases in property taxes all the way through the state. But Kauai, for example, has some limits on how that works.
Miro: OK. Now, is there anything you think we here in Honolulu should borrow from one of the other counties when it comes to this?
Hill: Speaking of Kauai, Kauai has a low-income tax credit that’s calculated by area median income, so it automatically adjusts for inflation, whereas Honolulu is set at that $60,000 that we’ve mentioned, and they can’t change that unless the Council changes it.
So something like Kauai, it’s called a circuit breaker. It’s basically a tax credit or deduction that relieves that burden on people for whom the tax would just be a big chunk of their income. That would be helpful, adopting something like Kauai’s standard there.
Miro: Alright, Malia. Is there anything else you would like to tell people who are worried about the rising property taxes?
Hill: Definitely. For homeowners out there, if you’re listening to this, if you are just, you know, concerned and worried, the thing I can tell you for absolute certain is apply for a homeowner’s exemption, because if you don’t, you will have a higher tax bill.
And if your home is worth more than a million dollars, it will be even higher. You know, this homeowner’s exemption I keep mentioning, it’s not actually automatic. You have to apply for it every year, which means that, you know, some people just don’t. They don’t know about it or maybe they just kind of miss it somehow.
And that makes a big difference in what you end up paying in the end, which, I guess you know, one change that we could see that would be good would be some way to make this exemption automatic. That would be a good reform.
I believe Boston has an automatic exemption system where they partner with state tax authorities to use income tax returns, [to] certify residency, so that it just, sort of, all happens together and people don’t have to reapply every year to get this exemption. And, you know, this, in general, it’s a really good reason to get involved or stay involved with politics at all levels, from the county level all the way up.
Because right now the County Councils are trying to figure out what they want to do about the property tax issue and they’re going to have people in their ears telling them that, you know, don’t do too much, we need that revenue to expand local services or pay higher salaries, and so on and so on. And so, if you’re someone who believes, no, we need some kind of reform, we need protections against these big tax increases, you need to get out there and make yourself heard.
You know, we tend to get involved with these big issues at the national and state level when it comes to political stuff, but this is a reminder that you can advocate for change at every level and it can make a difference, sometimes right there in your wallet.
Miro: Can I ask you about the housing exemption, and applying for that? How quick is that process? Is that as slow as pretty much everything else seems to be? What do you know about that?
Hill: [laughs] I can’t speak from personal experience here.
Hill: So I wish I could. I would just say that it’s important to stay on top of that. If you’re asking, is it going to be like applying for a building permit? No.
Miro: [laughs] OK.
Hill: No, it’s not going to be like that. But, you know, there is reason to just, sort of, be alert, do it right away, stay on top of it, and, you know, really do hope and advocate for an increase in this exemption, if it’s something you’re concerned about.
Miro: As policy director, Malia Hill, where can they find your work and everybody else at Grassroot Institute of Hawaii?
Hill: Well, you can find us at grassrootinstitute.org or you can just google Grassroot Institute of Hawaii and you can find a lot more information about this there. And a lot of good work being done by my fellow Grassroot staffers and a lot of more information and help.
Miro: Well, we’ve been talking about the possible Honolulu property tax increases with Malia Hill, policy director, Grassroot Institute of Hawaii. Thanks so much. Have yourself a fantastic Sunday. We’ll talk to you soon.
Hill: Thank you.