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Time to Reform Property Taxes: High Home Values Prompt Calls for Relief  
By Grassroot Institute @ 8:16 PM :: 1505 Views :: Taxes, Cost of Living

Iwasa urges major review of Honolulu property taxes

By Grassroot Institute of Hawaii, January 3, 2023

The City and County of Honolulu recently increased its valuations of most properties on Oahu, which most likely will result in higher property taxes. So now what? 

Natalie Iwasa told Keliʻi Akina on the Jan. 3, 2023, episode of “Hawaii Together” that the City Council will set the rates in June, and “given all the frustration and concern out there, it’s possible that they would maybe reduce the residential rates or give some kind of credit or even increase the … tax credit you can get for low-income people.”

Iwasa spoke with Akina in her capacity as a private citizen, though she also is a former member of the Oahu Real Property Tax Advisory Commission and leader of that commission’s first valuations committee in 2019. In addition, she is a board director of the Honolulu Authority for Rapid Transit.

She explained to Akina how Honolulu’s property tax system works, including how property owners can appeal their assessments. Akina, the program host as well as president and CEO of the Grassroot Institute of Hawaii, asked Iwasa if she thought the current property assessment system is fair.

Iwasa, who also is a certified public accountant and fraud examiner, didn’t shy from answering.

“I don’t think so,” Iwasa said. “If you look at the exemptions and the deductions that are available and who is getting them — they call it the tax benefit — basically, people who are paying the taxes are subsidizing these other groups to get lower taxes.”

She continued: “You look at labor unions, business leagues, credit unions, the for-profit childcare companies, you know, others, the historic homes, all those exemptions add up to millions and millions of dollars every year. … And unfortunately, the City Council, for one reason or another — probably a lot of lobbying going on — they haven’t changed that an awful lot.

“And so, you know, I think we need to really look at that, and the Real Property Tax Advisory Commission has recommended that year after year.”

Iwasa noted the effect higher property taxes will have on renters, especially because of the county’s Residential A property classification.

“Once a [landlord’s] property hits $1 million dollars, it goes into this Residential A class,” she explained. “The current rates for this year are [$4.50 for the first $1,000 or $4,500 for the first million, and $10.50 per $1,000 for anything above that.] So … what the landlord is going to pay next year if the rates stay the same, … will be … 90% more. … We’re talking several thousand dollars. So, you know, … what that likely means is that [landlords are] going to be increasing their rent. And then that puts downward pressure on the market, and we have more people who can’t afford to stay in their homes.”

 

TRANSCRIPT

1-3-23 Natalie Iwasa interviewed by Keli‘i Akina on “Hawaii Together”

Keliʻi Akina: Aloha and Happy New Year, and welcome to “Hawaii Together” on the ThinkTech Hawaii broadcast network. I’m your host, Keliʻi Akina, president of the Grassroot Institute of Hawaii, and this is the first show of the year. 

Quite fittingly, I’ve got one of my favorite people on board. She’s a true citizens’ advocate. Maybe you’ve heard her as she’s spoken out about the rail. In fact, she is an official member of the HART [Honolulu Authority for Rapid Transportation] board [of directors]. 

She’s also a certified fraud examiner and a certified public accountant and has many accolades to her name. 

But today she’s here as a private citizen to share some views about something that you may have noticed happened as we ended the year.

If you live in Honolulu County, you realized that your tax bill — property tax bill, in particular — went up dramatically. Perhaps it went up 12.4% or so. We’re going to talk a little bit about that, and many people were surprised. 

Now, oftentimes I travel on the mainland and I’m told Hawaii is a great place to live because we have some of the lowest property tax rates in the country. And while that’s true, we have some of the highest prices for housing, and so we actually pay a lot more property tax than you’d think. But we know that because we feel it in our wallets. 

Today I want to welcome on board Natalie Iwasa in just a few moments.

It is my distinct privilege and honor to welcome to our program today, my good friend, Natalie Iwasa. Natalie, welcome, and happy New Year.

Natalie Iwasa: Thank you, Keliʻi. Same to you.

Akina: So glad to have you on board. You’ve always answered tough questions for us in simple ways, and so you bring a lot of knowledge. 

Tell us a little bit about how you got involved in the issues of property tax. I know you’re a CPA, but you’ve been involved as a member of the Oahu Real Property Tax [Advisory] Commission and in other ways as well. 

Where did you get your interest and your expertise in this area?

Iwasa: Well, it started out gradual. Back in 2004, it was the first time I testified at City Council. And each time I heard about something that was happening down there, I attended more meetings, I read more documents and learned more until it came to the point where Mufi Hannemann, if you recall, was going to introduce this bill about these awful investors, and I got very involved that way. 

And I said, “You know, it’s really time that we take a greater look at what we’re doing with our tax system.” And so I was appointed to the first Oahu Real Property Tax Advisory Commission. 

And then they’ve had several in between up through 2022. And in 2020 — no, 2019, sorry — I was appointed again. And that time, they expanded it to valuations. So I was head of the valuations committee at that time, and [I’ve] just become very interested in this because as a CPA, you know, money, taxes are all very important and interesting to me.

Akina: Sure. And that’s why you have friends like me who call you up when we get big surprises. Maybe it shouldn’t have been a surprise — I should have seen it coming. Maybe you did. 

But our Christmas present from the City and County of Honolulu, for those of us who live here, was a huge increase in the valuation of our home properties. And what that means is we can expect higher taxes. 

What happened? Where did that come from? How did that take place?

Iwasa: Well, so, if you’ll understand how the city goes about valuing properties, it really shouldn’t have been a surprise because there are two methods, basically, that they use to value properties, and the most prevalent is the market method which is driven by sales. 

So, you know, anybody who’s watched the news about sales of homes, condos the last couple of years has seen the median price increase tremendously. And, you know, when you have properties selling in your neighborhoods for over asking price, then it’s almost a given that we’re going to see higher assessed values on our real property taxes.

Akina: But is there a relationship between the assessments and the property values? Sometimes I get the feeling that property assessments may be increasing a bit faster than property values. What is your thought on this?

Iwasa: Yeah, you know, so that’s a little bit tricky. I think for anybody who’s in that situation, they should actually look at the sales that the city is using for their valuation for the particular property, because I think it tends to be the other way. 

I think it tends to be general — speaking generally now, OK? — when the market goes down, the city lags. Whereas, the other way, I’m not so sure that there’s much of a lag. Because there’s really, if you think about it, a motivation for the city to increase those values. 

Because, generally speaking, the rates don’t change very much. So if your values increase, that means more money for the city. 

So it’s kind of, you know, trying to understand what is happening and then doing a little bit of research for your particular property to see, “Well, are they in line?” or “Are they way too high?” 

And this year, actually, is probably a very good year to take a look at, you know, what you think it is. Or if you’ve had a recent appraisal, how does that come in line with what they’ve assessed? And you can still file an appeal up to January 15th if it’s 10% or more than, you know, what you think it should have been.

Akina: So if you’ve gotten a private assessment of your property, a private valuation — maybe you were getting ready to sell it or it was recently assessed — you can negotiate with the city? Is that what you’re suggesting? Or go through an appeals process if you don’t like what the city is assessing your value at?

Iwasa: Right. So, first of all, I highly recommend you call the Real Property Assessment Division because you can get information just that way and understand a little more. They should send you the sales comp sheet, and you can take a look at it. 

Then, if you determine, “Oh yeah, they’re way off,” that’s when you do the appeal, and it goes to one of — I think we have three appeals boards or at least two appeals boards.

So it goes to the board — assuming it’s not a constitutional issue, because there are several ways that you can appeal — It goes to one of these volunteer boards. 

They are, you know, regular citizens just like you and I, and they take a look at what your case is, what the city’s case is, and then they decide, “Yeah, the city’s way off” or “Yeah, you know what, the city’s pretty much on on that.” 

And so, sometimes there’s — I’ve noticed a two-year backlog on this, so you don’t get or might not get a response right away, but there is that outlet for you. And I’ve never gone through it but, I understand it works. Usually. 

Akina: Well, I’d be very interested in knowing how fair it is. We have a lot of processes in town that don’t exactly work out the way they’re supposed to, and you mentioned a two-year backlog — that could be pretty frustrating to some people. 

Let me ask you a question about the magnitude of the changes: How much have property values gone up on average or in general, and how much does that mean taxes are going up?

Iwasa: I don’t remember the average that was publicized. It was around 15%, if I remember correctly. But, you know, it’s important for people to remember that this is just the first part of the process. The City Council actually has to approve — they usually do a resolution — they set the rates in June of next year. So if they keep the rates the same, then you can calculate what you’re going to be paying. 

But it’s possible, given all the frustration and concern out there, it’s possible that they would maybe reduce the residential rates or give some kind of credit or even increase the — there’s a tax credit you can get for low-income people. 

So, you know, things can change. It’s not like it’s a given that, “Oh, I’m going to be paying X amount right now because my value went up to this.” So there’s still room for people to provide input and make changes that way.

Akina: Now, by year-end, we hadn’t seen changes announced for Hawaii island or Maui County. What do you think is in the offing there?

Iwasa: You know, I’m not as familiar with the outer islands, but I would assume that it’s the same type of thing that, you know, again, those counties, they have to bring money in to pay for the government services, the programs that each county has. 

And there’s always the motivation to bring in more money, so I would expect the same type of thing where evaluations will be going up.

Akina: Now, tell me a little bit about the property tax assessment system, just a little bit about the nuts and bolts. I own a home, live in that home — how does a county determine how much I pay in taxes?

Iwasa: So, it’s not a very easy answer because the city has a couple of different ways that they value properties. 

One is the market data, and one is cost method. 

Market data is the most prevalent. They take, basically, five sales in the area and use that to determine an average value. They take out the top value and the bottom value and arrive at an average, which is what they use for your particular property. 

And it’s important to understand that it’s a mass-appraisal approach rather than an individual appraisal. So, you know, when you have — you’re going to sell your home, then it’s individual versus this mass appraisal, which is based on an area of similar properties.

Akina: So, what do higher assessments mean for individual homeowner taxpayers?

Iwasa: So, higher assessments usually mean that the taxes will go up. 

In the case of Oahu, the City Council will be setting the rates in June. So it’s not necessarily the case that your taxes will go up, although it’s highly likely.

Akina: Now, is this a problem that only homeowners need to worry about? What about renters? We have such a large rental population here in the islands. If you’re renting an apartment or a condo, how are you affected by …

Iwasa: Yeah, that’s an excellent question. Because I think that people who make these decisions forget that 40% of our residents — or more — rent. We don’t own homes. I’m in that classification. 

And so we have this class called Residential A that once a property hits $1 million dollars, it goes into this Residential A class. And then the current rates for this year are [$4.50 for the first $1,000 or $4,500 for the first million, and $10.50 per $1,000 for anything above that].

So I took a look at the place where I live, and if I owned it, you know, my — if I owned it versus what the landlord is going to pay next year if the rates stay the same, he will be paying 90% more than I would pay if I owned this home. 90%. We’re talking several thousand dollars. 

And so, you know, for renters then, and landlords, what that likely means is that they’re going to be increasing their rent. And then that puts downward pressure on the market, and we have more people who can’t afford to stay in their homes because the landlord’s increasing their rent. 

And we look at the real property taxes — there are some other costs involved as well — but when you have year upon year of 20[%], 30% increases in real property taxes, that’s a big problem.

Akina: So there’s a real trickle-down impact of this, and so everybody is in some sense in the same boat. 

Now, do you think that the current assessment system is fair or as fair as it should be? Does it sometimes raise taxes unfairly on some people at the expense of others?

Iwasa: Well, that’s another great question, Keliʻi, because I don’t think it’s fair. You know, if you look at the exemptions and the deductions that are available and who is getting them and the amount that — they call it the tax benefit — basically, people who are paying the taxes are subsidizing these other groups to get lower taxes. 

So you look at labor unions, business leagues, credit unions, the for-profit childcare companies, you know, others, the historic homes, all those exemptions add up to millions and millions of dollars every year. 

And so, you know, I think we need to really look at that, and the Real Property Tax Advisory Commission has recommended that year after year. 

And unfortunately, the City Council, for one reason or another — probably a lot of lobbying going on — they haven’t changed that an awful lot.

They increased the real property taxes, the minimum, for credit unions from $300 to $1,000. But still, their exemption is worth $3,000 this fiscal year. I mean $3 million, sorry. $3 million. And so, you know, homeowners, others are paying for that subsidy, and they [the credit unions] compete directly with banks. 

So is it fair, the current setup? I don’t think so.

Akina: You know, Natalie, that I’m a fan of audits when they can help government agencies serve the people better. I think you are, too. Do you think that it may be time for a Real Property Division audit?

Iwasa: You know, we have had a couple. We had one in 2013, and then we had a follow-up in 2019. So, you know, it’s probably about time that we take a look at that again and where the city is at, because in 2013, the auditor had made a whole bunch of recommendations. And in 2019, the city had said, “Well, we’ve implemented these” — I forget how many of them — “and we are in process of changing this, and then these couple we haven’t done.” There were like three that they didn’t do, three or four. 

And so, you know, when you have people questioning the values and, you know, “My next-door neighbor has a property similar to mine, and why isn’t the value the same?” Or “Why did it go up 40%?” You know, I think it’s a good time to take a look at that again.

Akina: You know, in the counties, is there any sort of protection against high property taxes? For example, when taxes rise by, say, 10%, do people on fixed incomes like retirees or disabled individuals have any recourse or get any kind of relief?

Iwasa: Yeah, so, there’s a real property tax low-income credit for anybody who’s making 65 — I believe the limit right now is $65,000. So you take that, whatever the income is, and I think the credit is 3%. It’s either 3% or 4%. You take that times the income, and that’s the maximum tax that is paid then on that particular property.

But you have to live in the home. So, in other words, you can’t be a landlord. And you have to have a homeowner’s exemption. So, you know, these are two key pieces. And sometimes when a spouse dies, for example, or there’s other kind of changes, people forget that they need to do that homeowner’s exemption application. 

And so, there is relief. It’s just a matter of making sure you qualify and then applying for it.

Akina: Natalie, what can we suggest to our county lawmakers with respect to property tax? 

Should they look at lowering property taxes to help people keep more money in their pockets — especially now with all the inflation and the high cost of living we’re going through? 

Or perhaps should they be looking at exemptions, increasing them, both the kind and the number? As well, perhaps, maybe even more tax credits? 

I’ll let you respond to that. I’m just doing a little brainstorming here.

Iwasa: Thank you. Yeah, so, actually, I think the entire system should be reviewed, because it really hasn’t — a holistic review — hasn’t been done, at least to my knowledge. 

And so, with respect to lowering the tax rates, I think the first step that should be taken is looking at those exemptions. Because if you take away some of those exemptions, which I think we shouldn’t have. 

I mean, labor unions or credit unions or some of these other entities that lobby — why should they be paying only $300 a month? 

If, when you go down the King Street or Beretania [Street] and you see the new building that they put up, and it’s really beautiful, and that’s being subsidized by these low tax rates.

So, first, that’s what I would recommend. And then, also, looking at the credit again, because it hasn’t changed in quite some time. 

And then, you know, there are other people who have suggested maybe having some stopgap measure for people who’ve owned their homes for [a] long time — 15, 20 years, whatever. Potentially looking at that. 

Looking at the appeals process. You know, you have to file, you have to pay a $50 fee. Is there a way to make it more efficient, faster? 

Looking at, you know, the entire system that we have and putting the whole thing together to make sure that it’s working the best for the people who live here.

Akina: I like the fact that you’re talking about putting the whole system together because there are many, many pieces. 

Here, constitutionally, our counties have the sole power over the property tax, which a lot of people don’t really think about. 

But do you think there’s any solution that we can arrive at appealing to that, the constitutional power of the counties? Or are there any best practices you may have seen in other counties across the nation?

Iwasa: Well, again, that’s another good question, and I think what we need to look out for is the state trying to take back some of that or tax on their own power, because if you recall, there have already been at least a couple of years where the state said, “Oh, you know, we want to have this ability to tax our real properties, kind of like a surcharge, and we’re going to use that for education.” 

Of course, they make it sound like it’s going to go to some worthy cause. And I think that’s where we need to be careful that we don’t have another tax put on us by the state, because we’ve seen that has come out already. So that’s kind of where I would put the guidance. 

And then making sure that anybody who’s interested testifies at City Council when that bill or resolution comes out for the tax rates for next year.

Akina: And when do you think that will be?

Iwasa: So the budget bills and information comes out the beginning of March. The budget committee will have, they usually have about four days of budget discussions. And so that’s the period where we get all of the background: why do they need the money, what programs are they spending it on, how much do they anticipate coming in from each type of revenue? 

Real property taxes are the biggest chunk, but we also have other fees that bring in money too. 

So that’s a broad-base perspective of what’s happening with city funding. 

And then as the bill and resolution — for the real property taxes, the City Council changes it to a resolution so it can’t be vetoed — so they’ll have an introduction in March, and then they’ll have in — up to June — two committee meetings and three full council meetings on that. 

So there are five opportunities, or six opportunities, to provide testimony.

Akina: Well, that’s just around the corner, coming up in March. And so it’s [a] good word to the wise to advise people to be ready to testify if they want to make a difference. 

Natalie, is there anything else that you’d like to add on this topic that you think our viewers should keep in mind?

Iwasa: Well, I guess just a couple of other things. 

You know, some properties — the city uses the “highest and best value,” or “highest and best use.” So, if you have a home in a commercial zone, you’re going to be assessed at that higher commercial rate unless you have a — they call it a dedication in that case. 

So some people might move into a new home and think that they’re going to be in the residential rate automatically. And then they get their bill and they’re con— you know, they’re surprised that it’s, “Oh, wait a minute, it’s the, whatever the commercial rate is; it’s much higher than residential or sometimes industrial, which is also very high.” So that would be one thing to look out for.

And then, also, take a look at the city’s real property tax advisory — sorry, Real Property Tax Division’s — website because they do put a lot of information on there. 

In fact, you can pull up sales, if you put your address in, you can pull up a sales given any radius. So if you put in a hundred miles, you should be able to pull up like a whole database of the properties on Oahu. 

And you can take a look at, which I hope I have time to do before the budgets come out, because I want to see how many of these properties in Residential A increased and what their classifications are, or were before, and that kind of thing. 

So, there’s a lot of information. I encourage people to take a look at that.

Akina: Well, thank you. If any of my viewers want to get ahold of you, Natalie, how would they be able to do that?

Iwasa: Well, probably phone is the easiest. (808) 395-3233. That’s a landline, but I have messages on there. Email works, too.

Akina: Great. Would you say that one more time, Natalie?

Iwasa: Sure. 808-395-3233.

Akina: Great. Well, thank you so much for being with us today. You’re always full of such great information, and I appreciate the way that you’re out there advocating for citizens. 

Have a happy new year, Natalie, thank you for being with us today.

Iwasa: You’re welcome, Keliʻi.

Akina: And to everyone else, I’m Keliʻi Akina, president of the Grassroot Institute, and this is Think Tech Hawaii’s “Hawaii Together.” Until next time, aloha.

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