Property tax simplicity gains traction on Kauai
from Grassroot Institute of Hawaii, April 26, 2023
Making Hawaii’s county property tax systems more simple is the best way Hawaii’s counties can provide tax relief.
That was the message that Jonathan Helton, policy researcher with the Grassroot Institute of Hawaii, brought earlier this month to the “Kaua’i Soapbox” radio program on KKCR FM — and Kauai County Chair Mel Rapozo, also a guest on the show, agreed.
“I’m really looking forward to tax reform going forward,” Rapozo said, “so we can have a much more simple and effective tax structure and tax policy that will benefit all the taxpayers in a fair way and in a way that doesn’t make it so complicated that people lose out, and then they get hit with [these] unanticipated tax increases that ultimately can force them out of their homes.”
Helton, author of the Institute’s new report on how to provide property tax relief in Hawaii, told radio host Felicia Cowden, who also is Kauai County Council member, that for homeowners, Kauai has “seven or eight different relief programs and they’re all very well-intended. But you know, if there’s not knowledge about them, if they are a big paperwork headache, either for the homeowner or for the county administration, that makes them somewhat problematic. So I think going forward, you want to keep that relief, but simplifying that relief … should be a priority.”
Near the end of the 45-minute discussion, Cowden asked Helton on which island he, as a young adult, would choose to live on — “not based on your job, but based on the tax policy.”
“Probably Maui,” he replied. “They have one class for homeowner and [another] for long-term rental. And they tier both of those classes. So they’re able to adjust the rates to give relief, especially for the lower-value homes.” He said Maui also has what is essentially a homeowner exemption for long-term rental properties, “which Kauai might want to look at doing.”
4-20-23 Jonathan Helton and Mel Rapozo with host Felicia Cowden on KKCR FM’s “Kaua‘i Soapbox”
Felicia Cowden: OK, wonderful. All right. So I’m so glad to have you on. And do you want to introduce yourself? And tell the listeners, you put out a really good article this morning, or you sent out an excellent assessment on real property tax. And so, thank you so much for coming.
You’re part of Grassroot Institute. And share with the listeners what your background is and, you know, what your projects are.
Jonathan Helton: So, my name is Jonathan Helton. I do policy research with the Grassroot Institute, and for anyone who’s unfamiliar, we’re a nonprofit group that does research and education related to all sorts of policies, especially trying to look at how to lower Hawaii’s cost of living as a whole.
And so today, although you might not be able to find it on our website yet, I released a report based on some research we’ve been doing over the past couple of months that basically looks at each county’s property tax system and the relief programs each county has.
So, for a fun fact, Hawaii is one of the only states in the country where there is no state laws related to the property tax. Hawaii’s Constitution specifies that all powers of property taxation are to go up to the counties. So that results in a system where all four counties have very different property tax schemes.
So we wanted to look at each county and try to come up with some best practices that we might be able to share, especially since assessments are up so much.
Cowden: So, when I looked at your presentation, it was actually very nicely produced. Is that a handout or is that … how’s that coming out? It looks like a big quality brochure where you do the comparatives.
Helton: I guess you can call it a report. I did not put the layout together. We have someone on our team who does digital design. I just do the research and he does the magic to make it look pretty.
Cowden: Well, it looked very well-presented. So I was happy to see that.
So do you want to start talking about … like, when we’re looking at real property tax, and I know the listeners are hearing quite a lot about it, but I also wear a cap of being a County Councilperson.
And we’re across the nation experiencing a lot of inflationary pressures. And rural America across the nation is having a tremendous amount of increase in the properties’ valuations because both there’s inflation in our currency and there’s been this migration from metropolitan areas to rural areas.
So we have metropolitan prices in the outback where people don’t have the type of employment that drives, you know, hundreds of thousands of dollars of income.
So there are people who are working service economy or basic jobs — teachers, accountants, police, whatever — they’re competing with people who might have quite a lot of, you know, independent income from the island’s economy.
And that’s happened across the nations and I’ve talked to a lot of what I call rural resort counties in other areas like Vail and Aspen, and you know, Breckenridge or, you know, these kinds of places, but most of them have the energy industry that’s also there — they have oil or gas or something like that — and they’re still struggling with the same problem, it hasn’t been an easy solution on how to …
People want to have what’s called Proposition 13, out of California, where you pay the tax on what you purchased it for, but in the meantime, all the costs that the county is paying, are going up, you know, without that problem.
And when we look at California, where Proposition 13 has been effective, it’s also a state that has really changed its quality of life; there’s a lot of homelessness there, I would say, kind of a profound amount. So some things aren’t working. So, yeah.
Helton: Yeah. Proposition 13, right? It’s an assessment cap that changes, you know, it limits how quickly the assessed value of your property can grow. And it sounds really great on paper — but I think California has discovered this the hard way — a lot of local governments depend on property tax revenue — that’s the same here in Hawaii as it is across the country.
But when you limit the amount of how much assessed values can grow, you can limit how much local governments you take in.
And so in California, they’ve seen a big transfer where a lot of local revenue is now state aid, and state aid, you know, back in swing, based on states’ income, right from income tax or sales tax, swings on political winds and a lot of other things.
So Proposition 13 is attractive on one hand because it does limit your property taxes, but it does have some unintended effects, for sure.
Cowden: Right. So when we say state aid, that’s basically social services like housing and urban development housing grants, what we would call here Quest, you know, Medicaid, different elements–
Helton: Yes, even things like grants for education, which, again, is something different for Hawaii. Across most of the country, property tax dollars go to pay education, but in Hawaii, we have really the largest school system in the country because it’s all state-run.
So it’s something we’ve talked about, because some people will say, “Well, you know, Hawaii has the lowest property tax rates in the country.” Which, for a lot of islands, that’s true. But that’s apples and oranges because the counties aren’t paying for property — or [rather] — aren’t paying for education.
I’m sure if all the counties had to pay for their education services, your property taxes would have to be much higher in order to offset that. So you just have to look at the context before you can say it’s the lowest rate in the country.
Cowden: Right. And so what I liked here is that what you evaluated — at least across the other counties in Hawaii — is how we burden more the payment on the visitor industry and the nonresident owners here. So, in some ways, that’s taxation without representation. But what we’re prioritizing is trying to keep our people still yet on the island. So you saw that as being consistent across the state, but in a handful of different formats.
Helton: Yes. So, a lot of places in the United States, I think, would envy Hawaii because, you know, usually the people who pay property tax are people who live in the community, people who vote, people who are very involved. In Hawaii, that’s not really the case.
You know, I looked at the numbers for this current fiscal year’s budget, and almost 40% of the property tax revenue for Kauai was paid by a short-term rental class and the hotel and resort class, and that’s a lot of money.
On Maui, it’s pretty similar, where, I think, over 50% of the property taxes are paid by short-term rentals and hotels. So I know in Oahu, it’s a little bit different just because there’s so much residential development, but yeah, Kauai and Maui are certainly in a good position there.
Cowden: If you look at Kauai, where we also add in our part-time residents that don’t live in the house, we would call them, you know, six months or less, and the rest of the time it’s open, those houses, if you include it, that’s 62% of our revenue from real property tax comes from resort, transient vacation rental and nonresident ownership, or what’s called empty houses, like nonowner-occupied, and so 62%. So, it’s doing a lot of the heavy lifting.
So, one thing that makes me a little bit nervous is if we had another big event where we didn’t have those contributors, that would be a little bit more out of the transient accommodation tax and the GET tax, because if we have that, you know, when we lean so heavily on that particular community of people who really don’t live here, for our income, our revenue stream, that creates some challenges.
And I looked at the property tax rates — you do this comparison of all the different islands. And so, when I look at what is there for, like, the island of Hawaii, for example, they pay, you know, quite a bit higher rates for everything, though the valuation of their property is probably lower. Is that consistent with your …
Helton: Yes, that’s correct. I think the median home value for Hawaii is somewhere in the range of maybe $500,000 for a single-family home, around there. You know, on all the other counties, it’s double that easily.
So, you know, when you look at their rate and it’s twice, you know, what Maui might have for homeowners, it’s because the assessments are, you know, half as much as Maui’s, so it kind of offsets.
Cowden: OK. Yeah. And so I appreciated that you came to our County Council meeting a few weeks back, and it sounds like you’ve been watching them. I don’t know if you’re gonna watch ours tomorrow.
We have an important bill on our committee meeting regarding our reserve fund and looking at how we can still maybe lower that or find a way, we’re looking to find a way to reduce our tax rates even more because we don’t know what may be coming in terms of another inflationary pressured year. Are you going to be watching tomorrow?
Helton: Yes. I’ve communicated, I’ve presented a couple of scenarios to Council last time I was there, just looking at, “All right, you know, if we change rates, what kind of revenue impact does that have? You know, where would the budget maybe need to be trimmed in order to provide a lower rate?”
And so, you know, I think that Council Chair Rapozo has proposed, you know, looking at a 10% rate cut for certain categories, in addition to what the mayor’s proposed, which is a 10% rate cut for homeowner and residential properties.
And so, you know, I know homeowners — homeowner and residential, right? that’s a lot of your voters. So it does make sense to provide them relief. Those are your consumers too, but you got businesses like, you know, with the cost of goods going up so much, it’s certainly important for them to have, you know, to receive some sort of relief as well.
Cowden: So what about, you know, we’re looking at, we’re contemplating commercial, industrial, agriculture and conservation, to give them perhaps a discount because people own businesses. And do you have thoughts on that?
Helton: Yes. So I wrote an article, I think it was published in “The Garden Island” [newspaper] — I guess it was last week, maybe two weeks ago — where I talked about this, where, you know, you’ve got a lot of these local businesses and their costs are going up.
And if they own the building, you know, they’re paying the property tax. So this year they’re gonna probably see a higher bill because the assessed values have gone up for pretty much every class.
And if they don’t own the building, you know, their landlord is going to see a higher bill. And depending on what sort of lease agreement they have, the landlord might say, “Hey, you know, property taxes are going up. Sorry, gotta pass on higher rent.”
And with everything else so high, the question is: OK, you know, when does the straw break the camel’s back?
For some of these businesses, they could probably, you know, stomach a property tax increase, but they might have to increase prices, you know, cut back on raises, cut back on new equipment, that sort of thing.
So, you know, any time you raise a tax, you will have some sort of effect on the people you raise the tax on. It’s just a question of, well, you know, what’s the right balance?
Cowden: Right, and in that balance, some of the things that I know that we think about is typically — and I’ve been a small business before for a couple of decades — you know, you’re under a lease. You’re under an agreement.
So even if the taxes went up, the landlord typically can’t say, “Well, we’re going to add more, you know, maybe they could put it in the common area maintenance.” They also wouldn’t typically be reducing it.
Yet, what’s important is to have healthy landlords, because what, you know, we saw in both … we had a flood in 2018, we had the COVID lockdown, we then had a hillslide in the part of the island where I live.
So when these things happen — we had a hillslide on the West Side, though that didn’t tend to impact business as much. It wasn’t on the main highway.
When businesses drop, usually, you have a percentage rent. So these landlords have taken really hard hits in two to three years out of four.
So, that’s the kind of thing that, you know, we’re trying to have a conversation on. The goal is to be, you know, helping the stability of our community. We don’t want to have more exodus out.
Now, in your report, you mentioned a handful of times the amount of population exodus. And I’m curious about how you got that number because I try and find out — like I’ll ask the Department of Motor Vehicles, how many people turned in their driver’s licenses or, you know, whatever else. How does the state know how many people left?
Helton: The U.S. Census Bureau every year — in June, I believe, well, the numbers are June to July, — but the U.S. Census Bureau keeps track of that information to the best they can. So, you have the U.S. census every 10 years, and then every year between those 10 years, the Census Bureau tries to keep an estimate on what the population growths are.
And so right now, for the best numbers that we have, Hawaii has seen a net population decrease every year since either 2016 or 2017. It’s the past six years.
And so the U.S. census, right? it’s scientific up to a point, but it’s very hard to count every single person in the United States.
So in a couple of months, they’re going to be issuing some, I guess you could call them fixed numbers, based on the 2020 census to kind of estimate, OK, what’s the actual population? You know, give a better estimate of that. Anyway, all very technical. Point is, we have a population decline.
Cowden: Yeah, and we do have a population decline. What I see is we have both immigration and emigration; people coming in and people leaving. So we also have a population change. And we can welcome all the people coming, but it is hard to see all the people going and they aren’t interchangeable parts, right? especially in a small community like this. So …
Helton: Yes. That’s true, and unfortunately, the U.S. Census Bureau — at least to my knowledge — does not track how many people leave and how many people come in. They usually just give a net number. They say, “Here’s the net change.”
So we know the net change, but we don’t know, OK, exactly how many local people left Kauai. How many mainlanders moved to Kauai?
Helton: We don’t know.
Cowden: So, I see that our Council Chair, Mel Rapozo, who’s got a lot of experience, he’s called in. Aloha, Mel.
Mel Rapozo: Hey, aloha. Can you guys hear me OK?
Helton: Aloha, yes.
Ray: We can, yes.
Rapozo: Perfect. Yeah, I am on my phone on the road, so I have turned my video off just to keep the connection better.
Cowden: And I’m sure you’re driving hands-free.
Rapozo: Absolutely. Absolutely.
Allana Le Sueur: Can I say something really quickly? We have a quick announcement from a community member, speaking of driving, who said, “Please, everyone, watch yourselves on the road.” She just hydroplaned in Kilauea. And so, she just wants to remind people to please drive slowly and safely.
Cowden: OK. All right. Thank you, caller, for announcing that. And so, for the listener who might have just tuned in, we have Council Chair Mel Rapozo, and we have Grassroot Institute property tax analyst Jonathan Helton. OK, Mel. Please carry on.
Rapozo: No, I’m just listening and learning. I appreciate the Grassroot Institute. They do amazing work and, you know, it’s helped us out quite a bit, so I’m just enjoying the dialogue.
Cowden: OK. Well, then, I would have this question for the both of you.
Like, when we look at what’s wrong, I would state that what it is as inflationary pressure raises the rates on all these properties, no matter what, people who have owned it for a long time, or younger people who have just bought and are stretched thin at making the purchase, they typically can’t afford to make the payments.
What do we say to the people who want to have a leveling on the purchase value? What is either one of your suggestions on how do we go in the direction of Proposition 13 without doing that? What is a way to achieve that goal so we don’t just lose everybody?
Helton: I’m going to give a somewhat … this answer might take a minute because I do want to give some background on what I’m about to say. So, I gave this list at the Council hearing, but right now, Kauai has several relief programs in place for homeowners. So, I’m going to kind of describe those and then, you know, give my two cents on maybe where the county could move to.
So, the first thing, the big thing, Kauai has a homeowner exemption. So, if you own and occupy your home, you’re eligible for a $160,000 exemption. And what that exemption is, is it lowers the taxable value of your home by $160,000. So, you have a million-dollar home, you have the exemption, the home is then taxed as if it were worth $840,000.
So, that’s the first thing. But then there’s a couple of supplemental things on top of that. If you’re a little bit older, if you’re between 60 and 70, the value of that exemption increases. And if you’re above 70, it increases even more. So, you have some protection built-in for older homeowners.
Cowden: There’s home exemptions based on income. There’s very low income tax credit, home preservation … Actually, I have our flyer right in front of me. So, I would be able to do this. So, there are a number of ways — and this is what the tax department says, this is what the finance department says — if people pay attention, and I recommend to everybody that you go out and you get this nice little flyer, and you look at and get this exemption sheet that you go in and you would file it.
There’s a lot of ways of bringing it down, but there isn’t for everybody. Like, the big golden ticket is if you are an owner-occupant, right? That’s the biggest golden ticket where you get the rest of these pieces. So …
Helton: Yes. Proposition 13 is an assessment cap. Kauai currently has an assessment cap in place for both owner-occupied properties and …
Cowden: Commercial home use. Commercial home use.
Helton: Yes. I believe some long-term rentals as well. So, the assessment cap of Kauai is a little bit different than Proposition 13. I think Proposition 13 was like a 1% in assessed value change year-over-year. In Kauai, it’s a 3% change. It’s not as extreme, but that does exist. So if you’ve owned your home for 20 years, your assessed value is a lot lower than what it would otherwise be without the assessment account.
Cowden: If you don’t make a mistake. And in our situation, another Council, our Council, anybody could always change that. Mel Rapozo, Council Chair, can you speak to what I’m asking?
Rapozo: Well, you know, I think the cap has been revised. Originally when we had the 3% cap, it was on your actual tax bill. That was removed, and then they increased the exemption to [$160,000], and then they went back to the 3% assessment cap. Now, our assessment cap is much lower in many cases than the market assessment, or market value.
The problem with the 3% cap is if you’re a new buyer — especially our young families buying — you know, your baseline is set at the higher rate, but it is a good tool to control the tax increases for the owner-occupants, and those that are in the affordable housing rental program. So that is a benefit.
So, you know, we are unique in many ways from the other islands. We will be looking — and I just spoke with finance today — that right after the budget is done, we’re going to start the discussion, and I’m hoping the Grassroot Institute will participate. But we will be looking at tax reform in totality, because, you know, we have identified many scenarios where it’s just not fair, and we got to simplify it because one of the problems we have on Kauai, and Councilman Cowden is well aware, is that a lot of people are in classifications that they shouldn’t be.
We started with the Residential Investor class. So it’s making it simpler, so people can participate in the right programs to get the best relief they can. So I’m looking forward to that discussion.
The other thing that we will be able to do in the next —unfortunately, we can’t do it this tax season — but the next tax cycle, we’ll be able to create additional tiers in each class.
So we’ll be able to, you know, separate the classes into tiers, so we can add or apply the appropriate tax rates in the classes.
You know, it’s more targeted, we can provide the targeted relief much better than we can now because now the entire class is affected.
So you know, I’m looking forward to that discussion, and again, I’m going to rely on the Grassroot Institute for some advice.
Cowden: Well, one of the things that I think they’ve done such a good job in here that I appreciate — I will just say this to you, Jonathan — is just how well this analysis was laid out. It’s easy to look at, and I like seeing the comparatives to the different islands.
So I’m seeing, like, the homeowner exemption in Hawaii Island. It’s kind of complicated, but it’s basically a $50,000 exemption where we are $160,000, which it has been for some time.
And Maui has a homeowner exemption of $300,000, and, you know, when we get all these details, it makes it hard for our assessors, it makes it hard for our board of review, but, you know, it’s threading a needle when we look at people who are young — Jonathan, you’re younger than Mel or I, I will say that, and Mel, you have made the comment before that your kids have been priced off the island, right?
So how do we keep people from being priced off the island? And so is it something that maybe like a purchase from this time moving out gets a, you know, present day gets a deeper homeowner exemption? You know, there’s a lot of levers to push, but ,,,
Rapozo: Well, I think, you know, as far as exemptions go, you know, right now, with the current numbers that we currently have, you know, one of the things I want to do in the next tax cycle is increase our exemption.
And, you know, everything is subjective, right? Everything is subjective, and we got to let the market determine how we’re going to apply the relief. Because when we implemented the exemption, house values were much less. So the impact now of the exemption — although, you know, it’s great that we have an exemption — as the market rates or the assessment rates go up, the financial benefit to the homeowner lessens …
Rapozo: … because just the disparity between assessments, and the exemption. So right now, if we increase the exemption another 40 grand to $200,000 at the base level, and then of course all the other exemptions would increase in a similar way, it’s pretty close to about a $2 million impact.
Cowden: In terms of what we would lose for the county?
Rapozo: Correct. And that’s just taking into account the homeowner, the [$160,000]. If we moved that up to $200,000, it would be about a $1.8 million hit.
But I mean, I’d like to see where we … And when we’re able to do tiers, and we can let the market determine the threshold rather than a bunch of politicians sitting around a table saying, “Ah, I think it should be a 100 … a 1.2 or 1.3.”
It should be a formula based on the assessments at the time, so it’s much more fair and productive because, I mean, you know, we don’t touch tax rates, but the assessments go up. It is a tax increase. It is a tax increase.
So I mean, I want to see a much more objective way of setting these thresholds and exemptions that would relate to the market and not where it is just a method of collecting revenues for the county.
Cowden: Mmm-hmm. And I want to speak to people who might not understand this topic very well. Sometimes people are finding they’re getting a $300, $400 a month rent increase. People who are renting properties and they don’t understand why their rent went up $300, $600, sometimes that’s because the tax went up.
So something I’m kind of trying to work on is an incentive to assist for when people are renting to the “gap” housing amount.
Like, right now, when we rent to people at the low-income rate, well, they get the lowest tax rate, but there are people who work for a living and who are paying, you know, $3,000 a month rent, $4,000 a month rent. I’m finding, you know, people are working really hard, their rental rate is going up a whole lot, and part of that is because of the taxes.
Helton: Yeah. If I could add, talking about the tiers, what Councilman, Council Chair Rapozo pointed out is exactly right because Honolulu is running into this problem right now. They created a class called the Residential A, which is like where second homes might fall, kind of like Hawaii’s residential investor, and they set the tier at $1 million back in 2018.
Helton: And so if any of the property’s value was above $1 million, it would get taxed at a much higher rate.
Well, in 2018, you know, houses were worth a lot, you know, it was $200,000 cheaper than it is now.
And so today they’ve run into the problem where a lot of rental properties have been pushed into this threshold above $1 million and are getting hit with really high tax bills.
And so, you know, thankfully they’re looking at adjusting that tier, but it’s a problem.
If you don’t have some sort of mechanism in place, so you revisit the tiers every year — that’s what Maui does, they revisit them every year to determine what the tier should be — or if you don’t have them by law like indexed to the change in real estate prices so that the tiers grow, you know, grow every year in response to assessed values, if you don’t have that, you run into the problem that Honolulu has, which is where you tax rental properties and second homes really at the same rate when, you know, they’re not really the same kind of property.
So I definitely think there’s policies that can be passed that can target relief at renters, and if you use the tier correctly, I think you can do that.
Cowden: Yes, I think …
Rapozo: The other thing, and we saw that on Kauai — and Councilmember Cowden is very aware of this — I remember speaking with Councilmember Cowden prior to that bill being passed where she had trouble with lowering the threshold for Residential Investor.
And when we went down to $1.3 million, people went to sleep one night as paying a residential tax rate, woke up in the morning, you know, with a significantly higher tax bill because they were moved to the Residential Investor because the assessments went beyond the threshold.
Cowden: And the extreme in that was for people who even had a homestead tax rate because they have … you know, their rentals were low enough that they never even turned in paperwork. They didn’t even know how to turn in paperwork, and so it … And maybe that’s what you’re saying, they didn’t even know how to turn in paperwork, so they also lost caps. There were some examples of things like that.
So we have a lot of paperwork, that it takes vigilance. It’s like today is tax day, IRS tax day, and the whole nation is trained, hopefully, to know that this is a very big day, and September 30th is the day for Kauai, which is … I like, again, that the Grassroot Institute makes those comparatives on the dates. It’s different in each different island or each different county. So that’s a challenge.
You’re listening to “Kaua‘i Soapbox” on KKCR, Hanale [and] KAQA, Kilauea, with Felicia and Alanna. And our guests right now [are] Council Chair Mel Rapozo and Jonathan Helton from Grassroot Institute. So thank you.
What I want to honor with our finance department that they did at our asking is create a what-if analysis tool, so we can sit there and push around different rates, different amounts to see how it’s going to be impacting, so we can build better, more safe policy.
And so when we are looking at doing some of these reductions, we can at least have a good guesstimate of how it might actually impact both the county — we have to be able to pay our bills — and how it might impact the people.
I want to honor the mayor for having dropped 10% on two categories, which worked out to about $5 million in tax relief of what is from even already, right? Do I have that right, Mel?
And then this other reduction that we’re looking at is close to another potential $5 million to pull out of the budget and away from the taxpayers.
Rapozo: Yeah. You know, I wanted to touch on the residential. You know, one of the benefits of having the tiered system, and again, objectively setting thresholds where, you know, you’re taking the market into consideration is, right now if you’re in a Residential class and you’re renting out to the long-term affordable, then you get the benefit of the homeowner or the Homestead class, which is the lowest rate.
Cowden: And it has the assessment cap. Um-hmm.
Rapozo: And you get the cap. The problem is, in today’s market, you know, landlords are able to … you know, the market rents are much higher, and we cannot separate the Residential class at this point. So if you are not in the long-term rental program, then you’re going to pay the full Residential rate.
With the tier system, we will be able to create … you’ll have the long-term rental program, but the people that are renting out to our police officers and firemen and nurses that, you know, they pay a little higher and they don’t make the affordable levels, then they don’t get the Residential or the Homestead benefit. They don’t get the cap. Well, with the new system … and thanks for bringing up that new what-if …
Rapozo: … spreadsheet that they have, the whole program that they did. Now we’ll be able to set a tax rate for long-term affordable rentals, and we’ll also be able to set a separate tax rate for that gap group.
And that’ll help out a lot of local families and that’ll, you know, convince, or provide an incentive for landlords to not charge so much for their rent and be able to get some tax relief. Now it won’t be the same as a homeowner or the homestead class, but they’ll get a reduced rate from what the high-end rentals that are going on here on Kauai and across the state.
So we’ll be able to provide benefit and incentive for those landlords to create opportunities for our professional people, our local professional people, that may not … you know, they weren’t able to lower the rents to meet the LTR, the long-term rental program.
So I’m excited of the opportunities we’ll have. Unfortunately, we got to wait for the next tax cycle. But that’s an opportunity where we’ll be able to help a lot more local people.
Cowden: Yeah, so for those of you listening, we will be having a number of discussions coming up, you know, after the budget for how we might change policy, but tomorrow, and in the rest of this budget season, we are looking at massaging it even for next year.
I have a question for you, Jonathan, as a younger adult — younger than Mel and I — I would say you’re on the rise. If you had to live on an island — not based on your job, but based on the tax policy — which of us would you live on?
Helton: Probably Maui.
Cowden: Maui? OK. Maui might be …
Helton: Yeah. For tax …
Cowden: Go ahead.
Helton: For tax policy, Maui, they have one class for homeowner and then they have a class for long-term rental. And both of those classes, they tier that. So they’re able to adjust the rates to give relief, especially for the lower-value homes.
And then the other thing Maui does, which I guess you could, Kauai might want to look at doing, they have what is essentially a homeowner exemption, but for long-term rental properties.
So I think it’s $200,000 right now, but they would give … if you have a long-term rental property, you apply, just like you would apply for a homeowner exemption, you get that exemption value. And so that can provide a financial incentive for people to rent to not just the absolute highest they can get.
Cowden: Right. So, thank you. And I believe we have a caller. Aloha, caller, you’re on the air.
Caller: Hello. Can you hear me?
Cowden: Yes. Can you guys hear him? Mel and Jonathan, you’re not hearing him.
Cowden: OK, I can hear you. But so I’m going to have to repeat it back for them if they are not hearing it.
Caller: OK. I just want to say that in the mainland, the country formerly known as the United States of America, what the standard is, and they said this in Berkeley, properties are assessed by bedroom at $1 million per. And they’re taxed at a million dollars at 1% per each bedroom. And that’s where you guys will be heading because I came from the future. I travel back to the time warp … No, this is the way it is in the mainland.
Property assessment will be $1 million per bedroom. And this is Berkeley, California. You can look it up. A three-bedroom Victorian house that an old woman inherited, she’s paying $3 million for a three-bedroom house. And you can do the arithmetic on that. But that’s where you all are headed here. And I got to get back to the future. I will go back. And thanks for taking my call.
Cowden: Thank you. So, all right. Can you guys hear me?
Cowden: OK. So I’m not coming out on the box.
Le Sueur: I think you’re just on the top right.
Cowden: But you guys can hear me?
Rapozo: We can hear you.
Cowden: OK. I just don’t think the listener can. Let’s take a different mic.
Le Sueur : Yeah, I don’t hear you. You’re right.
Cowden: So can you hand me the other mic? And I’ll just take that one until I figure this out. OK. So now you guys, everybody can hear me.
So did you hear that caller’s concern? It was basically that $3 million is what they were saying was going to be happening on, you know, million dollars per bedroom. He was just giving this … did you guys hear him OK? Did you hear him?
Helton: I think so. He was talking about Berkeley, California.
Cowden: He was talking about Berkeley, California and just looking at how crazy the whole system can move to being. That is my worry, you know, that it will be so much … like, I know, I’ve owned my house for 21 years and I could never afford to buy it if I bought it now. I couldn’t afford the house and it’s a 70-something-year-old simple little wooden house.
So we have that very big challenge. Mel, yours is probably the same for you.
Rapozo: Yes, it is. Well, I live in Wailua, you live in Kilauea. So …
Cowden: Mine is probably more than yours, but yours would probably be still yet hard. I don’t know because …
Rapozo: I wouldn’t buy my house today for what the market says my house is worth. My son’s fiancée just bought a home — just yesterday it closed — and it’s a beautiful, beautiful home. Three bedroom, two bath. I mean, it’s just gorgeous. And in Oregon, in Beaverton, or, I’m sorry, in Hillsborough, and about a half a million dollars.
That’s just so different. And you know, the assessments or the values, I think, are so artificially high here in Hawaii right now. It’s very difficult, but it is what it is.
Cowden: And I think in Jonathan’s report and other things that Grassroot Institute has talked about is because we don’t build enough houses. So that’s why a 70-year-old beat-up house could sell for well over a million dollars because there’s just not enough supply.
And when we look to increase the supply, you know, there’s a lot of emotional resistance because that would change the nature of what our place is like, the ambience on the island. Jonathan, would you say that’s basically what Grassroots Institute is saying?
Helton: Yes. UHERO, the University of Hawaii’s economic research arm, they’ve looked at this and Hawaii has the highest barriers to homebuilding of any state in the nation.
And you know, I know, right, Hawaii has, you know, almost insatiable demand. So, you know, when you have high demand, you have constrained supply, that’s what happens, for anything, is that the price goes up.
And so, you know I recognize that there’s a lot of concerns that you don’t want to turn every island into Oahu, and you know, that makes sense. But somewhere, you know, there has to be some give-and-take on trying to build some more housing because otherwise, you have the population loss that we talked about. People just get priced out.
Cowden: Yes. So I thank you both for joining me on the radio today. I want to give you both a chance to give some final comments. I guess I’ll start with you, Council Chair Mel Rapozo.
Rapozo: Well, thank you, Felicia, for having this forum. I think, you know, one of the problems we have is communicating with the homeowners, letting them know what the available programs are, exemptions, and, you know, we just make it difficult. And you know, that’s one of the things I’m excited about having the real property tax reform discussion starting.
My intent really is to get in, you know, go to the different communities and share and have discussions with the communities during that process. We have to pass the ultimate or the final bill before October. So we have some time, but as you know, time flies. So we got to really spend a lot of energy on making sure we come up with a new system that’s going to benefit the taxpayers.
You know, again, creating a balance. You know, one of the concerns that was shared at the last [Council] meeting was giving the big corporate monsters tax relief in the commercial sector as well as the ag sector. And there is some merit to that. And, you know, that’s something we’re going to have to discuss tomorrow.
The other concern is, you know, tapping into a reserve fund that, you know, and as we know the financial instability in the world today, that’s something we got to really be cognizant of and you know, making sure that we have the necessary safety nets in place.
So, you know, I’m excited about tomorrow’s discussion. I did want to say, you know, the sunshine law is kind of prohibitive for legislators at the county levels because, you know, we’re really not allowed to discuss, but, you know, so we’ll have the discussion tomorrow. So there has to be a balance.
I know I spoke with the mayor today. He’s definitely supportive of giving tax relief to homeowners, and I fully support that. I think that’s where we should focus our attention.
But I’m really looking forward to tax reform going forward, so we can have a much more simple and effective tax structure and tax policy that will benefit all the taxpayers in a fair way and in a way that doesn’t make it so complicated that people lose out, and then they get hit with this unanticipated tax increases that ultimately can force them out of their homes.
So a lot of work to do, but I’m excited, appreciate you again, Felicia and Jonathan, for all your input. I cannot tell you how beneficial it’s been, so thank you so much.
Cowden: You’re welcome. And hopefully, if people want to come in tomorrow at 8:30, Council building, which is the old, beautiful building that has the Christmas lights. Jonathan, your final thoughts.
Helton: Yes, I appreciate you having me on the show, and thank you Chair Rapozo for your thoughts on this as well.
Really, Chair Rapozo said what needs to happen: It’s that the tax system needs to be simple. And I just counted, I have them written down. Kauai for homeowners has seven or eight different relief programs and they’re all very well-intended. But you know, if there’s not knowledge about them, if they, you know, are a big paperwork headache, either for the homeowner or for the county administration, right? that makes them somewhat problematic.
So I think going forward, you want to keep that relief, but simplifying that relief, making it easier for people to know about the platform, making it easier for our property tax to do their job, I think that should be a priority.
And simple is also why I came to the Council hearing last month to talk about tax rate changes, because tax rate changes are the simplest thing that the county can do to provide tax relief.
Sometimes it’s not the most targeted thing, but as far as straightforward, easy-to-understand to the public, changing the rates is easily the way to go.
And so, you know, looking forward to watching tomorrow’s discussion. I’m sure it will be a good one, and hope I can provide any additional comments. After budget season, I’m sure that we’ll all take a breath and then, you know, dive back into some of these more long-term reforms.
Cowden: OK. So thank you so much. This is Felicia and Alanna with “Kaua’i Soapbox” on KKCR, and we’ve been happy to be talking with Jonathan Helton from Grassroot Institute and Council Chair Mel Rapozo. So, mahalo to you both and have a wonderful rest of your evening. Take care.
Rapozo: Thank you again.
Helton: I appreciate it.