Helton suggests three scenarios for Kauai property tax relief

by Grassroot Institute of Hawaii, April 11, 2023

Jonathan Helton, policy researcher with the Grassroot Institute of Hawaii, appeared before the Kauai County Council on March 22 to testify on Resolution No. 2023-33, which will establish the real property tax rates for fiscal 2024.

Helton noted that “the cost of living all across the state is going up, the cost of doing business is going up, labor costs are going up, input costs, everything’s going up. You know, that’s due to a lot of things, most of which are outside of your control. 

But one thing the Council can be control,” he said, is property taxes. 

“It’s not the County Council’s fault that property assessments are going up. Kauai and the state as a whole is just a very hot real estate market, so property tax assessments are going up, and if rates remain unchanged, that means property tax bills go up as well.”

Helton proposed three scenarios that could provide relief to Kauai homeowners. See the full oral testimony below, or go here to read his written testimony.

TRANSCRIPT -- 3-23-23 Jonathan Helton testifying in Kauai County

Speaker 1: Up next is Resolution No. 2023-33, resolution establishing the real property tax rates for the fiscal year July 1st, 2023 to June 30th, 2024, for the county of Kauai.

Mel Rapozo: Move to approve?

Speaker 3: Second.

Rapozo: No, no. You got to schedule a public hearing …

Speaker 4: To schedule public hearing for May 10th at 5:00 p.m., refer to the committee of the whole.

Rapozo: Thank you very much. 

Alright. I know we have someone here to testify. I will suspend the rules. Thank you for … I got your email yesterday and I am so excited that you’re here today. 

Jonathan Helton: Yes

Rapozo: If you could state your name for the record and proceed.

Helton: OK. So I’m Jonathan Helton, I’m with the Grassroot Institute. We’re based on Oahu, but we do work throughout the state. And I’m a policy researcher and I wanted to highlight a couple of things about this resolution, but the real property tax system overall.

So the first thing I wanted to mention was Kauai’s current exemptions for homeowners. 

Right now — I was in the process of writing a report over the last couple of months; it looks at all four counties’ property tax systems — Kauai has the most generous exemptions and programs for homeowners of any county.

I have a list here, I just want to read this for anyone who might be watching. 

We have the homeowner exemption. There’s the age exemption if you’re older than 60, that’s increased. There’s the low-income exemption, the low-income tax credit, the home preservation limit. There’s an assessment cap. There’s a disability exemption, exemption for totally disabled veterans. 

No county has exemptions this generous. The rate on residential, the rate on homeowner property is also very low.

But with that in mind, the second thing I want to mention is that it’s something that has already been discussed at this hearing. It was discussed when you guys were looking at the nominees for the cost commission. 

The cost of living all across the state is going up, the cost of doing business is going up, labor costs are going up, input costs, everything’s going up. You know, that’s due to a lot of things, most of which are outside of your control. 

One thing that could be controlled is property tax revenues. It’s not the County Council’s fault that property assessments are going up. Kauai and the state as a whole is just a very hot real estate market, so property tax assessments are going up, and if rates remain unchanged, that means property tax bills go up as well.

So the third thing I want to mention, the last thing, is a couple of relief options. I have written testimony that I gave to you all. There’s a couple of scenarios. Just want to walk you through it really quickly. 

The first scenario is the mayor’s proposal for a 10% rate cut for Homestead and Residential properties. We would commend the mayor for proposing that — hope you all support that — but in that first scenario, I said, “What if we froze the revenue for some of these property classes at last year’s revenue?”

So this is page 1. We said, “What about a revenue freeze for commercial, industrial, ag and commercialized home use?” Froze the revenue there, that would result to a cost to the county of about $5 million. That would ensure in general the tax bills on those properties wouldn’t increase over the last year. Second scenario …

Rapozo: Are you on Scenario 1?

Helton: Yes, that was Scenario 1.

Rapozo: OK.

Helton: Yes. The second scenario is very similar. It would just extend the 10% proposed rate cut to a couple of those additional property categories. 

And then the final scenario is just an example that we wanted to give to you about what would happen if property tax revenues went up only as fast as inflation. And so …

[crosstalk]

Rapozo: Hang on real quick. Anyone else wishes to testify on this tax rate? It’s not the budget, but the tax rate. OK. Please go ahead. 

Helton: Yes. So, the third scenario we said it would result in 20% rate cuts on some categories and then 5% rate cuts on hotel and resort, vacation rental, residential investor. 

And so obviously this resolution before you today is the proposed resolution. I know that you all will be discussing this as you discuss the budget in the coming weeks and months to look at where can we cut costs, where do we need to increase spending? So all of these scenarios are just scenarios to hopefully provide further dialogue.

We would be happy to assist the Council in any of these property tax issues. As I said, I wrote a report. It’s in the editing phase. I’m hoping that it will come out in the next month or so, and we can have discussions on that. 

The last thing I’d like to mention — I know, Chair Rapozo, I believe it was in a meeting in February where you all talked with the Real Property Assessment Division — you said that the simplest thing is a rate cut. You don’t have to make people do additional paperwork. There’s no confusion if people don’t keep the exemption. A rate cut is the simplest thing to do. 

But we’re seeing this on Oahu. The mayor doesn’t want to do a rate cut, so they’re looking at other things. So they’re looking at a one-time tax credit. Other states across the country, and D.C., has a specific program to benefit long-term business owners. 

Right? So if a rate cut is not something that’s on the table, we’d be happy to work on more targeted exemptions as well. 

Those are the three things I wanted to mention. We’re very happy Kauai has very generous exemptions for homeowners. Very happy with the mayor’s proposed rate cut.

And as you all know, costs are going up. If the cost of the tax revenue goes up, do businesses, do all of these property owners, do their ability to pay go up? You know, if the last year’s been any indication, probably not, for a lot of them. 

Finally, you know, this is just an example. We’d be happy to work with the Real Property [Assessment] Division on some of the mechanics of this. 

Happy to work with you all and I really appreciate your time. Thank you.

Rapozo: Thank you very much. Go ahead, Councilor [Felicia] Cowden.

Felicia Cowden: Scenario three. Forgive me. It says inflation index revenue increase. Can you just explain inflation index?

Helton: Yes. I’ll explain the math here. So what we did for this, the property tax revenue from last year was about $187 million. Inflation from February 2022 to February 2023 was 6%. 

Cowden: OK. 

Helton: So we just increased their property tax revenue by 6%, and then obviously, the rates had to be lowered to meet that. So I modeled 20% rate cut for some categories and then 5% rate cut to others, and that got you to the total of $200 million.

Cowden: OK. And then one other question, because you do these comparisons with the other counties and so we’re doing tiered, we’re going to move into a tiered structure for a residential investor. Do you have any comment …

Rapozo: Not for Residential Investor but for Residential, the tiers.

Cowden: The tiers are for …

Rapozo: The Residential Investor is going to go away, according to Real Property — I mean …

Cowden: But when we have this listed here. Well, I’ll ask about that in a minute. And there’s tiers on Oahu, there’s tiers on Maui, right?

Helton: So, Oahu has tiers for … their Homestead class is called Residential. They have tiers for a different class rate that’s like, like second homes. They don’t have tiers for their Homestead or Residential rate

Cowden: So their tiers on the Residential Investor, second homes, is that working successfully? 

Helton: Because Oahu does not have a classification that is specifically for things like apartments, there’s been a challenge because sometimes, if apartments and rental properties are valued at over a million [dollars], they fall into that second homes category. 

And because assessments have gone up so much, so many of those apartments, rental homes, are above $1 million, and so they’re getting hit with a much higher tax rate than they probably should be getting hit with. 

So — and we’ve had this conversation with their Council as well — maybe we increase that threshold. So the tier system can work well. You just have to make sure that you apply it to the correct properties.

Rapozo: Yeah, well, go ahead, Mr. Kagawa.

Ross Kagawa: Yeah. You say, Scenario 3, that inflation, the United States inflation rate, was 6%. Does Grassroots do a Hawaii inflation rate? Do you guys have a way of trying to calculate …?

Helton: The only inflation rate for Hawaii is the Honolulu urban inflation rate.

Kagawa: And what was that?

Helton: I don’t remember how much that was.

Kagawa: If you could provide, you know, that, I mean, because like building materials, I mean, I’ve heard of, like, 100% inflationary, you know.

Helton: Yes.

Kagawa: And they said it’s up to the mainland as well. But I mean, they said Hawaii’s one is just unbelievable. So I’m just wondering if Grassroot could do that for us.

Helton: We’d be happy to.

Kagawa: Provide that for us because … Thanks.

Rapozo: Any other questions? 

You know, thank you for this. I really liked the Scenario 1, where you lowered some, not all, to get the 10% for the Residential, but you’ve lowered because the impact is one that we can definitely absorb …

Helton: Yes.

Rapozo: … the loss if you will. But, you know, this, apparently you have the ability to tinker with rates in a very easy, simple fashion.

Helton: Yes.

Rapozo: Which we don’t. Can you send me a copy of your software, please?

Helton: All I did was put it into Google Sheets and did some algebra with it.

Rapozo: Oh, Google Sheets. That’s shareable. Perfect. Thank you.

Helton: Yeah, yeah.

Rapozo: I appreciate you being here, and I know our finance director’s here. She’s not smiling because she’s probably like, oh, my God, here we go. 

But you know, you mentioned about City and County in Honolulu and you said the mayor doesn’t like rate cuts. I gotta believe that, like here, it’s not the mayor. It’s the Council that … Is it the same on Oahu that the Council sets the tax rates?

Helton: Yes.

Rapozo: OK. Thank you. Thank you very much. Oh, go ahead.

Speaker 8: Yeah. Just …

Billy DeCosta: Question.

Speaker 8: [unintelligible 00:10:57] discussion also.

Rapozo: That culminated in a question.

DeCosta: Here you go, question.

Helton: Yes.

DeCosta: Do you start cutting rates if we have … it doesn’t have another stream of revenue, would we have to cut services?

Helton: Possibly for this tax year, the proposed budget is about $45 million higher than the last tax year. So there’s a revenue windfall for this tax year, so for the next year ….

DeCosta: But if we didn’t have the revenue stream cut …

Helton: Yes. Without the revenue stream, yeah, you would have to cut services to cut rates or raise rates for other properties.

Speaker 10: Just wanted to kind of do the economics thing, right? Like the supply and demand, you do one thing, you have a direct effect on the other.

DeCosta: Yes.

Speaker 10: Yeah.

Rapozo: Thank you.

Helton: Thank you.