Historic Homes in Honolulu County

by Tom Yamachika, President, Tax Foundation Hawaii

One of the more unique property tax exemptions in the City & County of Honolulu is the exemption for “Historic Residential Real Property Dedicated for Preservation.” Under the exemption ordinance, owners of historic homes can save thousands of dollars in real property taxes every year if they put up a certain plaque, allow viewing of the home, and meet other requirements. For the fiscal year ending June 30, 2019, the City is giving the exemption to 342 homes and forgoing taxation on $600 million in property value, translating to a revenue loss exceeding $2 million.

Eight years ago, the Honolulu Star-Advertiser fretted that our city “is giving major property-tax breaks to nearly 250 owners of historic homes – forgoing nearly $1 million in annual revenue – without adequately enforcing key requirements of the exemption program.” At the time, the newspaper found examples of homes with no plaque, with views of the historic home blocked or obscured by vegetation, or at the end of a driveway with a “No Trespassing” sign.

Five years later, the City Auditor issued its Report No. 13-02, finding at that time that the City could collect over $555,000 in property taxes from historic properties that didn’t comply with the exemption requirements. The City Auditor found that several properties had no plaque, had view obstructions, or were being used for commercial purposes or illegally. The Auditor observed that the exemption ordinance allowed the City to cite the owner, and if the noncompliance were not corrected to cancel the exemption retroactively. The Auditor made several recommendations to address the perceived lack of enforcement.

The City’s Real Property Assessment Division (RPAD), however, refused to acknowledge that any problems existed. It pooh-poohed one of the recommendations, for example, by saying, “RPAD has no authority under the ordinance to cancel any dedications based on use.” So, a homeowner could disregard the exemption requirements and get away with it scot-free? It would be shocking if the lawmakers who penned the ordinance agreed with that interpretation.

“After a thorough review of the report,” the department director continued, “we conclude that the recommendations will not lead to any material improvements … and many of the deficiencies cited by the auditor are not based in fact.” And that’s not even the nastiest part of the response letter.

Sadly, the head-butting between the City Auditor and the Department of Budget and Fiscal Services doesn’t end there. The Auditor is required by the City Charter section 3-502(1)(d) to follow up and monitor compliance with audit recommendations. In its Audit Recommendations Status Report, No. 18-03, the Auditor lists all 17 of the recommendations it made to RPAD in Report No. 13-02 (including all of the suggestions it made regarding the historic homes exemption) as “N” for Not Started, as of April 2018.

Now, come on. If we intend to be serious about improving our government, which is the objective of having an independent city auditor examine agencies and make recommendations, then we cannot tolerate agencies thumbing their noses at the auditor. It is critical not to waste resources that are available, and to ensure that we aren’t encouraging scofflaws (or opportunists) to game the system. At a minimum, our finance agencies need to be beyond reproach. They need to give us, the taxpayers, a coherent explanation of how they are addressing the auditor’s recommendations, why they can’t, or why the auditor is mistaken. Unvarnished disrespect shows that our government is dysfunctional and needs to be fixed. Perhaps Mayor Caldwell needs to take a few people out to the woodshed….