How to avert the looming property tax crisis

by Keli'i Akina, Ph.D., Grassroot Institute, January 7, 2023

Hawaii’s population has been declining for six straight years, and if policymakers don’t do something quickly to avert the looming increase in county property taxes, that is likely to continue.

That’s because taxes are a key component of Hawaii’s high cost of living, which surveys show is the No. 1 reason people have been leaving.

As I wrote in my Dec. 17 column, “Counties should not profit from Hawaii housing crisis,” the potential spike in county property taxes is due to higher property assessments, which in turn are due mostly to high home prices and accelerating inflation.

Since property taxes are based on property assessments, the counties stand to receive a windfall of tax revenues — without even having to raise their rates.

No doubt, some county officials would love to get their hands on that extra money. But for Hawaii homeowners and renters, it would mean an unanticipated and possibly disastrous higher cost of living. It would mean having to sacrifice spending on things such as food, medicine, clothing, transportation and simple entertainment just so they can keep roofs over their heads.

Is it any wonder so many Hawaii residents are struggling to make ends meet, that so many people in the state have left or are planning to leave, and that so many residents are homeless?

I am not making this up. This is really happening. And it looks destined to continue happening — unless county officials step up and find ways to counter it.

For example, a respected, longtime local couple wrote in Honolulu Civil Beat on Thursday about how they will have no choice but to increase the rent for their long-term tenants if the new assessments result in higher property taxes. In their own case, their Kailua home just moved up to the county’s Residential A (Tier 2) property tax category, which doubles the tax rates of nonowner-occupied homes worth more than $1 million.

For county lawmakers who haven’t settled on what to do about this situation, I have a few suggestions:

>> In the short run, lower the property tax rates to offset the valuation increases.

>> Another short-term option is homeowner exemptions.

>> In the longer run, all the counties should review their property tax systems to eliminate favoritism and promote simplicity and fairness.

>> On Oahu, Council members should take a hard look at the Residential A classification, which applies to all nonowner-occupied residential properties. It might be best to eliminate that designation altogether, but at a minimum, its Tier 2 threshold should be substantially increased from $1 million, which is too close to the median Hawaii home price.

>> To ensure that property taxes don’t spike in future years, the counties could put a cap on how much the property tax revenue can increase in any given year. For example, the average annual increase over the past decade was 6.05%, so a limit of about 5% a year would prevent the counties from profiting from Hawaii’s housing crisis.

>> In general, at both the state and county levels, taxes should be lowered. Whether we’re talking about property taxes, income taxes, corporate taxes, excise or other taxes, tax reduction is one of the most powerful tools we could use to make Hawaii more prosperous and affordable.

This isn’t a time for half-measures. County lawmakers must act now to prevent a damaging property tax increase. Let us end the trend of people leaving Hawaii, which has been tearing apart our families and communities and weakening our economy.

This isn’t just an opportunity to prevent a crisis. It could also be the first step toward making Hawaii more affordable for everyone.