Oahu tax relief bill gains in Council amid skepticism

Members of the Honolulu City Council’s Budget Committee remained skeptical Thursday but advanced Mayor Rick Blangiardi’s plan to give property tax relief to nearly 152,000 qualifying homeowners in the form of a one-time $300 tax credit.

As part of its $3.41 billion proposed operating budget, the city administration says the $300 rebate amount — granted to those with an active home exemption on their 2023 assessment, regardless of property value — equates to an additional, one-time homeowner’s exemption of approximately $86,000.

The Blangiardi administration says the proposed tax credit — funded in total for approximately $45.5 million — could be applied directly to property tax bills before they are distributed this summer. In December the value of all real property on Oahu rose to $343.07 billion from $305.27 billion, marking a 12.4% increase, according to the city’s Real Property Assessment Division.

Since then many homeowners have reported seeing their latest property tax bills soar 20% to 30% over prior tax years. The city also says that its real property tax revenues of $1.504 billion in the current fiscal year are projected to rise to $1.670 billion in fiscal year 2024, an 11.03% increase.

But as the Budget Committee addressed the mayor’s tax rebate plan — now known as Bill 14 — some like Council Vice Chair Esther Kia‘aina wished to see more done toward the tax relief of renters and lower-income households on Oahu.

“I am concerned about long-term renters and the landlords, that landlords will just pass along the increased property taxes to renters, many of whom may be more vulnerable than homeowners,” Kia‘aina said during the special budget hearing.

She added if the property valuation increase is just “a one-year fluke” and island property values go down in 2024, the property tax credit might mitigate impacts to landowners but not to renters.

“Because it is unlikely that landlords will decrease the rent after they have already increased it,” Kia‘aina said.

In addition, Kia‘aina asked about a “significant amount of homeowners” — up to 30,000 from 2019 till now, city staff asserts — who were, due to increases in property values, reclassified into a higher rate-paying class. Of those, many homeowners originally under the city’s “Residential” tax rate class — paying $3.50 per $1,000 of assessed real property value — had been placed into the “Residential A” class, whereby affected ratepayers now pay $4.50 to $10.50 per $1,000 of assessed value.

In response, Andrew Kawano, director of the city’s Department of Budget and Fiscal Services, said the city has “followed the process.”

“We did not specifically factor in the year-to-year change of homeowners that went from Res. to Res. A. We really just focused on who remained ‘Residential,’” Kawano said. “Because again the objective was to provide the benefit to homeowners that own one home, live in the home, have the homeowners’ exemption, and the flat credit really benefits the homeowners who have the lower-value homes more so than others.”

But Kia‘aina said the increase in property values was “out of whack,” and as a result many homeowners “inadvertently are now in Res. A.”

“And so I’m just bringing that to your attention because as we move forward I think we need to contemplate whether or not those homeowners deserve this tax credit,” she said.

Council Chair Tommy Waters also questioned the budget director, asking how much the city had gained in property tax revenues due to the reclassifications to “Residential A.”

“It generates significant revenue for the city,” Kawano replied. “We’re talking somewhere between $140 million to $150 million from Res. A; it provides a sizable amount of revenue for a relatively small class.”

Others from the community also spoke on the one-time tax credit.

They included Natalie Iwasa, a certified public accountant who said, “If you’re going to give this credit to anybody, it should be given to all of the residential homeowners.”

“If you give the credit to everybody, it doesn’t mean that it’s going to pass through and be given to the renters,” Iwasa added. “I don’t expect that. What I do expect is that that would mitigate the increase that these landlords are going to be facing, and that would mitigate the risk that the rent will increase.”

Ted Kefalas, representing the Grassroot Institute of Hawaii, said the measure would be useful in offsetting the county’s higher property taxes.

“But we do hope that the Council will at least bump the number up to at least $380, (so) that it offsets some of the higher assessments that we’ve recently seen,” Kefalas said. “The current proposal … would save the taxpayers about $45.5 million, which is less than the estimated $58 million that we stand to gain from property tax increases recently.”

However, he added that Bill 14’s one-time tax credit would be “useless for low-income homeowners.”

Later, Waters suggested moving forward Bill 14 — which the Council unanimously advanced to a second reading and public hearing — even as other measures have surfaced with the stated intent to give tax relief to residents. That includes Waters and Council member Radiant Cordero advancing their own joint bills.

According to a City Council statement issued Thursday, Cordero and Waters have co-introduced tax relief measures — Bills 24, 25, 26 and 29, none of which were under Council discussion Thursday — in order to provide relief for low-income kupuna, certain people affected by Residential A reclassification, and those renting out their properties long term (12 months or more).

“With the growing needs of our communities, providing timely relief and quality city services are critical,” Waters said in a written statement. “We need to take a closer look at what the city is doing with the increased funding and ensure we are considering long-term tax relief as part of the solution. The city is seeking to address the high cost of living and housing needs, so we are looking at tax relief that will provide respite for our kupuna, low-­income residents, and homeowners, as well as provide for the rental community.”

He added that Oahu’s rental community comprised about 40% of the island’s approximate 1 million residents.

Meanwhile, the city’s proposed budget bills are scheduled for a second reading on April 19, the city says. From there the Council’s Budget Committee will meet again for a special budget meeting May 15 and a third and final reading on June 7.