HILO — Some farmers and ranchers are feeling the pinch as Hawaii County tightens loopholes in its generous property tax breaks for farmers and ranchers.
The agriculture programs account for 10,765 parcels totaling $39.6 million in revenue lost annually to the county.
Property in the program is valued for tax purposes at anywhere from $14 to $4,000 an acre, depending on its use and owner’s commitment to a short-term or long-term program. That’s regardless of the property’s real value.
“Targeting abusers of this system is an admirable goal, but changes to the programs must be done carefully to avoid negative impact on those the programs are designed to benefit,” said Peggy Farias, chief financial officer of W.H. Shipman Ltd., which has between 3,500 and 5,000 acres of ag land licensed to farmers and in active production.
“Any changes that have a negative impact on honest landowners making land available for ag rental will have a negative impact on farmers and the ag industry,” she told the County Council Finance Committee at a workshop Thursday.
Some farmers and ranchers feel as if they’re being forced into a preset formula that doesn’t necessarily reflect the realities of the field. For example, ranch land must be fenced, under the county’s rule, in order to qualify for the lower price valuations that are meant to encourage farming and ranching, said Kyle Soares, a Ka‘u rancher representing B.K. Livestock Co.
“Property tax increases are happening right now,” Soares said. “It’s costing a lot of people a lot more money at a time when commodity prices are plummeting.”
Several farmers and ranchers said disallowing the tax breaks could send more of their land into development.
“We have to provide incentives to have cheaper tax rates to encourage future generations,” Soares said.
It’s a conundrum. How does the county ensure farmers and ranchers pay their fair share of property taxes, while at the same time, provide incentives to keep land in agriculture, or at least, undeveloped?
The Finance Committee spent almost four hours Thursday studying the issue, drawing in stakeholders to help determine how best to structure the tax system.
Cracking down on scofflaws was one of 40 recommendations in a 2012 outside audit of the tax system. The council has been grappling with the issue ever since, unable to come up with a plan that most people agree on.
Both Kohala Councilwoman Margaret Wille and Puna Councilman Greggor Ilagan have introduced bills. Wille’s Bill 218 seeks to further regulate one of the categories of agriculture exemptions, the so-called “nondedicated” program, to ensure land owners are meeting the criteria for the tax breaks.
“It’s balancing the objectives,” Wille said. “It’s helping the farmers. By helping farmers, we’re helping the common good.”
It’s also to make the system more equitable by closing loopholes, she added.
“Why is it that some people on ag zoned land and they have a fence and they pay $100 and I’m paying $2,500?” she said constituents ask her.
Ilagan’s Bill 219 is looking at leaving the current programs intact, but increasing enforcement of the current rules.
“We can fix the problem of gentleman farming abuse,” Ilagan said. “I’m looking to fix a problem; I’m not looking to reform the whole program. If something is not broken, don’t break it.”
The county has stepped up inspections significantly, said Real Property Tax Administrator Stan Sitko. He said parcels islandwide are inspected on average every six years.
But he said his agency needs tougher rules.
“You have a goat on five acres — It’s legitimate,” Sitko said. “The question is, what are we enforcing?”