HILO — Property tax rate hikes passed by the Hawaii County Council late Monday pack a wallop for residential and apartment properties, while sparing homeowners and affordable rentals from increases.
Four other categories remained at Mayor Harry Kim’s proposed 6.5 percent increase, and one, agriculture, increased a scant 1.1 percent, reflecting a council priority of protecting farmland in addition to protecting homeowners and the most vulnerable.
The council passed the rate hikes and trimmed $400,000 off Kim’s proposed $491.2 million budget during a marathon day that ended just minutes before midnight.
Council Chairwoman Valerie Poindexter, who represents Hamakua, said the more than 12-hour day of crunching numbers and reaching compromises was a great exercise, rather than simply accepting Kim’s proposals as presented.
“Of course, no one wants to raise taxes,” Poindexter said. “But there was no other way to balance the budget.”
Kona Councilman Dru Kanuha voted no on both the budget and the tax hikes.
“I don’t feel we reduced enough. I thought more cuts needed to be done before we even think about raising taxes,” Kanuha said Tuesday. “In addition, I felt that the proposed tax rate increase will put an undue hardship on the Kona community.”
Puna Councilwoman Eileen O’Hara also voted no on the property tax hikes.
The tax rates are final and effective for the property tax bills that go out next month, with payments due Aug. 21. The operating budget goes into effect July 1.
While Kim has no veto authority over the tax rates passed by the council, he can veto the overall budget or parts of it. The mayor said Tuesday he will get a line-by-line briefing of the budget before deciding. So far, he said, he’s inclined to let it go into effect.
“I really believe in the system,” Kim said. “If you don’t believe in that, why have a council?”
Kim and the council said most of the county’s expenses were outside their control. Pay hikes decided at the state level and mandated increases to payments into the retirement system, combined with a decrease in the county’s share of hotel taxes collected by the state, caused a $20 million shortfall. Kim had ruled out layoffs and unpaid furloughs, opting instead for tax hikes.
Bill Walter, president-elect of the Hawaii Island Chamber of Commerce, said he and the chamber understand the process is difficult. Still, he said, the business community is concerned the size and cost of government is increasing faster than the population and the economy.
“We have a continuing concern with the growth in the budget itself,” Walter said.
Kona Realtor Gretchen Osgood bristled at the 10.4 percent increase in the tax on residential properties, the only class to take a double-digit percent increase.
“Unfortunately, this new rate will put an undue burden on residential real estate, typically known as investors, which in turn means rents will be going up yet again. The residential rate was raised the highest amount of any category, a full $1.05 in comparison to the other rates the highest of which was just 85 cents,” Osgood said.
She said the category doesn’t comprise just second homes for off-islanders.
“It is one of the few tax brackets that doesn’t get to vote to elect our officials so it is the one they feel free to increase without ramifications, which they did last time there was an increase a few years ago,” Osgood said. “However, that would be incorrect thinking. This category holds long-term rentals, vacation rentals, and second homes.”
Walter agreed that the residential and apartment categories are important for residents who, for whatever reason, can’t buy a home but make too much money for subsidized housing. Those people will bear the brunt of the tax hikes that will be passed down by the owners of the houses or apartment buildings, he said.
Raising taxes on commercial properties not only hurts the mom and pop businesses, but also the big box stores that nationally, have been reducing the size of their brick and mortar stores in favor of online sales. That reduces local job opportunities, Walter said.
“The Kona-Kohala Chamber of Commerce is reviewing the property tax increases set forth by the County Council and the implications they may have on the West Hawaii business community,” said Executive Director Wendy Laros.
The council took $225,000 from the estimated carryover balance of this year to maintain the council contingency fund at $675,000, giving each council member $75,000 to spend on projects of their choosing. It allocates $1.5 million to be spread among nonprofits in a competitive process.
The council removed $450,000 from the budget slated for one of two new buses for the beleaguered Mass Transit Agency. Another $115,000 came from eliminating the proposed position for deputy Information Technology director and unfunding a clerical position in the Office of Corporation Counsel.
The council added $3 million to revenue by raising the minimum property tax before exemptions from $100 annually to $200, as requested by the administration. It saved another $450,000 by defeating Kim’s proposal to add two age exemptions for those over 75 and over 80 years old.