[ OUR OPINION ]

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Hannemann, Council face
huge budget challenge

THE ISSUE A vigorous real estate market has driven up Oahu property values and tax assessments.

WITH the value of their properties rising an average of 26 percent, Oahu homeowners can anticipate their tax bills will increase likewise. The City Council and the incoming mayor will have to figure out a way to balance the city's critical fiscal needs without straining residents' pocketbooks or worse, pricing them out of their homes.

Mayor-elect Hannemann, who campaigned on limiting the city's spending to necessities, says he will consider a proposal from Council budget chairwoman Ann Kobayashi for a tax relief measure similar to California's Proposition 13. Both should be cautious of that idea, given the problems California has encountered.

In 1978, Proposition 13 put a low cap on property taxes except for new homeowners. Twenty-six years later, many Californians living in small houses pay more taxes than mansion millionaires. The regulation suffocated state spending and forced government to find other ways to tax people to pay for services they continued to demand, negating the relief it was supposed to provide.

Such caps here could limit the city's flexibility to raise revenue and bring down the quality of services residents prize, but officials will have to reckon with increased tax assessments that have accompanied Oahu's hot real estate market.

The biggest rises came in areas where many low- and moderate-income families live. Along the Waianae Coast from Nanakuli to Makua, where second-home buyers have been snatching up property, assessments for single-family residences rose almost 40 percent while condo properties rocketed by 46.5 percent. On the North Shore, values went up 46.4 percent for single-family homes and 29.7 percent for condos.

Even in urban Honolulu's long-established neighborhoods, where ownership stability and unavailable space limit new investment, assessments grew between 19 and 24 percent.

Though the Council has vowed not to raise residential tax rates, it boosted by 7 percent the city's draw from commercial, industrial and hotel properties, which also saw valuations rise, to lift revenues last year. If the Council, which must set rates before July, leaves rates flat, the higher valuations will still mean larger tax bills for residents and businesses.

However, the city has struggled greatly in recent years to meet its budget demands. If, as Hannemann suspects, his review of the city's ledgers reveals "serious problems that haven't gone away," the new mayor and the Council will have their hands full with a politically unpleasant task, namely raising taxes.

This, coupled with a looming increase in sewer fees, could blemish Hannemann among taxpayers early in his term. But as the population grows, so do residents' needs. Hannemann cannot shy away from the tough decisions if Honolulu is to remain a livable city.