Are property
owners winners or
losers in city budget?

Owners are winners,
says the mayor, but the
Tax Foundation says not

By Pat Omandam
Star-Bulletin

The way Mayor Jeremy Harris sees it, Oahu property owners are winners in the new city budget because they won't have to pay any more in property taxes to maintain current services.

But Lowell Kalapa of the Tax Foundation of Hawaii believes residents are being hurt by the city's policy of adjusting real property tax rates to generate the same amount of money as last year.

The status quo is not good enough, he said.

"This is hardly a time to suggest that the city should carry on business as usual and deliver the same level of services," Kalapa told the City Council in a June 9 letter.

Whether Oahu residents are winners or losers under next year's real property tax rate plan -- which directly affects the city budget -- depends on who's talking.

Harris insists property owners will not pay any more in real property taxes. Rather, the city is simply adjusting its tax rates in each land use category so that the total property tax revenue generated in fiscal year 2000 is the same as this year and last, $393 million.

Property tax assessments and rates determine the amount of property taxes paid.

Harris yesterday said city property tax revenues have fallen from $432.7 million in 1994 to $393 million in 1998, as tax rates stayed the same. Since 1998, Harris has made it policy to adjust the rates annually so the city continues to receive $393 million.

To do so, the city takes the percentage that property values have declined and increases the tax rate by the same percentage to get a "revenue neutral" result. For example, property values for apartments have dropped by 13 percent this year, so the city has raised the tax rate in this category by 13 percent.

Controversy over this plan ignited this week when three Council members ran a newspaper ad Monday saying property taxes were going up. Following that, a Honolulu coalition of business and residential property owners said they wanted the city to find other ways to balance the city budget than by changing property tax rates.

Under the tax rate plan passed this week, the city will take in $392.8 million in fiscal year 2000, which is slightly less than the $393 million raised in fiscal year 1998.

"People are saying, 'We should have a tax cut because the value of my property went down,'" Harris said. "Well, we just can't afford to continually give a tax cut year after year."

"There's not any class of property that is going to experience a tax hike. In fact, as you can see, we will bring in slightly less than what we brought in last year," he said.

Even so, Kalapa said the city doesn't mention that while real property values were rising in the late 1980s and early 1990s, the Council did not lower rates so that the same amount of money was brought in year after year.

"Instead, the Councils of the time lived off the windfall, and the administration added more and more items to the city's budget plate," he said.

Like the state, the city went all out to spend that money, creating new positions and adding new services. Both the state and county governments grew too fast and now "seemingly cannot be reigned in," he said.

Kalapa said that with a weakened economy, even paying the same amount of taxes as last year may be the last straw for some businesses or homeowners. The solution is to reduce the size of government.

"Doing business as usual and raising the same amount of money as last year does nothing more than perpetuate the downward spiral of this economy," Kalapa said.

Many fees to increase

The City Council on Wednesday passed a handful of bills and resolutions tied directly to the fiscal year 2000 city budget. They include:

Collection and disposal fee increases: Oahu restaurants and businesses that pay to have their commercial waste taken to city landfills or the H-Power plant face fee increases on July 1, 2000. The per-ton charge to dispose at the landfills or plant will rise to $78 from $60. The cost at transfer stations will rise to $107.75 from $86.50. Also, the surcharge for the service will increase to 12 percent from 6 percent. Council members, however, have pledged to work out a smaller fee scale before the bill takes effect.

Tax exemption for new hotel construction or renovation: The seven-year exemption for work done in the next three years was praised by hotel officials, who said it will encourage reinvestment in Waikiki's infrastructure and help stir up the economy.

User fees: The Council passed three bills that increase fees for building, electrical, plumbing and sidewalk code permits; fees for permits and services by the Department of Planning and Permitting; and fees relating to motor vehicle registration.