Kauai’s housing
price boom brings
mixed blessingsCounty coffers are growing,
but some say they're being
taxed out of their homes
LIHUE >> While the City and County of Honolulu faces a revenue shortfall, Kauai County has so much increased tax revenue pouring in that officials had to hustle to spend it all.
The reason Kauai's treasury is overflowing while Honolulu's cash box is imploding is not hard to spot: Property values on Oahu have declined dramatically over the past decade, while property values on Kauai have skyrocketed since the current housing boom began in late 1998.
Despite the recent run-up in home prices in Honolulu, the total value of all property on Oahu dropped to $73.6 billion this year from $86 billion in 1994, according to the Tax Foundation of Hawaii. That is a decrease of 17 percent over the 10-year period.
Total taxable property value on Kauai was at a post-Hurricane Iniki low of $4.7 billion in 1994 and remained pretty flat until 2000, when the total valuation took off. This year it stands at $6.5 billion, a 39 percent increase over a decade ago. And next year it is forecast to climb an additional 12 percent to $7.3 billion.
By comparison, Maui County is second to Kauai in valuation growth at 32 percent over the 10 years, while property value in Hawaii County increased only 8 percent over the same time period.
The sudden riches for Kauai carry almost as many problems as Honolulu's shortfall. Taxpayers who have seen their annual property tax bill triple (and, in some cases, quadruple) over the past three years are showing up at Kauai County Council meetings to protest.
Ray Chuan, a community activist, has pushed for a Proposition 13-type valuation freeze as imposed in California nearly two decades ago. The Council turned him down last year, but he's back.
County property tax collections on Kauai, with very little growth in the population, increased 47 percent over the past 10 years (vs. 33 percent on Maui, 16 percent on the Big Island and a decrease of 10 percent on Oahu).
"We're riding a valuation bubble, and the bubble is forecast to expand for the foreseeable future," said county Finance Director Steve Tresler.
The real estate boom that caused the valuation increase is a result of a huge demand for homes coupled with a very small supply of residential property.
In the late 1990s, the rich rediscovered Kauai as a place for high-end retirement homes and vacation rentals as investments. They jumped into the housing market.
Property valuation for tax purposes is based on the sales price of similar parcels in similar areas, so longtime residents in areas that have been transformed almost overnight into multimillion-dollar neighborhoods have watched in horror as their tax bills escalate.
"Those of us who bought our houses 30 years ago are being taxed out of our homes," said Arnold Nurock, of fashionable Anini Beach on Kauai's North Shore, which has seen a steady influx of wealthy property buyers. Nurocks' tax bill has tripled in two years.
So far, tax protesters have been unable to persuade the County Council and the Mayor's Office to help them.
Last year, an election year, the County Council passed and then Mayor Maryanne Kusaka signed a "circuit breaker" designed to give tax credits to property owners on limited incomes who are facing rapidly escalating tax bills.
The result? A grand total of 61 property owners received tax relief that, when added together, came to $68,000, according to the Kauai County Finance Department.
Both the new Council and new Mayor Bryan Baptiste avoided the tax issue this year. Not a penny of the fiscal 2004 county budget is earmarked for tax relief.
Before the budgeting process even began, the Council passed a resolution vowing it would not increase the current tax rates. And last week, when it gave preliminary approval to the final budget, it kept its word. The tax rates remained the same.
While one variable in the property tax formula, the tax rate, remains unchanged, the other variable, total assessed valuation, will take a 12 percent leap next year. Translation: The average tax bill on Kauai will go up 12 percent next year even though the Council and mayor "held the line on taxes."
The mayor and the Council have appointed a blue-ribbon task force mandated to recommend an overhaul of the county's property tax ordinance. It met for the first time Thursday. But that process, especially if it requires voter-approved changes to the County Charter, could take years.
The task force is being asked to reconsider the whole philosophy behind the property tax, which is basically that someone who owns a $2 million piece of property should pay twice as much in taxes as someone who owns a $1 million piece of property.
But at the same time, longtime property owners do not want to pay taxes on the recent and rapid increases in their property values.
"It's kind of mind-boggling," said Dottie Bekeart, former deputy county finance director and a member of the task force.
There is no doubt, she noted, that if a homeowner's taxes have tripled, it is because the value of their property has tripled and thus their wealth has tripled.
Chuan, who also is on the task force, argues that much of the problem is that during the current real estate boom, Kauai County spending has kept pace with the current trend of growing revenues.
That, Chuan said, is because the County Council essentially gives the mayor whatever he wants, and any differences are massaged behind closed doors.
This year the administration asked for $97.7 million and received $97.3 million. If there were even minor disagreements between the two branches of county government, there was no public discussion of them, Chuan noted.
By contrast, the Honolulu mayor and City Council are deeply divided over the budget, and property tax and fee increases are positioned for passage.
On Maui the Council and mayor also were at odds. The Council threatened to chop $13.7 million from Mayor Alan Arakawa's $332.5 million budget proposal but passed a gasoline tax increase, an apartment property tax increase and a trash collection fee hike.
When Kauai County officials suddenly discovered on May 8 that tax revenues next year will be $2.4 million (or 5.3 percent) more than forecast when the mayor submitted his budget on March 14, the county simply found $2.4 million worth of new things to buy.
Among the items added to the budget were an additional $553,000 worth of improvements to county offices and $300,000 for a rubberized running track at Vidinha County Stadium.
County of Kauai