Delays burden
city tax appeals

Property owners have not had
hearings on disputed assessments
in over 2,800 cases

Like hundreds of other perturbed property owners, Stanley and Doris Ditus believe the city has botched the way it estimates the value of their Waikiki apartment for property-tax purposes.

The couple filed an appeal two years ago and again last year, disputing the city's annual property-tax assessments for their Ilikai unit. Along with a few thousand other property owners, the Dituses also intend to contest the most recent valuations received last month. Owners have until Jan. 18 to file appeals.

Although the couple filed their first challenge in 2003, they're still awaiting a hearing on the dispute. And they've got plenty of company.

The city has a backlog of more than 2,800 cases in which property owners have yet to have their appeals heard by the two boards that rule on such cases.

Roughly 300 of those appeals are from 2002, about 600 are from 2003 and more than 1,900 of the nearly 4,000 appeals filed last year still must be heard. The new cases coming in this month are expected to tax the system even more.

The backlog is jamming the appeals process to such a point that critics say the system is failing, denying citizens due process in a timely fashion.

DENNIS ODA / DODA@STARBULLETIN.COM Doris and Stan Ditus stand on the balcony of their Ilikai apartment in Waikiki. The couple has appealed the city's annual property-tax assessment of their apartment for the past two years, saying it is high compared to neighboring units.

"I think it's disgraceful," said Stanley Ditus, an attorney and former administrative hearing officer.

"As they say, justice delayed is justice denied," said City Councilman Charles Djou, whose district includes Waikiki, where many of the disputed property-assessment cases are from.

Djou said it is unacceptable that property owners are getting new assessments before their appeals from previous years are heard.

The city acknowledges that the backlog has meant hundreds of owners have been waiting, some as long as three years, for their cases to be reviewed.

But Gary Kurokawa, administrator for the Real Property Assessment Division, said he hopes to have the majority of the backlog cleared by the end of June, in part by assigning a second appraiser to the Waikiki area to focus on appeals.

For new Oahu appeals filed by this month's deadline, Kurokawa said his goal is to have the bulk of those cases resolved by the end of June 2006, with some of the more difficult ones perhaps taking longer.

Some property owners dismiss such projections as little more than pipe dreams.

"These goals seem extremely unrealistic based on past performance," said Ed Conklin, a director of Diamond Head Apartments in Waikiki.

The apartment coop, which is taxed as one project, has filed appeals each year since 2002, but it has yet to be scheduled for a hearing. Over that period, its assessment has more than doubled.

Every December, the owners of roughly 240,000 parcels on Oahu receive notices detailing what the city believes are the fair market values for their respective properties. Property taxes are based on those assessments.

The average value of homes on Oahu jumped 26 percent, according to the latest assessments, meaning property tax bills will go up significantly for many homeowners this year unless the City Council lowers tax rates.

By law, property owners have until mid-January to appeal their assessments.

Appeals surged last year to more than 3,900, an increase that coincided with rapidly rising property values. The more typical level in recent years -- with the exception of 2002 -- has been around 2,500.

Kurokawa said the appeal backlog has developed partly because of difficulties his office has had dealing with properties in Waikiki.

Twice in the past three years the appraiser assigned to that area has left, creating delays as a replacement gets up to speed in handling the complicated factors involving Waikiki, including the mix of fee and leasehold properties, according to Kurokawa.

Also, litigation dealing with Waikiki assessments has contributed to the delays, he added.

"It's a tough area," Kurokawa said.

Assessment division resources also have remained relatively unchanged over the past 10 years while the number of parcels the office is responsible for throughout Oahu has increased, he added.

"Basically, your assessment program is only as good as its funding," he said.

Although Djou says all appeals should be heard in the same year they are filed, to be fair to property owners, the city says the current system is not capable of achieving that timetable.

"The process we're using doesn't do it," said Robin Freitas, property technical officer for the assessment division.

Some measures that Djou and others say should be considered to help the system become more effective would be to add a third board to hear appeals and to increase the compensation to the volunteers who serve on them. Currently, board members are paid $25 a meeting, and each five-member panel meets twice a week during the afternoons to hear cases.

As many as 20 to 30 appeals can be placed on the agenda for each meeting, according to Freitas.

Higher compensation may help solve the quorum problems that the boards have faced in the past, Djou said.

But skeptics say the city has no incentive to hear appeals on a timely basis because that could result in less tax revenue. Property taxes are major funding sources for the city.

"The tax assessor's office not only has zero incentive, it has negative incentive," Conklin said.

Kurokawa disagreed. He said the city isn't allowed to include all of the disputed amounts in its budgeting. Based on the difference between the city's contested assessments and what property owners believe are the correct amounts, the city is required to include only 50 percent of that difference, Kurokawa said.

If a property owner wins an appeal and gets a lower assessment, the city must refund any overpayment of taxes.

Even if the city is able to eliminate the appeal backlog, some property owners say a problem of inaccurate and unfair assessments still would exist.

Property owner Charles Scott said he has uncovered so many errors in past assessments that he's reluctant to look closely at his current one. "I'm afraid I'll find something wrong, and then I'll have to deal with that. It's such a hassle."

Ditus said his Ilikai apartment was valued at between $324,000 and $344,200 the past three years even though an identical unit next door was assessed at $90,000 in that same period. Such disparity raises constitutional questions about unequal treatment, Ditus said.

At Diamond Head Apartments, a sixth-floor unit sold fee-simple for about $1.5 million on Oct. 21, 2004. Yet the city assessed the market value of that apartment as of Oct. 1, 2004, at $2.12 million, more than 40 percent over what it sold for a few weeks later, according to city and real estate records.

Examples with similarly glaring disparities can be found in the complex, Conklin said. "This is the kind of thing that makes you wonder what they're looking at (in making assessments)," he said.

Freitas said he wasn't familiar with either of the Ilikai and Diamond Head examples.

But he said the city's current system of developing mass appraisals works well and is better than the old system that was used until about five years ago.

The new system is more market oriented and better reflects actual values, Freitas said.

Mardi Kersting, who heads one of the review boards, also said people should keep in mind that the city's mass appraisal system is not designed to do individual appraisals but evaluates neighborhood-related factors, such as sales data, to establish assessments.

She praised the quality of work coming from the assessor's office. "They work very hard and do a good job."

But attorney Roger Moseley, who represents Waikiki Shore condo owners who are appealing their assessments, said the assessor's office has knowingly issued artificially inflated and erroneous assessments. Moseley also represents a former city appraiser who last year sued the city, making similar accusations.

The city has denied the allegations.

In the Waikiki Shore case, the Hawaii Supreme Court has issued a ruling that in effect permits the tax review boards to ignore the rules governing administrative agencies, according to Moseley. Among other things, such rules are designed to ensure fairness in contested cases heard by agencies.

"There's not squat you can do if (the board) breaks the rules," he said.

The high court indicated that property owners can raise procedural issues with the state tax appeal court, another option property owners have for challenging assessments.

On smaller cases, owners generally appeal to the boards first. The court option can be more costly.