City's property valuation method needs overhaul

THE ISSUE Mayor Mufi Hannemann is seeking a property tax rate classification for those who live in their own homes.

IN reviving a property tax proposal he submitted last year, Mayor Mufi Hannemann began taking the first steps on the financial treadmill the administration and the City Council jump on annually as they figure out how much money they need to keep Honolulu functioning, balanced by how much burden to place on taxpayers.

Already, residents are howling about the average 15.1 percent increase in their property valuations, the fourth successive double-digit rise since 2002. Even with exemptions and various credits, taxpayers are finding more of their money leaving their wallets at a time when income levels aren't matching the mounting costs of living. In addition, business property owners have been hit with an increase in their tax rates and even though Hawaii's economy has been strong, they, too, are feeling the pinch.

So the mayor and the Council have their work cut out for them in reconciling taxes and spending, but the underlying complaint -- at least from property owners -- is the method by which the value of their holdings is determined.

That method is to assess value based on recent sales of similar properties, and because home prices have shot up significantly in the past few years, valuations have similarly gone up.

The result is that even a modest home that hasn't been improved or enlarged gets caught in the dragnet when assessments are calculated. In fact, more than half of the $191.6 billion in property values for Oahu was set for single-family homes that were not renovated or expanded, but increased 11.5 percent anyway.

If property valuations are to be fair, officials must figure out a better way to establish them, but the Council and the administration have been mum on this approach.

Hannemann this week resurrected a plan he says will help by setting a separate tax classification for people who live in their own homes while taxing those who rent or lease to others at a higher rate.

Maui and Hawaii counties have similar classifications. On Maui, homeowners who occupy their properties pay about half the going rate, while on Hawaii, they pay about $2.40 less per $1,000 valuation.

The Council rejected the idea last time around and seemed cool to its reintroduction, primarily because rents, already at record levels, would further rise as owners pass on the extra tax.

As the Council and the mayor attempt to balance city spending and tax rates, they should also figure a way to stabilize valuations. The unanticipated year-by-year increases do not allow residents to plan for their financial security.