The City Council is hesitating in approving Mayor Mufi Hannemann's proposal to lower property taxes for residents living in homes they own, for good reason. Owner-occupants already are given a property tax break and that can be changed if it is failing to achieve the desired result.

Rix Maurer III, the city budget director, told the Council last week that creation of a “;homeowner”; class tax rate would be aimed at distinguishing between owner-occupants and non-resident owners such as speculators, investors and owners of vacation homes.

The system already gives owner-occupants a break by reducing the taxable value of the property by $80,000, by $120,000 for those aged 65 and an additional $20,000 for each 10 years beyond 65. Owners must reside at the property for at least 270 days a year, which would seem to rule out speculators, investors and vacation home owners.

The city ordinance does not state the tax rates for various kinds of property. The City Council determines that with each approaching fiscal year. For the current period, the Council approved a 13-cent increase in the residential property tax rate, setting it at $3.42 per $1,000 in value, so the owner of a home assessed at $600,000 pays $2,042, while an owner-occupant under age 65 pays $1,778, a tax break of $264.

Hannemann's proposal would keep the exemptions intact, but the city could establish a lower overall rate for owner-occupants, and that is apparently what troubles some Council members. Chairman Todd Apo argues that fewer people are likely to invest in rental properties “;because they have a higher tax burden. The long-term effect of that is going to be a lower supply, and therefore a push up in rental prices.”;

Apo describes the proposal as “;political niceness”; to home owner-occupants who are voters, assured that their rates will “;never go up and everything else gets borne by the residential (rental) properties.”; The extra billing would eventually fall to the renters, who also vote. The tax on the category of homes they rent presumably would exceed that of owner-occupants.

Maurer told the Council that he does not expect rental rates to rise because of the tax hike, but the administration is prepared to support legislation to provide renters with a tax credit if they do. Essentially, that would mean the city would raise the tax on an owner of rental property, the landlord would hand off the cost to the renter and, to complete the circle, the renter would get a tax break from the city.

The administration points out that the neighbor islands have had the separate class of owner-occupants since at least 1994. The Council and the administration should take a close look at those experiences to determine if the circular process would be an improvement over the current system.