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The proposed laws aimed to change Honolulu’s tax code in ways that would allow the city to rake in more money, either by eliminating certain exemptions or reclassifying certain properties so they could be taxed at a higher rate.
The administration is billing the proposals as restructuring of the tax system and eliminating exemptions, but the effect is that they raise taxes. Honolulu has been struggling to find money to cover costs associated with collective bargaining, especially after the City Council killed the mayor’s nickel-a-gallon gas tax increase.
A number of the proposals also came from recommendations made in 2011 by the Honolulu Real Property Tax Advisory Committee, which was created to make the city’s tax code more equitable and efficient.
Only two of Caldwell’s bills passed — giving the city ample opportunity to pump millions more into its coffers — but there was one in particular that died an usual death.
Bill 34 was related to property tax exemptions for charities and nonprofits. Under the tax code this includes labor unions and their trust funds, which are some of the most influential organizations in Hawaii.
But under Bill 34 these labor groups — which give generously to political campaigns — might have been forced to pay the property taxes from which they have long been immune.
The administration, however, didn’t give the bill a chance. Instead, Caldwell asked the council in August to defer a bill he himself had introduced, confusing some on the council.
“It threw me for a loop,” City Councilwoman Ann Kobayashi said. “I’ve never had the administration ask that its own bill be deferred.”
Kobayashi heads the council’s Budget Committee and has been a harsh critic of Caldwell’s budget moves, whether it was the introduction of his gas tax or his handling of council earmarks for nonprofits.
She said the administration never made clear why it wanted to shelve Bill 34, and the only speculation she provided was that it might have had to do with the fact that labor unions were involved.
“I don’t know if it was the unions or what it was,” Kobayashi said. “He didn’t ask to defer any other bill, just that one. I guess he had some concerns.”
But Caldwell spokesman Jesse Broder Van Dyke says Caldwell asked the council members to put his bill aside after they unanimously amended the measure to once again exempt labor unions from having to pay property taxes. That amended version of Bill 34 was submitted by Council Chair Ernie Martin.
Had the bill passed, Broder Van Dyke said, the unions would still be “fully exempt from property taxes” while other non-charitable nonprofits — those not considered 501(c)3s under the IRS tax code — would be forced to pay the full property tax rate.
“Mayor Caldwell did not see this as good tax policy, and it ran contrary to the overall fairness and equity recommendations of the tax commission report,” Broder Van Dyke said. “Therefore, Mayor Caldwell recommended that the council defer this amended bill. Mayor Caldwell continues to pursue a fair and equitable solution.”
The Caldwell administration has been slow to provide details to Civil Beat on Bill 34.
In June, Civil Beat asked Broder Van Dyke for information on the revenue that Bill 34 would have generated and where it would come from, including a list of taxpayers and properties affected. Broder Van Dyke repeatedly asked for more time to respond, and this week finally provided a list of affected parcels and their assessed value.
But City Council members were provided weeks ago with a listing of all the properties that would be affected by Bill 34 as well as an estimate for how much money Honolulu could expect to raise should it pass.
Those records show that there are 46 parcels assessed at about $123 million that were owned by labor groups exempt from property taxes. Some of those union organizations included the Hawaii Government Employees Association, United Public Workers and the Hawaii Carpenters Union — the group behind the multi-million dollar campaign by the Pacific Resource Partnership to put Caldwell in office and keep the city’s $5.26 billion rail project on track.
Eliminating those exemptions under Bill 34 could have raised nearly $1.4 million in additional taxes. Another component of that bill — one that would have allowed the city to take away or reduce the exemption for 186 parcels owned by non-charitable nonprofits — could have raised almost another $2.6 million.
Bill 40 will eliminate a property tax exemption for low-income elderly — 75 and older — that increased as individuals aged. The justification is that 2,212 property owners affected by the change would be eligible for the city’s real property tax credit program. The bill is estimated to raise about $900,000.
Bill 42 brings in much more revenue for the city. The proposed law, which Caldwell championed and has said he will sign, makes it possible to increase the property tax rate on homes worth more than $1 million if the owner does not use it as a primary residence.
Only two council members voted against the measure — Stanley Chang and Ikaika Anderson — saying that a $1 million home in Hawaii is modest, even if it is a secondary residence. Chang and Anderson are both running for the same seat in Congress.
According to city records, a $1 increase on the base residential property tax rate of $3.50 per $1,000 for this new class of million-dollar homeowners would result in a revenue bump of nearly $10 million.
There are 5,676 properties that fall under the new property tax classification created by Bill 42. The total assessed value of those homes is $5.8 billion.
Here’s the financial breakdown the Caldwell administration provided to the City Council about the 10 property tax proposals:
Here’s the administration’s breakdown of the properties affected by Bill 34 and Martin’s amendments to the proposal: