Several states have so-called “Truth-in-Taxation” laws designed to mitigate the sharp property tax increases like the ones Honolulu homeowners are facing.

When Andria Tupola first heard of a policy designed to prevent property taxes from spiking sharply when property assessments rise, she filed the idea in her head as an interesting concept not related to her job at the time. 

Then, Tupola was a Hawaii state representative trying to learn more about government fiscal policies at a national conference for state legislators held the Utah State Capitol. One presentation focused on Utah’s “Truth-in-Taxation” statute.

The law is based on the premise that property taxes shouldn’t increase automatically simply because property values rise due to a hot housing market. Instead, tax bills for homeowners generally remain steady unless elected officials explicitly raise the taxes, even if property values skyrocket. 

Fast forward to 2023, and spiking property taxes is suddenly a big issue for Tupola, now a member of the Honolulu City Council. She and her City Council colleagues are considering how to tweak Oahu’s property tax ordinances to address a storm of criticism from homeowners facing soaring tax bills.

On an island with a steep cost of living, such changes are especially hard on homeowners struggling to get by, particularly kupuna on fixed incomes.

Tupola says it’s time for Honolulu to start talking about a truth in taxation ordinance.

Homeowners in areas like Oahu’s North Shore and towns like Kahuku face property assessments of 20% or more, which are driving up their tax bills even as tax rates remain flat.

“It didn’t pertain to me when I first heard about it as a state legislator because we didn’t deal with property taxes,” she said.

But now that property taxes are the hot topic before the Honolulu City Council, she said, “this can be part of the discussion as well.”

Tupola’s idea is just one being proposed. Honolulu policymakers are scrambling in the face of mounting criticism from homeowners who pay the bulk of the taxes used to keep Honolulu operating.

bill proposed by Councilman Calvin Say, for example, could provide relief to some property owners by simplifying categories of residential properties.  A system that now classifies some properties as “Residential A,” which the city taxes at a higher rate, would be eliminated. Properties would be classified simply as “owner-occupied” and “nonowner-occupied.”

Meanwhile, council member Radiant Cordero also has proposed to modify the categories used to tax properties by, among other things, creating a classification system in which Honolulu would tax properties according to four tiers based on value.

Mayor Rick Blangiardi’s administration has floated the idea of giving property owners one-time tax relief, such as a refund, which would pay back taxpayers if tax collections exceed what the city needs to operate.

Honolulu City Council member Andria Tupuola.
Honolulu City Council member Andria Andria Tupola is planning to introduce a bill to boost transparency when the city increases property tax bills. (Cory Lum/Civil Beat/2022)

The reason for this flurry of proposals has been well documented. After a decade in which Honolulu’s property tax collections increased by more than 80% — to $1.51 billion in fiscal 2023 from $834 million in 2014 — city officials in December sent homeowners notices portending even bigger than usual tax increases in the next fiscal year.

The reason: sharply increased property assessments. Even if the city doesn’t increase property tax rates, many owners face escalating tax bills because officials have determined property values soared in the past year. On Oahu’s North Shore, for example, property assessments increased by an average of 20.4%.

Honolulu City Council member Matt Weyer says the changes are slamming residents in an area already known for a tight housing market.

“If it keeps going up at the rate that it is, people will not be able to afford to live here,” Weyer said. 

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The situation has led to absurd outcomes, says SharLyn Foo, a North Shore resident and secretary of the North Shore Neighborhood Board. A vacant lot she owns that’s used as a parking lot has been assessed for $3 million, she said.

She acknowledges that during the Covid-19 pandemic new residents came to the North Shore inflating the prices that are used to calculate assessments for neighboring properties. But, she said, the assessments simply don’t make sense.

“This is a fricking parking lot,” she said.

And it’s not just the North Shore. Assessments for the neighboring Koolauloa area that includes Kahuku and Kaaawa rose 18.4%, according to the city, while values rose 13.3% overall.

Despite the increase in assessments, it’s not yet clear how much additional revenue the city will raise, said Andy Kawano, Honolulu’s budget director. That will depend in part on the number of successful protests property owners file challenging their assessments. 

In addition, Kawano said, the Blangiardi administration still is going through the process of calculating how much it will need to cover a spectrum of city services, as well as pension and retirement benefits that eat up about 40% of the city’s budget each year.

Property Tax Collections Have Soared Despite Steady Rates

One thing that is clear is that property tax revenue has risen steadily the past 10 years. There are two basic reasons for this steady growth: increases in property assessments coupled with tax rates that have stayed the same. 

Technically, the residential property tax rates are not fixed, Kawano said. The City Council sets the rates every year and could lower the rates so the city collected only what it needed to cover expenses, Kawano said.

“They want to equate a tax increase with a rate increase, while they ignore the enormous increase in appraisals. That’s baloney. I’m writing a bigger check.” — David Trabert, Kansas Policy Institute

But he said it’s better to maintain the current rate, even if it means charging taxpayers more than the city needs, and refunding any excess revenue later money.

The reason, Kawano says, is that it’s too hard to increase rates later once they are lowered.

Policymakers “don’t want to go backward” in the tax rate, he said

Policies like the one Tupola proposes take the opposite approach. They start with the idea that property taxes shouldn’t increase simply because residential property values rise due to soaring home prices. 

Accordingly, under such laws, revenues generally remain neutral. That means tax rates are generally required to go down if assessed home values soar.

Taxing authorities, such as the City Council in Honolulu, can increase rates – and thereby increase revenues. But a key provision is that if a taxing authority wants to increase taxes on homeowners it must do so transparently with notice and public hearings.

“I think that’s fair,” Tupola said. “If there’s any increase in taxes, why would you not have to notify the public about it?”

The overarching idea is to be honest with the public that government officials are raising peoples’ taxes, says David Trabert, chief executive of the Kansas Policy Institute.

The organization helped Kansas lawmakers adopt a property tax transparency law in 2021 with a message that local policymakers were simply not being honest, claiming that they were “holding the line” on property taxes even while they were sending bigger bills each year to homeowners.

“They want to equate a tax increase with a rate increase, while they ignore the enormous increase in appraisals,” Trabert said. “That’s baloney. I’m writing a bigger check.”

He added: “There’s a saying some of the farmers here have, which goes, ‘Don’t tell me it’s raining outside when your dog is whizzing on my boots.’”

Despite rates remaining stable, increases in property assessments have driven property tax collections in Honolulu up more than 80% in the past decade, rising from just over $800 million in 2014 to over $1.5 billion in fiscal 2023. Skyrocketing assessments suggest the increases in 2024 will exceed those of recent years.

Tupola admits getting a Kansas-style bill passed in Honolulu will be hard. Except for Minnesota, the other states with truth-in-taxation laws – Utah, Tennessee, Texas and Kansas – are red states, although Tupola notes Kansas’ Gov. Laura Kelly, a Democrat, signed the state’s bill into law.

“I don’t think it’s a Republican issue as much as it’s a fiscal transparency issue,” she said.

Still, even some Hawaii conservatives don’t embrace the idea. 

Jonathan Helton, a policy researcher with the Grassroot Institute of Hawaii, said Utah’s truth in taxation law has created unintended consequences. It can be expensive for cities to provide public notice to taxpayers, for example, Helton said. In addition, he said, cities have refrained from going through the notice-and-hearing process for years only to slap residents with an abrupt unexpected increase.

“The best thing to do is just slash the rate,” Helton said. Specifically, he said, the organization would call for reducing the standard property residential rate by 29%, to $2.50 per thousand or .25% from $3.50 per thousand or .35%, and cut spending.

Meanwhile, Kawano, the Honolulu budget director, said fluctuating tax rates could hurt the city’s bond rating. In any case, he said, now’s not the time for big changes

“We're in a difficult time now," he said. "If we do things that are out of the ordinary, there can be unintended consequences."

For now, Tupola said it might be easier to pass the measures Say and Cordero have introduced, or to increase the exemption for owner-occupants, which is now $100,000 and $140,00 for seniors 65 and older.

Still, she said, with the increases in property taxes showing no signs of slowing amidst ever-increasing home prices, Tupola said it’s time for broader changes, even if the changes are difficult to adopt and implement.

“I think the excuse that it’s too hard … well, everything is hard in life,” she said.

"Struggling To Get By" is part of our series on “Hawaii’s Changing Economy” which is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.

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