The two bills are meant to act as quick relief, with more comprehensive measures still in discussion.

Property owners are on track to receive extra tax relief next year, which city officials hope will mitigate the recent and rapid rise of property taxes for many residents due to market forces driving up home values.

The Honolulu City Council passed two bills on Friday, both of which basically expand existing forms of tax relief. 

The first, Bill 37, raises the income threshold to receive a property tax credit from $60,000 to $80,000. This credit limits the amount of property taxes owed to no more than 3% of a filer’s income.

The second, Bill 40, increases a property tax exemption from $100,000 to $120,000 and from $140,000 to $160,000 for individuals aged 65 and up. This lowers the amount of money that a filer is taxed on.

Honolulu City council chair Tommy Waters meeting
Honolulu City council chair Tommy Waters emphasized the deadline to apply for the tax credit, which is Sept. 30. Apparently, many taxpayers had been unaware that it existed, fueling the council’s desire to conduct more public outreach. (Kevin Fujii/Civil Beat/2023)

These forms of relief accompany an additional $350 tax credit that the council approved in June, also with the intention of easing property tax payments.

While the Department of Budget and Fiscal Services determined that increasing the exemption adjustment will cost the city $10.6 million, it’s unclear how much the tax credit’s higher income threshold will affect city finances.

Mayor Rick Blangiardi must sign the bills for them to become law. Spokesman Ian Scheuring was unable to provide comment Friday afternoon on the mayor’s position, saying that Blangiardi was busy meeting with Deputy Defense Secretary Kathleen Hicks and other military personnel.

“We’re hoping that the mayor will expeditiously pass this so we can start notifying taxpayers,” council member Esther Kiaaina said during the meeting, expressing concern that many eligible taxpayers hadn’t been aware of the credit in prior years.

Council Chair Tommy Waters said that if the bills are signed, eligible homeowners will have to apply for the credit by Sept. 30.

‘The Beginning Of The Conversation’

Honolulu’s property tax rate is exceptionally low relative to other major U.S. cities. 

In 2020, when Washington, D.C., was studying how its tax scheme compared to 50 other cities, Detroit’s property tax rate ranked the highest at $3.26 per $100 of assessed value. Jacksonville, Florida, ranked 16th with a rate of $1.78 per $100. Las Vegas’ rate of $1.12 per $100 put it at 37th, and Seattle’s rate of 82 cents per $100 ranked it 46th.

Ranked 51st – the very bottom – was Honolulu, with a rate of 35 cents per $100 of assessed value.

That’s little consolation to many homeowners here.

Property values climbed rapidly during the past few years, increasing the amount that homeowners owed in a city where groceries are already more expensive than they would be on the mainland. Council members took note.

In April, four of them joined together as a permitted interaction group – which allowed them to discuss complex topics without being constrained by the Sunshine Law – and presented their findings during June’s full council meeting.

The two bills passed on Friday were what the group recommended for immediate action, giving property owners quick relief to counter the quick increases to their property tax bills.

A hypothetical 50-year-old homeowner, for example, might make an annual salary of $70,000 and own a house worth $900,000.

Previously, that homeowner would be eligible for an exemption of $100,000 — meaning they would pay taxes as if their house were worth $800,000 — but would not be eligible for the tax credit.

If these bills are signed, that homeowner would now be eligible for an exemption of $120,000 — meaning they would pay taxes as if their house were worth $780,000 — and would pay no more than 3% of their income on property taxes.

These changes could save the homeowner $700 each year.

Pupukea 3 Tables North Shore Aerial.
Many of Oahu’s houses sharply increased in assessed property value during the last few years, especially on the North Shore. (Cory Lum/Civil Beat/2018)

According to the report, the Department of Budget and Fiscal Services was able to calculate how much money the exemption raise would cost the city but not the tax credits. This is because the city does not collect and store data on homeowner salaries, so it’s unclear exactly how many people would qualify.

Council members also stressed that the tax credit’s income threshold could be looked at more often. The last time it was updated was in 2014, when the threshold was raised from $50,000 to $60,000. Raising it to $80,000 now brings it back within the range of 80% of the city’s area median income, but council members like Radiant Cordero and Kiaaina said it had been too long without an increase.

Grassroot Institute director of strategic campaigns Ted Kefalas testified that the council could index the threshold to inflation so it wouldn’t have to be manually updated.

But Kiaaina said that she had introduced a bill that would pin the threshold to area median income, which fell through when BFS testified this would make it too difficult to project yearly revenue streams.

Another major recommendation of the PIG’s report is to provide incentives for second properties to be used for long-term rentals rather than sitting vacant.

This would be a heftier step, one that would likely involve restructuring the existing system to add a third category of residential properties.

“I believe this is the beginning of the conversation,” said council member Matt Weyer.

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