News of generous pay increases granted to police officers sent shock waves through the ranks of city and county officials statewide, generating calls for “revenue enhancements,” also known as tax increases.
Those increases will probably not occur immediately — county budgets and real property tax rates for the current fiscal year are already in place — but given the magnitude of the pay raises, contracts that have yet to be settled or negotiated for the “out” years will require elected county officials to search for new revenues.
While the prospect of raising new revenues strikes terror in the hearts of taxpayers, it brings images of political suicide to the minds of elected officials. The problem is that elected officials have allowed local government to grow beyond the core functions that were originally its province when state and local government functions were reorganized in 1965. At that time, responsibility for the education and health systems was turned over to the state, and the counties were given functions that were unique to their geography, such as public safety, sanitation and community recreation.
The counties, however, were denied any major revenue source. When the second state Constitutional Convention was held in 1978, counties promised delegates they would leave state policymakers alone — not beg for revenues as they had for the first two decades of statehood — if given complete control over the real property tax. While the individual county councils or boards of supervisors had been able to set the tax rates, the policies governing the tax remained with the state Legislature. State lawmakers determined the exemptions, dedications and assessment formulas for the real property tax and the state tax office did all the assessments or valuations of the real property, according to the state’s established policies.
Once the values were established, taking into account the various exemptions and dedication provisions, the taxable values for real property in each county were turned over to the respective county councils to determine the rates based on the revenue needs of that county. Thus, the counties had no control over the tax other than to set the rates. They believed that if they had full control of the tax, they could raise all the money they needed to operate county government.
After the Constitutional Convention and the voters handed complete control over the property tax to the counties, county officials realized that taxpayers could blame them, as there was no longer the duality of responsibility between the state Legislature and the county elected officials. Thus, pressure was brought on local officials to chip away at the real property tax to provide special breaks, breaks that limit the revenue generating capacity of the real property tax.
When it became obvious that complete responsibility for the real property tax meant taking the political blame for “increasing taxes” at the county level, officials broke their earlier promise and found themselves back at the state’s doorstep asking for financial help. This time they claimed that visitors were placing a heavier burden on county beaches and parks and, therefore, they should be given a portion of the newly established Transient Accommodations Tax to offset the added costs.
Despite the ability to determine the policy of the real property tax and the rising values of real property as well as benefiting from the windfall of TAT collections, county governments have continued to expand programs and services beyond what now appears to be their ability to raise sufficient revenues to support those programs as well as the “core” services they were originally asked to provide.
Thus, while county officials will continue to search for revenue enhancements during the next few months, they must also consider reining in many of the programs that have been added on to the county agenda over the years which simply are not core services.
Lowell L. Kalapa is president of the Tax Foundation of Hawaii.