Property taxes could be on the rise

HILO — Hawaii Island property owners could see a tax hike this year as the county struggles to meet rising costs with a budget diminished by a decrease in property values.

Property tax revenues — by far the largest revenue source for county government — increased 1.2 percent this year to $200.6 million, but that’s still 10.8 percent less than when Mayor Billy Kenoi took office in 2008.

The second-largest revenue source, the transient accommodations tax, has been capped by the state Legislature at $17.4 million, so the county won’t get the hotel room tax benefit of a 13.7 percent uptick in visitor spending on the island.

“Certainly there’s got to be some adjustments in revenue,” Kenoi told the County Council, which was meeting as the Finance Committee Wednesday at the start of an intense three days of budget scrutiny.

“I think that’s something people could understand and live with,” if the realities were explained to them, he added.

Kenoi and the council last raised property taxes in the 2010-11 budget year. The increase hit hardest in West Hawaii, where many part-time homeowners live.

Property taxes aren’t the only revenue sources in the administration’s sights.

Kenoi said Hawaii County’s gas tax remains at 8.8 cents per gallon, compared to 15 cents per gallon on Maui and 18 cents per gallon on Oahu. Public Works Director Warren Lee said increasing the tax to 11 cents per gallon would raise $2 million annually, resulting in many more miles of roadways being repaved.

Council members weren’t eager to quickly embrace tax hikes. Most said they’d like to complete an ongoing study of the property tax system and make improvements before property tax hikes are considered.

The study is being conducted by a task force following recommendations of an outside auditor. Agricultural exemptions have been identified as one area of abuse, and discrepancies have been pointed out in how similar properties are assessed.

“The Real Property Tax Task Force is looking at how people are being assessed for property taxes,” said Finance Committee Chairwoman Valerie Poindexter of Hamakua. “They’re finding that assessments aren’t being applied equally for equal values. If we just fix that, we can raise more revenues.”

Puna Councilmen Zendo Kern and Greggor Ilagan agreed.

“I feel we really should be taking a comprehensive look,” Kern said.

South Kona/Ka‘u Councilwoman Brenda Ford, who voted against a 2010-11 property tax hike, said she’d vote against another one. She’s pushing for the county to dip into its roughly $18 million fund balance, money brought forward from the prior budget year, and ramp up its technology to help the county cut costs.

The mayor said the preliminary budget he submitted last month is a bare bones spending plan that will result in diminished services, even though county employees will be working an extra day each month because of the end of unpaid furloughs.

He’s leaving it up to the council to find money elsewhere in the budget for their priorities if they don’t want to raise taxes.

“We want them to listen to what our departments are saying,” Kenoi said after the meeting. “Either we raise revenues or we cut services.”

Departments filing in for their updates to the council all had requests that couldn’t be included in the budget.

Fire Chief Darren Rosario said the Fire Department took over water safety in 2007, an area sorely neglected for years. More lifeguards are needed, especially at high-surf beaches such as Punaluu, he said.

Overtime costs remain high because of furloughs of support staff, unfunded positions and staff shortages, he said.

Startup costs for a new fire station in South Kona would cost $4.3 million, and salaries would run $700,000 a year, he said.

Two new fire trucks at a total annual lease cost of $280,000 are also needed, he said.

Lee said 11.2 percent of all positions in the Public Works Department are currently unfunded, with 12 percent unfunded in the Highways Division and 20 percent unfunded in the Engineering Division. Lee said $1.8 million more in general funding could pay for more personnel to deal with the slowly increasing permits being processed by his office as the economy improves.

Failing equipment and outdated technology are among the problems cropping up from four years of postponing purchases, department heads say. Health care costs and other benefits have also increased.

At the same time, the county has two new commissions that need to be funded following their establishment by voters as charter amendments last election. Planning Director Bobby Jean Leithead Todd said the Cultural Resources Commission would need at minimum two staffers and ideally an archaeologist as well.

The county’s debt service, the annual payment on money it has borrowed, increased $3.9 million to $39.2 million. Ending furloughs costs $4.2 million for the extra 12 days. That’s compared to a $2.4 million increase in property tax revenues.

Kenoi said he’d take council members’ recommendations into account for his final proposed budget in early May.

“If there are any adjustments to be made, we will collect no more than when we took office in 2008,” Kenoi said.

Kenoi told the council that he continues to oppose a plan proposed by the Salary Commission to raise his pay by $22,000 and raise other county officials up to 19.8 percent. The commission plans to hold a public hearing before voting on the plan, which would add another $225,000 to the budget.

“I will not accept that raise,” Kenoi said, adding he will donate the entire amount to the United Way if it is forced upon him.