While the ballot measure on using property taxes to fund public education was disallowed by Hawaii’s Supreme Court, completing rail construction will require the use of property taxes. The process should start with reconsidering rates. Raising them may prove necessary, but doing so equitably and intelligently is a prerequisite, no matter how disliked property taxes may be.

According to UHERO data for 2017, 89 percent of Honolulu’s total tax revenue (excluding the transient accommodations tax) was generated by property taxes. While no wise politician seeking office will lobby for higher property taxes, no practical politician will argue for rescinding them or the vital public services they fund. But reconfiguring property taxes should be an option.

About 87 percent of Honolulu’s nearly 300,000 tax records are for “residential properties” occupied by their owners and taxed at $3.50 per $1,000 of taxable property value after deductions. Still, only 44 percent of the $1.265 billion Honolulu collects in property taxes this year will be generated by taxing residential property.

The burden of residential taxes is great, but the 2014 introduction of the Residential A category has lessened it to a degree. This category was created to differentiate between primary residences and properties without exemptions or not used to house military personnel, taxing them at a rate of $4.50 per $1,000 in value for the first $1 million in value and $9 per $1,000 beyond that. Residential A properties will generate $129.4 million in taxes, just over 10 percent of what Honolulu collects this year.

Has Honolulu gone far enough? Maui County has instituted a separate rate for short-term rentals ($9.28 per $1,000 of taxable property value). It affects 15 percent of Maui’s 70,000 taxed properties and will generate $73.5 million this year, some 25 percent of total property tax receipts.

Honolulu can argue its property tax rates are low compared to other metropolitan areas, but that argument overlooks how much property prices have risen.

In 1981, the value of Honolulu property subject to taxes was $12.4 billion; it is currently $226.6 billion. Some of the increase is a result of inflation, but the far greater contributor has been Honolulu’s growth and how it has made property more valuable.

After residential properties, the biggest sources of revenue are commercial, hotel/resort and industrial properties. Commercial and industrial properties are taxed at a higher rate than residential ($12.40 per $1,000 of taxable property value). A theoretical, then: For each dollar increase in that rate, Honolulu would net an additional $19.7 million from commercial properties, and another $10.4 million annually from industrial properties.

Visitor industry properties offer another intriguing way to lower the property tax burden of residents. In 1982, when Honolulu first made hotel/resorts a separate property class from apartments, the gross valuation of hotel properties was $853 million; in 2018 the gross valuation stood at $15.4 billion. The present $12.90 hotel tax rate will result in $194 million for Honolulu this year.

Maui County has adopted a more use-specific rate scheme, one that could dramatically increase tax revenue if Honolulu were to employ a similar multi-tier model. In addition to its short-term rental property class, Maui has separate hotel and resort ($9.37) and time-share ($15.41) rates.

Honolulu’s single hotel/resort rate doesn’t differentiate for time-share properties, an increasingly significant portion of its visitor product. Since property taxes are paid by the share owners (and not the developers of the properties), most of whom are not Hawaii residents, it can be argued that Honolulu is being generous to this portion of its visitor base, at the expense of local taxpayers.

Paul Migliorato is a board member of the Hawaii Economic Association.