Oahu homeowners hit with huge jumps in their property-tax bills continue to lash out at the way the city calculated the amounts. Some absentee owners of the island’s most expensive residences are facing an annual tab approaching or topping $100,000.
But city officials Wednesday defended the system, saying the new law taxing $1 million-plus, non-owner-occupied homes at a substantially higher rate is a good one. They also said the automated process used to calculate assessed values — what property tax bills are based on — is fair, takes into account differences in properties and accurately reflects what is happening with real estate sales.
"It’s all market-driven," said Gary Kurokawa, the city’s deputy budget director.
Mayor Kirk Caldwell did concede that the city needs to address one unintended consequence of the new ordinance: Longtime owners whose primary residences are being taxed at the higher "Residential A" rate because they have not claimed an owner-occupied homeowner exemption, even though they qualify for one.
The ordinance, approved last year by a 7-2 City Council vote and signed into law by Caldwell, set a rate of $6 per $1,000 valuation for homes that are valued at $1 million or more and are not covered by the exemption.
The rate, intended for absentee owners, is nearly 75 percent more than the standard $3.50 rate applied to owner-occupied dwellings.
But some owners who live in their residences have been hit with the higher rate because they are not claiming the exemption. Some were unaware they were eligible or didn’t bother to claim it.
In an interview with the Honolulu Star-Advertiser, Caldwell said the new ordinance "was never intended to raise the tax for primary-residence folks."
He said his administration is considering ways to address that issue within the constraints of the law.
Beyond that unintended consequence, Caldwell described the new law as good.
The effects of the new rate and the higher assessments are showing up in 2014 property tax bills, which homeowners started receiving this month. The new math has sparked an outcry among those hardest hit by the changes.
"Every time you turn around, we’re paying more and more," said St. Louis Heights homeowner Marvie Kelly, 75, who saw her tax bill for a neighboring rental property that she and her late husband built in the 1980s increase more than 100 percent. "Shame on (the administration) and the City Council."
While residential valuations islandwide have gone up by an average of about 10 percent, some homeowners — especially at the higher end of the market — have been hit with much greater increases, seeing their annual tax bill jump by thousands of dollars.
Those who own $1 million-plus homes as investment properties are experiencing a double whammy: higher assessments — in some cases, dramatically higher — and the much greater tax rate.
Los Angeles attorney Robert Barry falls into that category.
His six-bedroom, seven-bath Kahala Avenue home, which he purchased nearly a decade ago, was assessed by the city at $15.8 million, about a 50 percent increase, according to city online records. Because of the higher assessment and the Residential A rate, Barry’s 2014 tax bill jumped more than 150 percent, to nearly $95,000.
Barry said nonresident owners were blindsided by the abrupt changes and questioned the fairness of what he called a draconian rate.
"It’s like getting hit by a car, then getting run over by the same car," Barry said.
Barry can’t even claim to have the highest tax tab on Kahala Avenue. One homeowner whose investment property was assessed at about $20 million received a tax bill for more than $123,000. Another must fork over about $114,000.
Kelly said she and her late husband owned their rental home for 27 years, and weren’t speculators seeking quick profits, and she wondered why she is now being lumped with out-of-state investors for taxing purposes.
Her Bertram Street rental unit was assessed at about $1.5 million, a 21 percent increase, and the tax bill for that dwelling more than doubled, to $9,400.
Kelly questioned the accuracy of the city’s assessments. "It’s like they don’t care about the people," she said. "What are they thinking?"
But Kurokawa, the deputy budget director, said the city’s automated valuation system takes into account a wide variety of factors to arrive at assessments for each property, including home and lot size, ocean views, if applicable, and five comparable sales from the same neighborhood or nearby ones. The factors are weighted, with the underlying land generally representing about 50 percent to 75 percent of the total value, he added.
"I believe it’s a fair system," Kurokawa said.
Once homeowners received their assessed values in December, more than 2,100 filed appeals, with roughly 500 from one condominium project. Taking away those cases, the appeals were consistent with totals from the past few years, and the vast majority of the 2014 cases will be heard by the end of June 2015, city officials said.
Caldwell flatly denied two criticisms about the new numbers: that the system has been manipulated to generate more tax revenue and that the additional money is needed to help construct the rail project.
"That’s absolutely wrong," he said of the manipulation charge.
As for rail construction, Caldwell said, the city can tap only revenue generated from a general excise tax surcharge, and federal funds. "We can’t touch anything else."
Though some have been caught off guard by this year’s rise in residential valuations, assessments jumped much more dramatically during Hawaii’s real estate bubble in the mid-2000s.
In 2006, for instance, the assessed value of all residential properties on Oahu increased by nearly 30 percent, according to city data. In 2007, it jumped about 14 percent.
The 2014 increase, by comparison, was 9.96 percent islandwide.
From neighborhood to neighborhood, though, the numbers can vary greatly.
Gail Street homeowner Lambert Wai, for instance, saw the valuation of the Diamond Head-area home he has lived in for the past 35 years more than double, to $2.7 million, and his tax bill increase 150 percent, to about $9,100.
By contrast, the assessed value and tax tab for Caldwell’s Manoa home each increased roughly 15 percent, to nearly $2 million and $6,600, respectively, according to city data.
City officials noted that Caldwell’s valuation increase was higher than the 8 percent average for the zone that includes Manoa, reflected comparable sales in that area and had nothing to do with his position as mayor.
Neither Wai nor Caldwell, as owner-occupants, were affected by the Residential A rate.
ENLARGE PHOTO.
