June 27, 2023
9 a.m.
Kauai County Council Chambers
To: Kaua‘i County Council
Councilmember Mel Rapozo, Chair
Councilmember KipuKai Kuali`i, Vice Chair
From: Grassroot Institute of Hawaii
Jonathan Helton, Policy Researcher
RE: County Real Property Tax Workshop
Comments Only
Dear Chair and Committee Members:
The Grassroot Institute of Hawaii would like to offer its comments on the county’s homeowner exemption, which for fiscal year 2024 stands at $160,000 for homeowners younger than 60 years old.
Homeowners older than 60 but younger than 70 receive a $180,000 exemption and those 70 or older receive a $200,000 exemption.
This exemption benefits all county residents who own and live in their home. For fiscal 2024, 13,345 Kauai residents will receive the homeowner exemption.
The Institute supports homeowner exemptions as a policy tool and believes Kauai’s exemption should be increased to reflect changes in assessed value since 2014 — the last time its dollar value was changed — when the exemption was increased from $48,000 to $160,000.[1]
To put this into perspective, the average homestead property was valued at $457,298 in fiscal 2014. For the upcoming year, that average is now $715,685 — a 56.5% increase.[2]
In a system that strives to ensure that homeowners can afford to keep their homes, even with soaring property values, any increase in the value of the tax class would remain at or near the average increase in home values. When the tax class appreciates in value more rapidly than the average home value, it is an indication that the value of the tax relief has eroded.
If the homeowner exemption had kept pace with changes in gross assessed value, the basic exemption would be $250,405 for fiscal 2024 instead of the current $160,000.
Table 1 below details what the adjusted values would look like.
In addition to increasing the value of the exemption, the Institute recommends indexing the dollar value to changes in gross assessed value so that it automatically adjusts to changes in the real estate market.
This would allow the exemption to provide greater relief whenever home prices are going up, as they have been the past several years.
Indexing could be accomplished via the “Boston model,” which is based on how homeowner exemptions are determined in Boston, Massachusetts. The Lincoln Institute of Land Policy, a policy research group based in Cambridge, Massachusetts, explains it this way:
“The taxable value of a homeowner’s principal residence gets reduced by a flat dollar amount, equivalent to 35% of the average assessed home value in the city that year. In 2021, that meant the first $295,503 of a primary residence’s value was exempt from property taxes. So if a Boston resident’s condo was assessed at $395,000 that year, the owner would only have to pay property taxes on the last $100,000 or so of the home’s value — a discount of roughly 75%.”[3]
The beauty of this program is that all homeowners receive the same dollar amount in exemption and the value of the exception changes automatically. The Boston City Council does not need to change the value of the exemption by ordinance every few years just to keep up with property appreciation.
We believe Boston’s 35% exemption should serve as a starting point for Kauai.
Table 2 below details the values a 35% exemption would have yielded for Kauai if it were in place for fiscal 2024.
Regarding worries that increasing the homeowner exemption would result in a major loss in county revenue, consider that the tax savings under the Boston model would total $3,697,094 for fiscal 2024, yet the county’s property tax collections increased by more than $30 million from fiscal 2023 to fiscal 2024,[4] indicating the county could easily afford an additional $3.7 million tax break.
Table 3 below shows the tax savings by age range and per average homeowner in each range.[5]
Finally, there may be concern that some homeowners who have had the 3% assessment cap in place for years would receive a disproportionate benefit from this proposed change. This is true, but lower taxes on long-time homeowners should not be seen as a bad thing.
First, even with the 3% cap, such homeowners over the past decade could easily have seen their property values increase by 30%. This falls short of the 56.5% value increase for the Kauai average home during the same period, but it does indicate that a higher homeowner exemption is warranted.
Second, a higher homeowner exemption would lower the tax burden on recent homebuyers, who would not be receiving the same benefit from the 3% assessment cap as longtime homeowners. These first-time homebuyers may very well be local families who managed to buy a home despite a hot market. They should not be punished with tax bills just because the market is hot.
In general, the Grassroot Institute of Hawaii appreciates that Mayor Derek Kawakami and this Council have taken an interest in reforming Kauai’s real property tax system.
Regarding the county’s homeowner exemption in particular, we recommend that it be increased, and we welcome further dialogue on this critical issue.
Thank you for this opportunity to testify.
Sincerely,
Jonathan Helton
Policy Researcher
Grassroot Institute of Hawaii
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[1] Leo Azambuja, “Council passes property tax bill,” The Garden Island, Sept. 1, 2013.
[2] Grassroot Institute of Hawaii calculations based on real property tax data located at the Honolulu Department of Budget And Fiscal Services, Real Property Assessment Division website.
[3] Jon Gorey, “This Simple Policy Tool Can Make Property Taxes Fairer and Ease Homeowner Hardship,” Lincoln Institute of Land Policy, Dec. 6, 2022.
[4] Grassroot Institute of Hawaii calculations based on Kauai real property assessment records for FY 2024.
[5 Calculations based on the fiscal 2024 rate for homestead properties. ]
