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Support lower assessment cap but consider higher homeowner exemption too

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Hawaii County Council on July 10, 2024.
___________

July 10, 2024, 9 a.m.
Hawai‘i County Building

To: Hawai‘i County Council
      Heather Kimball, Chair
      Holeka Goro Inaba, Vice-Chair

From: Grassroot Institute of Hawaii
           Jonathan Helton, Policy Researcher

RE: BILL 173 — RELATING TO REAL PROPERTY VALUATION; CONSIDERATIONS IN FIXING

Aloha Chair Kimball, Vice-Chair Inaba and other members of the Council,

The Grassroot Institute of Hawaii would like to offer its support for Bill 173, draft 1, which would lower the assessment cap for homeowners and affordable rentals from 3% to 2.5%.

This change would guarantee that homeowners and owners of affordable rentals would not see their assessed values increase by more than 2.5% each year.

Applied to a home with an initial taxable value of $500,000, the 2.5% assessment cap at the current homeowner rate of $5.95 per $1,000 would result in tax savings of $14.88 in its first year compared to the current 3% cap.

Assuming home values increase by more than 2.5% over time — which is a fair assumption considering Hawaii’s current real estate market — the tax savings of the 2.5% cap compared to the 3% cap could grow to $20.36 in the fifth year because assessment caps tend to “compound” over time.

For example, between January 2018 and January 2024, the median sales price for single-family homes on Hawaii Island increased annually by 8.61%. So if we were to assume a minimum increase of at least 5% per year,[1] the taxable value of a $500,000 house would grow to $512,500 under a 2.5% cap compared to $515,000 under a 3% cap — even though the gross value of the home would be $525,000.

The next year, the 2.5% cap would be applied to the taxable value of $512,500 and it would increase to $525,312, while under the 3% cap it would increase from $515,000 to $530,450.

In this way, a lower assessment cap would provide slightly more relief over time.

In addition to the tax-relief mechanism proposed by Bill 173, the Grassroot Institute urges the Council to also increase the homeowner exemption.

If the homeowner exemption were increased by $10,000 — from $50,000 to $60,000 — it would give most homeowners a tax savings of $59.50 a year every year.

Of course, all homeowners must pay a minimum tax ranging between $50 and $200 — except for owner-occupied homes and property owned by an individual claiming at disabled veterans exemption valued at $500 or less[2] — so not everyone would realize this savings.

One advantage of a higher homeowner exemption is that it would give all homeowners the same amount of tax relief, while the assessment cap would give homeowners a variable amount of tax relief based on how long they have owned their property and its assessed value.

In any case, we appreciate the intent of this measure as it would provide more tax relief than the status quo. Perhaps the Council could amend this bill to increase the homeowner exemption as well, so relief could be distributed more speedily.

Thank you for the opportunity to testify.

Jonathan Helton
Policy Researcher
Grassroot Institute of Hawaii
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[1]Statewide Housing Statistics,” Title Guarantee Hawaii, January 2024, p. 1; and“Statewide Housing Statistics,” Title Guarantee Hawaii, January 2019, p. 1.
[2] Section 19-90. Real property tax; determination of rates., paragraph (e), Hawaii County Code, accessed June 14, 2024.

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