WAILUKU - Changes made to the circuit breaker property tax program earlier this year meant to stop wealthy property owners from abusing the tax credit and "cheating the system" will also have severe, unintended consequences for longtime homeowners and kupuna, residents said at a Maui County Council meeting Friday.
"We acknowledge that we should all be deeply concerned about those individuals who threaten to cheat the benefits from the taxpayers and they should be ferreted out, but we condemn the callous gutting of the circuit breaker tax credit," William Tavares, co-chairman of the Committee for More Equitable Taxation, said in public testimony. "It's denying hundreds of people from benefitting from the credit in these frightening economic times."
The circuit breaker program was first implemented in 1991. It aimed to help those with limited incomes, longtime residents and kupuna from being taxed out of their homes due to escalating market values of properties, Tavares said. The program had allowed those whose real property taxes exceeded 2 percent of their adjusted gross income to qualify for the tax credit. About 995 households qualified for the circuit breaker for the current 2013 fiscal year, with an average credit of $1,013 for the year, according to county statistics.
However, because wealthier residents, many of whom lived at least part-time on the Mainland, also were applying and qualifying for the circuit breaker tax credit, Council Budget and Finance Committee Chairman Mike White drafted a bill in August 2012 that revised the way adjusted gross income would be determined.
The measure initially passed through the council unanimously, but Mayor Alan Arakawa vetoed it. He said he understood the bill's intent but was concerned about the "unintended consequences" on low-income and elderly residents.
The County Council overrode the mayor's veto in May.
"I vetoed the bill because I never wanted it to get to this point, where it is hurting our local families for whom the circuit breaker was meant for," Arakawa said in a statement. "I said before that I would consider an amended bill and that offer is still on the table. There has to be a way to catch tax abusers without causing the harm that this bill has caused already. Our kupuna are suffering right now."
The county has received more than 100 applications for the revised circuit breaker program since the Department of Finance started accepting them in August, although none had been approved as of Friday because officials were reviewing them to see if they qualify for the tax benefit, according to Finance Director Danny Agsalog. The new, "very strict" requirements have led to fewer applications so far, he added.
Residents have until Dec. 31 to apply for the tax break.
"Because the requirements are more strict now, people are getting upset and my staff is overwhelmed, having to calm people down," Agsalog said in a phone interview Friday afternoon.
Jacqueline Texeira-Tavares, 74, was one of about a dozen residents who testified at the meeting Friday. Although she has qualified for the circuit breaker tax credit for years, she will not be able to next year if the approved revisions are not amended.
"Last year, we paid $3,809.34 (in property taxes) . . . As part of the new guidelines, we will pay $10,113.59 or be forced to sell our home," the Keawakapu resident said.
She does not qualify because the new guidelines disqualify anyone who owns multiple properties. Texeira-Tavares inherited her current residence from her parents who were among the first residents of Keawakapu, which has since become adorned with million-dollar properties. She also has her own house, which she rents out as a means of supplemental income.
"Both my husband and I are retired. Renting the house, that's our only income keeping us going besides retirement and Social Security," Texeira-Tavares said. "But if we don't qualify for the tax break, (property taxes) will keep on going up . . . It's just getting beyond our reach at this point, we can't afford to pay taxes like that."
Council Member Mike Victorino said he is trying to ask council members to reconsider the "requirements that really hurt us," including the single-property ownership restriction and another that limits the homeowner's gross building assessed value at $400,000.
"Fairness has always been what I look for. I don't like hurting those who don't profit from all these escalation of prices," Victorino said. "On the other side, we still want to have reform because there are people who are abusing the system, and we need to correct that."
White said that his committee will likely make some amendments to the existing ordinance to address the "unintended consequences," but must first examine "what happens if we make those changes that were recommended."
"We've made some very good, solid moves that are going to eliminate access to this tax credit by a lot of people that have the means to pay their tax," White said. "The vast majority of people who qualify for the circuit breaker tax credit are the people who deserve it, this is a matter of tweaking the bill to see if we can come up with a way to avoid the unintended consequences."
Council Chairwoman Gladys Baisa said she did not anticipate such a community backlash when the measure was first approved this spring, but she is willing to take another look at the bill.
"I feel it's sad that this has apparently caused a whole lot of concern and angst to people who none of us (County Council members) had intended to hurt," Baisa said during a recess on Friday. "Sometimes, we don't consider all the consequences, and when we hear about it, it's our responsibility to look at it, discuss it and make sure we pay attention, and if we have to change it, we change it."
Baisa said that for now, the matter has been referred to the council's Budget and Finance Committee, and it is up to the committee's chairman to schedule a hearing.
* Eileen Chao can be reached at email@example.com.