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Tax reform legislation moves to the full council on Nov. 8

COUNCIL'S 3 MINUTES

Five months ago, the Maui County Council’s Economic Development and Budget Committee decided to study options for more equitable taxation by creating a temporary investigative group, or TIG, on real property tax reform.

As chair of both the committee and its TIG, I’m pleased to announce legislation on tax reform is on its way to the full council. Real property taxation is a vital concern for council members and our constituents.

Under the state constitution, the counties have limited taxing authority. The counties do have exclusive power to levy real property tax, which is the predominant source of revenue to operate the County of Maui.

Real property tax can be unduly burdensome to working families. That’s one reason the New York Times published an editorial on July 20 with the headline “State and Local Taxes Are Worsening Inequality.”

“Property taxes are regressive,” according to a 2014 report by the Center for American Progress, “since home values tend to represent a much larger share of income for middle- and lower-income families than for the wealthy.” The report recommended municipalities work to “make the property tax less regressive” — including through the use of some tools already used by Maui County, such as home exemptions and “circuit breakers,” to provide tax relief to lower-income property owners.

Similarly, a 2018 report by the Institute on Taxation and Economic Policy concluded “the property tax is a regressive tax” and recommended policymakers implement mitigation. The ITEP report stated:

“For average families, a home represents the lion’s share of their total wealth, so most of their wealth is taxed. At high income levels, however, homes are only a small share of total wealth, which mostly consists of stock portfolios, business interests and other assets that are generally completely exempt from property taxes.”

Now it’s time to move beyond the home exemption and circuit breaker to establish additional tools for equitable reform.

The TIG included Council Members Alice Lee, who served as TIG vice-chair, Tasha Kama and Tamara Paltin, and was supported by the Department of Finance. During its investigation, the TIG researched various policies from other jurisdictions and received practical insight from the officials who actually collect taxes.

After seven meetings, the TIG compiled its findings and recommendations into a final report, which was received by the Economic Development and Budget Committee on Sept. 19. The report included proposals for new ordinances, which have been subsequently revised and endorsed by the committee.

First, the TIG recommended amending the Maui County Code to authorize a tiered structure for real property tax rates, similar to what the City and County of Honolulu has had since enactment of Ordinance 13-033 six years ago. Establishing a tiered system would allow the council during each year’s annual budget deliberations to set different tax rates, within a single classification, for various ranges of property valuation.

The policy goal is to mitigate the regressive nature of real property taxation by ensuring that homeowning local families won’t have to be subject to the same tax rate, for instance, as owners of luxury-style second homes.

Second, the TIG recommended a revised list of real property classifications that is more descriptive and, thus, transparent. Eleven classifications are listed in the current proposal:

• Owner-occupied

• Non-owner-occupied

• Apartment

• Hotel and resort

• Timeshare

• Short-term rental

• Agricultural

• Conservation

• Commercial

• Industrial

• Commercialized residential

The proposed “owner-occupied” classification would function the same as “homeowner” currently does. If your property is classified “homeowner” now, it will likely be classified “owner-occupied” under the new proposal, and your eligibility for the home exemption won’t change.

In addition, under this proposal, condominium owners would no longer need to declare the actual use of their units to the Department of Finance. Instead, condominium units would be classified on the normal standard of “highest and best use,” unless an exception applies.

On Oct. 17, the committee recommended the two TIG-generated bills be passed on first reading. The council may consider that action at its meeting on Nov. 8.

These bills are just the first steps in reforming our county’s property taxes. A second TIG may be formed to work on related issues, such as incentivizing affordable, long-term rentals, and the committee will continue exploring new tax policies so the county can better balance the need for revenue with fairness and efficiency.

* Keani Rawlins-Fernandez is chair of the council’s Economic Development and Budget Committee. She holds the council seat for the Molokai residency area. “Council’s 3 Minutes” is a column to explain the latest news on county legislative matters. Go to mauicounty.us for more information.