An In-Depth Look at the Ohana Charter Amendment
October 23, 2006
Proponents for the Ohana Charter Amendment have criticized the County Council many times on these pages for opposing the Ohana Charter Amendment and filing a lawsuit to determine the legality of this ballot measure. Good people are wondering why their leaders would oppose a provision passed by a large majority of the voters. I have always believed that a public official owes a duty to the public to do her utmost to make the best decision and to be able and willing to explain her decision. In this article, I present the history and rationale for my position, which is also the position of the Council and the Mayor. While I do not expect all to agree, I trust that my words will be reviewed with open minds and hearts.
Basic Principles
I believe, as most people do, that taxes should be fair and equitable and not unduly burdensome. I do not believe, as a small minority does, that “the lower the taxes, the better.” By that reasoning, taxes should be zero. We must remember that taxes make possible police, fire, solid waste, road, bus, park and other services that are vital to the smooth functioning of our community and our economy. I believe that most people are willing to pay a fair share of taxes in exchange for services.
The Problem
By late 2002, real property tax assessments, and thus taxes, were skyrocketing due to a huge wave of high priced property sales and speculation.
The Council’s Response
Recognizing the burden of rising real property taxes, the newly elected Council in December, 2002, commissioned a task force to take a comprehensive look at the real property tax law. The Task Force members, Dr Ray Chuan, Dottie Bekeart, David Pratt, Dr. Arnold Nurock, Steve Hunt and Mike Dyer, represented a diverse cross-section of perspectives and expertise. They met 23 times in open meetings over fourteen months and emerged with a thoughtful, innovative proposal that recommended doing away with fair market value as a basis for real property taxes. By mid 2004, Bill 2108, which embodies the proposal, came to the Council.
Since then, the Council Chair has scheduled several meetings and a public hearing on Bill 2108, but the Council has not yet acted on the bill. While some time has been necessary to develop reliable figures as to the impact of the bill, and while the proposed fundamental change deserves utmost scrutiny, the delay has been much too long. In my opinion, the Council has failed to provide a comprehensive tax reform package in a timely manner.
On the other hand, the Council has passed several significant interim measures to give relief to homeowners while a more comprehensive package was being developed. These interim measures include a major component of the Ohana Tax proposal. In 2004 the Council placed a cap of 6% per year on real property taxes for owner-occupants of residential land. In 2005, this was lowered to 2%. This means that if you live in your home as a primary residence and have filed and received a homeowner’s exemption, your taxes will not increase more than 2% per year, no matter how high your assessment may go.
The Council also passed a bill capping tax increases at 6% per year for affordable rental property. (This is something the Ohana amendment did not address at all.) It also affirmed the circuit-breaker bill which intends for people of low incomes to pay no more than 3% of their income. (One has to file for this annually.) The Council also reduced tax rates for every category of property in 2005 and increased the homeowner exemptions prior to that. In this respect, the Council has been responsive to the need and demand for tax relief. The Council’s package of interim tax measures is far more than has been done in any other county in Hawai`i. These measures may become permanent if the Task Force’s proposal is ultimately rejected.
The Council did not adopt the roll back provision of the Ohana Tax amendment because it was advised that such a provision, in conjunction with a cap, could affect adversely affect the County’s bond rating—which means the County (and the taxpayers) would have to pay higher interest on monies borrowed for county road, solid waste, park and other projects. The current council chose to not run the risk of hurting our bond rating--especially because there seemed to be less risky ways to achieve fair and prudent tax relief. While the council did not adopt the roll back, it did adopt the Ohana 2 % cap as well as other property tax relief.
Ohana’s Response
The Ohana amendment was launched in 2004 before the Task Force recommendations were proposed as Bill 2108. If I recall correctly, Ohana members met with me in 2003, while the Task Force was meeting, to urge a charter amendment. I told them I could not support a charter amendment for the first reason stated below. At that time, I was not aware of the legal questions, which arose later.
Problems with the Charter Amendment
Our charter is not the proper place to set policy for one category of real property on the island. The Kaua`i County Charter (“Charter”) is to Kaua`i County as the U. S. Constitution (“Constitution”) is to the United States. They both define the basic structure of government. Neither the Charter nor the Constitution addresses the details of government, such as taxes, budget, environmental laws, or domestic programs. The details are left to legislative actions, such as acts of Congress or ordinances approved by the County Council and the mayor.
The subject of the Ohana Tax charter amendment is homeowner property. It is not related to a basic structure of government and is therefore inappropriate for a charter amendment. Homeowner property is covered by the county’s real property tax laws, which also govern commercial, industrial, agricultural and conservation property. To place one kind of property (homeowner property) in the charter, making that category of property harder to change than the other categories, is not fair to the other categories of property which may have to bear a disproportionate share of the tax burden if homeowner property taxes are rigidly controlled and the other categories are not. Owners of agriculture, conservation, commercial and industrial land should be aware of this because they could be taxed more heavily with the Ohana amendment.
Furthermore, there is the issue of changing circumstances. If we are hit by another hurricane and assessments plummet and with it, taxes, we may need to lift the 2% cap in the second or subsequent post-hurricane year in order to get ourselves back to a tax yield that would be BIG ENOUGH to rebuild our community even though it would still be SMALLER THAN PRE-HURRICANE TAX LEVELS. The unwieldy process of amending the charter may become an obstacle to quick recovery. My main point is that tax law has to be flexible enough to respond to changing circumstances. A charter amendment does not allow such flexibility.
Under our system of government, a vote of the people does not make an unconstitutional law constitutional. For example, both the U. S. Constitution and the State Constitution prohibit racial discrimination. In any community in the U. S., including Hawai`i, a majority vote of the people that allows racial discrimination will not stand. So it is with an unconstitutional charter amendment.
Our State Constitution, which is the highest law regarding state law, says that the taxation of real property shall be exercised exclusively by the counties—i.e., the entities of local government in Hawai`i. Our County Charter says that initiatives or ballot issues may not authorize or repeal taxes. These two restrictions raise questions as to the legality of the Ohana amendment. ( See www.JoAnnYukimura.com for the county legal briefs on this matter.) Since the Mayor and the Finance Director swore to uphold the law, they needed to know whether the law was constitutional and legal. It was proper for the County to raise the question in the courts. So far, the Fifth Circuit Court has ruled that the Ohana amendment does violate the State Constitution.
Conclusion
In explaining my reasons for opposing the Ohana Tax Amendment, I have tried to outline the facts and write in a spirit of open discussion and mutual learning. While we have disagreed on the means, the Ohana and Council are not far apart on the goal of delivering tax relief to the homeowners of Kaua`i. Yet we could both do better at comprehensive real property tax reform. Neither the Ohana charter amendment nor the Council’s package of interim measures addresses real property tax in a comprehensive manner, and many of our residents (eg. those holding on to vacant land for their children, “real ag” operator/owners, small business property owners are suffering. (If you have a unduly burdensome property tax problem, please contact me at jyukimura@kauai.gov or leave a message at 241-6371. Knowing where the gaps are will help us to better craft comprehensive real property tax reform to which I am still committed.)
Even though I have disagreed with them, I have never questioned the Ohana’s sincerity or their right to raise the questions and take their stands. I hope that this respect and courtesy can be extended to myself and my fellow council members. If any responses or arguments are made to this article, I hope it will address the issues and not attack or call into question the integrity and good faith of council members or other county officials regarding this matter.
This, I believe, is the way of aloha, and the best way to solve our problems together.