MAYOR PROPOSES PROPERTY TAX CREDIT, RESERVE FUND

In light of higher real property tax assessments, Mayor Mufi Hannemann announced he will propose a one-time, $200 tax credit for homeowners 62 years and older when he submits his 2007 budget to the City Council in March.

“We realize the jump in assessed valuations will affect a majority of homeowners and we want to provide some real relief to those homeowners who can least afford to absorb a tax increase,” said Hannemann. “We also recognize that prices aren’t likely to keep increasing at this pace. We believe a tax credit is the most efficient way to provide immediate relief for those who are hardest hit.”

In addition, the Hannemann administration is drawing up a program to allow those taxpayers who are eligible for the credit, but who can spare the money, to dedicate their $200 credit to addressing homelessness on Oahu.

“We want to be able to allow those with a roof over their head to help those who don’t,” said Hannemann.

The mayor also proposes to establish a formal fiscal reserve, to protect the City in future economic downturns and setbacks.

“I’ve always said that I want to run the City in a more business-like way, and having a formal reserve fund and policy is a sound business practice,” said Hannemann. “We need to be prepared for times when the economy is not as strong as it has been for the last few years.”

The City has an existing “rainy day” fund, but it is inadequately funded and tightly restricted.

“We’re looking at a larger, more flexible reserve that would help the City weather economic downturns, natural disasters, debilitating lawsuits or other financial crises,” said the mayor. “Our bond underwriters have pointed out that 20 of the largest cities in America have formal reserves, and establishing one is a necessary step toward improving Honolulu’s bond rating.”

Cities with formal reserves include Los Angeles, San Francisco, Seattle, Portland, Denver, Dallas, Minneapolis, Baltimore and Washington, D.C.

“We’ll be submitting proposed legislation to the City Council to formally set up a reserve fund for Honolulu,” said Hannemann.

Property taxes are the City’s largest single source of revenue. Unlike the state, the City cannot count on an excise tax that automatically increases its revenues to cover rising costs of government during economic good times.

In addition to the tax credit and reserve fund, much of the additional property tax revenue will cover increased costs for fuel costs, salaries, debt service and other City government expenses.

That  would happen if property tax rates remain at current levels. The amount of property taxes owed for a parcel of real estate is determined by multiplying the net assessed valuation by the pertinent tax rate, which is set by the City Council each spring.

The rates for improved residential and apartment property have remained steady at $3.75 per $1,000 of net assessed valuation for three years. The mayor plans to ask the Council to keep rates at current levels for two reasons. 

“Our bond underwriters have told us keeping tax rates stable is a factor in our bond ratings,” said Hannemann. “In addition, we don’t know yet what impact Bill 6, the tax relief bill that I signed into law in August, will have on the City budget when it takes effect in fiscal year 2008.”

That bill provides a tax credit for real property taxes owed in excess of 4 percent of the  owners’ combined income, if that income is $50,000 or less and certain other conditions are met.

“Now is not the time to be tinkering with property tax rates,” said Hannemann. “Our tax credit plan will help those property owners who can least afford the tax increases that result from the run-up in real estate prices on Oahu. We will use the rest of the increase to pay for necessary expenses of City government and to create a reserve fund.”

-30-

Contact:

            Bill Brennan, 527-6928

            Mark Matsunaga, 527-5767