WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
To view the archives of the Tax Foundation of Hawaii's commentary click here. Weekly Commentary For the Week of September 3, 2017 Rail: I Dunno About TAT By Tom Yamachika, President We are getting closer to the special session that our Legislature has scheduled to continue its discussion about funding Honolulu rail. During this past session, the House and Senate were unable to agree on a common version of a bill to continue rail funding. The two chambers disagreed about whether to use our Transient Accommodations Tax (“TAT”). The TAT is a statewide tax. A large portion of it is shuttled off to special funds, $93 million a year is shared with the counties, and the remainder goes to the state general fund. One frequently voiced comment about using the TAT is that “Neighbor Islands should not pay for rail in Honolulu.” This was the headline of Maui Council Chair Mike White’s analysis, recently published in The Maui News, which said: For fiscal year 2018, in what has now become a common occurrence, the Legislature raided the counties’ TAT share by reducing it from $103 million to $93 million. The counties’ share was reduced at a time when TAT revenues are at an all-time high, with anticipated revenues nearing or exceeding $533 million in the coming year. By the end of this fiscal year, the state will have harvested $96 million more in TAT since FY 2016, or a 42 percent increase. The state has increasingly taken more TAT revenues to help balance its own budget at the detriment of counties. Now the Legislature wants to raise the tax to fund rail? Neighbor Islands receive no benefit from the Honolulu rail, and a TAT increase has major implications on the economy. . . . Members of the [Maui] County Council also agree that increasing the TAT is not the solution, and passed a resolution this past week urging the Legislature to extend Oahu’s GET surcharge instead. The hope is that legislators will have a change of heart and avoid pulling the Neighbor Islands into the rail project and draining resources the counties need for their own projects. Chair White seems to be arguing that the counties have a right to TAT money. Really? The TAT, when it was enacted in 1986, was primarily meant to fund the Hawaii Convention Center, which happens to be on Oahu. (The tax at that time was 5% and it was billed as a temporary tax that would go away once the convention center got built. Now it’s a 9.25% tax, and it’s permanent. I have ranted about that before.) The Hawaii Constitution explicitly says that the legislature shall have the power to apportion state revenues among the several political subdivisions. State lawmakers have a right to send state revenue from a state tax wherever they see fit. State taxes fund all kinds of projects on all islands. Guess how the Maui Memorial Hospital was built and maintained, for example? Or Honoapi’ilani Highway? If the 80% of Hawaii’s population on Oahu decided that they didn’t want “their” state taxes to fund any projects on any other islands, Maui County would be very different today. Also, Maui County has its own taxing power. If revenue is needed to run county government, the county can tinker with real property tax, fuel tax, vehicle weight tax, vehicle registration charges, user fees, and other revenue sources. (Honolulu has that power too, and it will probably have to use it to operate and maintain the train…unless it can persuade state legislators to use state money or state taxing authority to make Honolulu’s job easier.) If Maui County doesn’t want to because their politicians fear political backlash from their electorate, Oahu and the State shouldn’t be blamed for that. The Tax Foundation of Hawaii is not endorsing any particular tax to be tapped for rail. We just want to make sure that any decision made is not based on misinformation.
WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers To view the archives of the Tax Foundation of Hawaii's commentary click here. Weekly Commentary For the Week of August 27, 2017 Highest and Best Use, and Why You Should Care By Tom Yamachika, President Earlier this year, the City & County of Honolulu tinkered with its real property tax system. People who aren’t aware of what happened may find themselves with property tax bills many times what they are now. In Honolulu, as in most other counties here and in many jurisdictions on the Mainland, there are several property tax classifications. For example, there is residential use that is taxed at $3.50 per $1,000 of assessed value; commercial use, taxed at $12.40; and hotel/resort, taxed at $12.90. The classification that you fall in is determined by the “highest and best use” of your property. Highest and best use has nothing to do with how you are actually using your property. It means the most productive use that your property could be put to, if it is legal under applicable law and zoning. So, for example, a person who owns industrial zoned land next to a shopping mall can build a farm on it and grow vegetables, but the property tax rate that will be applied won’t be the agricultural rate, it will be the higher commercial rate. For most people, qualifying for the residential rate, the county’s lowest, is not a problem. Much of the land that people build houses on is zoned for residential use, which means it’s not legal to run businesses or resorts on that land. The highest and best use is residential, and that’s what determines the tax classification. However, some properties in the Honolulu urban core are given “mixed use” designations, which means it is legal to build a house on the property or to have a shop there. This is where the problem arises. Currently, the tax ordinances allow condominium units to be classified based on actual use, not highest and best use. Thus, people who live in condominium units were allowed the residential rate if they said they were actually living in them, even though the zoning allowed commercial use. Some complained that the system was inconsistent: if the farmer in the example above had to pay at the commercial rate, why does the person living in the condominium unit get to qualify for residential? Ordinance 17-13, enacted earlier this year, took away the actual use “loophole,” bringing back the highest and best use rule for condominium units. To get around the highest and best use rule, the ordinances allow property owners to make a “dedication.” A dedication is a contract with the county that says the use of your property will be restricted to a particular use even though the zoning allows something else. With the dedication in place, commercial or hotel uses become illegal even though the zoning may allow them, so those uses cannot be considered highest and best. Ordinance 17-13, mentioned earlier, also allows for those living in mixed use areas to make a dedication to residential use. A property owner who makes one will be allowed the residential tax classification. A property owner who doesn’t may well be reclassified to commercial or hotel/resort, with severe financial consequences. To make a dedication, the appropriate form needs to be filed by September 1. It’s referred to as Form BFS-RP-P-41E, Petition to Dedicate Certain Property for Residential Use (5 Year Dedication). Don’t be late! WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers
To view the archives of the Tax Foundation of Hawaii's commentary click here. Weekly Commentary For the Week of August 13, 2017 The Grand Skim of Things, Part 2 By Tom Yamachika, President Last week, we began a discussion about the 5% charge that is assessed against the “special funds” in Hawaii government, which we called the “Central Services Skim.” For the last few fiscal years, the Central Services Skim has redirected about $45 million a year from the special funds to the state general fund, ostensibly to pay for shared services such as human resources and administrative costs. This week, we look at the exemptions and the danger they pose. Not every pot of money in state government pays the Central Services Skim. Special funds pay it, but “trust funds” and “revolving funds” don’t. The distinction between the three types of funds can be subtle. The State Auditor has described a special fund as one “used to account for revenues earmarked for particular purposes and from which expenditures are made for those purposes.” A revolving fund is one “from which is paid the cost of goods and services” by a state agency, “and which is replenished through charges for those goods or services or through transfers from other accounts or funds.” A trust fund is one that invokes “a fiduciary responsibility of state government to care for and use only for those designated to benefit from the funds.” On top of that, state law exempts many special funds from the Central Services Skim. When the State Auditor examined the issue in 1994, 21 different special funds were exempted. The exemption list has grown to 36 today, with 35 exemptions in HRS section 36-27 and one in another law. The exemption list doesn’t appear to have a common theme or thread. It includes, for example, the Turtle Bay special fund, the civil monetary penalty special fund, the deposit beverage container special fund, the community medical centers special fund, the Aloha Tower fund, and the sport fish special fund. With trust and revolving funds categorically exempt from the skim and many of the remaining funds covered by exemptions, we have a chance to get into some sky-high trouble. Take the airports, for example. In fiscal 2016, the Airport Revenue Fund, which is largely fed by aircraft landing fees, ponied up close to $15 million in Central Services Skim. The FAA, which put out an Airport Compliance Manual in 2009 (also known as FAA Order 5190.6B), explains that airport revenue is supposed to be used for the benefit of the airport. The laws do allow an airport sponsor (our Department of Transportation, for example) to apply some of that revenue toward the general costs of government, if the costs are allocated to the airport fairly. Because Hawaii’s Central Services Skim law is older than the federal laws imposing restrictions on airport revenue, our 5% skim is grandfathered. However, the FAA made it clear in the manual that it can retaliate, such as choking off the amount of Airport Improvement Program discretionary grants, if it finds that an airport sponsor has been diverting too much. There, of course, is the danger. There are more loopholes in Central Services Skim obligations than a Swiss cheese, there is no common thread between them, and the loopholes have been proliferating. It was difficult in 1994 to find that central services expenses are being fairly allocated, and the facts have worsened over time. The federal government might wake up one day and conclude that the airport fund, which now pays roughly a third of the Central Services Skim, has been gouged. If it decides to act, you can be sure that the action won’t be pretty. And then, if there is carnage over the airport fund, the highway fund and the harbors fund couldn’t be that far behind. The underlying premise, that special funds should contribute to the costs of government because they are deriving benefits, is sound. For some reason, however, our government finds it intolerably difficult to allocate those costs fairly. If we can fix this situation, maybe we will come up with some good ways to fix our tax system, which is supposed to allocate the costs of government to the populace. Next week, we examine the one department that has thumbed its nose at the Central Services Skim. |
If you wish to further discuss blog posts, please contat our office directly or contact us via Contact page.
Categories
All
|