BUDGET & FINANCE TEMPORARY INVESTIGATIVE GROUP REPORT PRESENTED - - PowerPoint PPT Presentation

PRESENTED BY: C O UNC ILM EM BER M IKE W HITE

BUDGET & FINANCE TEMPORARY INVESTIGATIVE GROUP REPORT

Budg e t & F ina nc e Co mmitte e • No ve mb e r 15, 2011

PURPOSE

The TIG was formed to make findings and recommendations on policies relating to the apparent disparity of real property assessments for agricultural use versus non-agricultural use.

OVERVIEW

• E

sta b lishe d o n Oc to b e r 4, 2011 b y the Budg e t & F ina nc e Co mmitte e pursua nt to 92-2.5, Ha wa ii Re vise d Sta tue s

• He ld 9 me e ting s b e twe e n Oc to b e r 8 to

No ve mb e r 1. Re po rt to c o mmitte e sub mitte d No ve mb e r 4, 2011.

• Gro up inc lude d me mb e rs White (Cha ir), Ho ka ma

(Vic e -Cha ir), Ba isa a nd Vic to rino

• L

imite d to inve stig a ting histo ric a l a nd c urre nt pra c tic e s in a dditio n to c o nduc ting inte rvie ws re la ting to re a l pro pe rty ta xe s.

RESOURCES

• The TIG spoke to representatives from:
• De pa rtme nt o f F

ina nc e – Dire c to r & Re a l Pro pe rty T a x Divisio n

• Re a l Pro pe rty T

a x Administra to rs fro m City & Co unty o f Ho no lulu a nd Co unty o f Ha wa ii

• Ma ui Co unty F

a rm Bure a u

• Ma ui Ca ttle me n’s Asso c ia tio n
• Unite d Sta te s De pa rtme nt o f Ag ric ulture

FINDINGS AND RECOMMENDATIONS

• Se c tio n One - Va lua tio n o f ho me site s o n

pa rc e ls with Ag ric ultura l Use Asse ssme nts

• Se c tio n T

wo – E nc o ura g ing a g ric ulture a nd pre se rving o pe n spa c e thro ug h a g ric ultura l de dic a tio ns a nd ro llb a c k pe na ltie s

SECTION ONE

FINDINGS: VALUATION OF HOMESITES

• Co nfirme d sig nific a nt ine q uitie s b e twe e n

ho me site va lue s in re side ntia l distric ts v. ho me site va lue s fo r pa rc e ls re c e iving a g ric ultura l use a sse ssme nts.

• Ho me site s o n a g ric ultura l pro pe rtie s sho uld

b e va lue d c o mpa ra b ly to simila r pa rc e ls b e ing put to simila ruse s e lse whe re a s re fle c te d in the ma rke t.

FINDINGS: VALUATION OF HOMESITES ON PARCELS WITH AGRICULTURAL USE

• Curre ntly, if a pa rc e l in the a g ric ultura l

distric t ha s b o th a n a c tive a g ric ultura l use a nd a ho me site o n it, the entire parcel re c e ive s disc o unte d ta x tre a tme nt.

• T

I G fo und a g ric ultura l ta x b e ne fits sho uld b e limite d to the portion of a parcel in

active agricultural use.

• T

he ta x de pa rtme nt ne e ds to ha ve a c c e ss to upda te d pic to me try a nd GI S a sse ts fo r pre limina ry lo t e va lua tio n.

FINDINGS: VALUATION OF HOMESITES ON PARCELS AGRICULTURAL USE

• Me tho do lo g y in e sta b lishing ho me site la nd

va lue s sho uld b e a pplie d e q ua lly re g a rdle ss o f a g ric ultura l use o n a pa rc e l.

• Pra c tic e s ne e d to b e re fine d b y

e sta b lishing a me a ns o f va luing the ho me site inde pe nde ntly fro m the po rtio n tha t is in a c tive a g ric ultura l use .

GOAL OF RECOMMENDATIONS

• E

sta b lish a mo re e q uita b le ho me site va lua tio n o n pa rc e ls with Ag ric ultura l Use .

• F

a irne ss b e twe e n the va lue s o f simila r la nds b e ing put to simila r use s.

VALUING HOMESITE

• Ho me site sha ll b e a sse sse d

inde pe nde ntly fro m the po rtio n o f the pa rc e l in a g ric ultura l use , a s de te rmine d b y the Dire c to r b a se d o n fa ir ma rke t va lue .

• T

he a pplic a tio n o f the ho me e xe mptio n a nd ho me o wne r ta x ra te sho uld no t b e a ffe c te d.

VALUING HOMESITE

• “Ho me site ” me a ns tho se po rtio ns o f

the pa rc e l e xc luding : (a ) the po rtio n in a g ric ultura l use , a nd (b ) the po rtio n tha t c o nsists o f unusa b le o r unsuita b le la nd fo r a g ric ultura l use .

Current method

Net Taxable Value $163,537 Taxes Due $409

Proposed method

Net Taxable Value $473,455 Taxes Due $1,184

Example One

2 acre parcel with a 1.3 acre homesite

Example Two

2.9-acre Ag parcel with homesite vs Makawao Residence

2.9-Acre Parcel in Kula

2.647 Ac re s o f a g ric ulture .25 Ac re ho me site (in ye llo w)

.25-ACRE HOMESITES

2.9-a c re pa rc e l in K ula with 2.65 a c re s o f Ag ric ulture Ma ka wa o Re side ntia l Ho me site s sho wn in YELLOW

Example Two

Comparison 2.9-acre Kula Farm Current Proposed

Building Value $153,100 $153,100 Land Value Homesite $56,256 $241,700 Agricultural Use $887 $887 Total Assessed Value $210,243 $395,687 Home Exemption ($200,000) ($200,000) Net Taxable Value $10,243 $195,687 Taxes Due $25.61 $489 Taxes Paid Minimum Tax $150 $489

Makawao Residence

$153,100 $241,700 $394,800 ($200,000) $194,800 $487 $487

SECTION TWO

FINDINGS: AGRICULTURAL DEDICATIONS

• T

a x inc e ntive s c a n a nd sho uld b e use d to e nc o ura g e a g ric ultura l use .

• Curre nt pra c tic e s a re a we a k to o l fo r

pre se rving a g ric ultura l la nd a nd o pe n spa c e .

• A syste m to re q uire pro pe rty o wne rs to

de dic a te the ir la nd fo r a g ric ultura l use to re c e ive a sig nific a nt ta x b e ne fit is a ppro pria te .

• E

sta b lishing a pe na lty suc h a s a pro pe rty ta x ‘ro llb a c k’ is a c o mmo n pra c tic e to disc o ura g e the c ha ng ing o f la nd use .

FINDINGS: AGRICULTURAL DEDICATIONS

• Ma ui Co unty c urre ntly o ffe rs 10- o r 20-ye a r

a g ric ultura l de dic a tio ns, ho we ve r o nly a sma ll pe rc e nta g e ha ve de dic a te d.

• All de dic a tio ns sho uld re c e ive ta x inc e ntive s,

ho we ve r, the pub lic sub sidy a ime d a t e nc o ura g ing a g ric ulture a nd pro te c ting o pe n spa c e sho uld pro vide a mo re sig nific a nt disc o unt fo r lo ng e r te rm de dic a tio ns tha n fo r sho rte r o ne s.

FINDINGS: AGRICULTURAL DEDICATIONS

• Curre nt a g ric ultura l use a sse ssme nt syste m is

b a se d o n a g ric ultura l va lue s o ve r 40 ye a rs o ld.

• T

he syste m ha s no t b e e n upda te d to a c c o mmo da te mo re c urre nt va lue s o r ne w te c hno lo g ie s a nd c ro ps, suc h a s hydro po nic s a nd se e d c ro ps.

• A ne w a g ric ultura l a sse ssme nt me tho do lo g y

ma y b e wa rra nte d, b ut re q uire s mo re study tha n pe rmitte d b y the T I G time fra me .

FINDINGS: AGRICULTURAL DEDICATIONS

• Ag ric ultura l use va lua tio ns ha ve re ma ine d

the sa me fo r the pa st te n ye a rs a nd pro b a b ly sinc e 1967.

• I

n the pa st 10 ye a rs, ma rke t va lue s a nd ta xe s pa id b y pro pe rty o wne rs in a ll o the r c a te g o rie s ha ve inc re a se d b y a ppro xima te ly 90% while Ag use va lue s a nd ta xe s ha ve re ma ine d fla t.

• Sinc e 2001, o ve r 16,000 a c re s o f o f la nd

ha ve b e e n ta ke n o ut o f a c tive a g ric ultura l use .

CHANGES IN AG VALUES AND TAXES FROM 2001 TO 2011 ASSESSMENT YEARS

Total Acres Market Value Current Use Value

% of Market Value

2001 292,501 2,672,230,100 35,840,053 1.34% 2011 275,957 5,410,978,800 35,846,666 0.66% Cha ng e

• 16,544

2,738,748,700 6,613

• 0.68%

% Cha ng e

• 5.7%

102.5% 0.02%

• 50.6%

(Cont…) Ag tax Paid

• Approx. Acres w/

min tax Percent w/ min tax

2001 207,872 63,061 21.6% 2011 207,911 78,058 28.3% Cha ng e 38 14,998 6.7%

INCREASES IN VALUATIONS AND TAXES OF AG ASSESSED LANDS COMPARED TO OTHER CATEGORIES

2001 Taxable Value Tax Paid

Total Other Lands

$7,558,892,000 $40,143,000

Ag L a nds with Ag Asse sse d Va lue s

$35,840,000 $207,872

2011 Taxable Value % Change Tax Paid % Change

Total Other Lands

$14,372,103,000 90.1% $76,047,000 89.4%

Ag L a nds with Ag Asse sse d Va lue s

$35,847,000 .02% $207,911 0.0%

GOAL OF RECOMMENDATIONS

• Re fine a nd e xpa nd the Ag ric ultura l

De dic a tio n pro g ra m

• Pro vide g re a te r inc e ntive s fo r

pre se rva tio n a nd mo re o f a pe na lty fo r c ha ng ing the use o f the la nd.

AGRICULTURAL DEDICATIONS

• T
• re c e ive a g ric ultura l ta x b e ne fits, la nd

sha ll b e de dic a te d.

• A pe titio n to de dic a te la nd must b e

a ppro ve d b y the Dire c to r fo r a spe c ific a g ric ultura l use fo r a pe rio d o f 5, 10 o r 20 ye a rs.

• T

he pe titio n must e sta b lish sub sta ntia l a nd c o ntinuo us a g ric ultura l use .

AGRICULTURAL DEDICATIONS

• “Agricultural Use” me a ns the a c tive , c o mme rc ia l

a nd prima ry use o f la nd fo r a q ua c ulture ; c ro p pro duc tio n; g ra zing o f a nima ls use d in live sto c k pro duc tio n; a nd pro duc tio n o f live sto c k b ypro duc ts a nd pla nts fo r fo o d, fib e r, o r e ne rg y; flo we rs a nd fo lia g e ; tre e fa rms; a q ua tic a nima ls a nd pla nts; b e e s a nd re la te d na tura l b ypro duc ts; b io ma ss; nuts a nd se e ds. Ag ric ultura l use do e s no t inc lude the use o f a re a s prima rily a s ya rd spa c e ; se tb a c ks; o r la ndsc a ping ; o r the pla nting o f fruit o r o rna me nta l tre e s, flo we rs, a nd ve g e ta b le s prima rily fo r ho me use .

AGRICULTURAL DEDICATIONS

• Who ma y pe titio n:
• Owne rs re pre se nting a t le a st a 50 percent

inte re st in la nd.

• Pa rc e l must b e a t le a st two acres in size .
• I

f le ss tha n two a c re s a nd no t within a Co unty a g ric ultura l distric t, la nd sha ll ha ve b e e n in c o ntinuo us a g ric ultura l use fo r the

past five years a nd the a nnua l g ro ss

inc o me de rive d fro m the a g ric ultura l use sha ll no t b e le ss tha n $5,000 per acre.

AGRICULTURAL DEDICATIONS

• Co nte nts o f Pe titio n:
• De sc riptio n o f a g ric ultura l use , a c re a g e a nd

ho me site .

• T

hre e da te d photos within 30 da ys o f sub mitting the pe titio n.

• Co py o f Ha wa ii g e ne ra l e xc ise ta x lic e nse ,

a nd F e de ra l ta x re turn, inc luding Schedule F.

• Dire c to r will re vie w a nd a ppro ve

de dic a tio n, whic h sha ll inc lude a n inspe c tio n.

AGRICULTURAL DEDICATIONS

• Pro po se d De dic a tio n Sc he dule :
• 5 ye a r de dic a tio n sha ll re c e ive a 50%

disc o unt fro m fa ir ma rke t va lue

• 10 ye a r de dic a tio n sha ll re c e ive a n 80%

disc o unt fro m fa ir ma rke t va lue

• 20 ye a r de dic a tio ns sha ll b e a sse sse d a t
• ne-half its a g ric ultura l use va lue .

COMPARISON OF DEDICATIONS

149.9-acre Ag parcel Purchased for $4,750,000 Taxable value $12,400 Taxes paid $150

5 year Dedication

Fair Market Value: $5,483,600 50% of Market Value: $2,741,800

Taxes Paid: $15,902 10 year Dedication

Fair Market Value: $5,483,600 20% of Market Value: $1,096,720

Taxes Paid: $6,360 20 year Dedication

Fair Market Value: $5,483,600 50% of Assessed Value: $6,200

Taxes Paid: $150

5 year Dedication

Fair Market Value: $10,451,600 50% of Market Value : $5,225,800

Taxes Paid: $30,310

1195.30-acre Ag parcel Sugar Cane Taxable value $488,600 Taxes paid $2,832

10 year Dedication

Fair Market Value: $10,451,600 20% of Market Value: $2,090,320

Taxes Paid: $12,123 20 year Dedication

Fair Market Value: $10,451,600 50% of Assessed Value: $244,300

Taxes Paid: $1,416

AGRICULTURAL DEDICATIONS

• Ro llb a c k & Pe na lty
• L

a nd a ffe c te d b y a la nd use c ha ng e sha ll b e sub je c t to ro llb a c k ta x a nd pe na lty, with c e rta in e xc e ptio ns.

• “L

a nd use c ha ng e ” me a ns a Sta te la nd use , Co unty zo ning c ha ng e o r fina l sub divisio n a ppro va l (fa mily sub divisio ns a re e xe mpt).

AGRICULTURAL DEDICATIONS

• Ro llb a c k & Pe na lty
• Ro llb a c k ta x sha ll e q ua l the diffe re nc e

b e twe e n the ta xe s o we d fo r the de dic a te d la nd a t 100% o f the la nd’s a g ric ultura l fa ir ma rke t va lue a nd the ta xe s a c tua lly impo se d.

• T

he pe na lty sha ll b e c a lc ula te d b y multiplying the numb e r o f ye a rs the ro llb a c k ta x a pplie s b y 10% o f the to ta l ro llb a c k ta x o we d.

AGRICULTURAL DEDICATIONS

• E

ve nts tha t ma y trig g e r c a nc e lla tio n o f the de dic a tio n witho ut a ro llb a c k o r pe na lty

• De a th o f a ny o wne r
• E

ve nts b e yo nd the o wne r’s c o ntro l (lo ng - te rm illne ss, na tura l disa ste r, lo ss o f a de q ua te wa te r, e tc .)

AGRICULTURAL DEDICATIONS

• Othe r ite ms
• F

a mily sub divisio ns ma y ta ke pla c e witho ut a ro llb a c k o r pe na lty if a g ric ultura l use c o ntinue s.

• Dire c to r ma y g ra nt a g ra c e pe rio d no t to

e xc e e d two ye a rs. L a nd sha ll b e a sse sse d a t 100% o f ma rke t va lue fo r the dura tio n o f the g ra c e pe rio d.

CALCULATION OF ROLLBACK

149.9-acre Ag parcel Purchased for $4,750,000 Taxable value $12,400 Taxes paid $150

3 yr. R/B on 5 yr. Ded. Rollback $47,707 Penalty $14,312 Total amount due for cancelation: $62,020 6 yr. R/B on 10 yr. Ded. Rollback $152,663 Penalty $91,598 Total amount due for cancelation: $244,261 12 yr. R/B on 20 yr. Ded. Rollback $381,227 Penalty $457,472 Total amount due for cancelation: $838,699

1195.30-acre Ag parcel Sugar Cane Taxable value $488,600 Taxes paid $2,832

3 yr. R/B on 5 yr. Ded.

Rollback $90,928 Penalty $27,278

Total amount due for cancelation: $118,206 6 yr. R/B on 10 yr. Ded.

Rollback $290,972 Penalty $174,584

Total amount due for cancelation: $465,556 12 yr. R/B on 20 yr. Ded.

Rollback $710,428 Penalty $852,514

Total amount due for cancelation: $1,562,942

TOOLS FOR REAL PROPERTY TAX

• Sta ffing to inspe c t a ll pro pe rtie s a s to

whe the r a de dic a tio n sho uld b e g ra nte d a nd, o nc e g ra nte d, o n a re g ula r b a sis.

• Pic to me try so ftwa re , g e o g ra phic

info rma tio n so ftwa re a nd re la te d ha rdwa re a nd tra ining .

IMPLEMENTATION OF DEDICATIONS

• Sig nific a nt pub lic o utre a c h e ffo rts sho uld

b e ma de prio r to the imple me nta tio n o f the a ny c ha ng e s to the de dic a tio n pro g ra m.

• De a dline s sho uld b e we ll pub lic ize d.

FUTURE CONSIDERATIONS

• Alte rna tive me tho ds o f a sse ssing va lue s
• L
• ng e r de dic a tio n time fra me s a nd g re a te r

inc e ntive s fo r lo ng e r te rms

• F

a vo ra b le ta x tre a tme nt fo r c o nse rva tio n e a se me nts

• Purc ha se o f de ve lo pme nt rig hts
• Spe c ia l fund fo r ro llb a c k ta xe s & pe na ltie s
• Bro a de r syste m o f c o ntro ls to pro te c t

a g ric ulture

• F

urthe r re fine ro llb a c k a nd pe na ltie s

Thank You!

• Any c o mme nts o r q ue stio ns?