FLASHREPORT

HAWAII GOVERNMENT SUES ITSELF TO QUASH PROPERTY TAX RELIEF - AND WINS

An exclusive column penned for the FlashReport by Robert Thomas, an attorney with the Pacific Legal Foundation.

Californians will recall that Proposition 13, with its promise of relief from crushing property taxation, was opposed by most of the state’s political establishment. Even after its approval by voters at the polls, various forces fought a rearguard campaign against full implementation.  In the end, however, when a lawsuit was filed against the measure by a taxpayer who claimed she was being discriminated against by the differential taxation structure, the politicians and bureaucrats saw the light and supported the taxpayer-enacted measure all the way to the U.S. Supreme Court.

It turns out the politicians just weren’t creative enough, and didn’t have the backing of the state’s high court, or they might have nipped Proposition 13 in the bud.  No strategy to undercut tax limitation in California has been quite so brazen as what has recently occurred in Hawaii, where local government officials on the island of Kauai actually fabricated a lawsuit in which they sued themselves in an audacious effort to smother a voter-approved measure to aid hard-pressed homeowners.

In August, the a deeply divided Hawaii Supreme Court upheld the lawsuit, ruling that government officials can manufacture lawsuits, in which they are on both sides of the case, fund the litigation with a quarter-million dollars of public money to hire the largest law firm in the state, and attack a publicly-approved tax rollback measure in court.  The court also determined that under Hawaii’s constitution, the delegation of property tax power from the state to “the counties” means that only “county councils” may exercise that power, and not the people of the counties by direct democracy.  Local government officials apparently believed the amount of property tax homeowners pay is a decision too important to be trusted to the people who pay the tax, and a majority of the justices of the Hawaii Supreme Court agreed.

Some background.  In recent years, the median value of Kauai homes has soared to nearly $700,000, a 48 percent increase this past year alone. The staggering prices are the product of a hyperactive market fueled by speculation, and investors flush with cash willing to pay top dollar for modest properties.  A rise in market value has little benefit to those who have no intention of selling. When a neighbor’s home sells, or is upgraded by a new owner, all of the properties in the neighborhood see an increase in assessed value, which the tax collector uses to justify increased property taxes.

Since 1998, the average Kauai homeowner experienced a nearly 50 percent increase in property tax. But middle-class families of longtime Kauai residents and seniors and others on fixed incomes are in danger of being taxed out of their homes. Homeowners can do little beyond challenging the assessment through the often Byzantine maze of local bureaucracy, with only a slight chance of success.


After years to trying vainly to convince their elected officials — whose revenue coffers are bulging — to provide property tax relief, the people of Kauai exercised their right to change the system themselves. Local homeowners proposed an amendment to the Kauai Charter to roll back property taxes to 1998 levels for owner-occupied homes. For those who bought their homes after 1998, the amendment based property taxes on the assessment at the time of purchase. Yearly tax increases for all resident homeowners were capped at 2 percent.

As does Proposition 13, the charter amendment protected resident homeowners against the ravages of an unpredictable, volatile housing market, and would have allowed them to anticipate their year-to-year property-tax liability, budgeting accordingly. And there is no surprise to new purchasers who can factor future property-tax liability into the decision to buy.

The charter amendment appeared on the November 2004 ballot. In the run-up to the vote, virtually every Kauai elected official attacked the measure, with the mayor and the County Council leading the charge. They said it would adversely affect their ability to provide services, but the people didn’t buy it. The Kauai budget has risen 50 percent since 1998 and the current budget increase alone is 25 percent over last year. Kauai government spending is now a record $123 million. The people of Kauai approved the measure nearly 2-to-1, despite a well-organized, well-financed opposition, including government officials and public worker unions.

But instead of accepting their decisive political defeat, Kauai officials went to court — against themselves. The Kauai county attorney sued the mayor, the finance director, and the County Council. The claim: the County Council possesses a monopoly on property-tax policy, and the people of the county had no right to propose and vote on the charter amendment. To top it off, the county attorney represented both sides in the lawsuit and the litigation is backed by a $250,000 war chest of taxpayer money, (budgeted for private lawyers hired to attack the charter amendment).

Pacific Legal foundation represented four Kauai homeowners who intervened in the officials-against-themselves case. They argued that government officials should not be able to concoct a lawsuit, in which they are both the plaintiff and the defendant, in order to gain court approval for their claimed real-property-tax policy monopoly.

The homeowners claimed that the lawsuit was collusive, and the court should not entertain an obviously manufactured case designed to give the local officials judicial cover for their refusal to implement a popularly enacted measure with which they politically disagree.  The homeowners also asserted that the state constitution’s delegation of power to “the counties” means that the people of the counties, not just local politicians, have the right to vote and decide on how property taxes are imposed.

The Hawaii Supreme Court, in a 3-2 decision in which the dissenting justices accused the majority of “subverting the legal system,” upheld the collusive lawsuit, and struck down the property tax reform measure as unconstitutional.  Now, under Hawaii law, when government officials do not agree with the outcome of an election, they are free to concoct a friendly lawsuit, fund the litigation with taxpayer money, and ask a local court to strike the measure down.  It is a stunning reminder of how creative bureaucrats and judges can be when they imagine their power and their self-interest is at risk.   The end result of this case is that in Hawaii, “we the people” have no direct say in how much property taxes we pay. 
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Robert Thomas, Esq., is an attorney with the Pacific Legal Foundation, in their Hawaii Center.