An effort to offer Big Island commercial farmers a better break on their taxes took a new form Wednesday.
Since April, the Hawaii County Council has discussed various bills that would overhaul the county’s process for dedicating land for commercial farm use to make it more flexible and potentially make more farmers eligible for reduced tax assessments.
The most recent incarnation of this plan is a pair of bills — Bill 57 and 58 — that were discussed at Wednesday’s County Council meeting.
Bill 57 will, if passed, eliminate the county’s current “nondedicated agricultural use assessment” program, which allows property owners whose land is used in part for agriculture to have the land assessed at lower rates for tax purposes. Applications for that program would close by September 2024, and property owners receiving the nondedicated assessment would be required to apply for an alternative assessment by September 2025.
The nondedicated assessment program coexists alongside a dedicated agricultural use assessment, and the two assess land at different rates: the nondedicated assessment values land at two times its commercial agricultural use value — as opposed to its market value — while the dedicated assessment rates the land at just the commercial use value.
The nondedicated assessment has been criticized for having loopholes that can be easily exploited, leading to the rise of “gentlemen farmers,” wealthy landowners claiming agricultural benefits for land that is largely kept as open space.
“The program was heavily abused, especially by wealthier landowners whose only reason for owning land in Hawaii is speculative investment,” wrote Pepeekeo resident Don Rudny in testimony Wednesday. “They used the program to significantly lower their property tax bills, shifting the burden to working local families. Many of the properties are not really operated as legitimate farms or ranches.”
To replace that program, Bill 58 would establish a “community food sustainability use assessment” that would allow eligible land — which are used on a continuous basis to produce food for local consumption — to be assessed at 30% of its fair market value.
Keita Jo, assistant real property tax administrator, said the tax burden for a property valued at $400,000 could be reduced from $3,700 to $1,100 annually under the community food sustainability assessment.
The assessment also would impose a three-year rollback tax, whereby the landowner would have to pay the difference between the land’s fair market value and its agricultural use value if the landowner fails to comply with conditions on the use of the land.
The community food sustainability assessment follows a previous bill that the council passed earlier this month that divides the dedicated assessment program into short-term or long-term subcategories. Under those categories, land can be dedicated for either up to three or 10 years, with both options offering varying assessment rates.
Hamakua Councilwoman Heather Kimball, co-introducer of the bills, said her intention was to incentivize food production on the Big Island even if it isn’t at a commercial scale.
“We’ve had fears that even with the short-term dedications, there would be some farmers who would be left out,” Kimball said.
Jo said there are roughly 8,000 Big Island properties currently in the nondedicated assessment program, but added that it is uncertain how many of them will transition to the community food sustainability assessment.
In his written testimony, Rudny opposed Bill 58 on the grounds that the transition may stretch the county’s Real Property Tax Division’s resources too thin, but Jo said the scope of that transition will be clearer in a year or so, once applications for the nondedicated program close.
Puna Councilman Matt Kaneali‘i-Kleinfelder said increasing incentives for farmers on the island is essential to reduce the its reliance on imported food.
While he and Kimball acknowledged that the new programs still have the potential for abuse, he added that the risk is worth it to help small businesses.
The council voted unanimously to pass the bills at first reading.
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.
