Mayor Mufi Hannemann's tax plan for the coming budget year may be in serious jeopardy.

A number of City Council members are not sold that raising rates just on residential properties with absent owners is a good idea, said Budget Chairman Nestor Garcia.

His comments came after the first hearings yesterday on Hannemann's $1.82 billion operating budget and record $2.1 billion capital improvements budget.

Rejection of the plan means council members would have to find $18 million in an already tight budget year.

Meanwhile, some owner-occupants on O'ahu may be finding out that they aren't owner-occupants at all.

The Hannemann plan centers on raising tax rates only on the so-called "nonhomeowner" category, comprising residential properties with absentee owners.

Those with properties in all other tax categories, including commercial, industrial, agricultural, hotel/resort and the new homeowners category, would see their rates stay the same under Hannemann's proposal.

Garcia said that until council members get a better feel for how they want to handle the new "homeowner" class made up of owner-occupied residential properties, "I'm not quite sure if the council's going to go ahead ... with a separate tax rate for non-homeowners. I get the sense the members aren't comfortable with it yet."

Garcia noted that when the mayor wanted to split the residential property category into owner-occupant and absentee owner classes in an effort to shield the former from higher taxes, it passed the council by a 5-4 vote.

Hannemann and other supporters of the measure argue that absentee owners are investors and can better weather an increase in taxes.

Opponents say keeping the rates lower for owner-occupants drives up rents, although the supporters believe prices are market driven.

Adding to the debate is a new wrinkle. About 5,300 homes, apartment and co-op units on O'ahu with owner-occupants have not become part of the new owner-occupant tax category, but have been placed in the absentee owners category.

That's because under the definition of the new homeowners class, all units on a single property must have qualified for homeowner exemptions, which come in the form of deductions from the value of a property when multiplied with the rate to calculate a tax bill.

Owner-occupants who have more than one unit on a parcel of land and who don't have homeowner exemptions on all the units will be among those paying the higher tax.

HOMEOWNERS UPSET

Garcia and Councilwoman Ann Kobayashi said they have been hearing from owner-occupants who say they should have been in the owner-occupant category.

Among them is Bernice Mau, the city clerk.

Mau said her mother lives behind her Pālolo house, in a dwelling that does not receive an exemption on her tax bill.

She said it's not fair that she can't join the owner-occupant class when she doesn't derive any income from the second structure.

"I don't feel I should be considered a nonhomeowner," she said, adding that the unit has been in her family's possession since it was built in 1939.

Also in the same predicament are owner-occupants of co-op building complexes, where people who own units share in the ownership of the land under the building.

Veronica Gail Worth, president of the Tropic Sea, said she has a homeowner exemption as the owner-occupant of her unit. But, because not all 62 units are owner-occupied, and therefore not eligible for homeowner exemptions, Worth and all other owner-occupants in the building would have to pay at the absentee owner rate.

Hannemann's plan calls for raising the tax on absentee owner properties — those in the so-called non-homeowner's tax category — from $3.42 per $1,000 of value to $3.72 per $1,000.

Administration officials say the average nonoccupant owner of a single-family property valued at $600,000 this year would pay $2,058, or about $5.90 more next year than this year, the mayor said.

The average nonoccupant of a condominium or other multi-family dwelling worth $300,000 would pay $1,029, or $2.95 more next year.

But that's only assuming the value of a property went down the O'ahu average of 7.8 percent.

In the case of Worth and other Tropic Sea owner-occupants, assessments rose in this year's valuations. Worth said assuming a $3.72 tax rate, her tax bill will go up 8.3 percent, — about $400.

Worth said she wants non-occupant and owner-occupant dwellings charged at the same rate.

COUNCIL RESOLUTION

Last month, the council approved Resolution 10-14, calling for the administration to "establish a clear and accurate procedure to determine whether properties improved with two or more homes qualify for the new homeowner property tax class."

Kobayashi, who introduced the resolution, said she's heard from at least 30 homeowners islandwide who've wondered why their property tax bills didn't show them in the new homeowner class when they live on the properties they own.

"To be declared non-homeowner is putting a burden on our homeowner class," Kobayashi said, noting that second dwellings are often occupied by the property owner's parents or other relatives. "It's a very unfair situation."

But Budget Director Rix Mauer III said there's no ambivalence about who qualifies to be in the class.

"As the ordinance stands today, if there are two or more dwellings on the property, all of the dwellings would need to have a homeowner exemption, and the occupants of each of the dwellings would need to be on the title of the property," Mauer said.

Preliminary calculations show the city could lose an estimated $2.5 million in revenues if all residential properties with second dwellings were to be included in the homeowner class, he said.

Mauer said his staff is "putting together a chart" to show who falls under the homeowner class, and also clarify the definition of a dwelling unit.

As for whether the administration intends to amend the law to include owner-occupants with a second dwelling, Maurer said "that's not our intent right now but that doesn't preclude us from thinking about it."

Kobayashi said even in cases where a second or third home is rented to an outside party, an owner-occupant should at least have the part of the property containing his or her own house classified in the homeowner class.

Because condominiums are considered individual properties, condo owners are part of the homeowner class.

Apartment buildings, with rental units, are not part of the new category.

Garcia said those are the kinds of questions that need to be discussed before a tax rate plan is passed in June.