Read My Lips – No New Taxes

Oahu’s mayor, Rick Blangiardi, had his George Bush (the senior) moment of “read my lips, no new taxes” this week when presenting his administration’s 2025-2026 operating budget and capital improvements list.  The staggering $3.93-Billion dollar budget was met with a stern promise from the mayor that he will not increase property taxes.

 

But when politicians proclaim they won’t raise our property taxes, they are playing a game of semantics.  It’s these word games that bend the truth of tax collections.  That’s because the rate we pay is not the only determining factor in how much we actually pay in property taxes.  The taxes we all pay are based on what the county values our homes for, then apply the rate.

 

Mayor Blangiardi, as with Kirk Caldwell before him, has not raised the residential property tax rate.  As the chart below shows, the last time rates were raised, it was during the term of Peter Carlisle in 2012.  Maybe that was part of the reason Carlisle was defeated for reelection?  It is important to note that starting in 2014 a new category was created called Residential-A.  Any home valued at over $1,000,000 and was not owner-occupied moved into that category.  The rate for Residential-A is 71.43% higher than the residential rate.  That change in classification of many homes on Oahu, shifted a portion of the tax burden from residents to non-residents.  Fair or not, it has contributed to the tax rate for residents to remain the same.

 

 

 

While the rate has remained the same since 2011, has your property tax bill remained the same?  No!

 

No matter which island you live on, every county in Hawaii determines property taxes the same way.  Each county has assessors that annually update the value of every parcel of land in their county.  That parcel value is then taxed at a rate determined by the County Council for each county.

 

It’s a simple formula of (tax assessed value) x (tax rate) = taxes owed.

 

It then makes it easy for a politician to proclaim “no increase in property taxes” even though your tax bill goes up.  If Mayor Blangiardi wanted to be accurate, he should have been more specific and said that he was not going to propose hiking the property tax rates.  To say my property taxes will not be higher next year is disingenuous – to be kind.

 

The next chart shows the median home price for both single family homes and condos on Oahu from the year 2000 to 2024.  As home prices continue to climb, so do the tax assessed valuations the county determines for our homes.

 

An interesting phenomenon happened in 2006.  The county actually lowered the tax rate!  My guess was after the huge increase in home values from 2000 to 2006, the county had just too much money (for once) and was compelled to drop tax rates.  In 2008 we had the financial crisis.  Home values dropped, which resulted in less property taxes being collected.  The fix?  Raise property tax rates to increase revenues.  The property tax rate was raised in 2009, 2020, then again in 2011.

 

 

 

 

Since 2011 the value of all real estate on the island of Oahu has grown from $178,264,651,000 (that’s $178-Billion) to $346,361,866 ($346-Billion) in 2024.  That’s almost double – just under a 100% increase.

 

If you go back to the formula used to calculate property taxes:

 

(tax assessed value) x (tax rate) = taxes owed

 

Simple math will tell you that if you double the tax assessed value, while still keeping the rate the same, the government will still get twice as much now then what they did in 2011.

 

In 2011 the operating budget for Honolulu was $1.827-Billion.  In 2024, the figure was $3.410-Billion.  By the way, 2025 is $3.93-Billion!

 

What was inflation like for those years?  It would be unfair to criticize politicians for increasing government, when all they were doing was adjusting for inflation:

 

 

 

 

The graph above shows the inflation index.  The Fed uses 1984 as a base date for inflation.  In 1984, the index was at 100.  In 2011 the index was 222.8.  At the end of 2024, the index was 323.3.  Inflation has not doubled the cost of goods in the 13 years we are looking at above.

 

Today’s purpose was not to discuss the merits of what Mayor Blangiardi wants to spend out property tax dollars on.  After all, Oahu has a horrific homeless problem, parks needing attention, roads that will damage your car because they are in disrepair, plus a host of other things that need lots of money.

 

There are two things you need to be aware of.  First, is how property taxes are determined.  And second, when a politician proudly says they aren’t raising your taxes, you better hold onto your wallet.

 

 

 

 

 

And now the week’s economic news…….

 

Mixed Data

There was a lot of major economic data released this week, but there were few surprises.  The key labor market data was very close to expectations, and the other reports were mixed.  As a result, mortgage rates ended the week with little change.

 

The key Employment report revealed that the economy gained 151,000 jobs in February, close to the consensus forecast of 160,000.  Sectors displaying strength included health care, financial, and transportation.  The unemployment rate unexpectedly increased from 4.0% to 4.1%.  Average hourly earnings, an indicator of wage growth, were 4.0% higher than a year ago, down from an annual rate of 4.1% last month.

 

Two other significant economic reports released this week by the Institute of Supply Management revealed one that missed expectations, while one beat expectations.  The ISM national services sector index rose to 53.5, above the consensus forecast.  Conversely, the national manufacturing index declined to 50.3, falling short of expectations.  Readings above 50 indicate an expansion in the sectors and below 50 a contraction.  Service companies continue to outperform manufacturers.

 

Much of the recent volatility in financial markets has been due to changes in tariff policies.  The impact of higher tariffs on mortgage rates is a bit tricky to determine, as there are offsetting factors.  One direct effect, quite simply, is that tariffs raise prices, causing inflation.  However, they also lower the outlook for global economic growth, which would reduce future inflationary pressures.  Bottom line, the net long-term influence on mortgage rates will depend on the magnitude and duration of the new policies.

 

There were also a couple of significant economic events in Europe this week.  On Thursday, the European Central Bank reduced benchmark interest rates by 25 basis points.  This move was widely anticipated, and the reaction was relatively minor.  A much bigger surprise, however, was a policy change in Germany.  The German government announced plans to adjust its debt rules to allow higher fiscal spending to boost economic growth.  Global bond yields climbed after this potentially inflationary news.

 

 

 

 

Next Week

Investors will continue to look for additional information about tariff policies.  For economic reports, the main event will be CPI on Wednesday.  The Consumer Price Index (CPI) is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services.  The Producer Price Index (PPI), another monthly inflation indicator, will be released on Thursday.

 

 

 

Until next week….

 

*** Please note that Freddie Mac publishes their weekly rate report on Wednesday mornings from data received Mondays and Tuesdays.  The graph above is intended to shown rate trends, and not “today’s current rate”. ***

 

 

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