EXCLUSIVE: Kakaako property tax controversy

HONOLULU (HawaiiNewsNow) - A local activist says state's largest private landowner shortchanged the city $2 million in property taxes over a 16-year-period.

Holly Huber said the city gave Kamehameha Schools a sweetheart deal on its 555 South St. property in Kakaako by allowing the $7.3 billion trust to pay residential tax rates instead of commercial rates.

"They're getting a special deal on their property tax by having that property improperly classified as a residential property when in fact it's commercial," Huber said.

"The city has lost about $1.9 million in property tax."

The parcel is the site of the new, $300 million highrise planned by Kamehameha Schools and local developer Stanford Carr.

But for more than a decade, the 4.1 acre lot has been used for commercial purposes and its tenants include a parking lot operator, a lunch wagon and a recycling outfit.

Huber says the land hasn't been in residential use since the early 1990s when plans for a highrise by developer Bruce Stark collapsed during Japanese economic bubble. She said the project's building permits and other condo approvals lapsed or were terminated.

The residential tax rate is less than half that of the commercial rate, which allowed Kamehameha Schools to shave off tens of thousands of dollars each year from its tax bill.

City officials did not return calls but Councilwoman Ann Kobayashi said she recent spoke with city tax officials, who told her that their hands were tied.

"Because those plans are recorded with the city -- that it would be residential use -- that's what we have to charge them," she said.

Kamehameha issued this statement: "Oahu property taxes paid by Kamehameha Schools and our lessees are established and assessed by the city ... we and our lessees have paid whatever taxes we have been assessed."

The Kamehameha Schools, which was established by the 1887 will of Princess Bernice Pauahi Bishop, is a tax-exempt charity that educates native Hawaiians. It's the state's largest private landowner with over 300,000 acres.

The trust does not have to pay federal income taxes on the bulk of its assets but does pay property taxes on its real estate holdings.

Under the city's arcane property tax rules, the tax rates are supposed to be set according to a property's land classification and actual use. But Huber says the city continues to issue property assessment that classify the land as residential.

Each year, the city sends Kamehameha Schools 318 separate property assessments for each of the unbuilt condominiums planned by the developer Bruce Stark, she said.

"What we found when we researched the property at 555 South St. is a ghost condo," she said. "We found 318 condo units that didn't exist."

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