Understanding home property taxes

Before addressing what we do from here I wanted to try to put down an explanation of home property tax. The big news is that it appears to me that the removal of the cap was handled relatively smoothly, but that a one sentence change that slipped in is what may be causing all the upset over taxes: if the details are more than you want to tackle, be sure to read "Mixed use" toward the end. 

Apologies up front that this will run long just to get the essence of the impact of the changes wrought by Ordinance 953, and I must begin by stating that this is not(*) a definitive exact description of the tax code. If you take away one thing from this article, it's that the tax code is complex: just skimming down below without even reading it should serve as evidence of the complexity.

(*) I believe that this is reasonably accurate picture of the current tax code but to focus on what I take to be the key issues, it is definitely a simplified description (believe it or not). For full details, please see Kauai County Title II Chapter 5A Real Property Tax. IANAL; TINLA.

My focus here - to keep this from turning into a tax accounting course - is on the recent tax code changes, what the situation was like up to last year's taxes, and what impact resulted. There were changes relating to minimum tax, to tax classifications other than homestead, and so forth. Also, in laying out how taxes are computed there are a number of provisions that only affect small numbers of people that I have omitted where these are not controversial and do not impact the larger issues.

With fair warning that this won't be easy, here goes. The concluding section may or may not be intelligible without going through everything, but if you don't relish the details it may be worth a look.

Ad Valorem

Real property taxes here are ad valorem (a fancy Latin term) meaning the tax is levied as a proportion of the assessed value of the property. This means that, for example, in its pure form, a $2,000,000 property owner pays double the taxes a $1,000,000 property owner pays. When property changes hands the sale price sets market value, and in intervening years the county assessor adjusts the value to keep it updated, based on market trends, sales of similar properties, and many other factors. 

The Boom

The story begins in 1990 with Ordinance 571 (not available online to my knowledge). The preamble to the bill actually explains the situation clearly: the following are excerpts from Bill 1341 Draft 1.

... faced with assessments which have been increasing by approximately 15 percent annually over the last 2 years 1988 and 1989. 

To address the needs of these permanent homeowners, this bill would allow those with home exemptions to dedicate their property to permanent home use for a 10 year period, and have their assessment remain more or less stable for this 10 year period. Thereafter, the dedication may be renewable for additional 10 year periods. A 6% annual inflationary increase shall be allowed in assessments, and increases in valuation due to improvements shall also be added. If the homeowner breaches the dedication, for example by selling or losing the homeowners exemption, there would be severe penalties.

So property values were skyrocketing and since for longtime homeowners the increased market values were "on paper" only, people were struggling to keep up with the higher taxes. 

Of course this happened a long time ago, but I am curious why the council did not simply lower the tax rate to maintain revenues instead of instituting this cap which we are now paying for in a very real sense. Presumably the real estate market was booming and everyone's property values going up, yet if real estate was up 15% that doesn't mean the county needs 15% more revenue so they could just drop the tax rate by 15%. And in fact, the residential tax rate (this was before "Homestead" classification existed, and by the way, land and buildings were taxed separately) from 1989 to 1990 changed from 5.71 to 4.96, a decrease of about 15%.

Note that this was a ten year dedication but renewable with penalties. For many of us pondering whether we might sell our home in the next ten years is a difficult question and I wonder why the tax relief was based on that commitment: why if I planned to sell in eight years I should not deserve protection against large tax increases? By simply adjusting the tax rate none of this would have been at issue.

The Cap

So this is how the cap began, and to my best knowledge, people who saw sharp tax increases this year all had been "under the cap" for a number of years. 

In 2006 the cap was dropped to 2% by Ordinance 826, and then in 2011, Ordinance 915 replaces the percentage with the urban Honolulu Consumer Price Index (which I must say is fairly different that the Kauai real estate market). Ironically, for 2012 and 2013, the CPI was 2.4% and 1.78% which averages out to just about 2% per year. The Honolulu CPI numbers can be found here.

But the most important thing to understand about the cap is that the longer it is in effect, by suppressing any large increases greater than 6% and then 2%, etc. the taxes that longtime homeowners pay become increasingly less than what their neighbors pay on similar homes, merely by virtue of having owned for many years.

On top of the cap holding down taxes year to year, it also in effect locks in the assessed value all the way back to the time the cap first went into effect for a given home. Some lucky capped homes may have had assessed values on the low side at the time, even when that was adjusted back to fair market value the cap continued holding down the tax you paid. Anecdotally I have heard from more than one source that assessors did not routinely reassess all properties every year, so it was hit or miss if your property was reassessed any given year. If true, this means that even homeowners who have owned for the same length of time will have different benefit from the cap depending on the foibles of assessment - and so long as the cap is in place that can't effectively be remedied in later years.

In terms of numbers, there are nearly 11,000 Homestead class properties on the island. Over 70% had cap credit reducing their taxes up to last year (FY2013). Of these, 1695 (or 15%) the cap credit was greater than 50%, 815 the cap exceeded 75%, and 423 the cap credit reduced taxes by 90%. For many homeowners the cap was a major factor, holding down their tax liability while the market rose.

Revenue and Bond ratings

On top of the cap which only homeowners (not businesses) can take advantage of, the tax rate on Homestead class has been holding steady or drifting lower since 1999. Why give homeowners a break? 

Most of the revenue to operate the county comes from real property taxes and if you give one group of property owners low rates plus a cap it mean you have to lean more heavily on all the other property owners to pay more, and over time that has real consequences. 

Kauai county bonds have been downgraded recently and it is a concern for the county's financial health, as well as impacts ability to raise funds through bonds in the future.  Finance director Steve Hunt testified at the RPT workshop that bond raters have mentioned the real property tax situation as one factor they are looking at. In a nutshell, for FY2014, the Homestead class represents about 22% of property value on the island but taxes amount to 9.9% of total revenues. In effect, the bond raters are suggesting that homeowners on Kauai need to step up and pay more of their share of county services.

Axing the cap

Last fall Ordinance 953 repealed the tax cap and made some other changes intended to cushion the blow. I know that a lot of effort went into trying to smooth the transition but it seems there were adverse impacts for lots of folks from the reaction that led to the RPT workshop and now several competing bills to change the tax code further. 

Just given how much some people's taxes were held down so much by the cap makes it extremely difficult to even know what the "right thing" is. For example, under the cap, you could have two identical homes side by side, one paying ten times the taxes as the other, simply due to one being newly purchased and the other owner being there twenty years or more. On the one hand, it isn't fair to have such inequity in taxes between similar homes and taxpayers. On the other hand, it isn't fair to suddenly raise taxes on the lucky ones who have benefitted over the years from low rates either. 

I would say that be letting the tax cap credit grow over the years to be such a big factor in some people's taxes, the council created an untenable situation. Why didn't the 1990 council simply adjust rates to ease taxes in the face of huge market growth? Yet the 6% cap was much more in line with real property market growth than the 2% cap later instituted (would be interested to learn what the thinking was) later and the CPI based percentage ends up being about the same.

Compensatory measures

Ordinance 953 is a complex piece of legislation but I want to focus on two pieces of it for purposes of understanding the impact that has caused so much unhappiness.

The only major change for most homeowners introduced presumably to cushion the blow of losing the cap is that the homeowner exemption was raised significantly for all Homestead properties. Here are the details:

Homeowner exemption	Sec. 5A-11-4(a)
	under 60	60 to 70	over 70
previously	$48,000	$96,000	$120,000
from FY2014	$160,000	$180,000	$200,000
difference	$112,000	$84,000	$80,000
tax reduction	$341.60	$256.20	$244.00

In short, if your tax cap was less than the amount at the bottom of the table (by homeowner age range) you saved more, but to the extent the cap was greater you had more taxes to pay. Here are some estimates I calculated of how many people had cap credits.

No cap credit	3207
under 250	4475
250-499	2625
500-749	416
750-999	131
1000-1999	104
2000-2999	26
3000-3999	5
4000-4999	3
5000 and up	2

While a majority of people had either no cap (3,207) or under $250 (4,475), a few hundred did lose out more than the added exemption compensated. For caps well over $1000 the hit was significant but then for the most part these well higher priced homes that benefited from another measure in the change.

Sec. 5A-11A.2. Limitation of Taxes for Home Preservation.
(b) A homeowner who meets the criteria in Subsection 5A-11A.2(c) shall pay as real property taxes the higher of an amount equal to three percent (3%) of all the owners' income(s) or the amount of five hundred dollars ($500.00).

There are a bunch of conditions I won't detail here but this applies only to homes valued over $750,000 that have had homeowner exemption for at least ten years and income under $100,000 per year. Under this provision, you can live in a multi-million dollar home and pay greatly reduced taxes, so long as your income is not excessive.

But what about homes under $750,000 market value? Depending on their age they get about a $300 break and above that will have to pay the difference losing the cap. (It's hard to understand the thinking by which people over 70 get the least compensation against potentially losing the cap, under 60 the most.)

In homes under $500,000 in value, I count six people with tax cap over $1000 who will see taxes go up several hundred dollars which will be a significant percentage of the total tax. Depending on financial situation these people could be in for a shock (and of course my $1000 cut off is arbitrary, losing $900 cap is a bit hit, too). While the amount of money is not great in terms of real estate prices, an unexpected extra several hundred dollars is not a small impact. I would say this is a gap not well handled by the change but it is a small number of folks and in total not a lot of money.

Counts for over $1000 cap $500,000-750,000 is 34; $750,000-$1,000,000 is 25;  $1,000,000-$1,500,000 is 41; and $1,500,000-$2,000,000 is 18. To some extent the folks with under million dollar homes could feel a big impact, too, depending on how much of that value is appreciation "on paper". Over a million dollars the numbers are relatively small and the home values are great enough that presumably most of them can afford it.

Low income exemption

There is provision for an additional $120,000 exemption for low income households. Details are:

• Low income exemption Sec. 5A-11-4(d)
• AFFORDABLE HOUSING GUIDELINES EFFECTIVE : 12/18/2013
• Depending on household size (1-8) income must be below 80% median (in bold below)

HUD/RD Limits :	1	2	3	4	5	6	7	8
30% Limits	19,100	21,800	24,550	27,250	29,450	31,650	33,800	36,000
50% Very Low-Income	31,800	36,350	40,900	45,400	49,050	52,700	56,300	59,950
60% Limits	38,160	43,620	49,080	54,480	58,860	63,240	67,560	71,940
80% Low-Income	50,850	58,100	65,350	72,600	78,450	84,250	90,050	95,850

I would think that rather than an exemption - which is a flat rate amount off taxes - something that took into account the problem of a family home on land that has grown to large valuation "on paper" would be an improvement. It isn't hard to imagine a family property of a few acres that happens to be near an area with lots of land speculation such that the market value could have grown past a million dollars yet the people living there won't see any of that unless they sell and would be hard pressed to pay taxes commensurate with that valuation.

It is hard to know how best to handle the "land poor" situation where an owner has valuable land holdings yet little income or other assets with which to pay taxes. I don't know what the best solution is but I think we can have that discussion fruitfully and explore possibilities beyond what is being done.

Mixed use

Here is what I believe is the untold story: much of the hubbub I believe is due to a single sentence introduced with Ordinance 953 (I wish I knew how and why this got in).

If a property has multiple actual uses, it shall be classified as the use with the highest tax rate.

I believe this has caused a lot of the problems we are hearing about and the removal of the cap may be only a minor piece. This seems to be what caused this gentleman's taxes to go up 98% this year. At the RPT workshop I also heard people mention cases that ran afoul of this as well.

In the extreme this says that if you rent out a room in your home even for only a short time that makes the entire home for the entire year taxed at Vacation Rental rate ($8.85 or nearly triple the Homestead rate). If you have any commercial use of the home, it goes to Commercial rate, and so forth.

Tax table

Some 2500 words later I think I have touched on the main points but certainly not everything.
I can't guarantee it but here is a table of taxes by assessed value showing a number of options for exemptions and what the resulting taxes are. You can see clearly that getting Homestead rate (everything below the two top rows) is a huge discount, so the mixed use clause is expensive when it applies. If you can get into Homestead and get any of the extra exemptions, taxes are quite reasonable.

Assessed value	$400,000	$500,000	$600,000	$700,000	$800,000	$1,000,000	$1,500,000	$2,000,000
Residential rate	$2,300	$2,875	$3,450	$4,025	$4,600	$5,750	$8,625	$11,500
Vacation rental rate	$2,800	$3,500	$4,200	$4,900	$5,600	$7,000	$10,500	$14,000
Homestead with exemption	$732	$1,037	$1,342	$1,647	$1,952	$2,562	$4,087	$5,612
60 to 70	$671	$976	$1,281	$1,586	$1,891	$2,501	$4,026	$5,551
over 70	$610	$915	$1,220	$1,525	$1,830	$2,440	$3,965	$5,490
Low income under 60	$366	$671	$976	$1,281	$1,586	$2,196	$3,721	$5,246
Low income 60 to 70	$305	$610	$915	$1,220	$1,525	$2,135	$3,660	$5,185
Low income over 70	$244	$549	$854	$1,159	$1,464	$2,074	$3,599	$5,124

Summary

In summary, taxes are complicated. To my mind, far too complicated. It's always difficult for homeowners to get all the tax savings they are entitled to when they don't understand how the system works, or when they need to make filings every year (such as for low income) or file other forms which are all too easily forgotten. Also when the tax implications of renting a room for a short time may have major impacts that is also hard for taxpayers who don't have professional business managers and accountants not to make costly mistakes.

I don't know what the answer is but I hope by laying all this detail out it helps convey some useful facts about the system as it is as a starting point to understanding.

Intentions

I want to write to explain about what you will read here, about what my intentions are in posting. This is not your typical "blog" (a terrible sounding word for a wonder way for a private citizen to have a chance at writing to lots of folks who may be interested), or at least why I hope to avoid it becoming one. Specifically, I want to write about the considerable length of this writing and about data based opinion which I believe are the two unique aspects of this writing not often seen. The idea is to explain why this is a little different, in hopes that it can be understood as different in a useful way.

Brevity is overrated

To date the primary tax related posts have been way too long by any reasonable standards other than perhaps government accounting standards (which is actually an important area of expertise) and let me begin by stating I am not a trained accountant.

Perhaps this quote says it best - apparently it's a common enough sentiment that the quote has been attribute to any number of famous people:

“I am sorry this is so long. I didn’t have time to make it shorter.”

To put a positive spin on it, by writing at length I can publish in real-time as I work, without a proofreader and editor (not that such staff is available anyway). Also, cutting detail is a tricky business because different readers have different background knowledge - and of course different tolerance for verbiage and time constraints - so there is no right answer as to how much is too much. In my defense, this stuff is complicated. With respect to how Kauai should fairly tax homeowners, I do not (yet) have any wonderful proposed solutions. However, I am quite certain there will be no good answers that are simple and can be explained briefly. Besides, I assume everyone using the web has already learned how to skim - to get the words to you no paper and ink is wasted. Some key points are written in bold to aid skimming.

These issues are important and I think that too often we form opinions based on too little information, in part because our society is so complicated. Newspapers and online media typically impose word length limitations on writers: even with unlimited space editors don't want to subject their readers to overload. Yet, ultimately, these limitations are arbitrary; I have heard of struggles to how to give a solid explanation of an important public policy question when you only get 500 words. If "devil is in the details" (a phrase often seen in The Garden Island) there is little chance of pointing him out given 500 words but you just might catch a glimpse of the devil in here from time to time.

So, dear reader, please skim all you like here. I have tried to organize things into sections and usually there is an intro at the top and a conclusion, if there is one at all, at the end. Particularly gory details may be relegated to the end so many who probably wisely just stop at the point their interest in minutia is satisfied may never even see them. At least few readers should ever reach the end wanting more - if such folk are out there, consider leaving a comment what more they want!

Seth Godin says it well: "The public square is more public than ever, but minds are rarely changed in 140 character bursts and by selfies." If nothing else I can guarantee you will see neither of those here. Personally, I don't try to change minds, but I do strive to at least make my thinking understandable to anyone genuinely interested.

Data based

I intend to ground everything written here on data - taxes happen to be conjured almost entirely with numbers, but other topics where the data may be sources or references or photos, but point being that the writing should be grounded with supporting information. I think this is a critical starting point to having a chance of getting it right, and if I slip I welcome getting feedback to correct that.

Now the data that I use may be faulty or my analysis flawed or you simply may have different data, but at least if I show you my data and where it comes from then we can compare and make our own conclusions. Note that I am not claiming all data used is absolute indisputable fact, such data is precious hard to come by, but by backing up my conclusions with the data that produced it you get a fair chance to make that assessment yourself. Most of what you read, especially in the media with their arbitrary word length limitations already mentioned, people will claim things without telling you where they get a particular fact, and then you are stuck deciding if you trust them or not.

But trust is not a very good way to assess facts, even if you have a highly tuned sense of judgement. Often intelligent and well intentioned people get their facts very wrong: they may be misled by others, unaware of the quality of information they rely on, or simply make a mistake. Only when they disclose their sources do you have a chance to check their facts. That good people can easily get it wrong is so common (who hasn't made mistakes?) I don't think in this case specifics need mentioning.

Another great aspect of this approach is that opinions can be set aside when you focus on the data and people with different takes on an issue can find some common ground. Pesticide use and GMO has been a decisive issue on Kauai, but there is no reason that so-called "red shirts" and "blue shirts" can't have a discussion about, for example, finding the best possible data on how much Atrazine was used when and where on the island. 

Finding data that all sides agree on in the first place isn't an easy task by any means, but total agreement do not have to be the goal. Look at the range of possibilities just by attempting to find some data.

• Together, you may realize that you don't know and can't find out, and as a result consider that instead of jumping to conclusions, it might be well worth further research with perhaps a slightly more open mind.
• Some facts you can agree on, others maybe not, but you have found something you agree on and now you know what the other side disputes and can begin to ask questions as to why that is.
• One side trusts a given source while another doesn't. Knowing this you can dig into why they don't trust it, or alternatively look for other sources they might accept.

There are more possibilities to be sure but the point is that data grounds discussion. It's not going to be perfect but understanding the limitations of the information you have suggests what you need to learn.

To be clear, opinion colors all we do, so I would never claim that everything you see here is 100% true by any standard. I do choose what to write about and what not (though I try to maintain integrity and not purposefully hide data contrary to my position), how to present data. Opinions (ideally based on data) I try to label clearly as such but any interpretation of even the most cut and dried data becomes subjective quickly. There very definitely is opinion mixed in with what I hope is fairly solid data, but it should be clearly identified as such.

Perhaps most importantly data enables and sustains discussion between opposing views. Too often people are shouting past each other, uninterested or unwilling to consider new information or changing their position. "Stop poisoning the island," doesn't help build understanding, nor does "Don't worry, we know what we are doing."  Instead, we need to look at what "poisons" and how much and what effect and understand what science does and does not know about cause and effect; on the other side, if you know what you are doing then please show us what you are doing and how you know it to be safe.

This, if you will, is the data behind my approach. You don't have to agree with it but by explaining it as best I can you can now tell me what's flawed, and show me your better ideas. Even wrongheaded, by laying it out for examination - at length - I believe we can really talk about it in a meaningful way.

Feedback loop

Finally, I do want to welcome feedback. The beauty and the curse of working with data is it is very easy to get something wrong, but with corrections that can be a good thing. Since I don't have staff doing proofreading and fact checking, I welcome readers to point out errors and discrepancies and poor reasoning when it slips in. Comments have become a notorious feature of the so-called "blog-o-sphere" (a term worse than "blog") but for now are the best of a number of bad alternatives.

In the spirit of being data based, please feel free to point out errors or express disagreement. If you have better data please reference it so we can share that information. When I get analysis wrong, please point out the error and if you can offer better analysis. If you disagree with my opinions, please respect that; if you want to try selling a conflicting opinion feel free but please base it in data and rationale.

The more the merrier so long as comments are sincere and respectful - that's a given. While I get to go on and on at great length, that does not work well in comments. If you need more space, the digital equivalent of adding extra sheets of paper is to start a blog (you can get started quickly at Blogger.com, as just one possibility of countless many) and provide a link in your comment for "the rest of the story".  Perhaps the highest purpose blogging serves is as an outlet for stuff you want to write about to tell somebody because it's important to you: what I do is blog it and people will or will not read it, but my friends won't be subjected to this stuff unwillingly at least.

Anyone on the planet with a connection to the internet can read these words (a rather amazing but commonplace reality these days). In the spirit of quality data, let's keep the discussion respectful and out in the open. I am going to trust people to be civil and not moderate comments (there is some automated filtering turned out) and not make you jump through hoops to leave your thoughts. Since "logins" and passwords are such a mess, anonymous comments are allowed but please consider signing with your first name or nick name and perhaps noting what part of the island (or elsewhere, for visitors) you call home (mine is Kalaheo).

If any of this helps us understand the challenges Kauai faces a little better, make better choices about how this place works, possibly bring people together rather than divide them, that will be a good thing. That is my intention. If you read this far, mahalo!

PAYT, go small

One detail in the Pay As You Throw (away) waste disposal plan seems wrong to me: the minimum size container for household garbage is 64 gallons. That's huge - it's almost ten gallons a day, which is one Texas sized ten gallon hat's worth. We have been easily managing with one 32 gallon trash container now week after week and often that isn't particularly full. There are two of us but even when we have guests we have managed. I do take recyclables to the drop off center at Eleele every month or so which is easy, it's right by the Big Save and takes just a few minutes.

I think they should offer a smaller option - 32 gallon - at a very low price. It can be done: there are garbage services that have 10 or 20 gallon minimums (see for example) so I strongly encourage Kauai to set high expectations for minimal garbage. Some will take the challenge as the right thing to do, others to save a little money - either way it's a good thing.

I read the plan briefly but did not see detailed explanation of the reasoning and still think my suggestion makes better sense. I wrote to the Solid Waste Program Coordinator of the County of Kaua'i Solid Waste Division: they were kind enough to write back at length but basically said they have a plan created by experts and are sticking to it. They seem convinced that 32 gallons of waste is unreasonably small for most Kauaians until they institute curbside recycling. I'm no expert but here is my reasoning:

1. It sounds like the only reason not to have 32 gallon in Phase 1 is an assumption that nobody will use it - I certainly would and I often see one can out at curbside. What data suggests it is not worth the effort to offer 32 gallon?
2. Even if 32 gallon is not popular, in Phase 2 you need those containers anyway so why not get them sooner for people who want to reduce?
3. In Phase 2 as people start using 32 gallon you have extra larger containers now that need conversion - why not skip this step altogether when you can?
4. The plan notes a few households will remain on manual collection and many already have 32 gallon containers already I would think.
5. It sets an aggressive goal for reducing land fill sooner than later.
6. It is consistent with PAYT philosophy of saving more money the less garbage you produce.
7. For smaller size families and people living alone we should give them a break on cost since they impose a lesser burden on collection and landfill resources.
8. It sends a positive message as something to shoot for and people will see that others are doing it and it can be done.

Don't underestimate people making an effort both to do the right thing as well as to save a few bucks.
That's the argument for it which seems solid to me.

Reacting to home property tax

Following all the complaints about the latest tax code changes that resulted in some outraged taxpayers at the recent tax workshop, today the county council began the process of considering a raft of new bills that attempt to mollify the uproar.

Today's meeting agenda introduced several bills taking various approaches. I won't attempt to summarize but the titles provide a very general idea what it is about. There's a bill by bill breakdown in a sidebar in TGI coverage.

• PDB No. 2554: Real Property Tax Relief for the 2014 Tax Year
• PDB No. 2555: Real Property Tax Relief Funding
• PDB No. 2556: Reinstating the Permanent Home Use Tax Limit
• PDB No. 2557: Low Income Tax Credit
• PDB No. 2558: Retroactive Real Property Tax Measures and Extensions
• PDB No. 2559: Tax On Use (instead of tax at highest rate use, proportionate tax by % use)

The Funding bill (2555) allocates the money from reserves to make up for the lost revenue from whatever taxpayer's bills the council chooses to reduce. The rest are all schedules at tax relief for taxpayers impacted by the recent tax code changes, capping the increase, restoring some relief measures that were removed, or generally undoing the whole thing (which would have the effect, it was noted, of  re-raising taxes on many taxpayers that benefitted by the latest changes).

One point I wished I could make to the council that seemed terribly obvious to me -- before attempting to fix the tax code, please clearly describe what problem there is that so desperately needs fixing. Recently at the tax workshop we heard from many disgruntled taxpayers that their taxes were too high. When asked what classification and exemptions they had and so forth, I don't believe any had those details. There were suggestions that filing the right forms would fix everything but it was all speculation. How about follow up with those people, reporting if their tax situation was actually fixed or not? Are they happy now or not?

I think we should let each council member pick one homeowner property (anonymously) as an example and show us the actual before/after tax computation, tell their story, and make the case this is fair or unfair. While of course we need things to be fair for everyone, at least we can easily get a handful of cases where the current system is grossly failing that would exemplify the problem. Instead, we just have vague accusations of problems but zero details, no examples.

How are we going to fix the problem if we have not clearly defined the problem?

And remember, the premise is that the budget be balanced so whatever tax bills are reduced, that money will have to come from somewhere, probably reserves unless we raise other people's taxes too (which I think will lead to double indignation: once you get handed a tax break, nobody is going to give it up as if it never happened). 

It was good to see Bill Asing (long time county council member and former mayor) testify since he was part of so much of the history of the system that brought us here, yet I was disappointed that mainly he read excerpts of recent council member statements why they were voting "No" on this latest tax code change. And he offered no ideas other than he didn't like what had been done. He said he did not have enough information but did not mention what information he wanted to have. So with the extraordinary extra time to speak he was granted, I got nothing from it.

Several council members suggested we get "tax experts" to study the situation and advise council, but they did not name anyone nor even suggest what qualifications might be necessary. It seems to me that understanding and legislating taxes is an important part of the job council members are elected to perform, so leaning on "experts" strikes me as the wrong approach. How are council members going to make the actual decision responsibly if they are so dependent on whatever experts tell them?

The chair raised an interesting point, corroborated by Steve Hunt the finance director, that this recent tax code change is being closely eyed by the folks who rate bonds. Since Homestead classification makes up 29% of the tax base, yet with all the exemptions and tax breaks given to homeowners, generates about 10% of the revenue, this is viewed as a structurally weak system. To the extent the cap held down homeowner taxes, that would have the same issues.

Different council members are still saying different things about this. Opponents of the recent tax code changes are more or less saying, "told you so" as more talk of unfair taxes continues to be heard (but never with full detail). Proponents continue to defend the tax code - possibly with a little tweaking - and say that all the outcomes were predicted and explained before its passage, denying that there is a real problem at all. Nobody has identifying anywhere the administration projections were off by much. Again, it seems that hard facts and clear problem definition are desperately needed - and if the council skips that step they will be going in many different directions, each attempting to solve the problem they perceive.

Next meeting on all this is slated for September 24.

A conversation on Ordinance 960 (a.k.a. Bill 2491)

"The Bill" (Ordinance 960 or Bill 2491, Kauai's landmark pesticide/GMO legislation passed last year recently ruled preempted by state law) is back in the news as the county council considers its current legal status and what if anything to do next. Kauai County Council Member Gary Hooser (who introduced the bill and continues to be its most prominent supporter) wrote about where things currently stand and his vision for the path ahead in a recent opinion piece in The Garden Island entitled, The ebb and flow of Bill 2491 – people, industry and state neglect.

Sadly, but predictably, it was met with predominantly snarky comments that have been accumulating on the newspaper web site and typify much of the public debate of this issue to date. Rather than join in the fray I wrote him an email with what I hoped were pointed yet fair questions. Today Gary generously made time to sit down with me over coffee and discuss the issues, addressing at length and in detail my questions. Civility works!

We immediately agreed that in a newspaper piece restricted to several hundred words it would be impossible to touch on many of the details that make up the larger context of the issues that we were able to cover in about an hour face to face. More than press my personal opinions per se I want to share what I had the privilege of hearing directly from the bill's principal proponent at length beyond what's possible in a guest opinion piece. At the same time I want to be crystal clear that I would never purport to speak for Gary and to the extent that I don't get the supporting material he shared with me out there clearly or accurately enough, the blame is entirely mine. Furthermore, I must emphasize that I am retelling what I heard as best I can but cannot personally vouch for the reporting or facts herein.

Gary described Bill 2491 as always being originally conceived as his response to the pleas of westside families who feel that the health of their health is directly put at risk by the practices of the biotech companies that have taken over much of the agricultural land left after sugar cane production stopped. In crafting the legislation he described soliciting advice from what lawyers he could get to take a look and that while they pointed out the potential of implicit preemption, until tested in court there was no way to know ahead of time what authority precisely the county had.

We also agree that the issues of pesticides and GMO will not be settled any time soon by science. Both sides can point to papers that uphold their respective positions - showing harm or failing to show harm - but no research can claim to have irrefutable proof of either directly causing harm or high assurance of complete safety. Gary added a very good point that until the biotech companies are more forthcoming with information about what they do, any thorough scientific assessment will remain impossible.

We touched on so many aspects of the complex issue of biotech and environment but also the legal disposition of the legislation as well as its impact on Kauai county. Rather than attempt to reproduce everything here, some key points can be summarized to best tell the story Gary laid out for me.

• Q: what has Ordinance 960 cost the county so far? Estimated total around $241K: mostly legal fees ($210K appropriated has not all been spent), extraordinary council expenses ($24K), and police overtime ($66K), or which over $5K was compensated by citizen donations.
• We talked about the recent US District County ruling against Ordinance 960. The council will decide to appeal or not soon enough (discussion slated for September 10 meeting) and Gary says even if the county leaves it unchallenged another party could appeal the ruling.
• Q: specifics the state's "negligence" (Gary's term)? Much of what he mentioned is detailed in the Civil Beat's article from last fall, Does Hawaii’s Failure to Enforce Pesticide Use Justify Action by Kauai? (readers can judge for themselves)
• Q: what about your statement that "the companies have done everything possible to keep this information hidden" when there is a voluntary state disclosure program? Gary characterized this as insufficient and only done begrudgingly under pressure as Bill 2491 made its way through the process.
• Q: best evidence or study demonstrating community harm from pesticides on Kauai? Gary points to anecdotal evidence and compelling testimony from many health professionals on the island but knows of no comprehensive scientific studies.

In the process of researching the bill, the county became aware of agricultural land property taxes due that were unpaid and until then undiscovered. What I can follow was that biotech companies are leasing state land and since the State of Hawaii never pays county property tax, there was no system set up to collect taxes which are by law due from lessees. While only the past few years are collectable, $131,799.50 has been paid to the county already, (and estimated amount larger than that was irrevocably lost, going back to 2006) and going forward over $57K per year will be collected henceforth now that the tax collector is aware of the situation. While unrelated to the legislation itself, this newfound revenue can be said fairly reasonably I would say to compensate for much of the costs incurred as a result of this controversial legislation to date.

To wrap up I want to attempt my own summing up of where I see things standing after getting the opportunity to drill into Gary's positions and learn some of the considerable amount of detail he shared with me today in a very comfortable yet frank back and forth. He did most of the talking and I did most of the listening but I also was able to ask a lot of pointed questions which he responded to without evasion. I can only hope the time was perhaps a little bit as useful to him as it was to me. Again, I certainly don't have any great answers here, but nevertheless, this is my take:

• Enforcement and reporting of pesticide use by the state seems to leave a lot to be desired. Whether underfunded, mismanaged, or what the problem is - and how to fix it - I have no idea.
• The biotech industry has a lot to answer to in terms of (so far as I can learn) not coming to the bargaining table to address community concerns. 
• The ongoing lawsuit by Waimea citizens may be their best bet at getting information and possibly satisfaction, however, with legal action pending the corporations are be certain to be on lock-down and not budge an inch or disclose any shred of information lest it weaken their case.
• There seems to have been no time when both sides of this issue actually sat down together and worked together at all. I questioned, and Gary had no counter-examples, if even anyone at all actually listened with an open mind to all the debate and any minds were actually changed. 
• It's unfortunate that an important issue of community and environmental safety has become so polarized that this island is deeply divided with both sides almost entirely shouting at each other.
• Whether Judge Kurren's ruling will be appealed or not is in the end a political decision and I am not qualified, nor privy to attorney briefings, to have an opinion. Even if it is appealed, the outcome will once again lie with the courts to decide.

Finally, one editorial point on my part. Kudos to Gary for spending the time to sit down with me today, both as a responsive public servant, as well as to help refine and underscore his message. I have made several attempts to engage some kind of dialog with both sides of this debate and until today gotten absolutely no response. Until all parties show up to answer tough questions and exchange views we are unlikely to make much progress at all. Within the narrow context of my outreach at least, for taking the first step in that direction, Gary has my sincere thanks. Who's next?

More info:

• Kauai county attorney opinion on Bill 2491 (July 2014)
• Ordinance 960 full text
• Pioneer Hi-Bred Lawsuit court document
• "It’s Not About Eating The Corn (February 2013)" by Gary Hooser
• National Tropical Botanical Garden CEO Chipper Wichman talks GMOs

First thoughts on 2014 property tax

Last week's property tax workshop was a good opportunity to learn about property taxation and hear some of the stories people had of excessive tax increases. There was lots of public testimony (available as video) at the recent tax workshop meeting, but while much of it was heart-rending, most folks described their own situation and the grief and hardship that the extra tax expense caused them personally. A few people made policy points that were generally applicable that I will cover later. This has turned into a long piece but the issue is hardly a simple one and there is much to comment on.

Here's my short summary from attending the tax workshop:

• Taxpayers expressed widespread anger and some citizens felt their very livelihood on the island threatened by this recent tax change. Nearly every speaker was a longtime resident who had owned their home for many years, all kupuna (seniors) or getting there.
• The administration (Steve Hunt) and council (Tim Bynum) presented their assumptions and estimates, and that the actual results of the change by and large matched prediction without reasonable margins of error. Basically they said they thoroughly researched this and the actual numbers matched so they were surprised at the negative response. 
• The tax cap going back to 1991 masked problems in the tax system by artificially keeping taxes from rising much any particular year for many homeowners. An important point was that the assessed valuations in 1991 were not particularly balanced and regularly updated: as a result, some homes were undervalued, and the cap effectively locked in those extra low taxes forever after.
• There was genuine sympathy from council in response to individuals adversely impacted and well-intentioned offers to help; however, the details are invariably complex enough that in no one case in that public forum was anyone's tax situation analyzed and resolved.
• Poor communication from the county to the citizens was acknowledged though it was unclear exactly what more the county could have done, how to avoid a repeat of the situation in the future.
• Some taxpayers reported unfriendly response when they called the county for help or with questions. Another common theme was by the time they inquired it was already too late to file forms for this tax year which they considered quite unfair.
• I did not hear anybody in the room stand up and say the recent tax code changes were all just and fair and should stand unchanged. Some council members suggested the problem was the taxpayer not filing the proper forms to get the best tax treatment.
• I did not hear anybody point to the smoking gun - what specifically had the unforeseen adverse impact and must be changed.

Just Poor Communication?

To virtually every citizen complaint the county always answered that the problem was that they did not understand the tax system and if they had filed the right forms all would be well. Council members were offering to personally assist filling out forms - though this is quite generous and compassionate, it hardly addresses the problem. Council members should be spending their time legislating which they are uniquely empowered to do; it's important that all taxpayers get a fair deal, not just those showing up at council chambers to speak.

How exactly should the county communicate to citizens when changes are enacted like this that will directly impact taxpayers? Some people read the newspaper but a public notice buried in the back of The Garden Island is hardly going to reach even a majority of people effected. On the web there is kauai.gov and the online newspaper has http://thegardenisland.com/ads/community/announcements/ for  public notices which I suspect few people even know exists. Of course many people are "offline" and for many reasons - language, culture, cost, lack of internet service, disability, technology skill level, etc.

The county web site certainly could be improved. One speaker even complained that it took "three clicks" to find helpful information (although three is not that bad if she got there directly). You have to know to look under Finance Department since the web site is organized mainly by org chart rather than by citizen needs. The "Taxpayer Information" page [link] is mainly about the board of appeals. The "Forms and Handouts" page [link] lists about thirty forms and is very formidable looking. The "Tax rates" page [link] is just a table of the current rates without even explanations of what each rate is exactly.

Finally, this page "Understanding Real Property Taxes" - the title could be improved and the page made more prominent I would suggest - has useful information but it is rather a lot of reading and not especially user friendly. The information is updated but nowhere do I see anything that says, "Big changes this tax year: here is what you need to know and may need to take action." There are over ten "important dates" - that seems a little too much to have to deal with to me.

Is taxation based on property value fair?

Carl Imparato [at 3h05m] eloquently made the case that ad valorum tax system is fundamentally unfair. For example, a retired couple on fixed income may see their the home they bought long ago appreciate to many times its original value yet they will never see this money so long as they continue living there and do not sell.

Since tax rates apply to assessed value it's important to keep both factors in mind to understand the bottom line for the taxpayer. For over twenty years the Homestead tax rate (see chart here) has been fairly steady, dropping about 20% from $3.61 in 1991 to $3.05 in 2014. Actual taxes paid depends on what the property value did and the homeowner exemption is the other major factor, very recently increasing from $48,000 to $160,000 (more if over sixty years old). To get an idea of how property values have changed I found a property in Kilauea that happened to have sold (which causes the market price to be made public) a few times.

• sold in 1989 for $25,265
• sold in 1994 for $35,000
• sold in 2000 for $175,000
• sold in 2010 for $375,000
• and assessed in 2014 for $385,000

If you lived next door in a similar home on a similar lot, having also bought in 1989 for $25,000, your assessed value will probably be similar but that $385,000 valuation is completely on paper. Back in 1989 the homeowner exemption was $20,000 (most of the value then) but now the much larger $160,000 exemption is a much smaller portion of the entire value. And even though tax rates have gone down, with property values increased twelve hundred percent taxes are considerably increased. In this example the total dollar values are not that big but it demonstrates how dramatically property values can raise which is precisely one of the biggest problems with assessed value as a basis for taxation. This is the standard argument in a nutshell as I understand it - I am holding off suggesting what to do but wanted to explain this point. Also note that part of why this system is so tricky to analyze is that each individual property will have its own particular assessed values, be influenced by nearby property sales, and so forth, making it extremely challenging to know how any of this will play out for everyone.

Most local government revenues come from property tax based on market value, but when property values fluctuate wildly a number of problems can arise with this basis of taxation. The separate Homestead rate, homeowner exemption, and so forth are departures from ad valorum that I think it is fair to say are instituted to mitigate some of those effects - as was the tax cap.

Is it fair to taxpayers to keep changing the tax code?

Toni Martin [3h46m] makes a good point that taking action like CPR to reduce taxes is costly and further that there is no guarantee that in the future the council will change the rules yet again. This is a really important point I believe. When a tax code that rewards taxpayers only if they take certain legal steps - partitioning property, set up long-term leases, give family members percentages of property, all in order to get a beneficial tax rate - this can have serious consequences. These moves can be costly, take a lot of time to arrange, and are usually irrevocable or have very long term consequences. Specifically, there are other consequences than taxation such as inheritance and estate settlement. With tax code changes virtually every year, there is no guarantee the rules won't change again next year.

Common refrains

Some broad themes from many different people who spoke were repeated:

• People expect taxes to be stable year to year and they plan their finances and make decisions based on the status quo.
• Families occupy residential homes in many different ways, it is not always a nuclear family, and the situation can be fluid, taking in people from time to time to help out in a pinch, or accommodating family and friends visiting from neighbor islands. People do not want a tax system that invasively examines all these arrangements and blesses some but not others with tax benefits.
• Many retired people have planned their financial future around renting out a room or an ohana unit; some have a second or third rental home they count in to provide income to live on. When the tax code designates their entire property in a higher tax class as a result, the potential extra income from renting is quickly reduced or many said it was not worth renting anymore.
• Having to file forms annually to get tax benefits was seen as burdensome, and undoubtedly many people not knowing what about the various forms they could use are silently overtaxed.
• Decisions like long-term leases, sharing ownership percentages, etc. are important and should not be forced upon homeowners in order to maximize their tax benefits. One fellow talked about bad experience with leases where tenants have too strong of a position in court so he prefers not to use leases now.

These points are fairly obvious and uncontroversial, but the current tax code - including how complex it is and how often it changes - does not really respect these principles at all.

Removing the cap

Capping taxes to 6% and then 2% and then CPI based limit since 1991 represents a large accumulation of artificially low taxes for over twenty years. Suddenly removing the cap means that to the extent property values rose faster than the cap permitted (Homestead tax rate has help relatively flat throughout) a large jump is quite possible. The homeowner exemption was raised considerably (up $112,000) which represents a flat $341.60 (again, Homestead tax rate) savings against potential tax increase that is proportional to the property value. I don't have data to confirm but as such I suggest that multiple home owners or relatively more expensive homes were hardest hit.

Even though the people most impacted by the loss of the cap would have saved much more money over the past twenty some years than the large increase removing it, humans are not adding machines. Consider if every day I slipped a few dollars of spare change into your wallet that you had no idea of. That could be $1000 a year you benefit from my generosity. After ten years if I ask you to give me, say, $5000 of that back because now I need the money, it's clear most people would not be happy at all. Even if you believed that I really gave you that money, since you had no idea you did not save it or register it as an obligation at all. Asking for it back suddenly isn't fair, even though you would still be thousands of dollars ahead. I think the cap beneficiaries are in this position now and feel entitled to the limited tax increases they have enjoyed for years - as longtime homeowners, they feel strongly that a pact has been made and violated I would think.

Fairness

Everybody was talking about fairness and it's a principle nobody would argue with, but I think I saw it being used in directly contradictory ways which is going to lead to people talking past each other.

• The cap is both fair and unfair:
• The cap unfairly held some taxpayer's tax obligation low so eliminating it is more fair.
• Taxpayers have budgeted for taxes they have been paying for years so removing the cap, resulting in a large jump in taxes, is unfair.
• Changing the requirements for the lower Homestead is both fair and unfair:
• Only single families living in their own home should get the most beneficial low tax rate.
• People on fixed income rely on renting out a room so shouldn't have to pay high taxes on the entire property.

The county budget is now approaching $200M annually (that it needs to be that much is another issue, but related and important) so somebody has to pay more taxes. In the end, the whole tax system is just a set of rules that seek to equitably spread out that obligation because everyone would rather pay less. To the extent that tax classifications are apples-to-apples (i.e. hotels pay one rate proportional to their size) it is straightforward.

However, residential property is particularly difficult because you can have families both in $500,000 homes (roughly median valuation) that have very different financial situations and ability to pay. To deal with this reality we have the morass of tax relief provisions that in turn have their respective rules but I think it would be helpful to spell out what situations deserve special dispensation from higher taxes. Here are some of the factors that came out in the tax workshop or are suggested by the tax code:

• high taxes should never force people out of their primary residence
• families who take in their own should not be penalized (i.e. lower rates than renting out)
• long-term affordable rentals should be encouraged by tax reduction
• tax breaks for Hawaiian people, the elderly, the disabled, and our veterans
• taxes should be progressive with low income discounts
• incoming-producing properties (rentals) and commercial use should pay higher taxes

In addition, people were voicing a few more important points:

• taxes should be fairly stable so homeowners can budget long-term with confidence
• property speculation resulting in big swings on paper should not impact my taxes
• taxpayers should not have to fill out forms (especially annually which is burdensome and easily forgotten) in order to get a fair deal
• taxpayers do not want to be forced to do elaborate legal moves (e.g. CPR, 15 year leases, etc.) solely for the purpose of getting beneficial tax treatment
• it is unfair that the tax code can change at any time and adversely impact taxpayers

Would anyone argue with any of these principles? The second group is more challenging as the current tax system does not satisfy many of those points. So I think the devil is in the details here. The administrative rules the county uses to ensure that the right people get the right tax treatment are complex, burdensome, and in some cases invasive. I question that a practical tax system will be able to fairly get all these adjustments exactly right in every case without a tremendous amount of overhead. It's even more doubtful that every taxpayer will see their own situation as fairly taxed. The more rules we need to adjust taxes, it seems to me the more likely we are to get it wrong some of the time. And when you have lots of complicated rules, invariably the rich who can hire experts and lawyers are going to get the best deals for sure; the less fortunate, less educated, less organized will get the short end of the stick.

At the foundation of this tax system there seems to be a principle never explicitly stated that taxes are paid as some combination of in proportion to benefit from county facilities and services and ability to pay. This seems obvious but in practice does the current ad valorem taxation do anything like this? And if not then what is the underlying principle? To be clear, I am not judging the status quo so much as asking what the basic principle behind tax policy might even be.

• A wealthy second home owner who spends a few months a year in a $3M home probably uses far fewer county services than a family of six in a modest $300K home yet pays over 10 times.
• The elderly and handicapped get tax breaks but get many special services the rest of us pay for.
• A huge tract of agricultural land unused ostensibly uses very little county resources at all yet even assessed low dollar value per acre would pay a high tax bill.
• When a child is born into an owner occupied home, no taxes are incurred yet undoubtedly the additional person will use county services.

Of course the list of cases is endless, but these obvious examples all seem to indicate that the idea is for the wealthy who have more and pricier real estate holdings to pay more and that there is little bearing on county service use. Yet land appreciating on paper and large vacant land holdings easily result in being "land poor" and there may not necessarily be liquid funds to pay taxes.

I don't know what the right answer is at all here. I suspect that up to, a generation ago property taxes were nominal enough that the system did not matter that much. Postage stamps rates go up shockingly fast (I bet most people no longer know how much letter rate is now) but with email and online bill pay so common, it isn't an important expense anymore worth worrying about. (First class mail is 49 cents as of January 2014.)

My Challenges to the county

So after spending several hours at the county and reviewing the presentation slides, researching the tax code online and with additional council documents provided by the county clerk, compiling some historical data on tax rates and revenues, and thinking through all this what do I think about this?

It seems there are some major problems here, but I am not even certain that is so. Possibly only a handful of taxpayers bills went up dramatically, and from what I heard, some of the people complaining (in particular the ones owning multiple properties) may have to contribute more taxes in the future.

I found it very curious that one taxpayer after another stated their unhappiness with the tax increase, followed by the finance director explaining how estimates of tax code change were fairly accurate, and council member Bynum presenting the thinking behind the changes without any of them suggesting that any missteps or miscalculations were made.

Find out what doesn't add up. Maybe taxpayers are confused or misinformed (as was suggested repeatedly). Certainly communication was not good, but I don't think that was it entirely, or if it was that needs to be demonstrated. Going forward I would liked to see the county do less explaining and more searching for what they might have gotten wrong. Undoubtedly a lot of good work went into the tax code change with good intentions, so it's natural to want to defend that, but justification only makes it harder to see what might have worked better.

I think we have to question if a tax system this complex can really be fair and effective. Taxes are based in an ad valorem system, yet for homeowners there are so many exemptions and rules it seems to have grown way beyond what most citizens can understand. And if you can't understand it, it won't seem fair.

I am not going to suggest a course of action yet but I do have some suggestions for next steps.

• First, it's critical to get a thorough accounting of impacts and if there is a problem here or not.
• Did all the disgruntled people who spoke at the tax workshop, by filing forms they were able to significantly reduce taxes, and most importantly, what they said after getting help as to if they were happy or not and if they thought the system was fair? (We can answer these questions by the September 10 meeting I would think.)
• Publish statistics detailing how many homeowner's taxes went up how much and why. It's important to know the extent of the impact, especially the people who did not attend.
• Report on how many taxpayer calls and letters are coming in to the tax collections office and how those are resolved, including a summary from the citizen as to satisfaction.
• Communicate loud and clear.
• Write up an informational booklet on residential taxes including the 2014 tax code changes and how they will effect taxpayers.
• Put the same information on kauai.gov web site and prominently make it easy to find.
• Mail out this information to the taxpayers who had over $100 tax increase this year.
• Make all the tax filing forms available on the web site and distribute to public libraries etc.
• Hold tax workshops with volunteers at desks ready to explain and help people do filings.
• Extend deadlines and waive penalties to accomodate late filings.
• Welcome taxpayer input - we might as well take advantage of the notoriety this issue has raised. Consider a survey, local meetings, or whatever gives people an opportunity to speak out.

Next we still need to figure out if some taxpayers were unfairly impacted or not. If not then a report demonstrating that and including taxpayer statements would help bring closure - "I spoke at the tax workshop, but later when they explained and I filed XYZ Form my taxes came down some. I paid very little tax for years, so the XX% increase this year only I can live with." I don't think everyone will or should be happy, but if the majority of people up in arms are reasonably accommodated that would be a good validation of the new tax code.

Analysis of tax code changes should focus on identifying worst-cases, not just average impacts. While it may be true that only a small percentage of taxpayers experience high impact we also need to look at how severe the most extreme impacts are. Identifying worst-cases as a "canary" helps to better evaluate potential impact on individuals.

Possibly the tax system is reasonably fair and working as it should, but some people still are unhappy. Many public issues run into "NIMBY" perspective complaints (Not In My Back Yard: in other words, thinking that "some other folks" should bear than burden, not me.) I think clarification of the intended principles behind our tax code (as I tried to tease out above at the end of the Fairness section, not very successfully) would help at least explain the intention behind all the rules and complexities. 

If some taxpayers did not get a fair shake then there is work to do. I won't speculate on that yet, especially ahead of any solid data. We have to identify the problem (or verify that there is none) first.

The worst outcome in the next few weeks would be to just forget about this and learn nothing from it. Most people are not up to sustained protest so it is critical to respond to this step and maintain attention, following up with a solid accounting of what did or did not happen that makes sense.

At the tax workshop we heard taxpayer voices and county responses for the first time. It was a valuable session and served to get things out in the open. Now we need to see how far those two positions can move closer toward an understanding and possibly common views, or if not to identify where gaps remain to be addressed.