The total assessed value of residential property on O'ahu has slightly decreased for the first time in six years, meaning many homeowners could see lower tax bills next year — unless tax rates are raised.

Honolulu officials began mailing out assessment notices yesterday, but it will be months before the City Council approves next year's tax rates.

If rates stay the same, city tax revenue will level off while some expenses are sure to increase. Raises for most public employees have been built into union contracts approved earlier, for example, and the cost of some benefits also will increase.

Some homeowners hope the city will cut spending elsewhere instead of raising taxes.

"Retirees and other people on fixed incomes have to live within their means, and the city should do the same," said Kailua retiree Bob Grantham.

He said he was surprised, and pleased, that the average assessed value of existing homes and apartments had decreased by 2.7 percent. But he wondered what that would mean for individual owners.

The assessed value of his house shot up 37 percent last year, and Grantham is paying higher taxes, even though the council slightly lowered the residential tax rate this year.

"It's a real concern for people on fixed incomes who have lived here 30 or 40 years or more," he said. "They have a real risk of losing their homes, and this is really not acceptable."

Gary Kurokawa, who heads the city's Real Property Assessment Division, cautioned that the 2.7 percent decrease reflects the average for all the island's existing residential properties, but does not include new construction or alterations. Assessments for specific properties could be higher or lower, he stressed.

About 7,000 owners appealed their assessments last year, and about half of those cases have been decided, Kurokawa said.

The total gross assessed value of all property on the island slid from $191.5 billion to $190.7 billion, or 0.4 percent.

Hotel and resort property values went down by an average of 4.9 percent.

Commercial and industrial properties rose in value by averages of 4 percent and 2 percent, respectively.

Officials said it's too soon to tell whether Mayor Mufi Hannemann will propose any changes to tax rates.

"For our budget planning purposes, the administration is assuming the current property tax rates," said city spokesman Bill Brennan. "Revenue projections reflect the flat valuations and current tax rates, so some budgetary belt-tightening will be required."

Council chairwoman Barbara Marshall said she hoped no tax rate increases would be necessary.

"We're going to definitely have to hold the line on expenses, and I'm sure all the city departments are aware of that," she said. "I'm going to certainly fight with everything that's in me to make sure rates don't go up."

The assessment valuations were set as of Oct. 1, and are based on sales of similar properties in each neighborhood through June 30.

New construction partially offset the decrease in residential property values. Sales prices continued to climb this year, but the market has generally softened after years of skyrocketing values.

The median sales price for single-family homes at the end of September was $648,000, compared with $634,000 for the full 2006 year, an increase of 2.2 percent, according to the Honolulu Board of Realtors.

The median sales price for condominiums as of September was $325,000, compared with $310,000 for the full 2006 year, an increase of 4.8 percent, according to the board.

The amount of an owner's tax bill is determined by multiplying the assessed value by the tax rate for that category of property. The council this year lowered tax rates for homes and apartments from $3.59 to $3.29 per $1,000 of assessed value.

The City Council must decide by June whether to change tax rates for the coming year.

Reach Johnny Brannon at jbrannon@honoluluadvertiser.com.

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