Mayor Mufi Hannemann is allowing the City Council's plan to change the way property tax rates are calculated to become law without his signature.

Hannemann yesterday said he won't sign Bill 12 because he still thinks it has some problems, but he said he won't veto it because he has vowed to work with the council and applauds members for their willingness to work on the issue.

Hundreds of taxpayers have complained to City Hall that three years of skyrocketing property tax assessments have left them reeling from higher tax bills. So, Hannemann and the City Council have been debating various ways to give back some of the additional revenues expected because of the higher market values.

City Council members last month approved several tax relief proposals, some of which would provide relief this year and next for some homeowners.

Bill 12 is designed to offer broader tax relief for the long term. The bill would set tax rates based on the city's basic budget needs, adjusted for increases in fixed costs, such as salaries, benefits, debt service and other core needs. That would take the rise-and-fall of the real estate market out of the valuation.

Council members said the move would take the basic budget, adjust it for inflation and any additional fixed costs, then set the tax rates to bring in only the amount needed.

"This bill still presents a number of technical challenges," Hannemann said.

In addition, the council is required by city ordinance to set property tax rates annually. "You really don't need Bill 12 to lower the rate," Hannemann said.

Honolulu resident Charles Scott said the proposed tax relief doesn't go far enough in addressing the real problem — out-of-control spending.

Scott said Bill 12 is "deeply flawed and gives the city administration and City Council freedom to keep raising property taxes far faster than the ability of people to pay."

Scott said it sounded like a good plan because it would adjust the tax rates to bring in the same amount of money as the previous year, then add inflation.

"However, now with the ability of the city to add in bargained pay increases and increased debt service it will, no doubt, again result in tax increases much higher than the cost-of-living increases or ability of people to pay," he said.

He proposes limiting the additional cost of the city's basic budget to a cost of living increase of about 4 percent. "Then, it is the job of the city administration and City Council to develop a budget for that amount of money," he said.

Hannemann said he still hopes the council will set a lower tax rate for homeowners and farmers.

"If the council sees fit to lower tax rates, then I suggest they lower the rates for homeowners from $3.75 per $1,000 of assessed valuation to $3.59 for the improved residential and apartment classes," Hannemann said. "I would recommend that the council lower the rate for agricultural land from $8.57 to $7.57 because of the damage and losses caused by the recent rains."

In submitting the budget, Hannemann officials updated the figures for the additional revenues anticipated as a result of higher property valuations. Now the city expects a windfall of $131 million rather than $125 million as earlier calculated.

That's not counting tax relief measures that would benefit some homeowners this year.

Hannemann said he still favors putting $20 million into a rainy-day reserve fund but has heard the council say that members aren't ready to put away that much with residents hurting from the increased property values.

City Council Chairman Donovan Dela Cruz said he was happy that the mayor went along with Bill 12.

"Everyone wants accountability and I think Bill 12 provides that," he said.

Reach Robbie Dingeman at rdingeman@honoluluadvertiser.com.