Property taxes for owner-occupants in O'ahu likely will be lower than other property owners under a bill that was approved 4-0 by a City Council committee yesterday.

Bill 51 would create a new property tax classification for owner-occupants separate from other residential property owners.

The Hannemann administration and other supporters say Bill 51 would give the council another way to provide tax relief to residents who need it most, such as those on limited or fixed incomes.

Opponents say the measure gives city officials a more politically convenient way to pass property tax increases on to businesses and property owners in other classifications.

The bill will come before the full council for a final vote on Oct. 27.

City officials have warned that they face a deficit in the operating budget of between $145 million and $150 million.

Mayor Mufi Hannemann has said he is committed to ensuring that owner-occupants need not pay more next year despite falling property values and revenues.

City property taxes are calculated by multiplying a class rate by the value of a property. Owners of all residential properties on O'ahu this year will pay $3.42 for every $1,000 of valuation, regardless of whether they live at the property. Owner-occupants, however, can apply for a homeowner's exemption, which allows them to take $80,000 off the value of their property before the tax is calculated. Other exemptions are also available, most notably to senior citizens.

Supporters of Bill 51 say the measure will give the city administration and council leaders another "tool" to ensure owner-occupants, also characterized as "homeowners," are not severely affected as the city confronts some daunting budget issues in the year ahead.

Bill 51 won a key supporter in Budget Chairman Nestor Garcia yesterday but its final passage is still not assured.

"I wouldn't bet the farm on it," Garcia said.

Critics say the measure makes it too easy for the administration to propose, and the council to then pass, steeper rate hikes on other tax classifications such as commercial or residential rental property owners.

Hawai'i's three other counties have a separate property tax category for owner-occupants.

About half a dozen taxpayers, most of them seniors, testified against eliminating the homeowner's exemptions, arguing that they are on fixed incomes and rely on the exemptions to ensure they can afford to pay taxes and stay in their homes.

Garcia, who previously had raised reservations about creating a separate owner-occupant class, said recent news about the upcoming budget year convinced him that the city needs as many options as possible to try to shield those least able to afford to pay property taxes.

Under the latest draft of the bill, the existing "residential" class would essentially be split into two categories: "homeowner" and "non-homeowner." They would join the "hotel and resort," "commercial," "industrial," "agricultural," "preservation," "public service," and "vacant agricultural" categories.

The committee also moved out another measure designed to provide tax relief.

Bill 09 would make it easier for those on limited income to take advantage of a tax credit. Given to owner-occupants who make $50,000 or less income annually, the current credit is the amount of tax beyond 4 percent of total income. The new tax would be anything beyond 3 percent of total income, making it easier for those with $50,000 or less income to benefit.

The bill now goes for the second of three votes before the full council.

Budget Director Rix Mauer said 1,939 homeowners were eligible for tax credits last year, costing the city $2.1 million in revenues.

About 300 more homeowners would benefit under the new bill.

Council Chairman Todd Apo said members should consider raising the income level higher so that more people can benefit. Apo said he'd like to see those making as much as $75,000 annually be able to qualify for the tax credit.