HILO — Foreseeing the almost certain death of a bill raising the general excise tax, the County Council voted unanimously Wednesday to put it on life support, at least temporarily.
The council agreed to postpone further action until no later than May 5, even though the state-imposed deadline to have the law in place is March 31. If the bill is again taken up, it will need to be voted up twice to be passed.
The council had voted 3-6 against the bill during a Feb. 6 committee hearing.
Puna Councilwoman Eileen O’Hara, one of the three solid supporters of the measure, said she’s willing to “throw the die,” in hopes the state Legislature will grant the county an extension. The other supporters were Hilo Council members Sue Lee Loy and Aaron Chung.
“We simply don’t have enough information to make a decision,” O’Hara said.
O’Hara and Kohala Councilman Tim Richards, a no vote, have submitted legislation to reduce the fuel tax if the GET is going to be raised. Richards said he was willing to vote yes on Wednesday, if only to “make sure this conversation doesn’t end today.”
“We’re stuck with a weird timing situation with this,” Richards said. “We’re faced with a making a decision without having enough information to make good decisions.”
Other council members weren’t ready to take that step, saying if they had to vote Wednesday, the vote would be “no.”
“My community tells me loud and clear they don’t want this passed,” said Kona Councilman Dru Kanuha.
“Maybe we should just tighten our belt rather than coming up with across-the-board tax increases,” said South Kona/Ka‘u Councilwoman Maile David.
“This could be the straw that broke the camel’s back,” said Council Chairwoman Valerie Poindexter of Hamakua.
She said older constituents on fixed incomes can’t bear the additional cost.
Puna Councilwoman Jen Ruggles is a steadfast “no” vote. She suggested the council again raise property tax rates on the hotel/resort class, and impose a “luxury tax” on the county’s 1,060 second homes worth more than $1 million. Raising property taxes would obviate the need to raise other taxes, she said.
Council members said they wanted to see Mayor Harry Kim’s budget before making a decision. His draft proposed budget is due to the council by March 1, with a final proposed budget due by May 5.
The state Legislature in September gave the counties the opportunity to add a half-cent surcharge to the state GET, which is collected on everything from rent to services to food and medicine. Honolulu and Kauai have adopted the tax, but so far, Hawaii County and Maui have not.
If passed, the half-cent county surcharge would be added to the 4-cent state tax starting Jan. 1.
Bills moving through the state Legislature would extend the counties’ deadline to June 30. In addition, the Senate version, SB 3088, would allow counties to spend up to 40 percent of the proceeds on expenses other than related to transportation, and in addition, allowing up to 2 percent of the surcharge on private roads that serve a public use.
SB 3088 is scheduled for its final committee vote, the Senate Ways and Means Committee, on Friday. The House Finance Committee on Feb. 16 passed the companion measure, HB 2587, with unknown amendments. The legislative session continues until May 3.
At the council’s request, Mayor Harry Kim scheduled community meetings all over the island to explain the tax and hear constituent concerns. Nine of them had been held by Wednesday.
“I’m not pushing for an extension,” Kim said. “I’m ready to do it now.”
Kim told the council the GET surcharge would be the first tax that goes directly from tourists to the county. The state currently collects GET and transient accommodations taxes on hotels and resorts. He said 30 percent to 40 percent of the GET would be paid by island visitors.
“This gives us an opportunity to take money from the tourists, their fair share,” Kim said. “(The GET) is the only way the county has direct payment from the tourist to the county government.”
Testifiers speaking in person and submitting written testimony were mostly opposed to the tax hike. Opponents included real estate agents and the Hawaii Food Industry Association, who were concerned about increases to the cost of living. Proponents included the Hawaii Regional Council of Carpenters and the Hawaii Public Health Institute, who favor transportation improvements and alternatives such as sidewalks and bike paths that encourage a healthy lifestyle.
Kim said the first year, should the bill pass, the county anticipates using all of its GET revenues, estimated at $25 million, to fix the county transit and bus system. GET money paid to the Mass Transit Agency could free up about $7 million in property tax revenue that currently goes to shore up the struggling program.
Kim said he’s been criticized for adding 400 employees to the payroll during his first eight years in office. He said 350 of them were much-needed police and firefighters.
In 2000, there were 2,053 county employees servicing a population of 148,677 at a cost of $175.8 million, or $249.4 million in 2017 dollars, according to a newspaper analysis of census data, county budgets and financial audits. Today, there are an estimated 198,449 residents being served by 2,479 employees, with a price tag of $491 million.
While he did raise taxes in his first administration, he lowered them as well, Kim said. He also created a rainy day fund as a savings against emergencies. That account currently contains about $6 million.
“It’s unreasonable to expect the government not to grow when the population grows exponentially,” O’Hara said. “This is not out of line. We’ve got to provide services.”
Imposing a “luxury tax” on the county’s 1,060 second homes worth more than $1 million is a great idea – but that threshold should be lowered to $500,000. Hawaii has the lowest property taxes in the nation based on average effective property tax rate and average property taxes paid per $1,000 of home value, which is critically important for residents struggling to make it in a state with a very high cost of living. But it also makes us a target for investors wanting to exploit that low property tax rate. The rate on investor homes should be tripled, at least, with an exemption available for those who rent their investment homes out to long-term tenants. This would be a step towards solving the budget issues, the lack of long-term rentals, and the scourge of illegal vacation rentals, all at once.
When you tax something you get less of it so if we want fewer 1M homes and fewer people here that actually have disposable income that is a great idea. Actually this is already happening the data from the last census shows that the state of Hawaii with its high tax rates has more people leaving that moving here. Hawaii county did grow but at a slow rate and the homeless population had the highest growth rate for population segments.
Never in the history of world has a society been able to tax its way to prosperity. Taxes create big government, the bigger government the more corruption and larger the government burden on a society. Take a look at Venezuela for the most recent example of that.
Why not create opportunities for people to work and pay the relatively high income tax here?
Why not require the local government to prove that they use the current tax revenue well before even thinking about raising taxes?
Why not adjust the salaries and benefits of government and union workers so that we can have more services from the current tax base?
The government is increasing the % of the take all all taxes in an up economy will not end well.
Lets not forget there is absolutely no accountability at the city/state/federal level of our government for not being able to manage a budget. Uneducated people like the one you are responding to do not understand simple concepts, they only understand that we should all get a trophy. This is why our Island, state and country are quickly going down the tubes. There will be nothing left that our parents worked so hard for.
The point is that the non-residents who own second (or more) homes here are not “here” with their disposable income. They reside elsewhere, buy homes here for investments, set them up as illegal vacation rentals, market them online, and keep and spend all the profits in whatever state or country they actually reside. There is zero local upside to this, and plenty of downside.
Yes, we should be creating opportunities for people to work and pay the high income tax here. We should also get rid of the ridiculous GE tax pyramid scheme that stifles small business development – making small business owners and entrepreneurs pay 4%+ on their gross income is outrageous. Why not on their net income? Why not let all businesses pay the same .5% that the wholesalers pay?
Yes, many county officials’ salaries are too high, especially after the recent round of unearned raises. There’s a lot of cleanup work to be done in the way the county does business; I have no argument with that sentiment at all.
It sounds like you and I can agree that this extra tax hardly makes it to the public good and is grabbed by politicians, unions, and cronies so it provides very little benefit to the general public.
I would however disagree that that the 1M+ house crowd that barely use the roads, beaches, health care etc and who pay huge amounts of GET on their construction cost, property tax, maintenance fees, and support the restaurants when they are here are bad for this community or the tax base or are in any way part of the problem.
So your telling me as a home owner since “97,” I’m not paying enough property taxes, and you worry about being a target, I beg your pardon miss, but it keeps going up every year since I bought this house. GET is for sure a regressive tax on the every day people. So to you and all the well to do people like yourself, If I had your money I’d burn mine!
I don’t know, am I telling you that? Are you a non-resident investor who owns a second, third or fourth home here that you don’t live in, and/or that you use for illegal vacation rentals? If you are, then yes, it is my opinion that you could be paying more property taxes.
I am inferring from your statement ” Hawaii has the lowest property taxes in the nation” that you think I am not paying enough, because young rich person, I really am paying enough and then some. I am a resident, sweet person, and the Hawaii government does not care they will be taxing me out of my home
I’m sorry if I wasn’t clear, but please read my entire statement. I said that having the lowest property taxes in the nation is really important for residents struggling to make it in a state with a very high cost of living. The county definitely shouldn’t be taxing residents out if their homes!
I don’t believe that the property taxes for resident-occupied homes should be raised at all, except maybe for those people who managed to get the special $100 per year property tax sweetheart deal rate, when they don’t actually have dedicated bona fide historical properties.
The only property tax raise I’m advocating is for non-resident second, third, fourth, etc. homes – investor homes.
What you are proposing is already the law in Hawaii County. Resident tax rate; $6.10/1,000, non-resident: $11.10/1000. Non-residents (I’m not one: i live here) pay a tax rate 82% higher than residents. How much more would you like to tax them? They already pay more and use far less of our government services, in effect subsidizing the cost of those who do live here. How about a more sane approach and reduce the cost and scope of government so that we can all keep more of what we earn?
I totally agree that the county budget needs to be constructed and managed much more efficiently – there is an unacceptable amount of money wasted on “studies,” unearned raises, and general incompetence, But at the same time, there do have to be sources of revenue, and I think that non-resident tax rates should be much higher than $11.10/$1000. At least the same rate as, say, Wisconsin ($16.74/$1,000), Illinois ($19.74/$1,000), Connecticut ($16.55/$1,000) or Nebraska ($15.97/$1,000). And considering that a high percentage of these investor homes are used as illegal vacation rentals, I would argue that they use more or at least equal county services as residents – certainly not less.
I think your analysis is very incomplete. The states you mention above use property taxes to pay for schools; Hawaii County’s taxes do not pay for schools–the reason why these are different.
Let’s look at the biggest contributors per home (for residential tax) on the island: Kukio/Hualalai, Mauna Kea and (soon) the Kohanaiki and Hokulia communities. These are ghost towns most of the year, yet the taxes on a $10 million estate would be approx. $110,000, more than 35 $500,000 resident homes, and probably much more when you add in deductions. The owners of these properties (vacation rentals are not allowed for the most part) don’t use our schools, roads, police, fire department at anywhere near the level of one (yes, one) $500,000 home with full-year residents. They are, without a doubt, greatly subsidizing the life of those who live here as residents.
You claim a lot of “Illegal rentals” and your idea is to punish them with high taxes. I just don’t see where it makes sense when you look at the big picture of who pays the taxes and who uses the services. If your beef is with rentals, then go after them and apologize to every resident homeowner who will see a decrease in the value of their home (less demand+same supply=lower home values). I would also apologize to the many island residents who rent out a room or two, or have a second income property, as you’re going to negatively affect their livelihood, too.
Again, I think we need to look at reducing the costs and scope of government instead of looking to find more ways to grow the beast with more tax revenue. We have a horrible business environment (yes, I agree the GE tax is a huge mess, probably adding 11% to all goods and services) and adding taxes to is no way to make it better.
It’s a complicated issue and I haven’t heard any overarching analyses that approach completeness. That said, I do think we can work to establish a system that makes more sense than the current one, by looking at some of the most problematic aspects of the current system.
When you speak about area where “vacation rentals are not allowed for the most part,” you also have to take into account that we have a huge problem with people operating vacation rentals where they aren’t allowed.
The idea of higher taxes on non-resident-owned “investor” homes is not to punish them, but to create a regulatory environment where we are not rewarding lawbreakers by letting them exploit a low property tax rate and then run an illegal business in that home.
I think residents that rent out a room, or a small ‘ohana on an owner-occupied property, should be allowed to do so; it helps residents make ends meet. It’s the single-family homes in areas not zoned for vacation rentals, owned by non-residents but used illegally for vacation rental businesses, that should be the target of these regulatory changes, and I think raising the property tax on non-owner-occupied homes could be a very effective part of those regulatory changes, along with better enforcement of our existing laws.
The problem is that simple economics will just come into play.
Those renting out the homes will simply increase the rental fee, leaving the renter with less spending money when they come out here; it worse, with fewer renters.
In the end the owner isn’t paying the taxes anyway, and the smaller spending amount from the renters reduces the GET revenues to the county.
Want to see this in action? Ask (first) New York and (second) Connecticut how imposing those millionaire taxes worked out for them. People simply moved out of the State…
Our mayor Kim in his life time has NOT found a tax raise he would no support, although he tells another story to the voting public. O”Hara claims the population is growing so more taxes (fees) are needed, but it seem the biggest population growth are the homeless. I say cut spending first or there will be more local homeless.
DING DING DING!!! Wake UP!
“In 2000, there were 2,053 county employees servicing a population of 148,677 at a cost of $175.8 million, or $249.4 million in 2017 dollars, according to a newspaper analysis of census data, county budgets and financial audits. Today, there are an estimated 198,449 residents being served by 2,479 employees, with a price tag of $491 million.”
So… residents up 33%; employees up 21%… price tag up 97% (NINETY-SEVEN!!!) adjusting for inflation, or 179% in actual dollars.
When will you all learn? You give these thieves more money and they will squander it! Vote them out!
You forgot to mention the 12 billion dollars in unfunded pension liabilities for the state of Hawaii which will also be collected on our backs.
The council polling residents should be helpful to weigh the arguments.
Myself, I feel the resources of the Big Island are being exploited.
Off island investors may not be paying fair share of expenses to do business here.
Neither well to do neosettlers nor tourists are paying fair share either exploiting the island’s physical or financial resources.
Many agricultural zoned properties for crops with a dwelling have morphed into mansions with make believe farms enjoying lower property taxes compared to the mainland.
IMO, a sensible direction of Big island is to develop improved agricultural infrastructure and new service industries such as health care or physical or intellectual technology.
Our natural beauty resources could be preserved for residents to enjoy.
The status quo when compared with new venture may yield differences to consider.
Differences could be financial, environmental, and quality of life benefits.