Taxes will increase for luxury real estate under a budget passed Thursday evening by the Hawaii County Council.
The council approved by an 8-1 vote tacking on an additional $2.50 in taxes for each thousand of property value over $2 million for second homes in residential districts while leaving other classes of property alone. The budget proposed by Mayor Harry Kim would have added $3.50. Kohala Councilman Tim Richards voted no.
The council then passed the budget by the same votes.
That means annual taxes on a $10 million home will increase by $20,000 to $131,000.
“This is something that we pondered over and we feel the hurt,” said North Kona Councilwoman Karen Eoff, whose district contains many of those properties. “But we just couldn’t raise the rates across the board because people are struggling.”
Previously approved increases for sewer and rubbish disposal will continue, and some property owners in other classifications may see a higher tax bill because their values went up, but otherwise there are no other tax increases in the budget.
Council Chairman Aaron Chung said the county was dealt a blow when the state Legislature took away $19 million in transient accommodations tax that he said was due to the county. Chung said the county had only five weeks to adapt.
It was a day of futilely looking for scraps to trim from Kim’s proposed $585.1 million budget, which council members had previously beefed up by $565,000 for their contingency accounts and golf subsidies on West Hawaii privately owned golf courses.
“It looks manini, (but) if you manini, manini, manini a lot, then it becomes a big amount,” Council Chairman Aaron Chung said of attempts to trim specific spending.
Kim’s budget was 0.1% lower than the current fiscal year and $40.8 million less than the budget he presented earlier this year. The new budget goes into effect July 1.
“This is a reduced budget over last year, but it may not look like it,” said Finance Director Deanna Sako.
Council members wanted to reduce the $3.50 tax per thousand of property value over $2 million Kim’s budget charged second homes, almost all of which are in West Hawaii. The tax would have added $14 million in revenue to the budget. The council reduced it to $10 million.
“I want to cut some of that rate down,” said Hamakua Councilwoman Val Poindexter. “We can’t say, “If we do it now, tomorrow we can come back and cut the rates.’ Well, that’s not going happen.”
Council members in previous years had made such comments, but property tax rates, once raised, have rarely come down in recent history.
Attempts by Richards to delay Mass Transit capital projects spending from the general excise tax fund by $7.5 million in anticipation of less tax revenue coming in was defeated by an 8-1 vote of his colleagues.
“It’s better to cut now and re-appropriate than make some draconian cuts later,” Richards said. “I’m deeply concerned about the income stream that we’re facing and I don’t think we’ve done enough.”
A move by Hilo Councilwoman Sue Lee Loy to reduce some of the $8 million budgeted for overtime also failed to gain traction.
“The only way we can relieve ourselves of a tax increase is to cut expenditures,” Lee Loy said.
There is only $6 million in the rainy day fund, which the administration wants to hold until the next budget year, when the economy is expected to be even worse.
There’s $7.4 million going to the Public Access Open Space and Natural Resources Preservation Commission that can’t be suspended because the charter provision requiring it does not contain an emergency clause.
Council members’ questions about removing $8 million in raises for Hawaii Government Employees’ Association, the only public labor union raises not yet approved by the state Legislature, met with resistance. All other unions have already been approved for raises and they are also in the budget.
Almost all of the $30 million in the fund balance, money not spent in the previous year carried over to this budget year, is already being spent in the budget presented by the administration.
“I see this as a dance between the council and the administration,” Puna Councilwoman Ashley Kierkiewicz said of the budget process.
Ultimately, the budget was balanced by reducing the estimate of property owners being delinquent on their taxes from 8% to 7.2%
What will the economy do next? The council and administration want to be prepared for the worst.
“It’s a valid concern and nobody knows,” said Puna Councilman Matt Kanealii-Kleinfelder. “I see people buying brand new fridges, remodeling their homes, and I see people lining up for food boxes.”
“This is not an easy budget and we still don’t have all the answers,” Sako said.
The budget doesn’t take into account $80 million in Coronavirus Aid, Relief, and Economic Security Act funding. That money can’t be used to prop up loss of revenue in existing budgets, but can be used to deal with increased costs directly related to additional expenses related to COVID-19 response.
The council unanimously approved a $303.7 million capital improvement budget, putting 61 projects on a wish list for later appropriation. Most of the projects will be funded by bonds, with the state revolving loan program and state and federal grants to make up the balance.
(This article was edited to reflect that annual taxes on a $10 million home will increase by $20,000 to $131,000.)