Hawaii’s ongoing flood of visitor arrivals and spending should prod unshakable resolve to figure out how to tap into tens of millions of dollars in uncollected state taxes from short-term vacation rentals without encouraging or endorsing illegal operators.
Unfortunately, though, as the current legislative session is wrapping up at the state Capitol, House and Senate negotiators are at odds on strategy and have deferred a measure, House Bill 2605, indefinitely.
Lawmakers can be expected pick up the puzzle again next year — for a fourth year in a row. In the meantime, county leaders must push forward by seizing more control over respective vacation rental regulation and enforcement efforts. County policy — weak or strong — will serve as the foundation for state legislation.
On Oahu, nearly three decades have passed since the city stopped issuing permits for such rentals — hosted bed-and-breakfasts and unhosted transient vacation
units — except in hotel-resort zones. That holds Honolulu’s current legal inventory to about 800 TVUs and 44 B&B operations. By some counts there are well over 20,000 scofflaws statewide, mostly on Oahu. Clearly, in Honolulu County, the problem is out of control.
In a reasonable move to encourage counties to toughen up, HB 2605 would have allocated up to $1 million in transient accommodations tax (hotel tax) revenues to each county that establishes a process for clearly tracking compliance matters.
Among the provision’s opponents was Rep. Cynthia Thielen (R, Kailua-Kaneohe) who last week called the tactic a “bribe” that would yield an undesirable result of more legal short-term rentals. She said instead focus should be fixed on correcting lax enforcement of existing laws. Unfortunately, in this case, the underground industry has thrived for decades, fueled by unrelenting demand, making it all but impossible to put the vacation rental horse back in the barn.
Mayor Kirk Caldwell has acknowledged that the proliferation is ruining the character of some neighborhoods and impacting the affordability of homes for residents. On the other hand, a sweeping shutdown of illegal operations, even if possible, could significantly slow visitor arrivals, touching off economic concerns for our tourism-dependent state.
Hawaii had the priciest hotel room rates in the nation during 2018’s first quarter — as well as high occupancy rates. There’s no doubt that budget-minded tourists, perhaps oblivious to rental legality issues, are booking stays at TVUs and B&Bs, which typically advertise through brokers such as Airbnb at less expensive rates.
In an attempt to balance the matter, Caldwell is pitching a plan that makes room for more legal B&Bs and TVUs, but only if operators are also the property owners, abide by tougher guidelines, and pay higher property taxes. The plan is a realistic step in the right direction. Other counties, too, need to take a hard look at how to get a better handle on their particular challenges.
A key provision pushed by the Senate this year would allow Airbnb and other home-sharing platforms to collect state taxes generated by vacation rentals. Also, in cases in which a rental is tagged as out of compliance with state or county laws, brokers would be required to pull client advertising. Further, platforms doing business with underground clients could be slapped with a $25,000 fine.
The Senate’s position rightly saddles homeowners as well as the platforms with responsibilities to disclose information that can be used to pinpoint scofflaws. The House objected, countering that first counties ought to come up with plans to better track and permit rentals.
Hawaii’s record-breaking streak in visitor arrivals, now spanning at least six years, is holding strong. This year, with air carriers adding more than 600,000 new islands- bound seats, we’re on pace to see an unprecedented 10 million tourists. The only way to manage this growth, which burdens the state’s infrastructure and natural resources, is through better control of the vacation rental market. The Legislature’s deferral of HB 2605 shows we have a long way to go.
