City officials are brainstorming ways to tap sources for more revenue, and given the pressing municipal needs of Honolulu, it’s obvious why they’re contemplating every rational plan.
A raft of such ideas was floated by the city’s 2014 Real Property Tax Advisory Commission, but it includes measures that clearly would have unintended consequences, if passed.
Topping the problem list is a bill to apply the higher "Residential A" property tax rate to all properties that are not a primary residence for the owner, regardless of property value.
The consequence here: Many of these property owners are landlords renting to Oahu individuals and families, and they will pass on the increase to their tenants. In a city where rents are already astronomical, this is unacceptable.
City Council members also are weighing a proposal to capture some revenue from vacation rentals — whether or not they’re operating legally.
The entire state needs to come to grips with the reality of the unconventional visitor-accommodations market. This session the Legislature has shirked that duty and shelved a bill that sought to normalize, and tax, transient accommodations.
For its part, the city is seeking to pick up the ball, but should have a regulatory process in place first before taxation begins.
Here are the principal property-tax measures under consideration:
» Bill 33 appears to be Phase 2 of a three-pronged effort to raise residential property taxes overall. First, the new class was created in 2013. Officials said at the time that it targeted offshore investor-owners with properties valued at $1 million or more.
The new bill would redefine the Residential A category to include all single- family and condominium homes in residential zones that do not have a home tax exemption, meaning that they are not owner-occupied.
Bill 32 seeks to undo the curse, by applying the regular residential rate to "Residential A" properties under $1 million.
This makes no sense: Why include the properties below the threshold in the new class unless the ultimate plan is to assess the same rate on the entire class?
The better plan is to spike both bills. Otherwise, to be sure, rents will go up. And Phase 3 of the plan will be higher rates on everyone.
» Bill 35 would create a new "transient accommodations tax" category that would include bed-and-breakfast establishments, transient vacation units and various other operations on lands zoned for residential that rent units for fewer than 180 days.
The bill proposes to apply the tax to any property that demonstrably falls in that category, whether or not it has a "nonconforming use" permit attached.
That puts the cart before the horse in the process of assessing the impact of these vacation units appropriately, because since 1989, the city has enforced a moratorium on issuing any more permits.
The first step needs to be to lift that moratorium and create the legal framework under which the properties can operate before the taxes are assessed. Otherwise, the city will be faced with proving that the units are classed in this category; the illegal operations will go further undercover because if they pay the tax, they would be liable for enforcement action.
By default, it would be the permitted properties, the ones operating legally, that would bear the brunt of the tax, and that’s patently unfair.
The operators of the units objected strenuously to this, and they’re right: The Council needs first to expedite two resolutions, introduced in March, that begin the process of appropriate regulation of bed-and-breakfast and transient vacation units.
Those measures, Resolutions 72 and 86, direct the city Department of Planning and Permitting and the Planning Commission to study proposals to establish the regulations.
» Several other bills seek to narrow the exemptions for certain classes of property owners. On the whole, this seems a good strategy for the city and fair to the taxpayers. For example, Bill 28 proposes that owners of historic residential properties pay tax on half the value of the property, rather than the current flat tax of $300 annually.
Another measure, Bill 31, would eliminate a provision that assesses a lower tax rate on properties dedicated for agricultural use for one year. The lower rates would continue for properties that are in agriculture for a longer term. That’s a better policy, because any tax incentive to promote a desired land use should require a more serious commitment than one year.
The city will need to review its tax structure and determine if it can meet the demands on the municipal coffers. The fledgling programs to address problems such as homelessness in this city will need support, and investments in programs for the upkeep of infrastructure — not to mention the looming fiscal burden of a new rail system — will require sustained revenues.
But the changes should be fair, and they should not create more problems than they solve in the process.
