Sometimes the worst-case scenario doesn’t come to pass, after all. Fortunately, that seems to be the case with the current tax revenue figures, replenishing state coffers in greater amounts than state officials had expected.
And as a result, Gov. David Ige ought to feel less pressure to sign a bill that would generate additional revenue for state projects, but which, at this point, would undermine efforts to regulate vacation rentals properly.
The issue is at the bottom of a heated battle between those who own the rentals who say they need the income from them, and opponents who are permanent residents weary of seeing longterm rental rates being driven skyward and neighborhoods transformed into unofficial resort districts.
Proponents of Senate Bill 1292, which now sits on Ige’s desk, have projected that the measure could generate as much as $46 million in state transient accommodations tax (TAT) revenues from owners of vacation rentals, the overwhelming majority of them operating without county land-use clearances.
The measure would authorize vacation-rental online booking sites, such as Airbnb and Expedia, to collect taxes from the rental hosts on behalf of the state.
Trouble is, this revenue would start pouring in well in advance of crucial county legislation needed to see that the rentals are operating legally.
This is in particular a problem for the City and County of Honolulu. The City Council has been stalling for years about enacting proposals that would set limits on what rental activities would be permitted, and to what extent they’d be accommodated in neighborhoods around Oahu.
In the past this has left Ige and others with the fear — and it’s a rational one — that once the state accepts tax payments, it would be giving legitimacy to the scofflaw businesses.
When the state becomes used to new tax receipts, the incentive to rein in the rentals would disappear. This was, in fact, the governor’s reason for vetoing a similar version of this bill once it had passed three years ago.
Now that state tax collections picked up steam in April, Ige should take advantage of the reprieve that gives him and veto SB 1292 as well. With an additional $180 million in taxes, the outstanding bills — new expenditures on “ohana zones” for the homeless, vote-by-mail preparations and other programs — should be covered.
Meanwhile, the City Council must move without further delay to enact Bill 89, which would authorize 1,715 permits for “hosted” bed-and-breakfast rentals in which the host also lives on premises. Rental of an entire home — a “transient vacation unit,” which is the most common form the illegal rentals take now — would no longer be permitted.
A second measure, Bill 85, which would strengthen enforcement, is also essential. However, a more recent variation, proposed by City Councilwoman Kymberly Pine, should be tabled for now.
That bill proposes that vacation rental owners pay fees based on a sliding scale: Those whose properties are desirable and thus command the most bookings would pay more. This could be considered downstream as an adjustment if the Council believes it is necessary to yield higher city revenues.
However, the Council should waste no time considering it immediately. What’s most critical is that the city reassert its prerogative to control zoning, limiting how much tourism spills into residential communities, as the unfettered visitor-industry sector is doing.
Only then should the state move to enhance its own tax collections. As they now exist, vacation rentals are transforming Oahu, and not in a good way.
