Tax Hike on Luxury Homes Passes County Council 8-1

Hawai‘i County Council passed a proposed tax hike on wealthy homes Thursday evening.

With the economic shutdown brought on by the COVID-19 pandemic, the county proposed a $14.60 per thousand tax increase on homes — typically second homes — valued at more than $2 million. This is would’ve been a $3.50 increase from the current residential tax rate at $11.10 per thousand.

However, on Thursday evening, the council approved a luxury tax hike of one dollar less than what was proposed. In an 8-1 vote, the council passed a $13.60 per thousand tax rate, which would provide $10 million into the county annually. No cuts were made to the overall $585.1 million budget for the fiscal year 2020-21, which starts July 1.

North and South Kohala Councilman Tim Richards was the lone dissenting vote.

“This is affecting the tax rate and I can’t support it,” Richards said. “We’re in the worst economic situation of our lifetime and we didn’t work hard enough on the budget to adjust it. I adamantly disagree. We needed to work harder on cutting the budget.”

The tax rates for the other tiers remain unchanged from the last fiscal year.

Puna Councilman Matthew Kaneali‘i-Kleinfelder said in some ways he agrees with Richards.

“Coming from the private sector, when you’re faced with a short budget you make hard decisions,” Kaneali‘i-Kleinfelder said. “Raising taxes maybe isn’t the best solution right now but it’s going to help us get to where we need to be.”

The COVID-19 pandemic has strained the state and local governments in Hawai‘i. Hawai‘i County received $80 million in CARES Act federal funds to assist in the economic recovery of related to the virus. The federal funds are not allowed for use to supplement revenue shortfalls or reductions in the county budget.

County Finance Director Deanna Sako said the county submitted a balanced budget to the council, but the county did have to cut a lot to get there. Additionally, the county didn’t receive $19 million it counts on from the state’s transient accommodation tax due to the economic shutdown.

Sako said the CARES Act 4 or HEROES Act is still in Congress, which contains funding to help with budget and revenue shortfalls. Sako added the county is waiting to see if it passes.

The county will offset the new tax rate against its estimated delinquency in real property taxes, so the total budget is not decreased.

“If real property taxes collected are lower than budgeted we will have to amend the budget during the fiscal year,” Sako stated in an email Thursday after the council meeting adjourned.

During Thursday’s meeting, council members proposed various ideas on ways to cut the budget, none of which gained traction.

While Richards felt the nine-hour meeting was a waste of time, while his fellow council members respectfully disagreed. Council Chair Aaron Chung said while it seemed like a futile exercise at times, it was productive.

“We’re here, democracy in action,” Chung said. “We’re going to get criticized no matter what.”

Kona Councilwoman Karen Eoff stated that she understands this isn’t easy and it was something the council pondered over.

After the meeting, Sako stated: “I think we are in uncertain times and it was a good compromise.”