One of the sponsors of a law that tacked an extra property tax on luxury homes now has a bill giving those property owners a choice of sending the money to the county or a charity.
The tax, approved last year, imposes $13.60 tax per thousand dollars worth of property value over $2 million for property in the residential category, compared to $11.10 in tax per thousand for the portion of the property under $2 million. In contrast, the homeowner rate is $6.15.
Bill 18, sponsored by Hilo Councilman Aaron Chung, would allow property owners to write off that $2.50 extra tax if they provide proof they donated the amount to a recognized 501(c)(3) nonprofit that benefits Hawaii County residents or to county-sponsored homelessness initiatives.
Chung said the council had heard from opponents of last year’s bill that paying the extra tax would cut into their charitable giving. He said he’s now hearing from nonprofits and even some educational institutions that the bill has hurt their contributions.
“We were warned by those persons affected this may have a deleterious effect on their willingness to contribute to nonprofits,” Chung said Thursday. “If this had an negative effect on their willingness to make contribute to nonprofits, I’m going to let them put their money where their mouth is.”
Whether the county can afford to give up the approximately $10 million the tax brings in remains to be seen.
Finance Director Deanna Sako doesn’t think so. She said as the coronavirus pandemic continues to lower county tax revenues, the money is still needed.
“We have already seen many cuts to our normal revenue streams and fear that more uncertain ones will severely affect our ability to plan, manage, and budget responsibly,” she said. “We need to ensure the proper spending and allocation of public funds, and we are not confident that this bill, though well-intentioned, will do that. We look forward to discussing this bill with the County Council next week.”
Chung said that’s something the council will have to decide.
“If we’re still stuck, we just got to cut,” Chung. “The discussion is going to have to center on the fiscal impact to the county of Hawaii as a government body. Whether we can absorb that amount. That’s the sole question.”
The county administration is currently working on its first budget under Mayor Mitch Roth. The mayor has to deliver a balanced budget proposal to the County Council by March 1 and then a final proposal by May 5. The council has the power to raise or lower tax rates and make budget amendments before sending it back to the mayor.
Residential tier two property, as it’s called, includes homes, vacant land and condos with a net assessed value of $2 million or more that don’t have a homeowner’s exemption and are “classified as residential in consideration of the highest and best use of the land.”
The tax applies only to 935 of the 140,000 properties on the island. It overwhelmingly affects West Hawaii properties, with 55% of the targeted properties located in the North Kona council district, 40% in the Kohala council district and 4% in the Kona council district. The remaining 1% is spread over the remaining six council districts on the island.
Chung said last year’s bill was intended to address a shortfall that came up late in the budget process, when the state indicated it wasn’t going to give the county its customary $18 million from transient accommodations taxes on hotel and short-term lodging, because of the economic downturn caused by the coronavirus pandemic.
“We didn’t have this money before and it was intended to address the shortfall. We should have had time to really evaluate the fairness of his tax. It’s easy to go against people who are rich,” Chung said. “It will infuse our nonprofits potentially of upwards of $10 million and it enhances the possibility of creating dialogue between two sectors of our community that don’t usually have the chance to interact.”
Bill 18 is scheduled to be heard by the council Finance Committee at 1:30 p.m. Tuesday. Council chambers are closed to the public, but the meeting is livestreamed on the County Council’s website.
The public may provide oral testimony via Zoom by registering no later than noon Monday by emailing firstname.lastname@example.org or calling 961-8255. Written testimony is encouraged and can be emailed to email@example.com.