As the State Representative for District 8, I Pledge to Work to Address These Major Concerns:
- Adequate, safe, and appropriate housing for our residents
- Improvements to our infrastructures, particularly our roads, to mitigate the impacts of visitors to Maui
- Safe and less crowded schools with proper student – teacher ratios
- Protection of our fresh water sources, our ocean waters, our clean air, and our lands from harmful contaminants
- Promotion of sustainable farming practices
- Preservation of Hawaiian Cultural practices
- Increasing the state’s minimum wage
- Fighting for Maui’s fair share of the TAT – Transient Accommodations Tax
- Increasing pay rates for our state teachers to recruit and retain quality educators
- Advocating for improvement to Maui’s only hospital
- Those issues most important to YOU!
Property Tax Reforms
To Create More Affordable Homes and Fund Other Critical Needs
4/26/18 Discussion paper from MichaelWilliams@PueoFarm.com, 808-264-4884
POLICY REFORM OPTIONS
- Raise property tax rates on vacant “second homes”.
- Lower property tax rates on homes owned by or rented long-term to residents.
- Raise property tax rates on hotels and resorts to O’ahu levels.
- Amend the County Code to allow assessors to use the “income approach” in valuing commercial, resort, hotel, and car-rental property.
- Create the rules/mechanism to enforce short term/vacation rental laws; provide staffing to enforce these rules.
- Enforce laws allowing a tax break for genuine agricultural operations but not allow expensive homes to be able to take advantage of fake farms.
- Eliminate the low special agricultural tax assessment on land which is not being farmed
POLICY RATIONALES IN BRIEF
1. and 2. Raise property taxes on vacant second homes, and lower property taxes on homes owned by or rented to residents. The fastest way to create more affordable housing is to draw from the existing housing stock. There are thousands of homes, which are owned by rich investors, and used only occasionally as vacation homes by their owners, families, and friends, or used illegally as short-term vacation rentals.
Raising tax rates substantially on such homes, while lowering tax rates if they rent to local residents, may add many homes to the local long-term rental market, or even increase the inventory of homes for sale, putting downward pressure on both rents and housing prices. If Maui County used the $11.00 rate of the Big Island, instead of the $5.54 rate proposed by the Budget Chair, it would generate $42.2 million more annually.
For owners of second homes who do not want to rent to residents, it is fair to make them contribute more money to help solve the housing crisis, especially since most do not pay any Hawaii Income Tax. It is also fair to use some of the extra taxes paid by second homeowners to lower taxes on local homeowners and landlords who rent to residents.
3. Raise taxes on hotels and resorts. Maui hotels charge the highest room rates in the state, now the highest in history, and have been selling at record prices in recent years. Many are owned by the same global hotel and resort corporations that also own hotels in Waikiki. On O’ahu, these corporations do just fine despite paying property tax rates 40% higher than on Maui. If Maui County charged these businesses the same as on O’ahu, there would be roughly $38 million more money each year for the Council to spend on catching up Maui’s infrastructure to the rapid development of the last two decades, and funding affordable housing programs and projects. Because room rates are higher here than on O’ahu, these businesses would still be more profitable than the Waikiki properties.
4. Use the “income approach” in valuing commercial property. Every state in the country except Hawaii allows their property tax assessors to use all three of the standard approaches to valuation: cost, market, and income methods. No state law bars it here. The Maui County Code requires the income method for valuing Ag land and golf courses, but forbids its use for commercial properties, where it is most useful. The Council can give our assessors this extra tool with a short amendment to the County Code permitting its use for commercial, resort, hotel, and car-rental property. This is the normal practice in other jurisdictions.
5. Enforce short term/vacation rental laws. No one knows how many homes are now rented to tourists illegally. The county is trying to find out, and to develop better enforcement and higher fines for lawbreakers. The county should assign enough personnel to enforce these laws and collect the back taxes and fines. There are three kinds of legal short term rentals: Condos in the resort zones (now “Short Term Rental”), permitted bed and breakfasts where the local owner lives on the property (“Commercialized Residential”), and all housing units where the owner does not live on the property (mostly single family homes and ‘ohanas) rented entirely to tourists—these are in the “Commercial” class. Maui’s short-term rental permitting law has been developed over many years to prevent the troubles caused by too many short-term rentals in the wrong place. Property taxes on the STR resort condominiums and permitted STR whole houses should be raised to provide revenue for the purposes described above. The current tax rates on permitted B&Bs seem about right.
6. and 7. Tax breaks for genuine Ag operations, but not for expensive homes and fake farms. Maui subsidizes local agriculture with below market valuations for tax purposes. This encourages local food production, an important aspect to security on an island far from off-island food supplies. It also allows very low carrying costs to large speculative holdings while requiring very little real farming or ranching, e.g., the A&B cane fields and Maui Pine’s pineapple lands now lying fallow. This very large tax subsidy is also being given to property owners with expensive homes–an effective tax rate on their homes lower even than the “Homeowner” rate (see Oprah’s ranch home) and to owners who do not have genuine, commercial Ag operations. This is unfair to all the resident homeowners here, whose taxes could be lowered if non-farmed Ag lands paid market value rates. In addition, it is contrary to existing law: the Ag tax preference is not to be applied to homesites, and certainly not to phony, non-commercial gentleman farms.
A consensus to fix these two inequities was reached in 2016, after months, indeed years, of hard work by citizen groups, Council members, and county staff. However, a final decision to start enforcing the law was blocked by two serious concerns: First, farmers felt the current sets of assessors were not qualified to distinguish genuine agricultural operations from phony ones. Second, some Council members insisted that to get the Ag tax preference, the landowner must dedicate the land to Ag use for many years, something most farmers were unwilling to do.
The first problem could be solved by requiring the assessors’ office to have one or two assessors with experience in ag operations, and assigned full-time to checking property owners’ operations, and by creating a special ag use review panel consisting, say, of 5-7 local farmers and ranchers, to whom any aggrieved property owner could appeal an adverse decision by the ag use property assessors. The system could allow any 3 of the Ag use panel to constitute a quorum. If the owner was still aggrieved, they could appeal finally through the existing property tax appeals process.
The dedication issues could be solved by just abandoning the requirement. In fact, right now there are only 10 parcels still subject to an Ag dedication as all others have expired and are being continued on a year-to-year basis. With the specialized Ag, assessors and the RPT’s constantly updated aerial photos of every parcel, owners who stopped or reduced their ag operations, or claimed a falsely small homesite, would be detected in a year or two.
Enforcing current Ag use law would raise property tax revenue considerably, and this could be used to further lower taxes on resident homeowners and second homeowners who rent to residents.