Senate panel advances proposal to boost taxes to aid education

A proposed tax the teachers union is seeking on residential investment properties and visitor accommodations to raise an estimated $500 million a year for Hawaii public schools cleared its first hurdle at the state Legislature on Friday.

Members of the Senate Education Committee advanced the proposal following a public hearing Friday. Members of the House Education Committee, who heard similar bills Friday as well, will vote on the measure Monday.

The controversial idea involves two pairs of bills in both chambers.

Senate Bill 683 and House Bill 182 call for a constitutional amendment that, if approved by voters, would allow the state to collect a property tax surcharge on residential investment properties and on visitor accommodations at hotels, timeshares and vacation rentals. An amendment is needed because the state Constitution exclusively authorizes the counties to levy property taxes.

Senate Bill 686 and House Bill 180, meanwhile, contain the proposed tax rates and exemptions for the surcharges, along with language to ensure the funds are spent “to provide a quality public education.” The revenue generated would be used for recruiting and retaining teachers, lowering class sizes, improving special education staffing and resources, and offering additional instruction in career and technical education, visual arts, music, theater, dance, Hawaiian and Polynesian studies, and Hawaiian language.

The surcharge on residential investment properties — homes or condominiums that do not serve as a primary residence — would be tiered based on a property’s assessed value. The bills include more than a dozen exemptions for investment properties, including affordable housing that’s rented for less than $1,500 a month, properties rented to low-income seniors or disabled veterans, Hawaiian homesteads and properties used exclusively for charitable purposes.

Seeking support

The visitor accommodations surcharge as proposed would tack on a daily fee — $3 or $5, depending on room rates — for transient accommodations offered for less than 180 consecutive days.

Corey Rosenlee, president of the 13,500-member Hawaii State Teachers Association, testified before both education committees Friday, asking lawmakers to help increase funding for public schools.

He said teacher pay here sorely lags behind pay in mainland school districts and that about half of Hawaii public school teachers say they have to work a second job to make ends meet.

“The reality is we cannot recruit, retain and keep our teachers, and that is definitely impacting many of our students,” Rosenlee said. “We have close to 1,000 vacancies and emergency hires in our system, and more than 10,000 children every day in Hawaii go to school without having a qualified teacher in the classroom.”

Hawaii, which is the only statewide school district in the country, is the only state that does not use property taxes to finance education. Schools are state-funded primarily from the general fund, which is filled by revenue from general excise, personal income and other taxes.

Some lawmakers questioned whether the teachers union considered other revenue sources.

“We heard everything — marijuana, lottery, gambling, sugar tax,” Rosenlee said. “There are only three things in Hawaii that generate enough income to make a dent” in the Department of Education’s budget: the general excise tax, property tax and income tax.

He said the state already has the highest income tax in the nation and that the city is already tapping into the GET for rail. Last legislative session, HSTA was unsuccessful in its effort to raise the general excise tax to create a dedicated funding stream for public schools.

Surcharge concerns

While teachers from across the state, many dressed in red HSTA T-shirts, filled the committee hearing rooms in support of the bills, several organizations opposed the measures, including the Chamber of Commerce Hawaii, the Maui Chamber of Commerce, the Hawaii Lodging & Tourism Association and the Hawaii Association of Realtors.

Hawaii County Mayor Harry Kim and city Managing Director Roy Amemiya also raised concerns in testimony about the proposed tax surcharges.

“The County of Hawaii, as is true of the other counties, has little or no control over its revenue except in one area, real property taxes, and the county relies overwhelmingly on real property taxes to fund its operations,” Kim wrote.

Of the visitor accommodation tax, he said, “Please do not deprive the counties of this needed source of revenue, by dividing the pie even further.”

Amemiya testified that the property tax surcharge could negatively affect the affordable rental housing market.

“The city has a significant shortage of affordable rental housing. Imposing an additional surcharge on all residential investment property will have a substantial impact on the affordable rental market as landlords will pass this cost on to their tenants,” he wrote.

Sen. Michelle Kidani, chairwoman of the Senate Education Committee, amended SB 686 to add another exemption for residential investment properties: Residents would be able to exempt one investment property.

Kidani said after the hearing that she’s heard concerns from local property owners who rent out a second home or apartment not as an investment property, but to generate a modest income. She said the amendment is an attempt to ensure such residents aren’t burdened or penalized by the property tax surcharge.

Rep. Roy Takumi, House Education Committee chairman, said he intends to pass the House measures out of his committee Monday.

He said he first wants to consult with the Attorney General’s Office over concerns about the proposed language of the constitutional amendment, which would ask voters, “Shall the Legislature be authorized to establish, as provided by law, a surcharge on residential investment property and visitor accommodations to fund a quality public education for all of Hawaii’s children?”

Takumi and other lawmakers said the current language might open the state up to lawsuits.

“If we put into the Constitution that word ‘quality,’ and the current bill defines quality as lower class size and teacher recruitment, arts and music … everyone will have a different definition of what constitutes quality,” Takumi said. “I want to, in an abundance of caution, try to structure language that takes into account what the intent is without everybody lining up at the courts.”

The Senate bills will next need to be heard jointly by the Senate Ways and Means and the Judiciary and Labor committees. The House measures would head before the Judiciary and Finance committees.