Vacation rental bill awaits Ige’s signature

A bill that critics say will aid the proliferation of illegal vacation rentals in Hawaii narrowly passed the Senate on Tuesday following an emotional floor debate that centered on whether the state was forsaking good public policy to go after $46 million in potential revenue from unpaid transient accommodation taxes.

Much of that sought-after revenue is likely to come from vacation rentals that are operating illegally.

Senate Bill 1292 would allow vacation rental platforms such as Airbnb and VRBO to collect taxes on behalf of the state.

The bill now goes to Gov. David Ige for final decision-making. The governor vetoed a similar measure in 2016.

“I have said before that I would support a measure that requires transient vacation rentals to pay their taxes,” Ige said in a statement. “I would also like to see a mechanism that allows the state or counties to capture enough information to ensure the TVRs are complying with county ordinances and regulations. I will carefully review this measure and confer with county mayors before making a decision on this bill.”

Critics say that without enforcement provisions the measure will provide cover for illegal vacation rentals.

“We have to consider the cost on the other side of the ledger,” said state Sen. Russell Ruderman, rising in opposition to SB 1292. “What is the cost of the loss of a livable society in our state? There are numbers to that.”

Ruderman cited rising homelessness, less affordable housing, the loss of hotel jobs and increased poverty as collateral damage of the measure.

“It’s a very bad bargain to take on money that you can get now and leave the disaster for future years,” he said.

The Department of Taxation estimated the bill could bring in $46 million in revenue. However, some senators doubt this figure, noting that illegal operators could already be paying their taxes. Bills moving through the Honolulu City Council aimed at cracking down on illegal rentals could also cut into that revenue if passed.

Hawaii lawmakers have spent decades debating the problem of illegal vacation rentals, with the counties erratic in their enforcement of laws against unpermitted rentals.

In recent years, major online platforms that allow operators to easily advertise units have fueled the market, contributing to a lack of affordable housing for local residents that has reached “crisis proportions,” according to a report issued by the Hawai‘i Appleseed Center for Law and Economic Justice in March 2018.

The report found that the number of vacation rentals in Hawaii had risen 35% over a two-year period. Out of the approximately 23,000 vacation rentals advertised throughout Hawaii, up to 93% were for entire homes.

One out of 24 housing units in Hawaii is now a vacation rental, according to the report. On Kauai, 1 in 8 homes is used as a vacation rental. In places like Lahaina on Maui, that ratio is 1 in 3.

While vacation rentals can bring in added income for local residents, policymakers have long been concerned that the operators are increasingly outside investors who can earn 3.5 times more revenue than by renting out the unit long term to residents.

In recent years the Senate has maintained a position that it wouldn’t agree to a bill allowing vacation rental platforms to act as tax collection agents for the state unless it came with enforcement provisions to help crack down on illegal operators. But the Senate found itself boxed in on Tuesday with the Legislature set to adjourn in two days.

The Senate had hoped the House would approve a different bill that would allow companies such as Airbnb to collect taxes for the sate, while also prohibiting platforms from booking a vacation rental unless it was on a county list of legal units, among other enforcement provisions. But the House didn’t pass House Bill 419, and the only vehicle left that would allow for tax collection was Senate Bill 1292, which had been stripped of language designed to help the counties enforce against illegal rentals.

The Senate had already worked the estimated $46 million in added revenue into next year’s budget, and Senate Ways and Means Chairman Donovan Dela Cruz identified 15 bills with money attached that would need to be shelved this year if SB 1292 didn’t pass. On the list were bills that would have funded a commission to oversee the state’s correctional system, Filipino burial grants and suicide prevention efforts.

In a strained, 13-12 vote, the Senate passed SB 1292 on Tuesday, reversing a Friday vote that shelved the bill.

State Sen. Laura Thielen, who unsuccessfully tried to insert last-minute enforcement provisions into the bill, said after the vote that it was poor policy to try to balance the budget on uncollected revenue from illegal vacation rentals.

“Passing the Airbnb shield bill is not going to resolve our budget beyond next year, so why create this horrible situation for our communities and housing supply? The cost of housing is one of the biggest issues for our residents,” said Thielen. “So if we don’t balance our budget with a lottery, we don’t balance our budget with gambling, we don’t balance our budget with legalizing marijuana, because of the societal ills, why are we balancing our budget with something that’s going to create increased cost of housing, fewer long-term residential units and more people moving to the mainland?”

Senate President Ron Kouchi, who pushed for the bill’s last-minute passage, said he was frustrated with the House for not negotiating and that House Bill 419 was a better bill. But ultimately he said the counties are to blame for the illegal vacation rental situation, not the Senate because it is seeking to collect on unpaid taxes.

“If you look back over the last 20 years, we are at the crisis point we are today because of an inability of the counties — not having the willingness or the political will — to enforce their zoning ordinances,” he said.

House speaker Scott Saiki told the Honolulu Star-Advertiser that the counties already have the ability to regulate illegal rentals.

Saiki said the House opposed the provision prohibiting Airbnb and others from booking a vacation rental unless it was on a county list of legal units because the counties might not know which vacation rentals are legal and which ones are illegal.

However, Honolulu’s planning director said that’s not the case for Oahu, at least. Kathy Sokugawa, acting director of the Honolulu Department of Planning and Permitting, said her department knows which rentals are legally permitted and which ones are not.