Council OKs tax hikes for hotels, other properties

Owners of hotels, resorts and most higher-end residential properties will need to pay more in taxes under a budget plan approved by the Honolulu City Council on Wednesday.

Properties in the hotel-resort category will be taxed at $13.90 for every $1,000 of assessed value, up from $12.90 per $1,000 of valuation.

Additionally, investment properties worth $1 million or more where the homeowner is not an occupant will be taxed $10.50 per $1,000 of value for every $1,000 above $999,999. That is up from the current $9 per $1,000. The tax will continue to be $4.50 per $1,000 for the first $999,999 of value.

Resolution 19-55, setting property tax rates for the coming year, was approved by a narrow 5-4 vote following a strong lobbying effort against the increase in hotel-resort taxes by hotel-resort leaders.

Members Carol Fukunaga, Ann Kobayashi, Kymberly Pine and Heidi Tsuneyoshi voted “no.” Members Ikaika Anderson, Brandon Elefante, Joey Manahan, Ron Menor and Tommy Waters voted “yes.”

The increases were proposed by Mayor Kirk Caldwell as part of the budget package for fiscal year 2020 that he submitted in March, and he is expected to sign the resolution. The increase in the hotel- resort rate is projected to net an additional $17 million, while the increase for the investment properties would bring in an anticipated $14 million more.

Caldwell said in March that the additional revenue is needed to support a $2.83 billion operating budget, a budget that’s higher due to a ramp-up of city transportation staff in anticipation of the December 2020 opening of the first portion of the city’s $9.2 billion rail project, as well as costs tied to employee benefits and higher debt service.

The mayor also had proposed, as part of the budget, charging Oahu residents a monthly $10 fee for curbside trash pickup. That plan was rejected by the Council, the third time it’s done so since Caldwell became mayor in 2013.

Mufi Hannemann, chief executive officer and executive director of the Hawai‘i Lodging and Tourism Association and former Honolulu mayor, has led the charge by tourism officials who have warned Council members that approving the higher tax rate could lead to dire consequences for Oahu’s visitor industry and the thousands of jobs it supports.

A 50-cent rate hike in 2014 coupled with a doubling of valuations in the past five years have been key reasons the property taxes paid by hotel-resort owners have increased 141% in the past nine years, Hannemann said.

The city should look further into trimming the operating budget rather than increase the tax rates, he said. “You can cut expenditures, you can cut spending,” he said.

Manahan, the Budget Committee chairman, said the city needs to find extra money from somewhere for rail operations and other obligations. “What we’re trying not to do is tax our homeowners and residents,” he said. “And we want to maintain the current level of services we’re providing.”

Several Honolulu residents also objected to the increase for the investment properties, arguing that it could punish locals, including those who rent their homes, because they cannot afford to buy their own homes.

Those higher-priced investment properties, also known as Residential A properties, do not have a homeowner exemption, which is available only to owner-occupants. The mayor and Council members have openly stated the category was created specifically to shield local residents, and owner-occupants specifically, from tax hikes they may want to impose on other residential owners.

The current $3.50 per $1,000 for the homeowner’s category for those with exemptions won’t change.

Makiki resident Peggy Taylor said the increase is the third since the Residential A category was introduced in 2014.

“This is three times the homeowner’s rate,” she said. “Don’t you realize that you will directly affect any renters whose landlord is in the Residential A classification?”

Taylor suggested that the Council consider providing tax breaks for local residents with second homes.

City Managing Director Roy Amemiya stressed that only homes valued at $1 million or more and not owner-occupied would be affected. The Residential A category does not apply to all-rental apartment complexes with more than two units, although owners of individual condominium and apartment units valued at $1 million or more would need to pay more if they don’t live in them.

The Caldwell administration provided the Honolulu Star-Advertiser a data table showing 14,019 Residential A properties would be affected.

Councilman Tommy Waters said it pained him to raise the rates. At some point, he said, the city needs to consider raising the threshold value at which higher rates would be assessed to an amount higher than $1 million.

The looming specter of rail operations and maintenance costs is troubling, he said. “By 2035, the city has to come up with another $156 million (annually),” he said. “And where are we going to come up with that money? To me, it’s appalling. But we’ve got to do it somehow, or else it’s going to fail.”

The operating budget approved by the Council Wednesday via Bill 10 is $2,834,866,665, just under $1 million more than the $2,833,912,371 budget that Caldwell submitted in March. The $1,167,318,336 capital improvements budget in Bill 11 is $296,128,220 more than Caldwell’s $871,190,116 CIP budget, a 33% increase.