Honolulu City Council considers property tax exemptions for businesses along rail line

The Honolulu City Council is considering a measure that would give businesses along the rail line incentives such as expedited permitting and tax exemptions for up to 30 years.

It’s an effort to encourage those companies to invest millions of dollars in facilities or create new jobs.

Under Bill 45, to receive property tax rebates for up to 30 years, businesses would have to invest a minimum of $75 million in improvements to facilities and create 100 new full-time jobs — which would enhance property values in the surrounding area. The criteria also stipulate that the 100 jobs must be filled throughout the 30-year tax exemption period.

Although the bill says businesses in growth industries identified by the state Department of Business, Economic Development and Tourism — including technology, diversified agriculture and film — could qualify for the tax rebate, the film industry has been the loudest in pushing the measure forward.

David Zelon, founder of the Manhattan Beach Studio Group’s Advisory Board, said the company is trying to build a large film studio on the University of Hawaii’s West Oahu campus and that Bill 45 would help with that project. He added that the city is currently not collecting property tax from the land the studios would be built on.

“We have been somewhat stymied by the increase in costs due to the pandemic and it has changed the financial model significantly,” he said during Wednesday’s budget committee hearing.

“This bill will help us create a model which will create a studio which will create not only hundreds of jobs, but generational jobs — jobs that are passed down from father to son or daughter like it was in Hollywood for many generations.”

Those from the film industry who testified explained that although people want to shoot movies in Hawaii, it lacks sufficient studio space.

Currently the film industry receives an income tax credit equal to 20% of its costs incurred on Oahu from the state. There are also federal tax credits for people doing business in underserved areas called “opportunity zones,” some of which overlap with Transit-Oriented Development zones.

Georgia Skinner, the chief officer of DBEDT’s Creative Industries Division, also testified in support of the measure.

Under the bill, the city would be in charge of measuring whether the business would provide a net benefit to Oahu. Budget and Fiscal Services Director Andrew Kawano said the city may need to add resources to do the analysis and provide enforcement.

“We may have to hire financial consultants to determine the ultimate impact to the city that may be needed based on the types of industries,” he said.

“The businesses have to be in compliance every year they get this exemption and we’re going to have to send people to do some inspections and to validate that what they’re certifying, or attesting, is accurate.”

Kawano also gave a rough estimate on how much revenue the city would not receive from a business that would qualify for the tax rebate. He explained that if a business is investing at least $75 million into a property, the valuation of that property should be at least $75 million. The commercial property tax rate, which is $12.40 per $1,000 of the valuation, would equal about $900,000 a year for a property valued at $75 million.

Over a 30-year period that would equal about $27 million.

However, Kawano added that the benefits from the business could outweigh the loss of property tax revenue.

“I would hope that if we can create jobs — well- paying jobs — and people can afford homes and stay here, stay home, we’ll expand our residential base,” he said.

“We have to do the analysis … we need to assess the net profit or net impact to the city and county, and that has to be done yet.”

The budget committee will again discuss Bill 45 at its Oct. 19th meeting.