When he first proposed the approach to tax relief last year, based on a hefty increase in the standard deduction and tax-bracket adjustments, Gov. Josh Green acknowledged it was an “audacious” notion, and ultimately it stalled in conference committee.
But as the 2024 Legislature came to a close on Friday, audacity won out, with the passage of House Bill 2404. The extensive reform measure yielded the largest tax reduction in state history, and it couldn’t have come at a time of greater need.
It was the devastating Maui wildfires that underscored the imperative to house thousands of displaced families. In a state already shouldering a housing shortage, this was another emphasis of the session. Lawmakers pulled together funds in recovery of the Valley Isle (Senate Bill 3068 and SB 582) and passed SB 2919 to curb vacation rentals, freeing more units for local residential needs.
Significantly, in SB 3202, they also pushed the boundaries of county home rule by pressing counties to enable more units to be built on residential lots.
But the tax measure, the game-changer of the session, will have the broadest impact statewide, and the rationale is clear. Figures now show 15% of Hawaii families falling below the federal poverty threshold, and the state ranks second only to California for highest income tax rates.
Paired with the housing crisis, and the fact that this is an election year, these forces generated more than enough political will to push HB 2404 through.
It is expected to ease the cost of living, largely for workforce families, over the course of seven years.
If Green signs the bill, as he is widely expected to do, the new law would raise the standard deduction this year with further increases following every other year. It also would make adjustments for tax brackets in alternating years through 2031. This is aimed at seeing that taxes would not increase as wages rise.
The standard deduction for joint tax filers will rise gradually from its current $4,400 to $24,000 by 2031. For a family of four earning $88,000, for example, their take-home pay would go up by about $3,600 as their tax bill (now about $5,100) dips to $1,500.
Through the session some advocates testified that more could be done to ensure that the tax adjustments target lower-income families more narrowly. This is certainly a concern worth monitoring for further action in coming sessions.
Further, the reduction in revenue compels a more fiscally conservative approach to spending to keep the tax reform timetable on track. But without a doubt, HB 2404 represents an ambitious move, aimed in the right direction.
The more controversial move was the passing of SB 3202, which directs counties to develop ordinances that would permit at least two accessory dwelling units (ADUs) on lots zoned for residential use. And this has to happen fast: The ordinances have to be enacted by the end of 2026, arguably because the shortage in affordable housing inventory is so dire.
Some of the pushback that arose from House members pointed to the fact that the bill breaks with legislative tradition to honor home rule principles, leaving such zoning issues within county jurisdiction. Indeed, not all counties have the same land-use conditions, and adding ADUs in parts of crowded Oahu could exceed local capacities.
The bill does seek to address this issue, including this language: “Nothing in this section shall preclude a county from denying applications for permits if there is insufficient utility infrastructure to service the additional demand caused by the development of accessory dwelling units pursuant to this section.” That carve-out helps, and the bill does reflect the mounting pressure to create more housing, and quickly.
Still, expect county officials to implore the governor to add it to his veto list.
Maui County, rightly, is promptly responding to the call for tighter regulation of short-term rentals, due to the passage of SB 2919. Maui Mayor Richard Bissen on Thursday announced his proposal to the County Council for phasing out 2,200 vacation rental units by July 1, 2025. Ultimately his intent is to close out that use for all 7,000 units in apartment zones.
In his testimony on the state bill, Bissen said that “granting counties the authority to regulate these rentals aligns with our commitment to responsible land use planning and the preservation of our unique island heritage.” It’s hard to argue with that.
Of course there should be a place for some short-term rentals within Hawaii’s visitor industry: Many local residents have enjoyed the bed-and-breakfast experience themselves.
At a time of crisis, however, the priority must be placed on the basic needs of the islands’ permanent residents. Nothing has driven that home more than Maui’s tragedy, and the ongoing struggle of many families to have the basics and pay their bills.
It is gratifying that the Legislature has grasped this reality, and acted on it.