Honolulu City Council to explore tax financing to fund development

A way to stimulate greater economic development on Oahu is currently under Honolulu City Council review.

The proposed program would employ tax increment financing, or TIF, which uses bonds to support public projects. Typically, this public financing method uses anticipated real property tax increases — also known as “tax increments” — to fund such projects.

Akin to redevelopment, TIF programs are commonly used in places like California and other U.S. jurisdictions to enhance local infrastructure and development, such as transit-oriented development, or TOD, as well as affordable housing in specific geographical areas — often in blighted parts of a city.

In Honolulu, proponents — including at least one trades union — say such TOD development could occur along the over-$10 billion Skyline corridor to not only offer more housing on Oahu, but spur job creation as well.

The TIF idea is being advanced by Resolution 56.

Introduced by Council members Tyler Dos Santos-­Tam and Radiant Cordero on Feb. 10, the resolution states, “Once a tax increment district is established, increases in tax revenue resulting from higher real property assessments and real property taxes generated from the assessment base are used to pay the principal and interest on the tax increment bonds.”

The resolution also calls for the Council to form a permitted interaction group, or PIG, to further explore the matter in nonpublic, confidential meetings.

During the Council’s Budget Committee hearing on March 4, Dos Santos-Tam, the panel’s chair, designated three Council members — Scott Nishimoto, Cordero, and himself — to be part of the investigating PIG.

Dos Santos-Tam further requested the city Department of Budget and Fiscal Services designate a member to the PIG, and another member be designated by the city Department of Planning and Permitting “because this involves planning in and around the rail area.”

He also requested a PIG member be designated by the University of Hawaii Economic Research Organization, or UHERO, “who’s done some studies into TIF and how all this would work.”

Ultimately, the Council’s Budget Committee adopted those amendments, while the full Council on March 19 voted unanimously, with little discussion, to adopt Resolution 56 to form the PIG.

At both meetings, the public offered oral and written testimony over the potential benefits and drawbacks of using a TIF program for Oahu’s future development.

In written testimony, James Soong, a financial planner who claimed he’d first brought the TIF idea to Dos Santos-Tam as a new way to fund city projects, said, there “are several key reasons why I believe TIF bonds offer immense benefits for Honolulu.”

“First, the recent approval of TIF funding by the State has created a unique opportunity to explore this method of financing,” Soong said. “Second, with gentrification occurring along the rail line, it is imperative that we include community voices in the planning process.”

He asserted that Gov. Josh Green’s estimates “Hawaii is in urgent need of 40,000 more homes.”

“Fourth, the state’s 2024 (Senate Bill 3202, now known as Act 39) allowing multiple homes on a single property without the required infrastructure upgrades could create more problems than it solves,” he added. “It would force the city to reactively fix infrastructure rather than taking a proactive approach to modernize outdated systems.”

However, Soong cautioned the Council on the actual use of TIF funding.

“The first type, which I did not propose, has ethical concerns due to its use for attracting large corporations and retail chains, often at the expense of local businesses,” he said. “This approach can create economic harm and is perceived by the public as a form of kickbacks.”

“The second type of TIF funding, which I have proposed, focuses on using future property tax revenue to fund infrastructure upgrades today,” Soong added. “By targeting specific TIF zones, we can invest in infrastructure improvements that will last for generations, providing long-term benefits without raising taxes.”

Hawaii Kai resident Natalie Iwasa also shared her concerns over TIF.

Via written testimony, she said, “If you are going to follow through with a (PIG) group, please expand it to include other real property tax issues such as all exemptions and the Residential A classification.”

“Also note concerns I have related to TIF, i.e., its possible underlying properties may not be as high as projected, resulting in the inability for the tax from benefiting properties to pay the debt,” Iwasa added. “Another outcome may be that the city would be incentivized to assess values higher than they otherwise would be.”

Andrew Pereira, director of public affairs with Pacific Resource Partnership, supported Resolution 56 on behalf of the “thousands of unionized carpenters and more than 250 contractors across Hawaii” his group represents.

“In Hawaii, TIF could be instrumental in unlocking the true potential of TOD by funding upfront infrastructure like roads, sewer and water, and other utilities,” he said via written testimony. “By reducing these costs for home builders, which are typically passed on to home buyers, TIF can lower housing prices and create affordable, walkable communities near transit hubs — directly supporting PRP’s mission to build a stronger future for working families.”

Pereira added “a concrete example of TIF’s value” is the New Aloha Stadium Entertainment District or NASED.

“Aloha Halawa District Partners currently faces $179 million in infrastructure costs to redevelop this vital asset. These expenses drain resources that could instead accelerate the construction of a new stadium and a mixed-use district with housing, retail, and jobs,” he said. “TIF could finance this infrastructure, freeing funds to prioritize the stadium and drive economic growth.”

Pereira also favored the Council’s pending PIG investigation.

“PRP’s only caveat is that the permitted interaction group also includes a local home builder with experience in successfully bringing large-scale projects to fruition,” he said. “This addition would ensure the group benefits from practical, on-the-ground expertise in navi­gating the complexities of development, enhancing its ability to craft a TIF framework that works for Honolulu.”

As indicated by Resolution 56, after the PIG holds multiple closed-door meetings to investigate TIF funding, the subcommittee will then issue a formal written report to the full Council on its findings.