The Flippin' Surcharge & Other Housing Solutions
By Tom Yamachika, President
This year’s Legislature has produced some unique proposed solutions to deal with our housing crisis.

Senate Bill 2216, introduced by Sen. Stanley Chang, chair of the Senate Housing Committee, proposes an “empty homes tax.“  If you own residential  real property in Hawaii and you can’t swear that you lived in it, then you get charged a tax. The annual amount of the tax is 5% of the assessed value of the property. 

So, for example, if you owned a vacation home in Honolulu worth $1 million and you didn’t live in it, your Honolulu real property tax at the Residential A property classification would be $4,500 per year. The empty homes tax, which you would pay to the State rather than the City, would be $50,000 per year. 

Even the Department of Taxation, in its testimony on the bill, had reservations.  It pointed out that there were some instances of a unit being empty that should be considered for exemption, such as where the unit is being advertised to be rented (or sold), the unit is being renovated, or the unit can’t be lived in because of damage or other conditions.

Finally, there was a more fundamental problem:  the tax is triggered by a use of real property (or lack of use), it’s levied against the real property owner, and is based on the value of the real property involved.  It looks, walks, and quacks like a real property tax.  But under our state constitution, at least the way it reads now, only the counties have the authority to impose real property tax.  Bzzzt!  The State can’t do this.  (But note that there are different proposals in the hopper to change the state constitution, as we wrote about last week.)

This measure was heard in the Senate Housing Committee (which happens to be chaired by the bill’s sponsor) and was passed.

Another innovative approach, which happens to be sponsored by the same Senator, is a “flipping surcharge” set forth in Senate Bill 2040.  This bill imposes a tax of 25% of the net proceeds from the sale of residential property if (1) the property was sold within 5 years after it was bought, and (2) the owner isn’t eligible for a county homeowner’s exemption.

This bill was heard by the Senate Ways and Means Committee.  During the hearing, senators went through some interesting examples.  If a home was bought for $1 million cash and it sold for $1 million, the tax would be around $250,000 (in addition to the income tax on capital gains), assuming negligible closing costs.  If a home was bought for $1 million with bank financing and it sold for $1 million, with $800,000 going to the mortgagee, the tax would be $50,000.  If an owner bought a home for $1 million and spent $500,000 improving it, and it then sold at no gain for $1.5 million, the tax would be $375,000.

The Hawaii Association of Realtors also pointed out that the tax would apply if an owner invested in a dilapidated property, fixed it up so it was habitable again, and then sold it, even as an affordable unit. 

We at the Foundation pointed out that there would be situations where imposing the tax might not be appropriate.  Suppose a person is given a long-term job assignment (or military station) here and moves here with family in tow but does not want to give up primary residency.  A few years later, the assignment ends, and the person is assigned to state B.  The house here is sold to buy one in state B.  Wham!  The tax applies.

By the end of the hearing, some senators had reached the end of their rope.  The committee chair decided to hold the bill.

What other solutions are going to be thrown at us this year?  Lots of things can happen before the end of our legislative session.

The ConAm Returns
By Tom Yamachika, President
Two years ago, we as voters were inundated with impassioned arguments on both sides of a proposed constitutional amendment (“ConAm” for short). The amendment would have given the State the power to impose a surcharge on real property tax, ostensibly to fund teacher pay raises.

The Hawaii Supreme Court ultimately voided the ConAm as vague and misleading.

It’s now another election year, and bills for ConAms are in the legislative hopper to monkey with the real property tax yet again.

One bill proposing to do that is HB 2671, which would give “concurrent authority” to the Board of Education together with the counties to levy real property taxes.  The Board would need to exercise its authority for the purpose of funding teacher compensation.

What does concurrent mean in this situation?  Assuming that the bill drafters didn’t intend to require the Board and the Counties to agree before any tax increases pass, the effect of the amendment would be that either the Board or the Counties would be able to modify property tax rates whenever they wanted to.

When the previous ConAm was being debated, the Counties all brought up that they didn’t want their primary revenue source to be altered. The Counties all borrowed money on the bond market, and they said their creditors would be upset if they lost control over their primary source of repayment.  So, they are likely to have conniptions over this ConAm as well.

If this bill passes, then, look for the battle lines to be drawn the same as last time.

Another bill to watch out for this session is SB 2074.  This ConAm would authorize the Legislature to establish “a surcharge on real property taxes for real property located near rapid transit stations to fund infrastructure improvements in those areas.”

Notice that the surcharge is on real property taxes “for” real property located near rapid transit stations, not on real property taxes “on” real property located near rapid transit stations.  The State is looking to grab some money to put into infrastructure improvements near rapid transit stations, but it isn’t looking to get it simply from the real property to be benefited.  The surcharge could apply to all real property anywhere in the State, and there are no limits on what the surcharge could be or on what kinds of property could be affected.  In that respect, it’s worse than the 2018 ConAm because any and all real property can be surcharged, not just “investment real property” that the 2018 ConAm targeted.

On January 28, the Senate Judiciary Committee held a public hearing on SB 2074.  As of press time, its decision on the bill had not been released.  The public hearing elicited testimony from the State Office of Planning (supporting the intent of the bill), the Tax Foundation of Hawaii (with comments), the Building Industry Association (in strong support), the Hawaii Association of Realtors (in strong opposition), and one individual.  The individual’s testimony in opposition was short and sweet:  “The State is Getting to [sic] Greedy.”

Will either of the ConAm bills make it to the 2020 general election ballot?  The drama is still unfolding.

Maui Health System plans to establish urgent care center in West Maui this yearFebruary 6, 2020
Lahaina News
          LAHAINA - Maui Health System (MHS) Chief Strategy Officer Jim Diegel said the organization is committed to establishing a presence in West Maui this year, with future plans that include a 24-hour Emergency Department.


MHS, which manages community hospitals and clinics affiliated with Kaiser Permanente, envisions some form of an urgent care center with extended hours in West Maui.

The facility will be staffed by physicians who are board-certified in Emergency Medicine or Primary Care.

"We will, either in partnership with existing players on the West Side or maybe by ourselves, we will have a presence by the end of 2020," Diegel announced at the West Maui Taxpayers Association's Annual Meeting on Jan. 8.

Several years in the future, MHS' second strategic step will be to establish a free-standing, full-service Emergency Department that's operated 24 hours a day, seven days a week.

"So we believe that the future here for West Maui, absent a full-service hospital, which are very expensive to build and operate... we think that solution is a 24/7 free-standing E.D.," Diegel explained.

"That will take a little bit of time to put together; we would need to determine where such a facility would need to be sited and go through the appropriate Certificate of Need requests, and then there are sizable capital investments involved with that."

A MHS analysis estimated it would cost a minimum of $5,000,000 to $7,000,000 just to build and prepare the facility.

Based on the size of the West Maui community and reduced volume at the existing Emergency Department at Maui Memorial Medical Center, MHS' preliminary estimates project an operating loss of around $2,000,000 per year, Diegel said.

Funding and multi-stakeholder partnership options will be explored, and community engagement will be essential to the process, he added.

Even with donated land, plans for the West Maui Hospital and Medical Center have stalled. Diegel said it's unfortunate that plans for the critical-access hospital in Kaanapali didn't move forward.

Many small rural hospitals across the U.S. are closing, and many are converting into free-standing Emergency Departments, Diegel said.

These facilities receive patients and stabilize them. They typically have the ability to hold a patient for 24-48 hours before discharging them or transferring them to a full-service hospital.

Diegel has attended community forums with MHS CEO and Hospital Administrator Michael Rembis.

Residents have repeatedly voiced concerns about traffic and access to healthcare on the West Side.

"We have heard over the last many months... specifically your journey to improved access to healthcare and services that you need here on the West Side," he said.

"I have now experienced what it's like to be in gridlock coming across 30 (Honoapiilani Highway), both ways... and we've heard story after story of really the inability to access the appropriate care that we need here on West Maui."
Recognizing that emergency transit can be an issue, MHS has taken steps to improve helicopter transportation from West Maui to Maui Memorial Medical Center.

The helicopter won't fly at night because there is an unlit radio tower in its departure path about 800 feet from the hospital.

MHS is working with American Cellular Tower to install lights on the 186-foot-high tower.

Once it's lit, the Federal Aviation Administration and Air Traffic Control will approve night flights to and from the hospital's helipad.
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Diegel asked West Maui residents to recommend sites in West Maui where the helicopter can land to pick up patients.