Non-Ad Valorem Property Tax Financing
In our Legislature this year, there is a bill advancing that contains an innovative (or horrible, depending on your point of view) idea for financing certain home improvements. Let’s say you own a home and you need or want a septic system, connection to a sewer system, clean energy technology, efficiency technology, or a resiliency measure (whatever that means). The bill, HB 2088, creates a program where you could go to a lender, borrow money to make that improvement, and then repay the loan with payments that are added to your property tax bill. If you have a mortgage on the home, like most folks do, you won’t have to worry about your mortgage lender getting upset about a new loan coming on to the property. The bill provides that although the new loan would be repaid through the property tax system, and property tax payments get paid first if something bad happens and the property is foreclosed, the new lender only has to notify the mortgage holder of the new loan and the mortgage holder would not be able to do anything about it. In that way, the supporters of the bill say, the governments can help homeowners obtain loans for socially desirable improvements to the property that would make the home safer or enable it to use green energy. For example, the bill recites that there are 11,000 cesspools on Oahu that all must be upgraded by 2050 to preserve the integrity of our ground water. In other states, as of 2019, over 200,000 homeowners have made $5 billion in energy efficiency and other improvements to their homes through this kind of financing. Typical home improvement projects include replacement of broken or failing heating and cooling systems and hot water heaters; air sealing and insulation; ENERGY STAR doors, windows, roofing; ENERGY STAR appliances; solar photovoltaic systems; and water conservation and resiliency measures (e.g., seismic retrofits and wind hazard protection). This type of program is now available in California, Florida, and Missouri. The banks, in the meantime, are screaming bloody murder. They point out that when they analyze a potential mortgagor’s collateral and ability to repay a loan, they assume that there will be no other, later loan that will hop ahead of the mortgage in lien priority. There will be situations where the bank will be confident that the borrower would be able to repay both loans, and in those the bank would be willing to voluntarily consent to the non-ad valorem property tax financing. But the banks are worried about the parts of the bill that would force them to accept a new loan that they wouldn’t otherwise consent to, and they say it’s unfair and unconstitutional for the government to come in and alter their contractual relationships with their borrowers in that way. So the Hawaii Bankers Association, the Hawaii Credit Union League, the Mortgage Bankers Association of Hawaii, and the Hawaii Financial Services Association submitted testimony opposing the bill; and even the Department of the Attorney General has weighed in with some concerns that the bill might be unconstitutional because it impairs the obligation of contracts. So what is going to happen here? Is the dogfight between the bill supporters and the lenders going to continue? Will there be a compromise legislation that satisfies all interests? The bill is set to cross over into the Senate, where there will be further testimony and debate.
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Launching an Annual Attack on the Wealthy
Occasionally, lawmakers in the square building on Beretania Street come up with an idea that hasn’t been tried here before to see whether it sticks to the wall. This year, one of those ideas is a “wealth tax.” It’s currently in Senate Bill 3182, and Senate Bill 3250 would form a working group to study imposition of a wealth tax. What’s the difference between a wealth tax and the income tax that most of us are more familiar with? Income tax is imposed when you make money but it doesn’t apply when you simply hold on to it. Wealth tax, like real property tax, is imposed every year on the wealth that you do have. The current wealth tax proposal would impose a 1% tax on the state net worth of any individual who holds $20 million or more in assets in the State. (This, by the way, might not be a problem only for the ultra-wealthy. If the tax isn’t producing what lawmakers want, there is always the prospect that future legislatures will drop the threshold so that it bites more people.) With the current tax proposal, practical difficulties abound. One of them is figuring out what is an asset in the State (as opposed to somewhere else). With real property and physical objects, that determination is relatively easy. Where it gets tough is when the assets are intangible. Suppose a taxpayer has stocks and bonds in various companies, some located in Hawaii, some entirely out of state, some foreign. Even bank accounts can pose difficulties – suppose the taxpayer lives here but the bank is located in North Carolina. Then what? Another difficulty is determining how much some of these properties are worth. Bank accounts, publicly traded stocks, and such things as commodity futures might not pose that much of a problem because the markets come up with a price for them every day. Maybe those owning real property could use the valuation numbers that the county in which the property sits comes up with. But what about shares in a closely held business? Art and collectibles (yes, even that PG 1/60 RX-78-2 Gundam Gold Version)? And even the family car? Taxpayers exposed to a wealth tax need to value their property every year, not just at date of death for estate tax purposes. Why impose a wealth tax? It’s unclear who’s behind the one we have here, but wealth taxes have been proposed elsewhere – California, for instance – and its teachers’ union came out to support it. “California billionaires have increased their wealth astronomically since the beginning of the pandemic, while regular working families have struggled to pay their bills,” their union president said in a statement. “It’s time we took care of each other, and not just watch billionaires fly into space.” It’s unclear whether the teachers’ union here in Hawaii is thinking the same thing, although a couple of local teachers did submit testimony in support of the wealth tax bill. California’s wealth tax had its opponents as well. The California Taxpayers Association, California’s counterpart to the Tax Foundation of Hawaii, stated, “Last year’s version of the wealth tax led many Californians to rethink living in California, just by virtue of being introduced. In the last year, these taxpayers sought out legal advice, hired tax experts who specialize in residency issues, and seriously reconsidered their future in California. … If high earners leave – and they will, to avoid the tax hike as well as the headache of having to annually appraise everything they own, anywhere in the world – the taxpayers left in California will be asked to pay more.” Will the same issues play out here in Hawaii the same way? As the Grassroot Institute points out, we’re already losing people – 32,237 since fiscal 2016, and the top 1% of Hawaii’s income earners already pay 23% of all income taxes. If enough of those folks jump on planes as well, we will be seriously hurting for revenue…meaning lawmakers may well look to the rest of us to make up the difference. WHY IS HAWAII SO EXPENSIVE? THE WMTA AGREES WITH CONCLUSIONS CONTAINED IN THIS ENLIGHTENING RESOURCE AND SUPPORTS THE GRASSROOT INSTITUTE WITH APPRECIATION: "Hawaii residents enjoy one of the most beautiful places on earth to live, but they pay a high price to do so. How high is the “price of paradise”?
Institute Marketing Director Josh Mason sums it up the issue succinctly in his aptly titled new article, "Why is Hawaii so expensive?" Accompanied by a David Swann cartoon that is as relevant now as when Swann produced it four years ago, Mason's article boils it down to three main factors: >> High taxes. >> Land-use and zoning regulations that make housing unaffordable. >> The Jones Act, which increases shipping costs to, from and between the islands. His conclusion: "Sure, there is a price to pay for living in the most isolated islands in the world, but state, county and federal government policies increase the price even further. "Hawaii would be better off if lawmakers would remove the barriers that prevent entrepreneurs and citizens from freely exchanging goods and services and solving the state’s problems. Then perhaps people would not be priced out of paradise." Read the entire article, with all the facts and figures, here. |
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