Nearly everyone agrees that teachers and schools need better salaries and funding. Teachers who are trusted with our most valuable asset should be among our best paid.

The big question is how to provide better funding (“Voters Will Decide Whether To Hike Property Taxes To Fund Schools”).

According to a recent news report, Hawaii has the highest percentage of homeless per capita in the nation. Another recent news report stated that Hawaii is the second-highest taxed state in the U.S. behind New York. Another news report stated that for every one person moving to Hawaii, nine move out of the state.

Bottomline, it’s very difficult and expensive to live in Hawaii.

Kapolei aerial photo2

A proposed constitutional amendment will ask Hawaii voters whether the state should levy a surcharge on investment properties to help fund education.

Cory Lum/Civil Beat

With our high Oahu home prices, approximately $790,000 for a single-family median-priced home and $416,000 for a condo/townhome, Hawaii residents frequently have to sacrifice and save for years and/or borrow from parents in order to have a down payment to buy a home. As their family grows, they outgrow their initial home. Mom and Dad often borrow against their current property to make a down payment on a larger home or expand their present home.

In order to have a source of money for a child’s education or to save for future retirement, Mom and Dad often borrow against their first home, take the risk of renting out their home and for several years continue to sacrifice to make up the difference between the rental income and monthly payments because the rental income usually does not cover all of the expenses.

One bad tenant who takes advantage, damages the property and/or fails to pay the rent can sometimes lead to Mom and Dad having a financial crisis and even filing for bankruptcy.

Many of our investment rental properties in Hawaii are “affordable” studio, one- and two-bedroom units. However, it’s obvious that many legislators do not realize the difficulties of buying and maintaining affordable rentals.

With the proposal to tax all investment properties, it’s going to make it even tougher on Hawaii residents to buy and maintain affordable rentals.

As a result, we can expect even fewer affordable rentals and an increase in the number of homeless families and people leaving Hawaii.

Just as one looks for the highest interest rate when placing money into a savings account or certificate of deposit, real estate investors likewise look at the return on investment. Hawaii’s returns on real estate investments are already lower than most mainland areas.

More Red Tape?

Most importantly and adding to the cost of housing is the years of red tape of building housing.

Castle & Cooke went through a lengthy 20-year process to finally get a favorable Hawaii Supreme Court ruling in order to build homes on a property that has yet to break ground. This lengthy process adds millions of dollars in costs that are passed on to the consumer or even worse, housing developers look and spend their money elsewhere to build affordable housing.

An investment group was interested in building affordable homes starting around $200,000, however, when it heard about Castle & Cooke’s difficulty in getting approvals and the government red tape, it decided to invest its $25 million in affordable housing on the mainland. Thus, if the tax is passed, we can also expect off shore investors to look elsewhere to invest and get a reasonable return on investment.

Increasing taxes on all investment properties appears to be robbing Peter to pay Paul.

Many people may not realize that besides paying Hawaii’s general excise tax on the gross rental income and real property taxes, investment property income is taxed as ordinary income. As a result, the burden of general excise and income taxes on real estate investment continues even after retirement. I am one of those Hawaii residents who has worked hard, mostly seven days a week, long hours, struggled, sacrificed, saved, invested in affordable rentals over the years and in my senior years continues to work to make ends meet. Last year, I took my first vacation in more than 23 years.

Increasing taxes on all investment properties appears to be robbing Peter to pay Paul.

Instead of over-taxing struggling investors who provide affordable rentals, why not cut government red tape and expedite the building approval process?

Years ago, former Honolulu Mayor Jeremy Harris attempted to get the building permit process down to 30 days. During this period a seller decided to repair a 6-foot wall section that might fall on a neighbor’s property and possibly injure someone. A building permit was required. A licensed and very experienced rock wall contractor was hired. Several trips were made to the building department with drawings and revisions.

The contractor was having many problems with different visions of building department employees. Instead of being given a requirement check list by the Honolulu Department of Planning and Permitting, every time he went to the building department, he was told he had to do something additional.

This became frustrating and costly. Therefore I accompanied him to the building department. When I asked the building department official about the 30 day process, I was told the mayor was full of “hot air.”

While Harris was genuinely interested in improving the building department and permit system, too many times politicians lack backbone such as sending the investment tax proposal to the people to vote versus making a decision in the Legislature. Or even worse, they give us “hot air” by telling us what we want to hear.

Nearly anyone who has gone to the Department of Planning and Permitting agrees there has to be a better way. The building permit and approval process has to be streamlined. One of those options in a booming economy is for the city to allow qualified architects to be responsible for approving plans, issuing building permits and inspecting construction. If it’s later discovered that an architect failed to follow DPP requirements, suspend or revoke the license and fine the architect.

In 2010 former Gov. Neil Abercrombie proposed taxing retirement pay. However, this was during a time when everyone was suffering. Hawaii ranked ninth in the U.S. in foreclosures. We were in a deep in a recession. People lost their jobs. Government employees had been furloughed and took 10 percent pay cuts.

Now that the economy is booming, it appears to be the time to re-visit taxing retirement pay rather than over-taxing those who provide affordable housing at a time when there is a housing crisis. I appreciate their service, both military and civilian.

However, everyone should be sharing in the taxes of Hawaii. By taxing retirement pay, the burden of taxes would be shared by more people and more funding would be available for public schools.

Perhaps there is a hybrid solution such as taxing higher end investment properties and a portion of retired pay.

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