Hawaii voters will get the chance to decide whether the state should impose a tax on residential investment properties to fund public schools, after approval for a vote on the constitutional amendment easily cleared the state Senate on Monday.
Putting the tax measure on the November ballot is a big victory for the Hawaii State Teachers Association, the teachers’ union that has pushed for two years to create a new revenue source for education. Dozens of union members showed up at the Capitol, breaking into applause following the vote.
House lawmakers unanimously passed the bill earlier this month after considerably paring down the language and removing many specifics.
“We consider this bill a win-win. It deals with the dangerous shortage of teachers in Hawaii, at the same time it goes after these investors that have driven up the cost of living that is so high in Hawaii that’s making it difficult for people to live here,” said the head of HSTA, Corey Rosenlee.
But getting the question on the ballot doesn’t guarantee any new dollars for education. It merely allows voters to grant lawmakers the authority to use property tax revenue to fund public education.
Should the proposal for a constitutional amendment pass, lawmakers would still need to figure out details of how high any surcharge might be, which investment properties to target and which components of public education could be the main beneficiaries of the revenue.
Because the final wording of the ballot question is so vague, there is no dollar figure on how much the surcharge could generate or specifics on how this tax structure could work.
“This is just clearing a way for one theoretical legal barrier to (the Legislature) tapping property tax revenues,” pointed out Jim Shon, director of the Hawaii Education Policy Center at the University of Hawaii Manoa.
“What will the impact be? Who knows,” he added. “Its impact is much foggier, much less obvious and much less consequential. It doesn’t require the Legislature to maintain a certain level of funding overall or increase it.”
Rosenlee said he hopes a potential surcharge will generate “hundreds of millions of dollars” to fund items like teacher recruitment and retention, preschool, special education, arts and music instruction and career and technical education.
Hawaii is the only state in the country that does not rely on any form of property taxes to fund public education. Its $1.9 billion operating budget is drawn primarily from state tax revenues.
The state suffers from a shortage of qualified teachers and its per-pupil-spending of $12,855, though higher than the national average of $11,392, is among the lowest in the country when adjusted for cost of living, the HSTA argues. Lack of sufficient funding has denied public school kids a quality education, the union argues.
Michelle Kidani, chairwoman of the Senate education committee and a key backer of the bill, emphasized that she would push for any tax to be limited to residential investment properties valued at $1 million or more, not commercial properties or owner-occupied homes.
“The public should be assured that the Senate has no intention of taxing the homes you live in — that is, homes for which resident owners receive a homeowner’s exemption,” she said.
Opponents, however, believe this type of tax creates a potentially risky scenario that will siphon much-needed revenue away from counties, which currently exercise control over property tax revenue, and lead to a trickle-down effect that will expand other taxes and stick renters with higher costs.
The Senate passed the measure by a 23-1 vote. Senate Bill 2922 was introduced in the Senate, got sent to the House, where it was amended, and was returned to the Senate for final consideration.
The lone dissenter was Sen. Gil Riviere, of Waialua, who argued that although the proposed tax on residential investment property is meant to target the wealthy, it will lead to negative repercussions on “regular people” who rent.
City and county officials are also in opposition.
Honolulu Mayor Kirk Caldwell’s administration said such a tax will have an “adverse impact” on Honolulu’s real estate market since it might dissuade potential investors from investing in higher-priced properties, driving rents up higher overall.
Harry Kim, the mayor of Hawaii County, wrote in testimony that the county relies “overwhelmingly on real property taxes to fund our operations” and that a surcharge on residential investment properties would make it more difficult to balance his budget.
While the Hawaii Department of Education did not take a formal position on the bill, Superintendent Christina Kishimoto said she was “absolutely” in favor of Monday’s outcome.
“I think taking it to the voters is another way of making sure the public has the opportunity to talk about how they want to support public education,” she told Civil Beat after the vote. “This is an issue that needs to be addressed and I’m excited Hawaii is in a place where we’re going to consider this and we’re going take it to the voters.”
The union failed last year to get a tax measure before voters. That version proposed taxing both investment properties and levying a daily tax on hotel rooms.
A crucial reason for the bill passing this year was the much more deliberate approach, according to Rosenlee.
“People started to quiver over details (last year),” Rosenlee said. “We were concerned that if we did that again this year, we’d be stuck in the same place. We’re gonna take it step by step. Number one, give the people the right to vote, and that’s today.”
Shon, of UH Manoa, predicts the ballot measure will pass in November. It will be helped by the fact that it’s an election year, with three of the senators who backed the bill running for lieutenant governor and another running for a U.S. congressional seat.
“Education is a very positive issue this year and I don’t see anyone who’s up for major election who’s coming out against it,” Shon noted. “This is going to sail through and the next year will be the real difficult work of hammering out something that is significant but not overreaching.”
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