The City and County of Honolulu has asked a state court to prevent voters from deciding whether to let the Hawaii Legislature impose real property taxes to finance public education in November.

The counties of Hawaii, Kauai and Maui were also added Wednesday as plaintiffs in the suit.

The suit steps up a brewing turf battle over a proposed shift in taxing power that would fundamentally change the way the state government can raise money to pay for public schools.

The change is big enough that it requires amending the Hawaii Constitution, which voters are supposed to have a chance to do in November. The lawsuit could change that.

The complaint, filed by Honolulu’s chief lawyer Donna Leong, alleges that the language of the proposed ballot and the ballot’s title are so misleading that the measure shouldn’t be put before voters. The complaint also asserts that the measure fails to clearly define the “investment real property” that could be taxed to finance public education.

Top City Attorney Donna Leong speaks to reporter at Aliiolani Hale. Supreme Court about Civil Beat's case. 1 june 2017
Donna Leong, the chief attorney for the City and County of Honolulu, says language on a proposed ballot to change the Hawaii Constitution is vague and misleading. Cory Lum/Civil Beat/2017

Officials with the state Office of Elections, which is named in the complaint, were not immediately available for comment.

Although not a party in the legal dispute, the prime backer of the tax measure, the Hawaii State Teachers Association, issued a statement saying the suit had no merit.

“They should be ashamed of themselves,” said HSTA President Corey Rosenlee. “They are wasting taxpayers’ money by filing this frivolous lawsuit instead of finding a way to adequately fund Hawaii’s public schools.”

Currently the state government can raise money through a variety of taxes, including income taxes, a hotel room tax and a general excise tax that alone raises about $3 billion annually.

But the Hawaii Constitution gives the counties the exclusive right to tax real property, and that’s a big source of revenue for them. For example, in Honolulu, about 85 percent of the county’s revenue, or about $1.3 billion, comes from property taxes.

The ballot measure would change the Hawaii Constitution by allowing the Legislature to tax “investment real property” to pay for education.

The lawsuit, which was filed on Tuesday in Honolulu circuit court, amends a complaint filed earlier this month objecting only to the proposed title of the ballot. The new complaint says the whole ballot measure is flawed.

State law says that the language of a proposed Constitutional amendment put before voters must be “clear” and “neither misleading nor deceptive.” The complaint says the ballot doesn’t meet that standard.

The city’s lawsuit asserts the ballot measure is flawed in part because its title makes no mention of taxes. Instead, it says merely, “CON AMEND: Relating to Public Education and Investment Property.”

In addition, the suit alleges, the text of the ballot question itself is flawed because it also fails to make clear that the Legislature would have a new taxing power. Instead the ballot asks, “Shall the legislature be authorized to establish, as provided by law, a surcharge on investment real property to be used to support public education?”

“That ‘surcharge’ is just a tax disguised under a different name,” the suit says.

An earlier measure placed clearer limits on what the state could tax. That measure would have let the state tax only single family homes valued at more than $1 million, but the final measure  applies broadly to “investment real property.”

It would thus allow the Legislature to tax a range of real property used for investment purposes, from fancy shopping centers to small storefronts leased to mom-and-pop merchants and apartments rented to low-income residents.

Leong said the state’s power to tax property under the new law “knows no bounds.” Even homes could theoretically be taxed, she said, since homeowners often buy houses in part for investment purposes.

County officials previously have raised concerns that the measure would siphon needed money away from counties.

HSTA Teacher march to Hawaii State Capitol in the Rotunda. 13 feb 2017
The Hawaii State Teachers Association says the city’s suit has no merit. Cory Lum/Civil Beat

Honolulu Mayor Kirk Caldwell’s administration has said that the tax would 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.

A spokeswoman for Gov. David Ige, who is named as a defendant, said the governor had not had time to review the suit. A spokeswoman for Lt. Gov. Doug Chin, the former attorney general who is also named, did not immediately return a call for comment.

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