The proposed new tax on investment real property has been described by supporters as applicable only to out-of-state millionaires and developers, as posing no threat to the counties, and as targeted to properly fund our public schools. Unfortunately, none of this is guaranteed in the current proposal.

Early versions of the bill would have limited the tax to second homes worth at least $1 million dollars, but that and other limitations were eliminated from the final language. As written, this proposed constitutional amendment would empower the Legislature to define investment real property to include every apartment building, every farm, every small business, possibly even the ohana units at our personal residences. There would be no limit on the tax rate, and no thresholds to protect the owners of properties worth less than a million dollars.

It also concerns me that, while the proposed new tax would be earmarked for education, the Legislature would remain free to reduce appropriations from the general fund by a like amount. It could then use the freed-up general funds in any way it wanted. There is no guarantee that the new tax money would be in addition to, and not instead of, current levels of funding.

Legislature House Session. Rhoads Luke
The Hawaii House of Representatives in 2016. The author worries what lawmakers would do if voters approve a state surcharge on real investment properties. Cory Lum/Civil Beat

Authorizing the state to impose property taxes also would set in motion a perverse dynamic in which local county officials would end up being accountable for decisions made by Oahu-centric legislators. County leaders already spend much of every legislative session lobbying at the Capitol for the return of a higher percentage of the transient accommodations tax to the county coffers, pleading with legislators to honor the original intent of the TAT as a visitor impact fee to help fund county infrastructure projects.

Just last year, the Legislature diverted a billion dollars of hotel room taxes to cover cost overruns on Oahu’s rail project. That’s just one example of bait-and-switch tax ploys that have diverted huge amounts of funding in recent years. The barrel tax started at 5 cents per barrel of imported petroleum and was earmarked for future environmental cleanups, but the rate increased to $1.05 per barrel, most of which now goes directly to the state’s general fund, bypassing the original intent. Similarly, the conveyance tax started at 5 cents for each $1,000 of value, but it quickly grew to $1.25 per $1,000 of value and now it, too, helps to support the general fund.

Real property taxes are the counties’ primary and largest source of revenue to fund county programs.

I strongly believe in higher teacher salaries, and I spent most of my parenting years volunteering in efforts to improve school conditions, assist in the classrooms, support PTA initiatives, and, after winning a seat on the state Board of Education, I advocated for higher, merit-based teacher salaries. The Legislature needs to negotiate in good faith with the collective bargaining units for higher teacher pay, accept the responsibility and appropriately fund education without causing financial challenges for the counties.

Real property taxes are the counties’ primary and largest source of revenue to fund county programs. The counties must accommodate rising expenses such as salary increases for all bargaining units, which are firm obligations. Property tax revenue is our only reasonable option to balance our budget without cutting services to our residents.

Underfunded Schools?

There also is the question of whether public education is as severely underfunded as proponents of the new tax proposal contend. Hawaii currently spends more than $2 billion each year on public education, more if you count fringe benefits which are run through Budget and Finance, and other federal and special funds. The latest audited financials from the DOE for fiscal year 2017 showed total revenues that year were $2.915 billion and total operating expenses were $2.817 billion. Both of those numbers were higher in fiscal 2018 and will be higher still during the current fiscal 2019.

The truth is that we need an overhaul in the education system to get more control of the state-appropriated funding to the school level, for teachers pay, operations, school supplies, repair and maintenance, etc. Significant improvement in education will come when the existing top-down, bureaucratic DOE is transformed into a decentralized, schools-centered system in which more money gets to the schools and the members of each school community can adjust it to the needs of their students.

For these reasons, I suggest that you vote “no” on the proposed new tax.

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About the Author

  • Kelly Takaya King
    Kelly Takaya King is a longtime resident of South Maui and currently serves as the district's Maui County Council member. She also previously held the elected Maui District seat on the State Board of Education from 1994-98 and has served on the School Community-Based Management Council for Maui High School where her two children graduated with honors.