Editor’s note: Veteran journalist Tom Hasslinger is joining Civil Beat as a regular freelance contributor from his home on the west side of the Big Island. Tom lives in Kailua-Kona and was editor for West Hawaii Today from 2015 until January when he left to pursue a career in finance. Prior to that, he worked as deputy editor for the Garden Island newspaper on Kauai. A graduate of San Diego State University, he began his journalism career in Douglas, Wyoming, before working as a city hall and general assignment reporter in Coeur d’Alene, Idaho. He currently works for the financial advising firm, Tallus Capital Advisors, in Kailua-Kona.

KAILUA-KONA, Hawaii – A proposed property tax hike on wealthy homes to help balance Hawaii County’s budget during the COVID-19 pandemic has left some people feeling unfairly targeted.

They say it shouldn’t be up to owners of second homes or residential investment properties to fill the financial shortfall created by a quarantine that has hampered nearly every industry across the state.

But Hawaii County officials are pitching just that. They contend they have no other options during an economically dire time.

“Any passive observer can see the position we’ve been put in,” Hawaii County Council Chairman Aaron Chung, who proposed the measure along with Mayor Harry Kim’s administration, told Civil Beat. “We have to find resources from somewhere.”

A chunk of that “somewhere” is slated to come from luxury class homes.

An oceanfront home stands for sale along Alii Drive, Kailua-Kona’s popular coastal roadway that hosts many vacation and secondary homes. Hawaii County is considering a property tax rate increase for secondary homes valued at $2 million or more to cover a shortfall in its proposed budget. Tom Hasslinger/Civil Beat

On Wednesday, the council voted to move forward in creating the different taxing classifications that will allow for the tax increase, although it has until June 19 to actually adopt the rates. The budget goes into effect July 1.

Included in Kim’s $585.1 million fiscal plan is an additional tax on residential property valued at $2 million or more to help raise roughly $14 million. Under the proposal, those properties – typically second or investment homes — would see a bump in their rate to $14.60 per thousand in value on all value over the $2 million mark. That’s $3.50 more than the current tax rate of $11.10 per thousand. The homeowner rate is $6.15.

It’s also the only proposed property tax increase in the entire plan, which is partly why opponents say it’s unfair.

“Almost everyone, even wealthy people, have been negatively impacted by COVID-19 in many ways,” said Tomoko Matsumoto, principal broker and owner of Hapuna Realty. “You could not choose a worse time for anyone to worry about a tax hike.”

Hapuna Realty specializes in luxury homes and condos on Hawaii’s Kona-Kohala Coast, the pristine section of western coastline that hosts sprawling estates and multimillion-dollar residences.

The secondary home market drives the economy in the area, not only for real estate agents but for everyone in the restaurant and hospitality industry that relies on it, Matsumoto said.

She’s concerned that asking those homeowners to pitch in more than they already do could ultimately drive them away.

“You could not choose a worse time for anyone to worry about a tax hike.” — Tomoko Matsumoto of Hapuna Realty

“If anything, we should be thinking about how to promote our island and this is the opposite and will (have a) long-term negative impact,” Matsumoto said. “We do not want second homeowners to leave, but we want more to come. And this does not help.”

Her worry is one shared by others.

Cindy Wild, principal broker and owner of Premiere Island Properties, agrees that the request could prove a tipping point for investors to begin investing elsewhere.

Secondary homeowners are still homeowners, she pointed out, who already pay property taxes yet use a fraction of county services compared to primary homeowners. In the case of tourists, she added, they don’t pay property taxes at all yet use plenty of the island’s resources.

“They’re going to have to raise everyone’s taxes at some point, I don’t know why they have to single people out,” she said.

Property taxes are a touchy point for West Hawaii residents to begin with. Homes on the drier, sunnier side of the island pay roughly 70% of the island’s overall property taxes.

Yet, despite paying the lion’s share, some residents feel the east side of the island is still first in line when it comes to receiving services because that’s where the county government is seated, in Hilo. It’s a talking point every year when the local newspapers break down the budget figures.

So the additional tax request would primarily come from west side residents, who already pay a bulk of it, opponents said.

“We’re going to drive away people who support our economy,” Wild said. “And if we do, we’re going to be in trouble.”

Out Of Options

But county leaders say they don’t have any other options.

Gov. David Ige froze payments to all counties from the state’s transient accommodations tax this year due to the economic shutdown the pandemic precipitated.

For Hawaii County, that amounted to $19 million, about half the $40 million shortfall it faced while trying to balance the budget.

Filling the gap proved insurmountable without increasing revenues from somewhere, Chung said.

“We’ve been put in an odd position because of this COVID-19,” he said.

While Chung proposed the property tax increase, he said he’s “not married” to the $3.50 figure the mayor’s administration penciled in.

Kailua Kona, Hawaii. 2 july 2015. photograph Cory Lum/Civil Beat
The Kailua-Kona Coast of the Big Island is home to many luxury homes and the west side of the island accounts for 70% of the county’s tax revenue. Cory Lum/Civil Beat

In fact, Chung said he had been working on the increase proposal for over a year as a way to fund affordable housing and homeless solutions on the island. He originally eyed a $1 to $2 increase, and was surprised to learn the mayor’s administration was working on the same proposal to fill the budget hole.

In the end, the two proposals dovetailed together, he said, with the administration recommending the extra $3.50. While plugging budget gaps during an emergency wasn’t his original intention, the unique situation has handcuffed the county’s options.

“These are second homes we’re talking about — they’re not demanding much of our resources yet they’re paying a lot in taxes, I get it. They’re contributing to our economy,” the Hilo councilman said. “But where else are we going to look?”

Hawaii County Councilwoman Rebecca Villegas said the additional property tax request isn’t unfair.

On the contrary, it’s been a long time coming. Property taxes are disproportionally low across the state of Hawaii – which is part of the attraction for investors in the first place. So having $2 million homes pitch in a little more during a crisis helps make up for lost time, the Kona councilor said.

“I think this is a step in the right direction for the county to a more equitable – I don’t want to say appropriate – a more equitable, a more realistic reflection of what a home like that should pay,” she said.

In fact, she hopes the increase becomes permanent. While secondary homeowners might not stress resources the way a primary resident does, their homes can change the values and character of a neighborhood. Upscale subdivisions have hindered access to public spaces, so their impacts aren’t minimal.

“This isn’t astronomical or out of this world,” she said. “It’s something we’ve been talking about since high school.”

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