Residential housing and agricultural projects for Native Hawaiians on Kauaʻi and the Big Island got a big funding boost this legislative session, but the agency in charge of developing Hawaiian homestead lands is again walking away without a permanent source of revenue.

Lawmakers had started the session with plans to fund the Department of Hawaiian Home Lands by increasing a tax on the sale of luxury homes. That proposal died after lawmakers failed to reach an agreement in the final days of the legislative session.

The department has historically struggled with underfunding, requiring it to seek funds from the Legislature each year. It did receive more than $600 million four years ago, but all of those funds have already been set aside for projects.

While some projects that received funding this year will be able to move forward, the department will need to ask the Legislature for money next year or look to other revenue streams such as geothermal energy to finish more than two dozen projects already in development that represent several thousand housing units.

“For me, as a developer, I prefer — and that’s why we were pushing this particular bill — to have a steady stream that we could count on,” DDHL Director Kali Watson said. 

The state Department of Hawaiian Home Lands is in charge of implementing a federal law that entitles Hawaiians who can prove a 50% blood quantum to a homestead lot. Over the years, it has struggled to keep up with demand as its housing waitlist grew to around 30,000 applicants. Watson said it would cost the state $6 billion to complete enough homestead developments to house everyone on the list.

Despite the lack of a permanent revenue source, Watson believes the department made out fairly well this year. It was one of a handful of state departments to not only avoid budget cuts but see a multimillion-dollar budget increase, according to an analysis from the Hawai‘i Appleseed Center for Law & Economic Justice.

The Legislature allocated more than $34 million in infrastructure funding to the department. That includes $18.3 million for design and construction of 40 subsistence agricultural lots in Honomū on the Big Island as well as the last $3 million to complete construction of 82 residential lots in Hanapēpē on Kaua‘i. 

The Legislature also allocated $2.5 million to develop 15 currently vacant lots in Nānākuli and $6 million in funding from the new tax on tourists known as the green fee. That includes $2 million for reducing wildfire risk around homestead communities, and $4 million to convert cesspools in the Keaukaha neighborhood just outside of Hilo.

State courts have ruled that the Legislature is responsible for sufficiently funding the department. Last year, DHHL determined that it would need $286 million this year to keep on track with development. It received a fraction of that, just $40.3 million.

Bill Stalled Over Allocations

After 13 years in the Navy, including time as a SEAL, Antone Aku wanted to come home. He started a parking lot striping business in 2023. Shortly after, he applied for the Hawaiian homelands waitlist, joining his mother, who has been on the list since 1985.

“Housing in Hawai‘i is very unaffordable,” Aku said. “It’s one way that I can kind of secure housing freedom.”

Earlier this year, he got an email from DHHL urging beneficiaries to support a bill to raise revenue to support projects for people on the waitlist. He was one of more than 200 individuals and organizations who wrote to lawmakers supporting Senate Bill 3028, a bill to increase taxes on the sale of luxury homes.

It was the latest attempt by lawmakers to give the department up to $60 million annually through increases in the state conveyance tax — the fee buyers pay when they purchase a home. The leading proposal would have raised taxes on homes sales of more than $2 million while lowering the tax for sales below that amount.

Opponents of the conveyance tax increase, including the Hawai‘i Association of Realtors, said in written testimony that the $2 million threshold in the bill could make homes more expensive for local buyers.

In the waning days of the session, lawmakers considered a new proposal that would have raised the taxes on homes sales of $4 million or more and non-owner-occupied homes valued at $2.1 million. That would have alleviated the concerns of realtors and saved lawmakers from having to explain a tax increase to some of their constituents in an election year.

All properties under $2 million would have seen a decrease in the conveyance, and the taxes on the sale of homes valued at $600,000 or less would have been eliminated, according to Rep. Luke Evslin, who led negotiations on the legislation for the House. The result, Evslin said, would have been a reduction in the tax on home sales for 94% of local buyers.

Lawmakers worked up to a 6 p.m. deadline on May 1 but couldn’t reach an agreement. A key sticking point between the House and Senate was the allocation of those additional tax revenues.

Earlier versions of the bill in the House proposed specific allocations, including up to $60 million a year for DHHL, increased funding for a land conservation fund and additional support for affordable housing programs. Versions of the measure approved by the Senate lacked those specific allocations.

Watson said that state senators, rather than providing the department with lump sum payments, wanted to have a list of projects that the Legislature could review and approve for funding with the conveyance tax revenues. It’s an approach he’d consider taking next year.

Evslin is hopeful the tax measure will pass next session.

“It almost feels inevitable, how much money we are leaving on the table from high-value homes and what we can raise from the luxury market,” Evslin said.

Without the conveyance tax revenue, Watson said the department needs to be creative with funding. The department could consider selling affordable housing credits to developers, which would allow those developers to avoid building affordable units in lieu of payment to DHHL. The agency also will continue pursuing other state funds set up for affordable housing projects.

Geothermal development, he believes, could also be the answer to the agency’s constant budget woes. He estimates that a 30-megawatt plant built on Hawaiian homelands— as has been proposed by other groups in the past in parts of the Big Island — could net the department $26 million annually from energy sales.

Lawmakers gave the State Energy Office $6 million this year to study the potential for geothermal energy across the islands. The Hawaiian homelands agency owns land that could house a geothermal plant, but first it needs to determine if its lands have the right mix of heat and water to power a new plant. The agency doesn’t have any specific sites in mind yet, Watson said.

And before testing happens, the department plans to reach out to its beneficiaries. DHHL is planning a series of statewide briefings on geothermal throughout May and June. Those are set to begin Monday on Molokaʻi.