What It Takes to Spend $600M on Housing in Three Years

by Tom Yamachika, President, Tax Foundation Hawaii

As we have written about before, last year’s Legislature approved $600 million to our Department of Hawaiian Home Lands (DHHL) to reduce the monstrous waiting list of Hawaiians waiting for homestead lands.  The catch, however, is that DHHL needs to spend the money, or enter into a contract to spend it, by June 30, 2025.  Otherwise, the money goes back to the general fund.

On December 6, 2022, DHHL published a strategic plan to accomplish this lofty goal.  In that plan, it noted that Act 279, SLH 2022, the legislative act appropriating the money, also required the agency to submit to the legislature by December 10th any proposed legislation that the agency considered necessary or desirable.

The legislative proposals, although they may be thought of as a wish list, seem to take direct aim at several key items that impede housing development today.

First, DHHL proposes to exempt any development of homestead lots or housing from our general excise and use taxes.  The mechanics in the proposal are very similar to those used for the development of affordable housing; but, instead of having the GET exemption certified by HHFDC or a county housing agency, DHHL would be the certifying authority.  This dovetails with another proposal to require the counties to continue to issue affordable housing credits to DHHL on the same terms as it would issue credits to a private developer.  The counties already have to do this, but the law so requiring sunsets on July 1, 2024.

Next, DHHL proposes to exempt any of its developments from school impact fees.  As we have written about before, the Department of Education can charge fees for new development because it would need to construct more schools to service the children in the new development.  The justification for this proposal is more questionable, because it basically asks taxpayers not living in the area to pick up the tab for construction of these new schools.  However, it is current law, enacted in 2021, and DHHL here is just asking for repeal of its current sunset date of July 1, 2024.

Next, DHHL proposes to take over review of the effect of any proposed project on historic properties or burial sites for Hawaiian homestead lands.  Under current law, that review is carried out by the State Historic Preservation Division (SHPD) of the Department of Land and Natural Resources.  That office, however, has had problems with its systems and processes, including a significant backlog, leading to a designation by the National Park Service as a “high-risk” recipient of federal funds; the Park Service downgraded SHPD to a medium-risk recipient at the end of 2019.  DHHL’s proposal seeks to take over these reviews to “streamline the approval process,” indicating a distrust that SHPD would be able to complete its reviews in a timely manner.

The next bill proposes that DHHL be given authority to issue temporary administrative rules, having the force and effect of law for up to 18 months, without complying with current requirements to give public notice, have a public hearing, and have the Governor sign off on the rules, as long as DHHL consults with its beneficiaries (i.e., lessees, applicants, and Native Hawaiians).  This sounds like a naked power grab, but, to be fair, some agencies such as the Department of Taxation also have similar temporary rulemaking authority, although the proposal here appears to be broader in scope (even temporary tax rules under HRS section 231-10.7 require the Governor to sign off, for example).

Interestingly, DHHL has not asked for a blanket exemption from county zoning and permitting laws, as some Hawaiian groups are advocating.  Perhaps DHHL is planning an end run around those by using the unilateral temporary rulemaking authority described in the previous paragraph.

It certainly is worth looking at the institutions and procedures DHHL is targeting in its proposals.  They are some of the major obstacles to land development today and have created inordinate delays in the process – just like the waiting list for Hawaiian homestead lands.  Hopefully, some of these processes can be streamlined or improved, or policy justifications for the delays can be articulated and brought to public view.