Ocean-Friendly Restaurants – Do They Warrant a Property Tax Exemption?

by Tom Yamachika, President Tax Foundation Hawaii

Recently, the Honolulu City Council approved on first reading Bill 80 (2017), which would award a real property tax exemption to “ocean-friendly restaurants.”

The term “ocean-friendly restaurant” was coined by a nonprofit organization called the Surfrider Foundation. That organization, founded in 1984 with its home office in San Clemente, CA, has as its mission “the protection and enjoyment of oceans, waves and beaches through a powerful activist network.” According to its website, it has 80 chapters nationally, five of which are in Hawaii (Kauai, Kona Kai Ea, Hilo, Maui, and Oahu chapters).

The Surfrider Foundation’s Ocean Friendly Restaurant Program recognizes restaurants meeting certain defined criteria by giving them a nice blue placard to display, and by featuring those restaurants on their website. To be certified, a restaurant must meet four mandatory criteria, which are: (1) No expanded polystyrene use (aka Styrofoam). (2) Proper recycling practices are followed. (3) Only reusable tableware is used for onsite dining, and disposable utensils for takeout food are provided only upon request. (4) No plastic bags offered for takeout or to-go orders. In addition, a restaurant needs to meet three out of six of the following: (5) Plastic straws are provided only upon request. (6) No beverages sold in plastic bottles. (7) Discount is offered for customers with reusable cup, mug, bag, etc. (8) Vegetarian/vegan food options are offered on a regular basis; and / or all seafood must be a ‘Best Choice’ or ‘Good Alternative’ as defined by Seafood Watch or certified as sustainable. (Seafood Watch is a program of the Monterey Bay Aquarium. They classify seafood species based on whether the seafood is caught or farmed responsibly.) (9) Water conservation efforts, such as low-flow faucets and toilets, are implemented. (10) Energy efficiency efforts such as LED lighting and Energy Star appliances, are in place.

Restaurants meeting all ten of these criteria are recognized as “Platinum Level Ocean-Friendly Restaurants.” Oahu and the Neighbor Islands each have several.

So now we go back to Bill 80. Bill 80 would exempt any Ocean-Friendly Restaurants from Honolulu real property tax, if they are certified as such by the Surfrider Foundation and are recertified at least once every two years.

Let’s ask the obvious question. Why do ocean-friendly restaurants merit a tax exemption while dog-friendly or bike-friendly restaurants don’t? Should fast food drive-thru restaurants get an exemption for being car-friendly?

When the City’s 2014 Real Property Tax Advisory Commission looked at the issue of exemptions generally, it observed that one of the primary justifications for granting a tax exemption to an organization is that the organization performs essential work or services that the government would have to perform itself if the organization were not present. The commission stated that if a for-profit organization is allowed an exemption, the subsidy provided by the exemption can increase the profits that inure to the owners of the organization. Moreover, it unbalances the playing field of competition and forces the rest of us who are not favored with such an exemption to pay for the county services consumed by these businesses. The City’s 2014 Real Property Tax Advisory Commission, however, was just offering these recommendations. Few of them were adopted by the City Council.

Another issue to consider is that a real property tax exemption grants the affected property a fixed tax amount, currently $300, regardless of property size or value. So, the exemption gives more benefit to bigger, more valuable properties. Is that the result we want to advance the social policy behind this exemption?

The 2017 Real Property Tax Advisory Commission has been convened and is now working on its own report. We’ll see if the powers that be think that ocean-friendly restaurants merit a real property tax break.