Blanks in Maui tax resolution a bad sign to begin with

from Grassroot Institute of Hawaii, April 23, 2024

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Maui County Council on April 23, 2024.
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April 23, 2024, 6 p.m.
Council Chamber, Kalana O Maui Building

To: Maui County Council
      Alice Lee, Chair
      Yuki Lei Sugimura, Vice-Chair

From: Joe Kent, Executive Vice President
           Grassroot Institute of Hawaii

RE: COMMENTS ON RESOLUTION 24-78 — ADOPTING THE REAL PROPERTY TAX RATES FOR THE COUNTY OF MAUI, EFFECTIVE JULY 1, 2024

Aloha Chair Lee, Vice-Chair Sugimura and other members of the Council,

The Grassroot Institute of Hawaii would like to offer its comments on Resolution 24-78, which would set property tax rates for the coming year.

Above all, I think it needs to be said that it is difficult to properly evaluate a proposed tax rate given as a range rather than as a specific number. This is especially true in that the range of rates offered represent everything from a moderate tax cut to a massive tax hike on multiple property categories.

However, given that the county’s proposed budget for fiscal year 2025 includes specific and substantial tax hikes, we will proceed from the assumption that the Council is contemplating broad property tax hikes, effective July 1, 2024.

We are deeply concerned about the effect of significant property tax hikes while Maui residents are already struggling from the effects of continued inflation and economic uncertainty.

The proposed budget includes a wide series of real property tax hikes, especially on owner-occupied homes.

Property tax rates for owner-occupied homes valued at less than $1 million would go up by 5.3%; for homes valued between $1 million and $3 million, by an astounding 25%; and for homes valued at more than $3 million, by 18.2%.

As noted, the largest increase for homeowners — 25% — is aimed at properties valued at between $1 million and $3 million. Given that the median sales price for a single-family home on Maui is $1.3 million,[1] this means that the largest proposed tax increase is aimed directly at the average Maui family.

The proposed rate increases on owner-occupied homes would result in a $3.1 million tax increase, and while this might seem like a small increase relative to the budget overall, it could make a big difference to individual homeowners faced with substantially higher tax bills.

Meanwhile, tax rates on commercial residential properties would be hiked by 13.6%; transient vacation rentals would see a 2.6% increase across the board; and non-owner occupied homes would see property tax rates go up between 2.6% and 12%. These higher rates would result in tax increases of $172,640, $24.4 million and $7.5 million for each class, respectively.

Even if the tax hikes imposed were to end up being lower than those proposed in the fiscal 2025 operating budget, that would not eliminate the burden that a tax hike would represent for Maui residents.

It is important to remember that tax rates are only part of the picture when it comes to property taxes. Property values also help determine the total tax bill for local homeowners. This year alone, Maui single-family home prices have gone up by about 10%, and condominiums by more than 60%.[2] Thus, Maui property owners are being squeezed both by rising home prices and rising tax rates.

Even without the proposed tax increases, Maui housing is on track to become even more unaffordable, hastening the exodus of Maui residents to the mainland or elsewhere.

Some might argue that the property tax hikes are needed to offset increased costs this year, especially costs related to the Lahaina response and rebuilding efforts.

However, much of the $140 million earmarked for an emergency management program is being funded by grants.[3] The required county match for those funds is only about $26.5 million.[4]

Meanwhile, the estimated increase in property tax revenues from fiscal year 2024 is approximately $51 million.[5] Add to that an estimated $45 million in revenue from the county’s general excise tax surcharge and a $260 million increase in grant funds,[6] and it would appear there is no need to raise property taxes at all.

To make matters worse, we have significant questions about the effectiveness of the county agencies that have been tasked with construction of temporary housing and facilities.

Over the course of the public comment period on this bill, multiple individuals have testified about the delays and obstructions they have experienced at the hands of these agencies while trying to build temporary shelters. There is nothing to indicate that increasing funding for the Office of Recovery or an emergency management program will fix this problem— it could even cause more bureaucracy, delay and obstruction in the rebuilding process.

In short, there is no compelling reason to raise property taxes to fund an effort that has, so far, consistently failed to meet the needs of the community.

Maui is facing a challenging year as it works to rebuild and recover. Its residents need a break from higher taxes. Adding a massive property tax hike to last year’s GET surcharge would burden residents and the economy far more than any purported benefit to the county.

Rather than adding to the financial challenges of Maui’s residents, the Council should be seeking ways to reduce the budget and provide tax breaks to local families and businesses.

We urge you not to raise property tax rates but instead to consider ways to ease the fiscal burden on Maui residents.

Mahalo,

Joe Kent
Executive Vice President
Grassroot Institute of Hawaii
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[1] “Monthly Market Overview,” Hawaii Realtors, March 2024.
[2] Ibid.
[3] Richard T. Bissen, Jr., “County of Maui Budget Proposal, Fiscal Year 2025,” County of Maui, Office of the Mayor, March 25, 2024, page 187.
[4] Ibid.
[5] Ibid, p.7.
[6] Ibid.