Adjusting AMI for Kauai’s affordable rental program could backfire

by Grassroot Institute of Hawaii, November 8, 2023

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Kaua‘i County Council on Nov. 8, 2023.
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Nov. 8, 2023, 8:30 a.m.
To: Kauai County Council Finance and Economic Development Committee
Chair Ross Kagawa
Vice-Chair KipuKai Kuala‘i

From: Grassroot Institute of Hawaii
Jonathan Helton, Policy Researcher

Comments on Bill 2902

Aloha Chair Kagawa, Vice-Chair Kuali‘i and other Council members.

Thank you for considering Bill 2902, which would expand eligibility for tax relief for disabled veterans, change the property value and income limits for the “home preservation” program, create a $150,000 exemption for certain long-term rental properties and impose a 20% assessment cap on properties in the non-owner-occupied residential class.

In general, the Grassroot Institute of Hawaii supports this bill, which would represent a sweeping reform of Kauai’s property tax system.

As the Grassroot Institute pointed out in its policy brief “How Hawaii’s county lawmakers can provide tax relief to offset higher property assessments,” renters and landlords should also receive property tax relief.[1]

The report stated, “Many lower- and middle-income individuals and families are not directly responsible for paying property taxes because they do not own homes. However, they often foot the bill for property tax increases in the form of higher rent.”[2]

Bill 2902 would provide tax relief by creating a “long-term gap housing rental” program. This would deduct $150,000 from the assessed value of any long-term rental property that is rented out at a monthly rate deemed affordable for individuals and families making the area median income or less. This program would operate similar to a homeowner exemption, in that it would reduce the taxable value of the property.

Maui County currently operates a tax system that is similar to this proposal. It offers all long-term rentals — no matter what their monthly rate — a $200,000 exemption, and taxes them in a separate tax class.

Bill 2902 also would extend tax benefits to veterans who are less than fully disabled, and expand the eligibility for the county’s “home preservation” program, which limits the tax bills of long-time homeowners to no more than 3% of their incomes.

Likewise, the 20% assessment cap for the non-owner-occupied tax class will protect property owners from dramatic increases in their assessed values — and therefore, their tax bills.

However, we do have some concern about the bill’s proposal to change the AMI level.

Currently, the County offers a tax benefit to homeowners who rent their units out on a long-term basis to tenants making no more than 90% of the county’s area median income.[3] Since May 2023, this has meant that any landlord taking advantage of the affordable rental program can rent out a two-bedroom unit for no more than $2,235.50 per month to receive the tax benefit.[4]

Bill 2902 would lower the qualifying AMI to 80%. For example, the two-bedroom house rented at 90% AMI would earn the landlord $2,235.50 a month, while at 80% AMI it would be $2,171 a month, according to the 2023 Kauai County Housing Agency’s affordability limits.[5] That is a difference of $64.50 a month or $774 per year.

This could adversely affect tenants if their landlords decide the loss of rental income from the lower AMI limit outweighs tax benefits they receive and decide to leave the affordable rental program. However, this would depend on the value of the rental properties, the tax rate tiers they fall into and other factors.

This concern aside, Bill 2902 deserves your support.

Thank you for the opportunity to testify.

Jonathan Helton
Policy Researcher
Grassroot Institute of Hawaii
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[1] Jonathan Helton, “How Hawaii’s county lawmakers can provide tax relief to offset higher property assessments,” Grassroot Institute of Hawaii, April 2023, p. 12.
[2] Ibid, p. 12.
[3] Kaua‘i County Code, Sec. 5A-11A.1 Beneficial Tax Rate for Property Used for Long-Term Affordable Rental., accessed Nov. 3, 2023.
[4] “County of Kauai Rental Limits by Bedroom Count,” Kauai County Housing Agency, accessed Aug. 7, 2023.
[5] Ibid.