Hoarding School Impact Fees

by Tom Yamachika, President, Tax Foundation Hawaii

Here in Hawaii, our Department of Education is unique in several respects.  In most states, K-12 education is handled by localities such as towns and counties and is largely funded by property tax.  Our DOE, however, is descended from royalty – it was established by King Kamehameha III in 1840 – and it now runs education statewide.  No property tax is used to fund education; our state constitution now says that the property tax is the exclusive kuleana of the counties.

The DOE also is unique in that it is the only state agency with the power to impose a tax.  (Even the Department of Taxation only administers and enforces taxes imposed by laws enacted by the legislature.)  The tax that DOE imposes is called the school impact fee.  We have written about it before.  Basically, developers of housing projects are required to provide land for school facilities depending on the number of kids that the projects are expected to house and the amount of capacity (or lack thereof) in the schools that now serve those projects.  Builders in the same districts that are too small to be expected to provide land are required to cough up some money instead.  In addition, all home builders or buyers must pay a construction cost fee.

Currently, there are four school impact fee districts:  two on Oahu and two on Maui.  The most recent one is known as the Kalihi to Ala Moana school impact district, and it basically follows the path of the Skyline rail project once it hits urban Honolulu.

Five years ago, the State Auditor, in Report No. 19-13, found that “the school impact fee law has been of questionable ‘impact.’” It allows DOE to collect money, but not that much.  As of the end of 2018, DOE had collected $5.3 million – at a time when it cost $80 million, approximately, to build one elementary school.  Also, the Auditor found that while the DOE was able to spend a few million dollars out of “fair share contributions,” which is what developers and DOE negotiated before the school impact fee law was enacted in 2007, zero – not one thin dime – was spent out of the impact fees collected.  Only one (1) person at DOE was assigned to implement the impact fee – apparently an indication of how important it is within DOE.

We examined the school impact fee fund balances between fiscal 2021 and 2024 and found that the cumulative balances swelled from $13 million to $18 million.

Maybe these monies are not enough to build a whole school, but there is surely enough here to take care of some new or replacement facilities.  But it looks like none of it is being used.  Each of the fund balances is steadily increasing.  If some of it was being spent, we would expect some dips in the balances over time – there don’t seem to be any.

Someone needs to get on the ball here.  We don’t think developers and other taxpayers gave money to DOE just for that money to sit around doing nothing.  Legislators don’t appropriate money to DOE just to see the appropriations lapse in a few years.  Don’t hoard that money, use it for the public good!  King Kamehameha III would not be happy with the current state of affairs.