Fear of the Unknown

by Tom Yamachika, President, Tax Foundation Hawaii

Usually, it’s possible to tell which bills in the legislative hopper provide tax breaks as opposed to tax hikes.  The bill replaces a current tax rate with another one, and if the new tax rate is higher it’s a tax hike; if it’s lower, a tax break.

But what about the bills that are “none of the above”?

By that I mean that some bills replace a current tax rate with a blank.  Or several blanks.  Those are scary because you don’t know what our lawmakers are thinking of putting in there.

Let’s take an example.  House Bill 2686, which as of this writing has moved from the House to the Senate and is being considered by Senate committees, is called, “Relating to the Stabilization of Property Insurance.”  The bill recites that the market for property insurance covering condominiums (not the individual unit policies, but the policies covering the common areas of the whole building) is already shrinking, and the Lahaina fires didn’t help the cause.  Now it’s difficult or impossible to get property insurance for condominiums, and that’s why the bill is setting up a fund, similar to the Hawaii Hurricane Relief Fund that we established in the wake of Hurricane Iniki.  (That fund, by the way, still has a bunch of money in it, as we wrote about last year.)

The new fund will need to be capitalized somehow.  Thus, the bill sets up a different transient accommodations tax for transient vacation rentals, it establishes a surcharge on the conveyance tax, and it reactivates the mortgage recording fee that was last imposed in 2001 to capitalize the Hawaii Hurricane Relief Fund.

Section 3 of the bill imposes the different transient accommodations tax, and it shall be “___ “ per cent for the period beginning on July 1, 2024.

Sections 18 and 19 of the bill resurrect the special mortgage recording fee.  That part of the bill proposes to charge 0.2% of the principal amount of the debt for new mortgages, and “an adequate percentage recommended by the board and approved by the commissioner” for mortgage amendments or refinancing.  Well, at least there is one number there.

Section 4 of the bill imposes a property insurance surcharge on the conveyance tax.  The bill provides for seven brackets of conveyance tax surcharge for residential properties for which the purchaser is ineligible for a county homeowner’s exemption.  Five of the seven tax rates are blank.  The bill provides for seven brackets of conveyance tax surcharge for properties not covered by the seven brackets previously mentioned.  Seven of the seven tax rates are blank.

So, what is going on here?  How much of a hit is this bill asking taxpayers to take?  How much additional money (remember, the Hawaii Hurricane Relief Fund isn’t broke) is our state going to need to stabilize the property insurance market, whatever that means?  Are we going to find out any of these critical numbers before the bill hits conference committee (at which time no public input is allowed)?

This is a problem.  The Hawaii Constitution, according to our supreme court, requires that each bill be read three times in each house.  This requirement

“serves three important purposes: it (1) provides the opportunity for full debate on proposed legislation; (2) ensures that members of each legislative house are familiar with a bill's contents and have time to give sufficient consideration to its effects; and (3) provides the public with notice and an opportunity to comment on proposed legislation.”

But is it even possible for lawmakers to have a full debate on or otherwise seriously consider legislation, or for the public to meaningfully comment on it, when so many pieces of key information are blank?  We don’t think so.

Advancing this kind of bill makes us as taxpayers afraid.  Very afraid.