Consultants say Honolulu empty‑homes tax could raise tens of millions; key design choices still unresolved

Honolulu — Consultants for the city told the Council’s Budget Committee that a proposed empty‑homes tax in Bill 46 could generate net revenue for the City and County of Honolulu if the program is implemented as they modeled, but numerous design choices and legal questions remain unresolved.

Mohammed Bhamani, partner at Ernst & Young and the engagement lead, said the firm’s first‑phase feasibility analysis found the tax “appears to be financially feasible in Honolulu across a range of tax‑rate scenarios under Bill 46 as currently written.” He presented estimates for a range of tax rates, compliance scenarios and startup and operating costs, and answered questions from council members and members of the public.

Bhamani and his colleagues walked the committee through how they estimated the tax base (properties with low utility usage), the likely share of empty properties that would be exempt under Bill 46’s 16 exemption categories and the program costs the city would face. The firm modeled a baseline that starts at a 1% tax rate for the first two years and increases to 3% in year three, and a “medium” cost scenario that produced positive net revenue in their 10‑year model.

The study estimated, under the medium scenario, average gross revenue and average net revenue across multi‑year scenarios (EY presented figures using conservative, medium and optimistic vacancy and compliance assumptions). It also estimated one‑time implementation costs in the low‑to‑mid millions and recurring annual operating costs in the multi‑millions. EY’s presentation noted the draft ordinance in Bill 46 would require at least 20% of any tax revenue to be dedicated to an affordable‑housing development account.

Council members pressed EY and city budget staff on several issues: how the tax base is identified, which exemptions are likely to be most commonly claimed, whether the city’s current tax and property‑record systems can support implementation, and the risk of legal challenge. EY said it used water and, where available, electricity usage as a proxy to estimate empty homes, and validated patterns geographically. The firm cautioned that condos and multi‑unit buildings complicate utility‑based identification because some buildings’ water usage is not metered per unit.

Several members of the public urged action; some urged caution. Ross Sokone, a resident testifying in person, urged the council to act, saying “housing affordability has gotten worse like everything else.” Angela Melody Young, testifying for CARES, praised the analysis but warned of privacy concerns: “tapping into people’s water consumption could be a little invasive,” she told the committee, and urged more work with the real‑estate and property‑management industries before the city adopts a program.

Other public speakers described personal situations and asked the council to refine exemptions and procedures so people who have legitimate reasons for keeping a property empty (medical relocation, probate, renovations) are not inadvertently taxed. EY and city staff repeatedly emphasized that exemptions represent a major determinant of revenue and program complexity — EY said three exemption categories (home exemptions A and C and the principal‑resident exemption) account for the majority of expected exemptions in their model.

Budget Director Andrew Quano and EY noted next steps would include a round of detailed program design (task two of the engagement) to define organizational structure, staffing, technology and a compliance and audit program. EY also included budgeted legal fees in their implementation and operating cost estimates because of ongoing litigation over empty‑homes taxes in other jurisdictions; the firm said the San Francisco litigation may take time to produce definitive precedents.

The committee did not vote on Bill 46 during this meeting. Members asked EY to return with more detailed design options, directed staff to analyze whether existing city systems can support the program, and urged extensive public information and education to reduce confusion about declarations, exemptions and compliance requirements. Any future ordinance, if adopted, would require additional implementation planning and legal review before collection.

Ending — Council members said they want more evidence on exemptions, the technical feasibility of implementation using city systems, and an updated legal analysis before moving forward. EY and city staff agreed to return with more detailed recommendations on program design, technology needs and estimated costs; members also emphasized a need for clear public outreach to avoid confusion in a first declaration year.