Council delays private-road tax credit bill after departments raise legal, auditing and IT concerns

KAILUA-KONA, Hawaii — The Hawaii County Council Committee on Finance postponed consideration of Bill 38 on June 17 after council members and county staff flagged legal, information-technology and auditing concerns about implementing a proposed private-road real property tax credit.

Bill 38 would amend the county’s real property tax credit rules to allow a credit for homeowners who spend at least $100 a year maintaining, repairing or improving private subdivision roads that are not gated and are managed by a road maintenance organization (RMA). The bill’s author offered an amendment that would lower the maximum credit from $500 to $400 and permit RMAs or homeowner associations to submit documentation in a manner prescribed by the director of the Real Property Tax Division rather than require each owner to apply individually.

Supporters said the credit would help keep privately served subdivisions affordable and maintain roads that carry deliveries, school buses and emergency vehicles. Tim Rowan, president of the Black Sands Beach Property Owners Association and Malama O Puna, testified in support: “People are moving to our Puna subdivisions because they're the last affordable housing in Hawaii.”

But finance and real property staff described several open implementation issues that council members said require more time. Assistant Real Property Tax Administrator Keita Joe said an early estimate based on 14 subdivisions and about 9,200 parcels showed an earlier 40% application assumption would yield about $840,000 in foregone revenue; because the amendment shifts submission responsibility to RMAs, staff estimated closer to 100% utilization and a preliminary annual revenue reduction of about $2,100,000.

Director of Finance Diane Nakagawa and Real Property staff said the county’s tax system is not currently configured to handle variable credits on a large scale without vendor changes and that the county would need a way to audit RMA records to confirm payments. Deputy Corporation Counsel Kira Wong told the committee she needed time to research legal issues tied to allowing an RMA to apply on behalf of property owners, and she raised a procedural question: “If the association doesn't file by the September 30 deadline, are we then effectively denying a property owner the ability to receive the tax credit if they had applied themselves by the deadline?”

Council members expressed a mix of support and concern. Some said the proposed credit addresses a public-purpose problem where private money maintains roads used publicly; others asked for clearer audit controls to ensure fees are spent on road maintenance, and for countywide analysis of eligible subdivisions and likely uptake.

Councilmember Connolly Kleinfelder, the bill’s author, said the amendment was intended to reduce administrative burden on Real Property staff and to encourage better bookkeeping among RMAs. “The requirement that they provide information to the real property tax division will begin to reinforce how our HOAs do their bookkeeping,” the author said.

After discussion the committee took these formal steps: the communication containing the proposed amendment (communication 203.1) was withdrawn by the sponsor during the meeting, and the committee voted to postpone Bill 38 to the July 8 committee meeting to allow departments and counsel more time for analysis.

The committee asked Real Property and Finance for a more detailed countywide analysis of which subdivisions would be eligible, a clearer revenue estimate, and proposed language to address the legal and process concerns, including owner consent and back-up procedures if an RMA does not file by deadline. The bill’s next hearing is scheduled for July 8 in Hilo.