Finance committee forwards bill to create third residential tax tier for properties over $4 million

The Hawaii County Council Finance Committee on Wednesday voted to forward Bill 128 to the full council with a favorable recommendation after public testimony and staff briefings on the proposal to add a third residential property-tax tier for parcels with net taxable value over $4,000,000.

Vice Chair James Eustace, presiding, said the proposal is intended to “help shield our residents from tax increases” by targeting investment and second-home properties and creating flexibility to fund infrastructure and county priorities while protecting long-term residents.

The measure would amend Chapter 19 of the Hawaii County Code to create a new residential Tier 3 for certain high-value properties. Testifiers and council members framed the bill as targeted tax reform rather than an immediate rate increase. Corey Harden, a resident testifying in support, said the county should use targeted tax tools and exemptions to avoid unintended harms to homeowners: “Bill 128 offers a viable path toward addressing our critical housing issues,” Harden said, urging exemptions or deferrals for inherited homes and incentives to keep rents stable.

Tanya Yamuna Kanasazi, who identified herself as part of the Hawaii Tax Fairness Coalition, told the committee the bill seeks to replace the previous two-tier structure with a three-tier system that focuses on “luxury homes, high-end condos, vacant residential land, [and] speculative properties.” She said the change is intended to make the tax system more balanced and protect kupuna and working families.

Property tax staff briefed the committee on scope and revenue. Lisa Muir, property tax administrator, and assistant real property tax administrator Keita (Kayta) Joe reported that 842 residential parcels currently have net taxable values over $4,000,000. Staff estimated that, if those parcels were taxed at the existing Tier 2 rate, the difference would generate roughly $13 million in additional revenue; the actual fiscal impact will depend on the rate the council sets for Tier 3 during the spring budget process.

Committee members pressed staff on several definitional and implementation points. Staff said true hotels and resorts are not included in the residential class for this tier and confirmed that properties with a homeowner exemption would remain in Tier 1 even if located in resort zones. Finance staff also said recent policy moves — including creation of a long-term rental tax class — have reduced some revenue (staff cited an estimated $1.4 million in lost revenue so far attributable to long-term rental reclassification), and that estimates for loss related to DHHL‑rate changes were under $2 million; the administration said more precise figures will be provided during the budget process.

Council members debated whether revenue from Tier 3 should be dedicated to housing and homelessness programs. Eustace and the bill sponsors said the ordinance formalizes the class but that allocation decisions would be made later in the budget process; the draft budget currently contemplates a $9 million housing and homelessness allocation previously established by the council.

On a roll-call vote the committee recorded seven votes in favor and one opposed (Acting Chair Inaba); Council member Connie Kleinfelder was absent. The committee’s favorable recommendation forwards the ordinance to the full council, where rates for the new tier would be set if the council adopts the classification.

The committee also closed two routine communications — a report of fund transfers and a first-quarter donations report — before adjourning at 9:45 a.m.