The Hawaii County Council held a public hearing Tuesday seeking feedback on plans to raise property tax rates for nonresidents and owners of second homes in a push to make up for an estimated $15 million budget shortfall.

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The Hawaii County Council held a public hearing Tuesday seeking feedback on plans to raise property tax rates for nonresidents and owners of second homes in a push to make up for an estimated $15 million budget shortfall.

At the same time, many island residents would see a reduction in their property taxes. Under the proposed adjustments, the vast majority of owner-occupied homes and affordable rental housing would enjoy a 20-cent reduction — or just over 3% — in tax rates, falling from $5.95 to $5.75 per $1,000 of taxable value.

This is an intentional tailoring of rates by council members to benefit locals, whom many county officials including Mayor Kimo Alameda have admitted are languishing under an accelerating cost of living and housing affordability crisis.

Rate hikes for the next fiscal year would mostly affect nonowner-occupied homes. Properties worth $2 million and above — known as the “tier two” residential rate — would see the largest increase in property taxes, rising from $13.60 to $15 per $1,000 of taxable value.

The “tier one” residential tax rate, applying to properties worth less than $2 million, would also increase, but less dramatically — from $11.10 to $12.10 per $1,000 of taxable value.

A new “tier three” residential tax rate will be rolled out for the upcoming fiscal year, applying to high-value second homes and investment properties worth more than $4 million. The council established this “luxury” rate with its passage of Bill 128 on March 4 with a 5-1 vote in favor.

The tier three rate is slated to be $17 per $1,000 of taxable value. Revenue generated from this novel tier will be directed toward local affordable housing and homelessness programs, according to the bill’s text.

Another new property class created this year would be “long-term rental,” set at a rate of $7.75 per $1,000 of taxable value, which council members have justified as an incentive to encourage second-home-owners to rent their properties to residents at reasonable rates.

Tuesday’s public hearing saw roughly a half-dozen testifiers, all of whom voiced their support for the rate adjustments. One of them was Heather Hedenschau, who has lived on the island for half a century and serves as the principal real estate broker at Big Island Brokers.

Hedenschau expressed gratitude at the council’s embrace of this latter new property tax class, saying it will entice wealthy owners to offer their homes to residents instead of converting them into lucrative vacation rentals for use by tourists.

“I’m really happy about the new long-term rental rate that you’re going to be establishing,” she said. “I would like to ask that you consider the long-term rental rate to be closer to the affordable rental rate for the less expensive properties, so that we can encourage people to buy a home and rent it out at an affordable rental rate, so that people here can have a home because there’s a shortage of housing, and we want to encourage people to do that.”

She acknowledged that these adjustments could be unpopular with real estate agents, but said she still feels it’s most important to offer relief to owner-occupied homes and affordable rentals.

“I’m really pleased that you’re keeping the affordable rental and homeowner rates even a little bit lower,” she said. “Thank you for that. Really appreciate it. So, I’m mostly in favor of what you folks are doing here. I think it’s a great idea. Maybe the other real estate agents won’t agree with me with that, but oh well.”

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Hawaiian Acres resident Jaylyn Brendlen also testified in support of the adjustments, describing how large companies are buying up properties on the island as short-term speculative investments, offering little benefit to the local communities where these lands are located.

“I’m coming here in support of this bill today because I’ve also witnessed LLCs coming in and buying up properties and selling them within a week, clearly capitalizing very quickly,” Brendlen said. “There’s really not much more than just our transfer fee we receive that benefits us, and what’s hurting us is it’s driving our prices up, and no longer can people really afford to live there if they can’t compete with these larger corporations, essentially, in the housing market.”

These price hikes, she said, are pushing people with generational ties to the land onto planes bound for the mainland, compromising the island’s cultural history and character.

“This is the track record that we’re seeing, and we can see the direction that it’s driving our local economy,” she said. “It’s driving Hawaiians off the island. They have to go to the mainland to go find work just so they can afford to live, and we don’t want to do that to the community here. I’m not Hawaiian, but I do see that as a problem.”

When it came their turn to address the council, Keaau residents DeWaine and Jane Tollefsrud explained how their landlord grapples with paying taxes and rising costs of living while trying to not pass too much of the extra burden onto his tenants.

”I am a long-term renter who is fortunate to live in an affordable housing situation, so am not directly responsible for property taxes, but understand that it is built into my monthly rent,” DeWaine Tollefsrud said. “My landlord is multi-generation, Hilo-born and raised, and struggles to keep rents on his properties affordable.”

This situation, he said, is a perfect illustration of the inequity of the current property tax system, and highlights the need for means-based adjustments like what the council is proposing.

“That he is taxed at the same rate as mainland investors who have bought up land and houses as investments to add worth to their portfolios is reprehensible,” he said. “It is emblematic of one of the failures in our state and country that allow the very rich to get a pass on paying their fair share of taxes — which they can afford — at the expense of local citizenry who live, work and struggle to raise their families here. I am comforted by the fact that this council is sincerely looking at this disparity with the intent to rectify it, and I thank you for that.”

Jane Tollefsrud described the cruel irony of watching luxury homes being built in communities whose residents would never be able to afford them.

“It is painful to witness the prolific housing developments being erected everywhere on-island by investment developers who come into Hawaii, buy up lots of land, and build copious million-dollar dwellings within local neighborhoods — properties no locals can afford,” she said.

Thinking about where this unaffordability trend is headed, she said, causes her a great deal of anxiety — a feeling tempered by the prospect of using surplus property tax revenue to reinvest back in local communities.

”I, as a senior and renter, fear what may happen in my future,” she said. “I support taxes being tiered to prioritize local homeowners and renters over nonresident, high-value investment developers and properties. Please tax nonresident properties at a much higher rate, and use that extra income to protect our resources and support the locals who live here.”

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Email Stefan Verbano at [email protected].