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Tax to fund affordable housing advances in state legislature

LIHU‘E — The proposal to fund affordable housing through a tax on property sales is still alive at the state Legislature.

Senate Bill 362, Draft 2, which raises the conveyance tax on property sales over $2 million, has survived committee (a feat that only one in 10 bills achieve) and is set for a final floor vote in the Senate this week.

The state Department of Taxation estimates the bill would generate $4 million in new revenue for the Rental Housing Revolving Fund in fiscal year 2024 and $8 million by fiscal year 2029. The fund is used to subsidize the production of affordable housing projects, including several on Kaua‘i.

Affordable housing and homeless advocates, including more than a dozen houseless people on Kaua‘i, threw their weight behind another version of the proposal at the start of the legislative session. But that bill — Senate Bill 678 — was deferred indefinitely in committee, likely dashing any hope of approval.

Advocates are pushing for the new bill to incorporate some elements of SB 678 — including higher tax rates on the most expensive homes and a 10 percent allocation for homeless services.

SB 362 sets lower rates, and thus would generate less revenue than SB 678.

The bill increases the sales tax rate on properties valued at between $2 and $4 million from 0.6 percent to 1.2 percent of the sales price. Homes valued at between $4 and $6 million would see a jump from 0.85 to 1.7 percent, while homes between $6 and $10 million would increase from 1.1 to 2.2 percent.

Homes valued at more than $10 million would have the most substantial jump, from 1.25 to 2.5 percent. Certain sales, including those eligible for the county homeowners’ exemption, and those for affordable housing development, would be exempt from the tax.

Half the funding would be allocated for affordable housing development, while 10 percent would go into a land conservation fund. The rest would go into the state treasury.

SB 678 would have increased the rates on the most expensive homes to 6 percent, and included smaller increases to lower-value homes. Progressive group Hawai‘i Appleseed estimated the tax would generate $174 million for affordable housing and $2.1 million for homeless services on Kaua‘i.

“Allocating 10 percent of the conveyance tax to homeless services would be a critical step forward for the state to prevent homelessness and expand services to move people off our streets,” wrote Rob Van Tassell, president and CEO of Catholic Charities Hawai‘i, in testimony submitted to the Senate Ways and Means Committee last month.

“It would also provide dedicated funding for the services essential to create permanent supportive housing. Supportive housing enables very vulnerable residents to live in the community and prevent costly institutionalization, excessive ER visits, and other high public costs,” he wrote.

His comments were included in the committee report of the meeting, and may be added in a future draft of the legislation.

In submitted testimony, the Tax Foundation of Hawai‘i warned about “break points” created by the bill, which would substantially increase the tax at points when new tiers begin.

“If taxable income increases by $1 at a break point, such as from $9,999,900 to $10,000,000, the increase in tax will be substantially more than $100,” wrote the organization, which pointed out the tax would increase nearly $30,000 if a home was valued at $10,000,000 instead of $9,999,900.

“Substantial discontinuities such as these may motivate behavior for taxpayers near a break point. This behavior might not be desirable from an economic standpoint. Consideration should be given to making the conveyance tax brackets more like the existing income tax brackets, which do not have this problem.”

Among those who have voiced support for a version of this measure are Kaua‘i affordable housing developers Permanently Affordable Living Kaua‘i, which submitted testimony on SB 678 last month.

“On the approximately 24-mile stretch of the North Shore of Kaua‘i, there are currently four homes under $2 million. Right now there are 15 homes under $1 million on the entire island,” wrote PAL-Kaua‘i CEO Jim Edmonds. “Our local families and workforce are leaving the island, living in cars or on beaches, and there have been far too many suicides. We must solve this tragedy immediately.”

If the bill passes the Senate it will then cross over to the House.

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Guthrie Scrimgeour, reporter, can be reached at 808-647-0329 or gscrimgeour@thegardenisland.com.
Source: The Garden Island

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