The City Council moved a step closer to passing Honolulu's budget for the upcoming fiscal year after approving several measures Tuesday in Budget Committee.
One of the more controversial measures involves raising the property tax rate on hotels and those who own vacation or investment homes worth $1 million or more. Budget chair Ann Kobayashi fretted about the need to raise taxes, but with the city chasing a projected budget deficit of $46.6 million in the upcoming fiscal year, she said the cost of running the city dictated the increases.
"We'll see how it goes," said Kobayashi. "We're going to look at property tax rates every year."
However, Councilman Stanley Chang said the proposal to raise property taxes on million-dollar homes is worrisome, and he provided the only vote against it. Under the plan approved by the Budget Committee, rates would increase from $3.50 for every $1,000 of value to $6. The measure is expected to raise more than $30 million per year.
"We have a unique situation where there are a lot of multi-generational homes, where maybe families have downsized that are going to be affected by this increase," said Chang. "I'm also concerned about the impact to renters who may be renting these properties and will bear the brunt of this increase in property tax."
In September, the council created a new "Residential A" class for property valued above $1 million. The property tax rate for the newly created class would only impact those without a homeowner's exemption. According to the city, there are 7,655 properties on Oahu that meet the threshold, an increase of about 2,000 homes since last year due to rising property values.
Meanwhile, the hotel lobby testified any increase in property taxes will be passed onto visitors. Under the plan approved in committee, hotels and resorts will see their rate increase from $12.40 for every $1,000 of value to $12.90. The increase is expected to generate about $4 million annually.
"When business is tough and going down it's not the time to take a price increase, and basically that's what this will be is a price increase," said George Szigeti, president and CEO of the Hawaii Lodging and Tourism Association.
Mayor Kirk Caldwell first proposed higher property tax rates for hotels and million-dollar homes when he submitted his operating budget ($2.14 billion)and capital improvements budget ($639.7 million) in February. However the mayor proposed an increase of $1 on hotels and $2 for properties classified as Residential A.