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HomeMy WebLinkAboutMIN FC 2021/02/02 2020-2022Committee on Finance 3`•d Session Hawaii County Building 25 Aupuni Street Hilo, Hawaii February 2, 2021 CALL TO The regular meeting of the Committee on Finance was called to order at ORDER: 1:33 p.m. in the Council Chambers, Hilo, by Mr. Matt Kaneali`i- Kleinfelder, Chair. ROLL CALL: Present: Mr. Matt Kaneali`i- Kleinfelder, Chair Heather L. Kimball, Vice Chair Mr. Aaron S. Y. Chung, Member Ms. Maile Medeiros David, Member (via videoconference from Kona) Mr. Holeka Goro Inaba, Member Ms. Ashley L. Kierkiewicz, Member Ms. Susan L. K. Lee Loy, Member Mr. Herbert M. "Tim" Richards III, Member Ms. Rebecca Villegas, Member (via videoconference from Kona) STATEMENTS FROM THE PUBLIC ON AGENDA ITEMS R ereec Reconvene: CC)N4N4T TNr- CATIONS: Comm. 30.3: The Chair directed the Committee to proceed to the next order of business, Statements from the Public on Agenda Items. The following individuals registered to speak and came forward when called by the Chair: Jacquelyn Benton Ching: The Chair called for a recess at 1:38 p.m. The meeting reconvened at 1:45 p.m. Carolyn Pellett: Bill 18 (Comm. 86), in opposition. Bill 18 (Comm. 86), in opposition. CHR KANEALI`I-KLEINFELDER: Clerk, please read in Communication 30.3. The Chair directed the Committee to proceed to the next order of business, Communications. REPORT OF FUND TRANSFERS AUTHORIZED: DECEMBER 16 — 31, 2020 From Controller Kay Oshiro, dated January 13, 2021. FC -3 Vote on Comm. 30.3 Filed Ms. Kierkiewicz moved to close file on Comm. 30.3. Seconded by Mr. Inaba and carried by the following voice vote: Ayes: Committee Members Chung, David, Inaba, Kierkiewicz, Kimball, Lee Loy, Richards, Villegas, and Chair Kaneali`i-Kleinfelder — 9. Noes: None. Absent: None. Excused: None. February 2, 2021 CHR KANEALI`I-KLEINFELDER: Okay, next order of agenda, please. Comm. 31.4: REPORT OF CHANGE ORDERS AUTHORIZED: DECEMBER 16 — 31, 2020 From Finance Director Deanna Sako, dated January 5, 2021, transmitting the above report pursuant to Hawaii County Code Section 2-12.3. Motion to Close File: Mr. Inaba moved to close file on Comm. 31.4. Seconded by Ms. Lee Loy. CHR KANEALI`I-KLEINFELDER: Any discussion on Communication 31.4? MS. LEE LOY: Yes, Chair, please. CHR KANEALI`I-KLEINFELDER: Go ahead, Ms. Lee Loy. MS. LEE LOY: Thank you. Can you get Deanna? (Note: At this time, Finance Director Deanna S. Sako came forward to address the member so the Committee. MS. LEE LOY: In Communication 31.4, it's Kukuiola. Kukuiola, it's a project, design -build for Kukuiola Access Road. CHR KANEALI`I-KLEINFELDER: And please state your name for the record, Deanna, so we all know who you are even though we know. MS. SAKO: Hi. Deanna Sako, Finance Director. CHR. LEE LOY: Yeah just, Deanna, that particular change order, we're upwards at 300 some -odd percent of the original contract, and I just kind of wanted an explanation. MS. SAKO: So I don't know that anybody from Housing is here today. But I think there's a lot moreI think they started adding things to this original project that started out as just a design for the village, and then I think we had roads and other things added. But I can ask them to provide you with an update. Page 2 FC -3 February 2, 2021 CHR. LEE LOY: Yeah, I'm curious, just because—well, the number, as Mr. Chung always says, "it is eyepopping." Three hundred seventy-four percent of the original contract, that's a lot. But also too, you know, sometimes this money is from federal funds or other things. So even if we're only bringing our 20 percent— MS. SAKO: This might be some of the State funding, but I would have to go double-check that. MS. LEE LOY: Yeah, could we, please? Great. MS. SAKO: I will get you something. CHR KANEALI`I-KLEINFELDER: Thank you, Deanna. Thanks for being here. Are there any further discussion? Kona, any discussion? Deanna, I have a question for you before you leave. MS. DAVID: No, Chair. Thank you. CHR KANEALI`I-KLEINFELDER: Thank you, Chair. Okay, Deanna, my question was the—on the very bottom there's a COVID-19 (Coronavirus Disease) isolation lease, an old isolation lease on Old Sugar Mill Road. What is that? And I see we're adding or extending the lease terms to February 28, 2021. MS. SAKO: So when people couldn't quarantine within their own homes or maybe it was visitors, that was one of our facilities for moving people out so they could quarantine and not contaminate others that they live with. CHR KANEALI`I-KLEINFELDER: Okay. Okay, where it just says Old Sugar Mill Road. Are we keeping that confidential or is there? MS. SAKO: Well, not anymore apparently. CHR KANEALI`I-KLEINFELDER: This is available, so I don't feel bad for asking. But is there more information on that or is that the limit of what we have available to the public? MS. SAKO: That's probably as much as we're going to limit it. We haven't— this aven'tthis is one of the ones we're probably going to be ending at the end of the month. But it has been useful, so that we could separate families and make sure the whole family didn't get sick. CHR KANEALI`I-KLEINFELDER: Okay. I had a lot of requests from my district for, you know, what to do when a very small house with a large family has someone to be quarantined. Page 3 FC -3 February 2, 2021 MS. SAKO: Yeah, so what VAMS (Vaccine Administration Management System) has been helping quite a bit a lot of those families. So yeah, they should always call Civil Defense or Department of Health, and they usually can set them up with something. CHR KANEALI`I-KLEINFELDER: And still ongoing, too. So if anyone is watching and you have this instance arise, there is isolation, also. MS. SAKO: Yeah, and we have other facilities, as well. CHR KANEALI`I-KLEINFELDER: Thank you. Thank you, Deanna. I appreciate it. Okay, can I have a motion to close file on Communication 31.4? MR. BROWN: Sorry, Chair, we have the motion. CHR KANEALI`I-KLEINFELDER: Oh, sorry. CHR KANEALI`I-KLEINFELDER: Oh, sorry. MR. BROWN: If you could take the vote, please? CHR KANEALI`I-KLEINFELDER: Yeah. Okay, all in favor of closing file on Communication 31.4? Vote on Comm. 31.4: The motion to close file on Comm. 31.4 was carried by Filed the following voice vote: Ayes: Committee Members Chung, David, Inaba, Kierkiewicz, Kimball, Lee Loy, Richards, Villegas, and Chair Kaneali`i-Kleinfelder — 9. Noes: None. Absent: None. Excused: None. CHR KANEALI`I-KLEINFELDER: Okay, next order of business. Comm. 85: SECOND QUARTER CLAIMS REPORT: OCTOBER 1 — DECEMBER 31, 2020 From Claims Investigator/Adjustor Clifford D. Victorine III, dated January 7, 2021, transmitting the above report pursuant to Section 2-9 of the Hawaii County Code. Motion to Close File: Ms. Kimball moved to close file on Comm. 85. Seconded by Mr. Inaba. CHR KANEALI`I-KLEINFELDER: Any discussion? Go ahead, Ms. Lee Loy. Page 4 FC -3 February 2, 2021 MS. LEE LOY: I'm trusting Mr. Victorine is here. I just have a question regarding the Hamakua Land and Cattle Company, County Parks and Recreation failed to pay property taxes and rent. And I was just wondering (Note: At this time, Claims Investigator/Adjustor Clifford D. Victorine, III, came forward to address the members of the Committee.) MS. LEE LOY: Hi, Clifford. Thanks for being here. CHR KANEALI`I-KLEINFELDER: Yeah, come in, sir. Have a seat, and tell us your name for the record so we can get you all set up. And go ahead when you're ready. MR. VICTORINE: Good afternoon. Cliff Victorine, Corporation Counsel Claims Investigator. MS. LEE LOY: Thanks, Clifford. Thanks for being here. I just had a question on the Hamakua Land and Cattle—we paid out. Because it looks like a failure on our department's part, is that accurate? MR. VICTORINE: Yes. MS. LEE LOY: What safeguards in place now so something like this doesn't occur again? MR. VICTORINE: It's my understanding that they're working on a new lease. Parks is doing it, so I'm not really involved with that. But that's where this is headed toward this piece of property. A new lease has been drawn out, and they're going to go ahead and correct those problems. They're well aware of the issue, and it went through multiple department heads—so it continued. But it is now taken care of from what I'm told. MS. LEE LOY: Great. Do we know if other similar situations exist? Because this is a $9,500-oops and you know, money is tight. I just don't want to see more of these. And so have we taken a larger look at some of our other leases and rental agreements to ensure something like this doesn't happen? MR. VICTORINE: Well, all I really can do is bring it to their attention, and in this case they brought it to my attention before the claim even came up. But it is aI'm not sure that they were looking into that. But it's the departments that do that. I don't have any authority to really jump and say, "Hey, this is going on." You know, like other claims, I can bring it to the department's attention, but it really becomes their responsibility to look into it, to address your concern. MS. LEE LOY: Great. Thanks. And maybe as a suggestion, Mr. Inaba, as the Chair of the Committee, or any other Committee Chair, maybe this is a way to reach into our departments, and just check in with them and see if they have a Page 5 FC -3 February 2, 2021 baseline on some of this information so we don't see these future claims coming forward. Thank you, Chair. I yield. CHR KANEALII-KLEINFELDER: Thank you, Ms. Lee Loy. Thank you for being here, Clifford. Any further discussion or questions for Mr. Victorine? Okay, seeing none, motion to close filesorry, motion is on the floor, all in favor of closing file on Communication 85? Vote on Comm. 85: The motion to close file on Comm. 85 was carried by Filed the following voice vote: Ayes: Committee Members Chung, David, Inaba, Kierkiewicz, Kimball, Lee Loy, Richards, Villegas, and Chair Kaneali`i-Kleinfelder — 9. Noes: None. Absent: None. Excused: None. CHR KANEALII-KLEINFELDER: Okay, next order of business. When you are ready, Mr. Clerk, Bill 18. ORDER OF The Chair directed the Committee to proceed to the next order of business, RESOLUTIONS: Order of Resolutions. (There were none.) BILLS FOR The Chair directed the Committee to proceed to the next order of business, ORDINANCES: Bills for Ordinances. Bill 18: AMENDS CHAPTER 19, ARTICLE 11, SECTION 19-90 OF THE HAWAII COUNTY CODE 1983 (2016 EDITION, AS AMENDED), RELATING TO ESTABLISHING A REAL PROPERTY TAX CREDIT FOR PROPERTIES CLASSIFIED AS RESIDENTIAL TIER TWO PROPERTIES Provides for a limited tax credit to be applied on a one-to-one ratio for each dollar contributed to qualifying nonprofit organizations or County -sponsored homelessness initiatives. Reference: Comm. 86 Intr. by: Mr. Chung Motion to Approve: Mr. Chung moved to recommend passage of Bill 18 on first reading. Seconded by Mr. Richards. CHR KANEALII-KLEINFELDER: I believeI'm going to hand the meeting over to Aaron for discussion. But I know we have Lisa outside as well as members of the Finance Department. So if you want to let them in, Mr. Brown, when you're ready. And, Mr. Chung, go ahead. Page 6 FC -3 February 2, 2021 MR. CHUNG: Thank you. You know, first of all, let me make some prefacing remarks on this. You know, as public officials we sometimes get criticized by persons, you know, for things we do or don't do. But it's very—it's a sad commentary when we are subjects of blatant lies. Now Carolyn Pellett, who I think is still sitting outside, and I want her to listen carefully to this, stated that I said that I have friends who own property on the South Kohala Coast. I don't know for what purpose she meant that, but it was to disparage my integrity and this bill. That is an out and out lie, and I'm going to say that. If she can prove it, by all means do it; if not, come here next time, apologize in person. Because if not, I'm seriously considering filing a defamation lawsuit against this woman. It's a lie. I don't that kind of irresponsible stuff. It's a poor commentary on what we have on this island sometimes, and the tactics that are used against public officials. It's horrible. Anyway, the question regarding this matter, I think from everyone's perspective is why, right? From the administration, I really do apologize now to you, Deanna and Steve, because I know this thing caught you guys by surprise, right? I tried to avoid you the other in the hallway, right yeah? Nobody from Finance knew about this thing, because who wants to have a conversation with you guys about this, right? I know you guys going to try and talk me out of this. I figured, well, let's just do it. And the ramifications to the County of course are great. We're talking about a potential shortfall of $10 million, maybe more even. But let's back up a bit and see how this all started. Last year, we were looking at a shortfall again, nothing like we're looking at this year, but not as severe probably. I mean, this is not as severe as last year. We're looking—last year they cut off TAT (Transient Accommodation Tax) $18 to $19 million right at the backend of our budgetary process, right? It's not like they told us in November, they told us in March or April or something like that, so we're stuck with that. We had the post -employment responsibilities that we had to pay and other things. It had a trickle-down effect from the State's poor position. So as a stop -gap measure, I sponsored—and I don't know who I asked to you know, if they would co-sponsor it. I don't know if it was Maile as the Finance Chair or Karen Eoff as the Vice Chair; I can't recall who. I invited them, you know, if they would like to co -introduce it, and I think one of them did. But basically this was my bill, right, and it was to address that shortfall. We needed to do something. And I'm being really honest here, speaking of honesty, the low -hanging fruit, you know, was the properties that are second homes, right? And I know that had been talked about for many years. And I don't want to put you on the spot now, Deanna, but even you and I at one point had spoken against it, right, when Greggor was talking about it, this was maybe about four or five years ago, because they contribute—in terms of the real property taxes that these properties pay to begin with, it's a lot; and to tack on a Page 7 FC -3 February 2, 2021 little bit more, whoa, that might have been you know, that somewhat unpalatable to people. But we were stuck. City and County had already implemented this thing, and it was upheld in court, either Intermediate Court of Appeals or Supreme Court. But it was upheld. I know there were some commerce clause, concerns, but I think those things were addressed. City and County generates upwards of $100 million from this tax alone. I think either Maui or Kauai County, one or both of them, have enacted this, as well. I don't know. You guys maybe can advise me on that. So I think we were the last ones to come in on this. And I think you guys know the basic structure of what this two-tier tax is. So now having been the introducer of it—you know, I kind of listened closely to what the testimony was, against it the last time. There were some people who said, well, they're going to leave the State, I mean our island. Well, I can't do anything about that. But what I found most concerning during that time, was those persons who said it was an insult to them and it was going to have a deleterious effect on their willingness to contribute to our community. Because I guess some of them were donating to nonprofits, unbeknownst to us, we don't have gaging. And since that time, I've heard from persons who would have been the recipients of these funds, educational institutions as well as some other nonprofits. It's not a great amount of people, but I've heard that there was an effect. So I figured why don't we let those who were objecting to it on that basis, for a lack of a better phrase, put their money where their mouth was. That's not a nice way of saying it, but I'll say it anyway because I don't say things in a nice way anyway. I mean, I'm not as eloquent as Ms. Kierkiewicz. She would say it in a really nice way, but I cannot. So let's bear in mind it's very important for everyone to understand, particularly the two speakers who spoke against it as we're trying to help the filthy rich, this does not obviate anyone's payment under the two-tier setup. These affected property owners are still going to have pay one way or the other. It's just—the question will be to whom will we pay these monies? Will it be into the County of Hawai`i's coffers or will they infuse it into our community through nonprofits, or even to help out with our county -sponsored homelessness initiatives? Very plain and simple. We're not taking away or not letting people off the hook, it's just where do we distribute the resources? Now I understand this thing is going wreak havoc on our budget. Yeah, we understand that. One thing that—you know, there was a newspaper article on this, and I had been interviewed. One thing that wasn't included in that article, and I confess I didn't read the whole thing because I lived it. I had to answer questions about it. But I don't think it was in there, when I stated that this bill is not perfect, and I don't think it will ever become perfect. And I'm certainly not Page 8 FC -3 February 2, 2021 married to the specifics of it right now. I'm open to suggestions. I think you guys know the concept, okay? We've got several choices here. You can just say, "Well, I think it's a bad idea because the County needs the money so I'm going to vote against it." That's fine, okay. But if you think that this has merit, then maybe let's kind of think about how we can tweak this to avoid abuses. Because there is the possibility that people may set up shell foundations or nonprofits. That's not out of realm of possibilities. So you know, we don't want to have abuses. I don't really foresee it happening, but it could happen. We don't want self-serving measures, obviously. Do we want to make, perhaps a breakup? Say 50 percent available for—or 50 percent credit for initiatives for our homelessness, and then only 50 percent available for nonprofits? That could be. Do we want to make an effective date down the line? We could do that, too. Because we are not unlike what the State did to us last year, we're catching—well, I'm catching via the Finance Department kind of, you know, by surprise. You know, they're in the throes of their budget process right now, and this is really going a crimp on all of their plans. I understand that. All I wanted to do was throw out this idea. I support it in concept; I believe it needs to be tweaked, but I think the beauty of this is that it opens the door for two sides, two separate communities, to be able to talk and dialogue and to better understand one another. I think that is probably the most important symbolic gesture of this bill. And it further opens the door for more funding to come from those sources, when those doors are open. But that's my pitch. I'm expecting this to stay in Committee. But I want to hear your thoughts. I want to every member's thoughts on this thing. And if you guys don't like it, fine. If you guys think it's worthwhile, then help me to tweak it, and I'll incorporate it into an amended bill. That's all I've got to say right now. CHR KANEALI`I-KLEINFELDER: Thank you, Mr. Chung. Okay, discussion. Mr. Richards, go ahead. MR. RICHARDS: Thank you, Chair. And first of all, thank you, Aaron, for bringing this forward. I was the dissenting vote on this last Spring, when this was brought before us, because I didn't think we worked hard enough on the budget. I don't disagree with Aaron concerning the need for finances going forward, but I thought it was a wrong move because I thought it was short-sighted. I still believe it's short-sighted. However, this bill is a step forward in trying to correct things. A few questions. And I'm probably going to need either Deanna or Lisa to verify some things, so I'm glad that both of you are here. Lisa and Deanna, could you come up, please? Page 9 FC -3 February 2, 2021 (Note: At this time Finance Director Deanna S. Sako and Real Property Tax Administrator Lisa Miura came forward to address the members of the Committee.) MR. RICHARDS: Thanks for being up here. If I recall right—and I guess, Lisa, we'll start here. We have approximately 140,000 properties in the County, of which maybe 40,000 are homes? MS. MIURA: Homeowners. MR. RICHARDS: Homeowners. MS. MIURA: The homeowner tax class. MR. RICHARDS: Okay. And of that, this tax structure, with the two-tier tax structure affected, I recall 937 properties, is that accurate? MS. MIURA: Yeah. It wascorrect, and right now we're now at 933 in this tier two. Now the residential tax class is a lot less than the homeowners tax class. MR. RICHARDS: Could you, just for the community, explain the difference between the two? MS. MIURA: So for the homeowner tax class you apply as a homeowner. You have to file income tax returns within the State of Hawaii, you have to live here for majority the year, you cannot have a primary home anywhere else, and you cannot be conducting a short-term vacation rental in order to qualify for the homeowner exemption and the homeowner tax rate. MR. RICHARDS: And then the residential is basically a second home? MS. MIURA: That's correct. MR. RICHARDS: Okay. And the two-tier tax structure, the homes that qualify, that 933 now I guess, if I recall right, paid approximately 19 percent of the real property tax collections for the County? MS. MIURA: I think when we figured it out I don't have that exact number, sorry. It wasn't—it was a high -percentage, but I cannot exactly remember what it is at this second. MR. RICHARDS: Okay. Alright. And grant this conversation is coming up, so we don't have any notes in front of us. My concern was—and I hear the concerns from the community, but we have a very small percentage paying this bill. And as I recall right, District 7, 8, and 9 contain these two-tier tax buildings—homes. District 8 and 9-1 think District 8 had 55 percent of them, Page 10 FC -3 February 2, 2021 District 9 had 44 percent of them, District 7 had one percent. And I think we had one property and the rest of the County, is that correct? MS. MIURA: I thought we had four properties in the rest of the County, but it was a very low number compared to the others. MR. RICHARDS: Okay. So my concern for this, and that's why, Aaron, I appreciate you bringing this forward, is in District 9 we have a large percentage of these properties. And I also agree with what Councilman Chung said, about we had no idea of the donating that this demographic supplies to our County as a whole. I have received numerous phone calls in my office about people being concerned about that. But then also from the other side, our nonprofits, not being able to meet their budgets because they're not receiving the donations right now. I'm also looking towards the economic recovery for our County as a whole. We need people. We need groups. We need investors in our County. If we're truly going to redefine who we are and how we're doing things and not be as completely weighted on tourism in the past, like in the past, we're going to have new things coming before us. And this is going to take investment, a large investment from outside. Interesting, the timing today for presentation by Michelle Kauhane, concerning our nonprofits, and the fact that we have seen an impact in these trying to go forward and striking for that public-private partnership, and—what's the other one, philanthropic, so the four p's. I agree with what Aaron has said, that this isn't decreasing your bill, but it is more of a self -determined bill, meaning they are still going to be spending the money but at least they're going to be able to pick some place that they can choose—so if they so choose. This is the right direction, and this is striving towards that private -public partnership between this group, by using the philanthropic concept of going forward. Because we need the investment in our County. We also have very well proven in the last ten months of how important our nonprofits have been to taking care of our community. The problem is without resources those nonprofits don't work. And I find this as very novel way for the people that do choose to donate, and not because they have to, because they truly feel they want to do that. Michelle, and again convenient that she was here today, she said the huge shift in people's donations, it's not like it was in the past, where they set up trusts and then they have passed and now these trusts are being managed. These people are actually giving the money and seeing where they're going today. So, that's my bell. I think I have 30 seconds or is that it? My point on this is that I think this is the right direction, and because it's allowing people to choose their direction. I fully support this going forward. It will take some tweaking, and I'll work on it with you, Aaron. I yield. Page 11 FC -3 February 2, 2021 CHR KANEALI`I-KLEINFELDER: Thank you, Mr. Richards. Ms. Kierkiewicz, go ahead. MS. KIERKIEWICZ: Thank you, Chair. Thank you, Chair Chung—Oh I'm sorry, Vice Chair Chung and Mr. Richards. I'd love to give the administration an opportunity to sort of weigh in on this bill, if possible. MS. SAKO: Thank you. You know, there are a lot of variety of things going through my mind, especially when I first saw the bill. But ultimately yeah, some are, never mind but the thing is, you know, we're not any better off this year than we were last year. And it's not the nonprofits, you know. They've done a lot for our community. But some of you might recall that last year also, the nonprofit grant program was increased from $1.5 million to $2.5 million. So ten percent of this went directly to nonprofits in our community, okay? That both happened at the same time last year. The resolution to set the tax rates asked us to look at a community benefit fund. Some of the nonprofits in the west side have taken this to heart. They've been calling me. We've been trying to work out something. So we haven't had an opportunity to bring that forward yet. The budget is just around the corner, on March 1st. We're working on that. And the economic outlook is not any better than it was last year. We're not expecting any TAT next year. We still don't know what we're going to get for EMS (Emergency Management System). Several of our State grants have already been pulled, and are not expected to be seen for the next several years. So we're working on all of those things, trying to make the budget work. One of the issues with this bill that—and I know you guys have said that it's not perfect—but to say that you can choose where all $10 million of it goes, when we only gave $2.5 million to nonprofits. So if they give $2.5 million to nonprofits, do we now no longer fund nonprofits? You know, it's not helping the County at all. So saying give all $10 million to nonprofits and not, you know, allow any of it to come to the County to do the things that we are mandated to do by Charter, you know, obviously that's the Council's decision. But at some point, then we're going to have to make tough choices. Steve might have something to add. Oh, Steve can add about the nonprofits. (Note: At this time, Deputy Finance Director Steve Hunt came forward to address the member of the Committee.) MR. HUNT: Sure. For the record, Steve Hunt, Deputy Director of Finance. Yeah, just to add on to what Deanna had said, in terms of dollars. In addition to the $2.5 (million) in the direct grants that we give to nonprofits, we also do tax exemptions for property taxes. And that tax abatement last year accounted for Page 12 FC -3 February 2, 2021 about $4.2 million in revenue, that we essentially funded indirectly through an abatement program. In pulling the CARES (Coronavirus Aid, Relief, and Economic Security) fund, we looked at the coronavirus relief fund potion that went to nonprofits. Obviously, some went to credit unions and operations. But the direct monies that went to nonprofits was about $24.6 million, that we gave to nonprofits, granted they were providing services and doing the things that we asked them to do. But it also helped keep staff employed and it helped cover some of their admin. costs, so we gave money through there. Housing though the CDBG (Community Development Block Grant) and the CDBG-CD (Coronavirus Disease), gave approximately $5.2 million to nonprofits directly. And it's anticipated—we heard this morning, we may not be getting the full $30 million to give to the Emergency Rental Assistance, but it's looking like at least $24 million that we're looking to get nonprofits to help again with the distribution. So we are providing that money. Those are probably not recurring, although the CBDG, the direct one is, the annual giving, and so is the abatement that we give for property taxes and the nonprofit direct grant. So there is a certain level that we are giving direct funding annually for. What Deanna also mentioned is again not only not getting TAT, but we're still not funding the prepayment on our OPED (Other Post -Employment Benefits), and that not only in the current budget, but we're anticipating not being able to pay that in next year's budget, too. And we've also had a Charter amendment; that now as you're marking one percent of real property taxes, which is well over $3 million that we now have to put for an emergency fund, so it's another cost that we've encountered. A combination of all that is just obviously not a good time to be looking at carving out additional monies to give to nonprofits. And I think that the other thing that we're maybe not looking at here too, is donations to nonprofits from an income tax perspective. They get an IRS (Internal Revenue Service) deduction for that. So essentially if we're going to give them a rebate on their taxes as a tax credit, they can take that tax credit, make the donation, although they do it frontend, they'll get it back, and they get the subsequent right -off of the donation on their income taxes. They're almost double-dipping in a way. So those are the concerns I guess I have with the bill as it's currently written. The one-for-one obviously is a real big hit. And I think the intent that we had last year for the reso was to look at, certainly affordable housing and homeless issues and trying to start to establish a fund. Again, because of the budgetary constraints and the position we're in now, I think one-to-one is still very aggressive. But I think that was more the intent that we were anticipating, not this large gift essentially to the nonprofits, which is the taxpayers. Page 13 FC -3 February 2, 2021 MS. SAKO: And just as a reminder, our real property taxes are ad valorem tax. It doesn't have anything to do with, like IRS or—you know, it is deductible on your income taxes. But you know, we really have tried very hard to keep the two separated. MS. KIERKIEWICZ: Thank you, Deanna, Steve. I appreciate the insight. You know, you mentioned earlier, when we passed the residential two-tier, a Community Benefit Fund being created. What is the timeframe for that? When are you going to make a decision around pulling the trigger on that? And if so, do you have a ballpark estimate for what we could potentially commit, if anything, this fiscal year? MS. SAKO: We've been looking at a smaller amount, maybe like a $100,000, $250,000, that type of thing. We are actually waiting for the Legislative Session to end. You know, we—it seems like we're constantly hearing about what we're not going to get next year, so we really kind of want to wait to hear what the final result is at the end of the Legislative Session. So it probably wouldn't be in the March budget, it would mostly likely be in the May budget. MS. KIERKIEWICZ: In the May iteration. Okay. And what I'm hearing from you is we need this funding to help fill in any of the leaks within our budget at this point and time; and until we get through the Legislative Session, maybe that's when we could maybe pick this back up and see what is or isn't possible. I remember when we did vote on the two-tier, one of the things I was excited about was affordable housing. Mr. Chung andI'm a little disappointed that it's not mentioned here, and so if I could put that on the table. You know, I would be open to exploring, directing those funds to support affordable housing development on our island because we certainly need that investment. Deanna, would that require some kind of coaching? How would that work? MS. SAKO: We don't have a fund right now or a mechanism, I think, to collect that. But that concept of using the money that's collected from the two-tier and directing it is much more palatable than guessing what the taxpayers might do to, you know, give to a nonprofit, and how much they might redirect that way. So you know, going back to the Community Benefit Fund, which I think did address homelessness and affordable housing also, you know, and having that fund to put a specified amount in is easier to manage both budgetary wise, you know, then it would accumulate over time to have enough to do a project or to help a project. MS. KIERKIEWICZ: Okay thanks, Deanna. Thanks, Steve, for the insights. Thank you, Mr. Chung, for bringing this forward for the discussion. Chair, I yield. CHR KANEALI`I-KLEINFELDER: Thank you. Kona, discussion? Page 14 FC -3 February 2, 2021 MS. DAVID: Chair? CHR KANEALI`I-KLEINFELDER: Go ahead, Ms. David. MS. DAVID: Hi. Yes, just a comment. And I really want to thank Director and Deputy Director from Finance, from their explanation of the possibilities and what we need to look at with a proposal such as this. Because Ireally, when I looked at this, I was just—my first question was, can we actually do this as far as, you know? But bringing this forward for the discussion, I think it's a good time to figure out which route that we can take to accomplish, I guess, the intent Mr. Chung is stating in this legislation. So thank you for the discussion, and look forward to hearing more about it down the road. Thank you. I yield. CHR KANEALI`I-KLEINFELDER: Thank you, Ms. David. Ms. Villegas, you have anything? MS. VILLEGAS: Yes, please. CHR KANEALI`I-KLEINFELDER: Go ahead. MS. VILLEGAS: Corp. Counsel, Mrs. Strance, I see you here with us today, and I wondered if I could just take a moment to pick your brain. (Note: At this time, Corporation Counsel Elizabeth Strance came forward to address the members of the Committee.) MS. VILLEGAS: To me, the parameters of what's being proposed by this bill make me immediately wonder of the legal ramifications and possibilities. Can you clarify if this is possible even? I mean, I'm—and then I'll get on to other - not I think it would be wise, but just wondering what that is. MS. STRANCE: I'm not a tax expert, but I'd be willing to look at it. When I read the bill, there was language of both tax credit and tax exemption and things like that. You know, in the end, tax codes are about social engineering, and how you want to direct people's behavior and pay for it. Sounds like there have been several different ideas bounced around. You know, we have a Finance Department with, I believe, a lot of depth. But I would want to talk with them and then get some advice around interpreting the tax code, and you know, whether this is really intended to tie directly into payment or not payment of real property taxes, or whether it bleeds over into something else. But I think that's something I'm happy to look into. But I wouldn't want to speak further than that right now. Page 15 FC -3 February 2, 2021 MS. VILLEGAS: Okay, thank you. I appreciate that honest answer. And I'll just look forward to some kind of follow-up and getting a greater understanding of that. CHR KANEALI`I-KLEINFELDER: Mrs. Villegas, sorry to interrupt you. We also have Mr. Yoshimoto from Corp. Counsel here, too. I know Elizabeth Strance has spoken, but he's here if you have any questions for him. I think—he seems like he's ready prepared to answer some questions. MS. VILLEGAS: Okay. Thank you for CHR KANEALI`I-KLEINFELDER: If you're interested. I don't mean to step on anyone's toes. MS. STRANCE: No, no, no, I didn't see him in there. But definitely, he should chime in. Thank you. CHR KANEALI`I-KLEINFELDER: J, if you want to come up? If you're interested, Rebecca. It's your floor, so I'm just giving you the option. MS. VILLEGAS: Sure. If J has something he'd like to add, I would be more than happy. (Note: Deputy Corporation Counsel J Yoshimoto came forward to address the members of the Committee.) MR. YOSHIMOTO: Good afternoon Committee Members, Mr. Chairman. Councilmember Villegas—let's see, where do I start? Our office still in the process of evaluating the bill, as you've heard. Initially, my thoughts are you know, there are a few areas we could look at as far as the Council is concerned. Initially, one of the concerns I had is that the bill does not have a mechanism in which to make sure that someone who donates doesn't donate to themselves so to speak. In other words, Mr. A could want to donate to a qualified 501(c)(3), and then Mr. A could either have a spouse, sibling, friend, or an interest in that 501(c)(3), thereby being able to have his cake and eat it, too. So I think the bill should address something to prevent that. You know, ethically it just doesn't look not a good look. You know, if the Council wants to do that. It's just a thought. And then mechanically, I think, the bill should also address what happens if the property is sold somewhere in the transition, between the tax year, just so there's clarification so the Real Property Tax Office doesn't have to make a call on that. If the Code just specifies if it's transferable or not in terms of the credit, I think that would help, as well. Those are my preliminary thoughts. Page 16 FC -3 February 2, 2021 MS. VILLEGAS: Thank you so much. I really appreciate you expressing those concerns and those different perspectives. There are things that jumped out to me, as well. So I'll look forward to hearing more as you continue to navigate your way through this bill. Just to continue with my thought process about it. You know, I appreciate your humility, Mr. Chung, with recognizing that the bill may not be where it needs to go, and that there's opportunity to keep working on it. I really take into consideration the concerns expressed by our Finance Department, and hold those very dear and true. And I see with this piece of legislation too many opportunities for potential abuse. It also calls to question for me the intentionality. I mean, I know we developed the tier -two tax system. We've not experienced a mass exodus of those that are of that tax tier and can afford the homes that fall in that arena. If anything, more homes are selling here on the Big Island sight unseen for cash then, when we pass that new tax tier. So it concerns me that there's a perpetual pattern within our country to come to the quick aid of those that are on the top one percent of our country and of our planet. You know, there are so many different things rolling around right now in all the different legislatures based on taxing the wealthy, and wealthier homes, and whatnot. So it seemsit just it hit me ironically to see this land in front of us, and I just I won't be comfortable supporting this legislation today. I question the intentionality of it and the value systems it's being based on. You know, having since I was a young child worked with nonprofits and understanding the gap in funding that exists there. I don't see this as an equitable or wise solution to bridging that gap. Nor do I see, for myself, as it being a wise move to support something like this today. So I thank you for the creativity and the consideration being given on how we navigate and overcome so many of the challenges facing our County, our communities, and those that live here. But I'm going to have to—I won't be able to support this piece of legislation today. So, thank you. I yield. CHR KANEALI`I-KLEINFELDER: Thank you, Mrs. Villegas. Ms. Lee Loy, go ahead. MS. LEE LOY: Thank you, Chair. You know, what I heard Mr. Chung say is, "Let's rumble with it," right? He's looking for feedback. So, I'm listening. I heard Finance you know, we passed this to plug a gap. We haven't really felt the full effects. But I also heard Mr. Chung say we can set this to take effect down the road. And so I'm using that as book -ends, right? He wants feedback. Like Ms. Kierkiewicz, I got really excited because during this process, it was about creating a fund or a way to infuse money into affordable housing, on how Page 17 FC -3 February 2, 2021 we do that. And then J Yoshimoto walked in, and it reminded me of the sponsorship agreement bill that we enacted, that would serve as a vehicle for people to contribute into our park system to help repair and maintain some of that park facilities. So like Ms. Kierkiewicz, you know, not seeing the affordable housing in here, but I also thought, hey maybe this is a way that we could infuse the money into our parks programs: the assets, repairing gyms, fixing pools, just standing up new community centers for our kupuna. We heard today that afterschool programs are taking a big hit for our parents to get back to work because of COVID. We're going to need these larger spaces. And that's what I'm offering to Mr. Chung here is affordable housing, maybe a direct point to a park or a community asset that this two-tiered money could go directly into, and that would be a direct hand-to- mouth benefit. The monies would be infused into that facility. I continue to have a lot of questions around the Tax Code, and the word "exemption" being used, because that definition might be something different in the Tax Code than it is in our County Code. I'm concerned about split exemptions. Sometimes they split their homeowner exemption between different properties. I had a question around, what if a nonprofit doesn't meet its mission when we offer them this incentive? And then, how do we know that they satisfied that mission with the monies that is being guided into this nonprofit, or affordable housing, or County asset? So I completely understand why Mr. Chung put this forward. It was to have this conversation. Because of the Sunshine Law, we can't do it any other way. But what he's done is he's convened all of us, including people that will have to provide the budget back to us, and then implement it in some fashion or form. So, Mr. Chung, really the intentionality of this really was for this conversation, and so I appreciate that. That you included us, and to give our perspective from each corner of this island. I think it was a brilliant move. Clunky but brilliant. So those are my thoughts, Mr. Chung. I'll be more than happy to put those thoughts down and share it with you, and maybe even craft some language around that, of my thoughts. But that's what I offer right now. Chair, I yield. CHR KANEALI`I-KLEINFELDER: Thank you, Ms. Lee Loy. Ms. Kimball, go ahead. MS. KIMBALL: Thank you, Chair. Yes, and thank you, Mr. Chung, for introducing this bill. I do think it is important and imperative that we as a body have a real concrete discussion about property taxes. As Justice Strance mentioned—Judge Strance mentioned, the tax property the property taxes are part of our social engineering, right? The way we set property taxes represents our values, and incentivizes things we want to see happen, and disincentivizes things that we don't want to see happen. Page 18 FC -3 February 2, 2021 Some of my concerns about this proposed bill is—you know, looking at our overall tax structure, including GE (General Excise) taxes and income taxes, we have a very regressive tax system. The lowest—the poorest—I'm going to read this data from the taxfairness.org, from 2017, "The lowest paid 20 percent pay 11 percent of their income in taxes, whereas the top one percent pay 1.2 percent, and the top five percent pay a total of 2.2 percent." And so one of the ways to balance this overall regressive tax strategy is to do it through property taxes, and I think that's one of the things that the bill did with the Residential two (tier). You mentioned Maui and their tiered system. What they've actually done is, I believe it's $800k ($800,000) is one level, and then 1.5 ($1.5 million) is the next level, and so they have different rates for each of those. So their pool is a little broader, right? It goes all the way down to $800k, whereas we're just doing $2 million and above. So something like that might be another approach, is to widen the pool but then reduce that tax rate so we're still getting the same benefit in terms of income. I do have concerns about workability, as well. You know, are we going to keep a curated list of allowing them? Allowable nonprofits? Who is going to curate that list? There's going to be a timing issue in terms of when property taxes are due versus when income tax, as reporting for donations to nonprofits would be made available. And then I'm most concerned about the perception of—okay, well these guys get to decide what's due with their tax dollars. I don't like what the County is doing over here. You know, there are going to be other tax categories that are going to want to have this benefit, to be able to choose where there top dollars go, and so I think that becomes a very slippery slope for us. And it's tied into this overall narrative that the government can't do a good job of providing services. But we had Michelle from Hawaii Community Foundation today compliment Hawaii County on how well we did distributing CARES (Corona Virus Aid, Relief, and Economic Security) funding. So Noam Chomsky writes a lot about the fact that you starve the government, it can't do its job well; you say they're incompetent, so you take more money away from them. And then you get to this point where there's no funding available to provide services. I think we are very capable of providing services with appropriate funding. And one of the things that Michelle talked about was the need to have better data to do really targeted giving, and I think that we as the County government have that targeted data to understand where money is most wisely spent, most effectively spent. And most nonprofits have probably about a ten percent overhead. So when we talk about the money going to those nonprofits, maybe only 90 percent of that is actually going to be used for whatever service they Page 19 FC -3 February 2, 2021 provide; whereas as the County government, we already have that overhead covered and so we could use the full benefit of the 100 percent. And finally, I want to talk about the uncertainty, you know, going to the future, what kind of funding the State is trying to muck with TAT again. I hope you guys are paying attention, I think it's Bill 136. We willHSAC (Hawai`i State Association of Counties) will be testifying on that. But anyway, there are a lot of uncertainty about our income coming in. So I do want to have the tax discussion. Thank you for initiating this, Aaron. But those are some of my concerns with this bill as it stands right now. Mahalo. CHR KANEALI`I-KLEINFELDER: Mahalo, Ms. Kimball. Mr. Inaba, go ahead. MR. INABA: Aloha. In the interest of time and all of the mana`o that was already shared, I don't have an additional concern that wasn't shared by one of my colleagues or someone here from the department. So I do look forward to a future version of this bill, and I think the intention behind it was good. So mahalo, Mr. Chung, for bringing this forward. I yield. CHR KANEALI`I-KLEINFELDER: Thank you, Mr. Inaba, for being succinct. Mr. Chung. MR. CHUNG: Yeah. Really, you know, I say tomato, you say tomato, right? And then we all respect one another, you know. You know, I really do credit Ms. Kimball, in particular; I mean, she's looking at it from a public policy standpoint, and that's what we're here to do. We are public policymakers. And it—you know, she might look at it differently from me, but we really have to look at it from that standpoint. There are of course major fiscal ramifications on this to our own budget. But let me first address something that was brought up by Ms. Villegas. Now she was asking about the legality. I wasn't too clear, and I didn't want to interrupt her, but I thought she meant whether this bill, as drafted was legal. I could be wrong. There are two questions here: whether this bill is, as drafted, is legal, which it is because we can do that kind of stuff, or whether the two-tier taxing structure is legal, the underlying legislation. Now I don't want to really get into that in public, I think we have to do it in Executive Session. But I will say this, our taxing structure is different from City and County, that is the one that was upheld. That is the one where said there were commerce clause concerns, which were addressed by City and County in its application of this taxing system, but ours is different. I'm going to leave it at that, okay? So another thing was brought up, too. And everybody has their—are entitled to their opinions. But this—you could look at it as benefitting the top richest Page 20 FC -3 February 2, 2021 one percent. I look at this as being a mechanism to help the poor people. This is geared towards funneling a large amount of money into the hands of nonprofits and for homeless initiatives? This is intended to help the poor, plain and simple. I agree with Ms. Kimball. This is based on a person's view that may be self-determination, as Mr. Richards coined the phrase, is what we're trying to achieve here; and Ms. Kimball is saying, well maybe not because it's like a commentary, a negative commentary against what government can do in its allocation of resources. But let's not forget, this two-tier tax, the people who are being affected never had to pay this thing before until last year. This is something that is new. So should it come to the County? I mean, was it fair for—you know, we're talking about ad valorem, right, as value types of things. Well, I'll just leave it at that. You know, there are so many philosophical and legal questions, and really I respect them all. I understand we all come from different backgrounds, and we have viewpoint on things. And nothing is incorrect on this one, but that's why I wanted input on it. But if you don't want—if you don't like it, just say you don't like it and then we'll leave at that. But anyone who wants to contribute some ideas as how we could make it better, just let me know, either now or later. Because I intend to ask for a deferral on this matter. I think that's the wisest thing to do. And if nobody has any more questions or comments—well maybe, Mr. Chairman, you CHR KANEALI`I-KLEINFELDER: Thank you, Mr. Chung. Yeah, I mean a lot of the comments were raised, and I think they're all valid. I didn't hear any comments that didn't seem inline. To touch onI think to fulfill what I heard Rebecca say was right now our County has one of the lowest positivity rates in the nation for COVID. And we are seen as like a COVID haven; properties are flying the market in Kona and around the island. I don't think that we've affected peoples want to live here. We've actually increased it by keeping our community safe. We have a budget that is going to be hurting, and we know that, And a bill right now designed to remove $10 million from the budget, I don't think it would be in people's best benefit, which touches on public process, which Heather Kimball touched on, and what you've touched on, Mr. Chung, as well. Ultimately, I think we need the taxes right now, and this is not a good time for this bill. I like the idea of what you're saying, is give it to the homeless people, give it to homeless programs and nonprofits. But as was said by Deanna, I mean we did. We upped it $2.5 million to our NGIA process, the Page 21 FC -3 February 2, 2021 nonprofit grant-in-aid. I watched millions of dollars go to this County in their nonprofits. We have state, federal funding available for nonprofits. It was expressed today that although this is COVID, and the economy is really hurting, there's been a huge amount of outpouring from the community and from private benefactors to nonprofits already, which more so pushes me away from agreeing with this bill than agreeing with the bill. Steve, you brought up a really good point regarding IRS, which is a thought I had last night. Which you can write off your tax donations already; so we're allowing someone to write them off, not only once by twice. Which raises an interesting double-dipping question, and I think that falls into a legality aspect, of how is this legal. Can you double -dip on your property—on a tax exemption or a tax deduction into two different areas at the same time? I think that's a very good question. I don't have the answer for that. That would be needed to be answered before you can move ahead with this. But yeah, I think a lot of the comments brought up today were very good and proper. And I think this bill needs work. I will agree this needs to be deferred and then pushed into Committees, until you bring back a bill that's a little bit more thorough, that can make all of us happy. I would not support the bill the way that it is today, and I think you know that already. Thank you for this bringing this about. I do have to say, you know, good job bringing a bill forward. That's good. It's hard. It's not an easy process. So thank you for having the tenacity to bring it forward and to not tell anybody what you were doing until today, if that's true. But with that said, you know, thank you for your time. I thinkAaron, do you want to make a motion to defer? You have any further comments? MR. CHUNG: Yeah, I have one further comment. You know, I'm glad you jogged my memory on this. Because Ms. Villegas had brought it up, you know, she said about the "mass exodus." But we all know that people are now buying into Hawaii County sight unseen. We know that, right? But I never said that the mass exodus was my concern. My concern, I'm going to reiterate, was the deleterious effect it may have on the affected landowners to now give to our community. That was the concern. The mass exodus was something that was brought up during the course of the testimony. But that had no bearing on my bringing this matter forward. So I just wanted to make that point so that there's no misunderstanding. But having said that, I will make a motion to defer to the call of the Chair, and I'll work with the Chair in that regard, to—I'll make a request to have it come back. Page 22 FC -3 February 2, 2021 But I will say this also before I go on, I'm only going to try and incorporate those concerns that were brought up today as much as possible. Because it seems that some people—some members are against the concept to begin with, and that's fine. That is the prerogative of each Council Member. But for those who did bring up concerns, I will try to work on them and put together something that I hope will be palatable at some point. Okay, thank you. I make a motion defer to the call of the Chair. Vote on Motion Mr. Chung moved to postpone Bill 18 to the call of the to Postpone: Chair. Seconded by Ms. Lee Loy and carried by the (Approved) following voice vote: Ayes: Committee Members Chung, David, Inaba, Kierkiewicz, Kimball, Lee Loy, Richards, Villegas, and Chair Kaneali`i-Kleinfelder – 9. Noes: None. Absent: None. Excused: None. CHR. KANEALI`I-KLEINFELDER: That brings us to the end of our agenda. ADJOURN- There being no further business, at 4:12 p.m. Ms. Lee Loy moved to adjourn MENT: the meeting. Seconded by Mr. Richards and carried by the following voice vote: Ayes: Committee Members Chung, David, Inaba, Kierkiewicz, Kimball, Lee Loy, Richards, Villegas, and Chair Kaneali`i-Kleinfelder – 9. Noes: None. Absent: None. Excused: None. CHR. KANEALI`I-KLEINFELDER: Thank you very much. Approved: 3 << zl Mr. Matt Kaneali`i- KI infelde , Chair (date) Finance Committee MK/na Page 23