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HomeMy WebLinkAboutMIN FC 2024/06/18 (2022-2024)Committee on Finance 381h Session West Hawaii Civic Center 74-5044 Ane Keohokalole Highway, Building A Kailua-Kona, Hawaii June 18, 2024 CALL TO The regular meeting of the Committee on Finance was called to order ORDER: at 3:46 p.m., in the Council Chambers, Kailua-Kona, by Mr. Matt Kaneali`i-Kleinfelder, Chair. ROLL CALL: Present: Mr. Matt Kaneali`i-Kleinfelder, Chair Ms. Cindy Evans, Vice Chair Ms. Michelle M. Galimba, Member Mr. Holeka Goro Inaba, Member Ms. Jenn Kagiwada, Member Ms. Ashley L. Kierkiewicz, Member (via videoconference from Hilo) Ms. Heather L. Kimball, Member Ms. Susan L. K. Lee Loy, Member (via videoconference from Hilo, came in later) Ms. Rebecca Villegas, Member STATEMENTS The Chair directed the Committee to proceed to the next order of business, FROM THE Statements from the Public on Agenda Items. PUBLIC ON AGENDA ITEMS: (There were none.) CHR. KANEALI`I-KLEINFELDER: And for anyone watching, we are running a bit behind today. We were scheduled to start at 1:00 p.m. If you were wanting to testify on something, I do apologize. Our schedule has just been likely this afternoon. Mr. Clerk, can we go to the first order of business, Communication 12.33, please. COMMUNI- The Chair directed the Committee to proceed to the next order of business, CATIONS: Communications. Comm. 12.33: REPORT OF FUND TRANSFERS AUTHORIZED: MAY 1— 15, 2024 From Controller Kay Oshiro, dated May 17, 2024. Motion to Close File: Ms. Kimball moved to close file on Comm. 12.33. Seconded by Mr. Inaba. CHR. KANEALI`I-KLEINFELDER: Council Members, discussion on the measure? Council Member Kimball. FC-38 June 18, 2024 MS. KIMBALL: I'm sorry. No, Chair. CHR. KANEALI`I-KLEINFELDER: Okay. Council Member Kierkiewicz, checking in? MS. KIERKIEWICZ: We're good, Chair. Thank you. CHR. KANEALI`I-KLEINFELDER: Okay. Just for the record, this is a $3 million transfer. It is the end of the year. I've noticed towards the end of the year we do have hefty transfers being moved to different places in our budget to other places. It's always good to recognize where we have extra funds and where they are going to. With that, motion is on the floor to close file on Communication 12.33, all in favor? Vote on Comm. 12.33: The motion to close file on Comm. 12.33 was carried by Filed the following voice vote: Ayes: Committee Members Evans, Galimba, Inaba, Kagiwada, Kierkiewicz, Kimball, Villegas, and Chair Kaneali`i-Kleinfelder — 8. Noes: None. Absent: Committee Member Lee Loy — 1. Excused: None. Comm. 556.2: THIRD QUARTER REPORT OF UNCAPITALIZED DONATIONS: JANUARY 1— MARCH 31, 2024 From Finance Director Diane Nakagawa, dated May 30, 2024, transmitting the above report pursuant to Resolution 186-23. Motion to Close File: Ms. Kimball moved to close file on Comm. 556.2. Seconded by Mr. Inaba. CHR. KANEALI`I-KLEINFELDER: Any discussion, Council Members? MR.INABA: Yes. CHR. KANEALI`I-KLEINFELDER: Council Member Inaba. MR. INABA: Director, I'm looking at this and I see some travel for some departments who do have big travel budgets already. So, I'm wondering if these funds are in addition to what we see in the budget, or are they reported in the budget as actual expenses afterwards? (Note: At this time, Finance Director Diane Nakagawa came forward to address the members of the Committee) Page 2 FC-38 June 18, 2024 MS. NAKAGAWA: Good afternoon, Council Members. Diane Nakagawa, Finance. Council Member Inaba, this would be in addition to the funds that are budgeted in the department. So, these are normally travel expenses that are paid by the donors or the organization for our staff members to attend these various events, or conferences, or training. MR. INABA: Okay. Would those expenses be reflected in the actual expense columns of the budget when we see them, like for previous years? Because I see sometimes that the actuals are over the budgeted amount, so is that how that's happening, or are they spending money they don't have? MS. NAKAGAWA: Okay. I think I understand your question. And that is how do we identify that in the budget if it's a donation. I don't believe those are in what we see on the expenses, but if you would let me get back to you on exactly where you would be able to find them, I would be happy to do that. MR. INABA: Okay. Yeah. I just think it's important for us to know because some of these trips it seems are budgeted as well. So, you know, it could be a one-time donation, but I don't want us budgeting for travel or double dipping in that way when we're going to get potential donations. Specifically, my concerns are regarding travel obviously. So, thank you. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Evans. MS. EVANS: Thank you. I kind of would build on this discussion about the check and balance so we have accountability piece to this. I was looking up the donors that have actually paid for our County employees to go. Do we ever ask the donors if they are certified lobbyists, so we make sure they're reporting as lobbyists, their donations? I'm looking at some of the names of the donors and I believe they would be required to report it as lobbying expenses. So, you know, when we accept donations, is there kind of a checklist of forms or information they have to provide us? Diane? MS. NAKAGAWA: Yeah. Council Member, we'll have to check on that for you. I don't believe there's an exact form, but I'll go ahead and get that information for you. MS. EVANS: Thank you. I yield. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Kimball. MS. KIMBALL: Yeah. I just want to take this opportunity to thank our various partners, the federal and state level as well as community members for their donations in support of the County. Thank you. Page 3 FC-38 June 18, 2024 CHR. KANEALI`I-KLEINFELDER: Thank you for that. Council Members in Hilo? Okay. Seeing no further discussion, motion is on the floor to close file on Communication 556.2, all in favor? Vote on Comm. 556.2: The motion to close file on Comm. 556.2 was carried by Filed the following voice vote: Ayes: Committee Members Evans, Galimba, Inaba, Kagiwada, Kierkiewicz, Kimball, Lee Loy, Villegas, and Chair Kaneali`i-Kleinfelder — 9. Noes: None. Absent: None. Excused: None. CHR. KANEALI`I-KLEINFELDER: Let the record reflect Ms. Lee Loy has joined us. Resolution 537-24, please. ORDER OF The Chair directed the Committee to proceed to the next order of business, RESOLUTIONS: Order of Resolutions. Res. 537-24: AUTHORIZES THE PAYMENT OF FUNDS OF A LATER FISCAL YEAR AND OF MORE THAN ONE FISCAL YEAR FOR A MULTI -YEAR LEASE OF REAL PROPERTY FOR THE COUNTY OF HAWAI`I IN KEA`AU, DISTRICT OF PUNA Authorizes the Mayor to enter into a five-year lease agreement with an option to extend for two additional five-year terms with Milo Storage, LLC, for approximately 800 square feet of warehouse space. Reference: Comm.902 Intr. by: Mr. Kaneali`i-Kleinfelder (B/R) Motion to Approve: Ms. Kimball moved to recommend adoption of Res. 537-24. Seconded by Mr. Inaba. CHR. KANEALI`I-KLEINFELDER: Council Members, discussion on the resolution? We do have Mr. Ventura here to answer any questions should there be any. Okay, hearing and seeing none. Mr. Ventura, we've done this before I believe. Is this a separate space, same space? (Note: At this time, Property Manager Hamana Ventura came forward to address the members of the Committee) MR. VENTURA: Same location. There are actually three units available, two of them which we already lease out, so this will give us continuity. Page 4 FC-38 June 18, 2024 CHR. KANEALI`I-KLEINFELDER: So, we're leasing three of the three? MR. VENTURA: At this point. CHR. KANEALI`I-KLEINFELDER: Okay. Are we getting a price break because we basically took over the whole facility at this point? MR. VENTURA: Pardon me? CHR. KANEALI`I-KLEINFELDER: Are we getting a price break because we've taken over the whole facility at this point? MR. VENTURA: We're close. CHR. KANEALI`I-KLEINFELDER: Okay. Thank you for being here. Appreciate you. MR. VENTURA: Mahalo. CHR. KANEALI`I-KLEINFELDER: Okay. We have a motion on the floor. Seeing no further discussion. Motion is forwarding Resolution 537-24 to Council with a favorable recommendation. All in favor? Vote on Res. 537-24: The motion to recommend adoption of Res. 537-24 was (Approved) carried by the following voice vote: Ayes: Committee Members Evans, Galimba, Inaba, Kagiwada, Kierkiewicz, Kimball, Lee Loy, Villegas, and Chair Kaneali`i-Kleinfelder — 9. Noes: None. Absent: None. Excused: None. CHR. KANEALI`I-KLEINFELDER: Resolution 538, please. Res. 538-24: AUTHORIZES THE ACCEPTANCE OF ALL DONATIONS OF SECURITIES OR PERSONAL PROPERTY TO THE COUNTY OF HAWAI`I WITHIN THE 2024-2025 FISCAL YEAR THAT ARE NOT COVERED BY THE DEPARTMENT OF FINANCE' S CAPITALIZATION PROCEDURES Provides County Council pre -authorization for the County to accept donations that are not covered by the Finance Department's capitalization procedures for Fiscal Year 2024-2025. Reference: Comm.903 Intr. by: Mr. Kaneali`i-Kleinfelder (B/R) Page 5 FC-38 Motion to Approve: June 18, 2024 Ms. Kimball moved to recommend adoption of Res. 538-24. Seconded by Mr. Inaba: CHR. KANEALI`I-KLEINFELDER: Council Members, any discussion on the resolution? We do have our Finance Director in Hilo Chambers for questions. Council Member Galimba. MS. GALIMBA: Thank you. Just a question about what the nature of these commodities that are covered by the Department of Finance's Capitalization procedures. If you could give me an example of what those might be, I'd appreciate that? (Note: At this time, Finance Director. Diane Nakagawa came forward to address the members of the Committee.) MS. NAKAGAWA: Of course, Council Member. So, this is in relation to exactly the item we heard a few minutes ago. So, this allows us to accept the donation and bring forward to you the quarterly reports on these donations such as the travel we just talked about or the smaller donations. So, this just allows us a little bit of efficiency to be able to go ahead, accept it, and then bring this report to you quarterly. 4 MS. GALE\4BA: Thanks very much. I was unclear about the word commodity as like I tend to think of like, you know, grain and beef and those kind of things. So, commodities have an even broader definition here. Thanks very much. MS. NAKAGAWA: You're welcome. CHR. KANEALI`I-KLEINFELDER: Thank you. Is there any further — MS. KIERKIEWICZ: Chair? CHR. KANEALI`I-KLEINFELDER: Council Member? MS. KIERKIEWICZ: Kierkiewicz. CHR. KANEALI`I-KLEINFELDER: Kierkiewicz, go ahead. MS. KIERKIEWICZ: Thank you. I don't think Council Member Galimba was on the Council when Council Member Aaron Chung had actually introduced this resolution. Prior to receiving any donation at the County, the Council would have to adopt a resolution. And so, if you can take a look at the capitalization report that we've just acccepted, that is 27 different resolutions that are coming before the Council. And often times we were restricted from being able to do anything, with said donation without passage of the resolution. Page 6 FC-38 June 18, 2024 So, in his genius, he introduced this. And so, every quarter we now get a report just kind of acknowledging all the donations that have come through. But it really has helped because sometimes in a disaster situation, we as a County need to be able to utilize that equipment out of donation at a moments notice, and this just makes everything more efficient. So, just a little bit of historical overview for the intention behind this resolution. Thank you, Chair. I appreciate the latitude. CHR. KANEALI`I-KLEINFELDER: Thank you. Okay. Seeing no further discussion, we have the motion on the floor to forward Resolution 538-24 to Council with a favorable recommendation. All in favor? Vote on Res. 538-24: The motion to recommend adoption of Res. 538-24 was (Approved) carried by the following voice vote: Ayes: Committee Members Evans, Galimba, Inaba, Kagiwada, Kierkiewicz, Kimball, Lee Loy, Villegas, and Chair Kdneali`i-Kleinfelder — 9. Noes: None. Absent: None. Excused: None. CHR. KANEALI`I-KLEINFELDER: Bill 173, please. Change Order As directed by the Chair and with no objection from the Committee Members, of Business: the following item was taken out of order: Bill 173: AMENDS CHAPTER 19, ARTICLE 7, SECTION 19-53 OF THE HAWAI`I COUNTY CODE 1983 (2016 EDITION, AS AMENDED), RELATING TO REAL PROPERTY VALUATION: CONSIDERATIONS IN FIXING Lowers the cap on annual increases to the assessed value for properties in the Homeowner and Affordable Rental Housing tax classifications from three percent to two and a half percent. Reference: Comm.904 Intr. by: Ms. Evans Motion to Approve: Ms. Evans moved to recommend passage of Bill 173 on first reading. Seconded by Mr. Inaba. CHR. KANEALI`I-KLEINFELDER: Council Member Evans, go ahead. MS. EVANS: Thank you. You know, what's really happened around the island and what I hear the communities talking about is inflation, inflation, the inability to afford living here. Our cost of housing and the prices on it has increased so drastically, and this bill is to address that. It's to look at those who live here that right now are getting the benefit of, if they qualify it's a three percent per tax year. Page 7 FC-38 June 18, 2024 So, the assessed value of the property shall not increase more than three percent per tax year until the parcel is sold or any portion thereof sold by way of conveyance. And this is really on a homeowner, someone who's a resident who qualifies for the homeowner exemption. What I'm recommending is we take the three percent per tax year and lower it to two and a half per tax year. CHR. KANEALI`I-KLEINFELDER: Thank you. MS. EVANS: And I did talk to Deanna Sako at one time, and I believe maybe Diane. But I talked to Deanna about this a while back, before she became our Managing Director. And I also talked to Lisa, and I believe the numbers were run in terms of what the impact would be. And we do have Keita Jo here. And I'd love to invite you up and tell us what the impact would be. (Note: At this time, Real Property Tax Assistant Administrator Keita Jo came up to address the members of the Committee.) MR. JO: Good afternoon, Council. Keita Jo, Assistant Administrator for Real Property Tax Division. We did run the numbers, and as far as a two percent cap in the first year, we're estimating a loss in revenue approximately $380,000. CHR. KANEALI`I-KLEINFELDER: Sorry, Mr. Jo. This is two and a half? MR. JO: Correct. The two and a half percent. Sorry. CHR. KANEALI`I-KLEEVFELDER: Okay. Thank you. MS. EVANS: Okay. Thank you. Members, I ask for your favorable support. Thank you. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Members, discussion? Okay. Mr. Inaba. MR. INABA: Yeah. I think the idea is great if rather than adjusting rates, there's benefit and there's not —I don't know if the .5 percent is, you know, like enough. But I like the idea and would like to think about it a little bit more. But I'm supportive today. Thank you. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Kimball. MS. KIMBALL: I'm just going to say it. I'm actually a no on this. I think we've got to wait and see how all of the other adjustments we've made settle out before we tack on one more change. So, you know, interested in further discussions and hearing from my colleagues, but I'm not ready to support this today. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Galimba. Page 8 FC-38 June 18, 2024 MS. GALIMBA: The other part of it all was this, so the effort versus reward. So, on the part of the RPT (Real Property Tax) that, you know, also want to take into consideration, is this fairly simple, just change the number in the computer, or is this going to require more extensive work than that? MR. JO: So, the programming itself in our system is manageable to a small extent. There are some concerns on the bill with regard to. Section G. That was a carryover from when the ordinance was originally passed, and it impacts individuals that enter into the homeowners prior to January 1, 2004. And so, by changing the language in that section to two and a half percent, there is a concern by the division whether we have to go back in time and readjust the caps for properties that were entered into this program prior to January 1, 2004. It's just the way that it reads. It really wasn't too much of an issue when it was always three percent, but if we're changing it now, do we have to go back. And so, we would just need clarification on if that's the intent and if it does require some change in the language of the bill. MS. GALIMBA: Thanks very much. Yeah, I generally like the idea, of course, of providing relief. I guess the only thing I'm thinking about really is, as previously discussed around this, whether we can find a way that is more targeted to be as progressive as possible. With that, I yield. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Kagiwada. MS. KAGIWADA: Thank you. Yeah. Similarly, that's kind of what I was thinking is like once again, this really benefits the high -end homeowners a lot more than it benefits the low -end homeowners. So, I just want to think about it more. I like the intent of helping our residents and helping our homeowners. Once again though, it seems like the people that can most afford to contribute to our, you know, County services with their taxes and everything, are getting a much bigger benefit than those who can least afford it. So, I'd like to think about it a little more. I'm also wondering, from Real Property Tax, would this have a compounding issue? It's like, could you, say like out over ten years what kind of tax revenue loss we might see, or would it be the same each year? MR. JO: So, in prior testimony on other bills that were presented, there's this idea that there, in this case, the half percent would compound year to year. Now, we'd have to take a look at the details of how many people are going in and out of the home exemption program, but assuming that that half percent carries over, in the first year, the reduction would be $380,000, and then in the successive year, you would double that, and then it would run double again. And so, within the course of, you know, five years you might be talking about $2 million revenue reduction within that particular year. MS. KAGIWADA: And in the course of ten years then? Page 9 FC-38 June 18, 2024 MR. JO: If you were to extend it out, I mean, it just keeps compounding. MS. KAGIWADA: Doubling. MR. JO: Yeah. So, there was discussion about progressiveness. And so, the division usually shies away from caps because it's not seen as progressive. A more appropriate place for progressive tax would be to increase the exemption amounts or provide it in that manner. MS. KAGIWADA: Okay. Thank you. CHR. KANEALI`I-KLEINFELDER: Thank you. Going to Hilo. MS. LEE LOY: Yes, Chair. CHR. KANEALI`I-KLEINFELDER: Council Member Lee Loy. MS. LEE LOY: Thank you so much. I actually am not going to be supporting this. We've spent a lot of time tinkering with our real property tax rates. I think there's still some refinement in some of the areas, like my colleague Ms. Kagiwada mentioned, about properties on the higher end actually getting a tax break, and really asking the question out loud. I get it. I know who we're trying to help and there's times when we'll end up, others will get advantages. I think there might be a better way at refining other sections of our real property tax code, especially our residential category. So, I'm not in support of this, not at this time. I yield. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Evans. MS. EVANS: Yes. Okay. I have a question. I know when we talked about raising for the homeowners' class for people that were 80 (years) and older, when we're looking at people and what the values of their homes were, and we really didn't have that many people that were homeowners that had the more expensive homes because a lot of them are really second homes, third homes, fourth homes. I guess I'm really feeling —why I'm feeling that we should do it now is because what's happening is I believe is what's happened is people have come in over the last, since the end of COVID (Coronavirus Disease), people have moving in and paying these amazing prices for homes. And I'm getting phone calls saying people have spent their whole life here, they've never seen their assessed values jump so fast and so quickly. And I just want to make sure that the people that are here, the local people that are here, get the benefit. And if there is some people that have higher home, you know, people with higher assessed values, then I would say maybe that's where the Council should look at if somebody's house got assessed at $5 million or more, we give that residential tier. I think we have residential tiers; we could tier them up. We Page 10 FC-38 June 18, 2024 could say, Tier 1, Tier 2, if that the value of your house is this, we'll increase your taxes. If it's this, we'll increase taxes. I think there is a way to tax people that maybe have these, you know, there's one person I think that has a $17 million home that just bought into our community in Kukio I believe it was, or maybe Mauna Kea. But anyway, we're having a lot of assessed values jumping extremely quickly. I just think this is good to do it at this time. If for some reason, two, three, four, five years from now, this will not stop future Council, in terms of changing this again. You know, I mean this is not in perpetuity. And your response about, for properties as of January 1, 2004, we can just make this to date perspective. You know, the effective date is when this becomes, you know, people who are homeowners today, and in the future would get this benefit. I could see that as a way forward that would not impact you, and your program and your staff, and you have to go back and look at all the homes from 2004, right? I think there's a way around it. I would love to talk to you more about it offline and bring back an amendment to the body for consideration. So, anyway that's my thoughts. Thank you. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Kimball. MS. KIMBALL: Yeah. With a little bit of leeway, Chair. I just wanted to make sure, you know, I get calls too from folks about values going up from other properties being sold around. Just want to be super, super clear, when you're in the homeowners' class, it's three percent. But if you're making the choice to be in the dedicated ag or the nondedicated ag program until recently when Council Member Inaba added them to the three percent class, they would see a huge jump. And so, want to make clear, Council Member Evans, when you're talking to your constituents that they're aware that at some point they made a choice about whether or not they wanted to be in one of these programs where they have a cap that protects them or not. And I think that's important for folks to understand because otherwise, you know, they will see if they're not in the homeowners' class, they're not going to have that protection. And that's a choice to get the benefit of being in the ag program. So, just wanted to make sure that was clear. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Kierkiewicz, discussion? MS. KIERKIEWICZ: Thank you, Chair. I won't be supporting the measure today. I think we've done a lot of tinkering to Chapter 19, and it makes sense to just let things settle and reevaluate in a couple of years. Thank you. CHR. KANEALI`I-KLEINFELDER: Thank you. Okay, Council Member Evans. Okay. Before I do, I can see where you're headed. I'm open to giving you a chance to find some amendments. I'm hearing that this isn't a huge impact Page 11 FC-38 June 18, 2024 on the County budget. Mr. Jo, you said $380,000? And that's just a single point and time, correct, not a year over year over year? MR. JO: Correct. In the first year. CHR. KANEALI`I-KLEINFELDER: And then if assessments were to go up, would it be the same? MR. JO: Yes. So, the $380,000 is just assuming that the cap is always going to be below whatever the market is, so people are seeing a benefit of that cap. So, it's only going to go up two and a half percent year to year to year, rather than three. CHR. KANEALI`I-KLEINFELDER: Thank you. Well, I'm open to seeing your changes, and you want to go ahead and go for the vote? Okay. Motion is on the floor to forward Bill 173 to Council with a favorable recommendation. All in favor? Sorry, we need a roll call because we're in two locations. Roll call vote, Mr. Clerk. Thank you. Vote on Bill 173: The motion to recommend passage of Bill 173 on first Failed reading was carried by the following roll call vote: Ayes: Committee Members Evans, Galimba, and Chair Kdneali`i-Kleinfelder — 3. Noes: Committee Members Kagiwada, Kierkiewicz, Kimball, and Lee Loy — 4. Absent: Committee Members Inaba and Villegas — 2. Excused: None. CHR. KANEALI`I-KLEINFELDER: Thank you. Let's go to Bill 104, please. Return to Order The Chair directed the Committee to return to the order of business. of Business: BILLS FOR The Chair directed the Committee to proceed to the next order of business, ORDINANCES: Bills for Ordinances. (Note: Items in this category were taken up previously, out of order.) Page 12 FC-38 STATEMENTS FROM THE PUBLIC ON BILL 104: (DRAFT 5) June 18, 2024 The Chair directed the Committee to proceed to the next order of business, Statements from the Public on Bill 104, Draft 5. The following individual registered to speak and came forward when called by the Chair: Connie Goff: Bill 104, Draft 5 (Comm. 600.39), in opposition. Bill 104: AMENDS CHAPTER 19, ARTICLE 1, SECTION 19-2; CHAPTER 19, (Draft 5) ARTICLE 7, SECTION 19-53; AND CHAPTER 19, ARTICLE 11, SECTION 19-90, OF THE HAWAI`I COUNTY CODE 1983 (2016 EDITION, AS AMENDED), RELATING TO THE CREATION OF A LONG-TERM RENTAL CLASS FOR REAL PROPERTY TAXES Establishes a Long -Term Rental tax assignment classification for properties that are occupied under a lease for at least 12 consecutive months and under a signed lease for six consecutive months or more to the same tenant. Reference: Comm.600.39 Intr. by: Ms. Kagiwada and Ms. Galimba Postponed: December 5 and 19, 2023; January 23, February 6 and 20, 2024 (Note: There is a motion by Ms. Kagiwada, seconded by Ms. Galimba to recommend passage of Bill 104, Draft 5, on first reading.) CHR. KANEALI`I-KLEINFELDER: Council Member Galimba, go ahead. MS. GALIMBA: Thank you, Chair. So, yes, we are bringing this back and since it's been a minute since we've looked at this, I just wanted to go over it real quickly again. So, this 104 is a voluntary tax incentive to incentivize folks to put their properties into long-term rental and by that to help with our lack of housing in our County, which other folks have said before today is a crisis and is leading to folks leaving our state and our County. So, it's a pretty simple bill just adding a new tax class to Chapter 19. And the long-term rental class requires that the real property be occupied for twelve consecutive months and under a signed lease for six consecutive months. I just wanted to mention that in this Draft 5, we have changed the effective date to January 1, 2026, so as to allow for enough time for this to be implemented properly by RPT. And we do have an amendment that will further simplify this bill and I will look to Council Member Kagiwada for that. MS. KAGIWADA: Chair? CHR. KANEALI`I-KLEINFELDER: Ms. Kagiwada, go ahead. Page 13 FC-38 June 18, 2024 MS. KAGIWADA: So, yeah. So, really at this point this bill is really just to. create a separate tax class for long-term rentals. And the reason is that long-term rentals, vacant homes, vacation homes, short-term rentals, are all currently in one tax class right now, and we do not think that long-term rentals belongs in the same tax class with vacant homes, vacation homes, and short-term rentals. So, that's basically it. I do have an amendment to actually take out anything about what the long-term rental rate shall be, and just to leave that up to this body to decide next May when we get there. So, just all it would be then is taking out, is making the separate tax class. Motion to Amend: Ms. Kagiwada moved to amend Bill 104, Draft 5, with the contents of Comm. 600.40. Seconded by Ms. Galimba. CHR. KANEALI`I-KLEINFELDER: Council Members, discussion on the amendment? Member Kagiwada. MS. KAGIWADA: Just would like to hear any feedback from people. We're just trying to make this as simple as possible. The main idea is to create that separate tax class. In this case, we are taking out the suggested rate and just going to leave that up to the Council to decide next May. Love to hear any feedback on the amendment. CHR. KANEALI`I-KLEINFELDER: Thank you. MS. LEE LOY: Yes, Chair. Please. CHR. KANEALI`I-KLEINFELDER: Council Member Lee Loy. MS. LEE LOY: Yeah. I actually am in support of this approach. I think there's a lot of information that we can still look at while all the rest of our adjustments to the tax code kind of sets. But what I hear very clearly is we're just creating the category, we're not going to set the rates, we're just going to have like a placeholder. Is that a fair assessment to the maker? MS. KAGIWADA: That is correct. That's what we want to do. We just want to create that so that long-term rentals are no longer in the same category with vacant homes, vacation homes, and short-term rentals. MS. LEE LOY: Yeah. Thank you. Thank you. In support. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Evans, you had your light on? MS. EVANS: Yeah, maybe I got it. So, it will have to go on the rate table, and someone will have to determine what the rate is. So, the expectation is that will be done. I don't know if that would be done by ordinance or resolution? I'm just Page 14 FC-38 June 18, 2024 trying to think. It will be resolution. That will get it on the rate table with the amount, and can we do that at any time, or do we have to wait until the month of May? Yeah, please, Keita Jo. Just so the public knows here we're setting something up and we've got to wait. But now we have to wait quite a while so I'm just kind of curious. (Note: At this time, Real Property Tax Assistant Administrator Keita Jo came up to address the members of the Committee.) MR. JO: Keita Jo, Assistant Administrator for Real Property Tax. The division establishes, so if this passes, the division would establish the program in order to put the assessments for individuals who choose to participate in this new tax classification. We would put that in another bucket, so to speak, and it would show up on our certification as provided to Council. At that May hearing or that May timeframe when Council's establishing what the budgetary requirements are for revenues, that's when Council would establish a tax rate for that specific class as well as all the other classes in order to balance the budget and ensure. MS. EVANS: I think that's good for all of us to know that if this passes, we won't know what the rate is until next May. Okay. Thank you. I yield. CHR. KANEALI`I-KLEEsTFELDER: Thank you. Council Member Kierkiewicz. MS. KIERKIEWICZ: Thank you, Chair. Keita, can you help me walk through the mechanics? If we create a placeholder but there's no rate, what are we expecting —what will our annual revenue look like for a class where there's no rate established? I'm just trying to understand because we, you know, budget is very difficult, and we went through the ringer this year in just really trying to balance a lot of different priorities. And so, I struggle to create a class with no rate attached. And again, can you help me understand the mechanics of how this would work that way, you know, when the assessments are done, we will have a sense of what kind of revenues we can expect as a County. MR. JO: So, I would imagine that, as with any other budget cycle, we provide the net taxable value for each tax classification. The Mayor submits his or her draft budget, which is inclusive of the rates that they would like Council to adopt. And so, by virtue of connecting those two dots, then you can establish how much revenue is coming in per tax class. And so, any point in that process, Council can utilize its power to adjust the rates, increase them or decrease them accordingly. And so that's typically how the process works. So, we actually never know what the rates are going to be until after Council affirms that resolution or passes that resolution. MS. KIERKIEWICZ: Director Nakagawa, do you want to chime in over here? Yeah. Page 15 FC-38 June 18, 2024 (Note: At this time, Finance Director Diane Nakagawa came forward to address the members of the Committee.) MS. NAKAGAWA: Keita Jo, Assistant Administrator, just for clarification. The question I believe is being asked is what would be used in the estimation of — what rate would be used to give that first estimate? MR. JO: I think that would be part of an initial discussion with administration to establish what that rate would be. I mean, we would provide the assessed value associated with that rate. But would it start off as the same as the residential rate or would the Mayor choose to decrease the rate or, go half way between a homeowners' rate and a residential rate. I think that's the decision that would happen at the administrative end. MS. KIERKIEWICZ: So, folks are going to opt into a class, but they're not quite sure what the rate is yet? It's kind of a wait and see game and we'll try to balance the budget based on how many people have entered that class? But we don't know if they'll stay in because they don't know how much they're going to be charged. MS. KAGIWADA: That's —may I speak, Chair? CHR. KANEALI`I-KLEINFELDER: Council Member Kierkiewicz, Ms. Kagiwada would like to respond. Go ahead, Ms. Kagiwada. MS. KAGIWADA: Sorry. To my colleagues, just so everybody is clear. This program is not to start until January 2026. So, we'd be setting the rates and then people would be entering the program voluntarily if they'd like to once the rates are already set. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Kierkiewicz. MS. KIERKIEWICZ: That's helpful clarification. I still want to simmer on this. We've tinkered a lot, and I don't even know if we've given ourselves time to really truly appreciate and understand the impacts of all of the changes that we've made to Chapter 19. I'll support the amendment, but I haven't decided if I'm going to be, you know, casting a vote in favor of 104. Thank you. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Kimball. MS. KIMBALL: Yeah. It occurred to me with respect to this amendment, but actually to the larger bill as a whole, that if it doesn't take effect until the 2026, then the category doesn't exist for us to set the rate for it in May 2025, right? MR. JO: I don't know that legalities of whether the rate comes before the assessments. Page 16 FC-38 June 18, 2024 MS. KIMBALL: I think we put in the current I think there's a timing issue here. MR. JO: Yeah, yeah. MS. KIMBALL: Because if you haven't created that class until January 2026, you cannot set the rates in May 2025, which is necessary to make that decision. MS. KAGIWADA: I think there's a difference between create —and correct me if I'm wrong. Creating.the class and opening the program, I guess those might be two different things? CHR. KANEALI`I-KLEINFELDER: Just keep the conversation tight. I'm going to give Council Member Kimball the floor. MS. KIMBALL: But I'm going to suggest, Council Members Kagiwada and Galimba, is I think we have to revisit the timing of the whole thing, but maybe suggest proposal of an initial rate at maybe at the residential rate, or something like that and then keep this other language that —I think what I remember from the previous conversation is people wanted the flexibility to set the rate rather than having it fixed at 130 percent. But maybe we just need a starting rate here rather than the floor. But I think there's also a timing problem. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Kagiwada. MS. KAGIWADA: Okay. Yeah. Nobody had brought that up before, so I guess we do need to look at that. Thank you, colleagues, for bringing that up. I'm happy to look at it and I'm happy to set it at its current rate alongside residential. Like I said, I think we just wanted to create this separate bucket so that when you look as a whole at, you know, tax rates, we don't keep getting stuck and saying we can't possibly change this without hurting these people, or we can't possibly do this, you know, here and there. And that's where I felt, you know, even when we were looking at proposals this year there was a bit of headache on, you know, feeling like we had to avoid residential rates or something like that because we knew it would also hurt people that were doing long-term rentals. And I would just like it to be very clear that long-term rental seem to me, and Council Member Galimba and I have talked about this, it's very different than vacant homes, vacation homes, and short-term rentals. So, once again, just looking to create that separation there for different types of real property tax classes. Happy to go back and look at it again, and happy to keep it as simple as possible, and fine with it being the same rate as residential and just not changing anything, just separating it out. So, anyway, I'd just like to hear more from people. CHR. KANEALI`I-KLEINFELDER: Thank you. We are on the amendment. Page 17 FC-38 June 18, 2024 MS. LEE LOY: Chair, on the amendment. CHR. KANEALI`I-KLEINFELDER: I'm going to go to Council Member Galimba and then I'll go to you, Council Member Lee Loy. MS. LEE LOY: Thank you. MS. GALIMBA: Sorry. Go ahead. Ms. Lee Loy has more to say on the amendment. CHR. KANEALI`I-KLEINFELDER: Okay. Council Member Lee Loy. MS. LEE LOY: Again, in support of this amendment. I often view this residential category as the junk drawer of rates. We have very specific rates for hotel, for commercial, for homeowners, for rental, and this is the catchall. And what I understand the authors to be doing is trying to tailor it out. I do hear my other colleague about the timing, and I think that can be addressed with setting these dates out a little further, which also gives us a little bit more opportunity to have some of the edits that we've done in that past and the tinkering that we've done in the past get set. But I do support making sure that this residential category and how we tax it is being done in a manner that it actually addresses all the different categories within that residential, because that other one is residential vacant land. And just as a personal aside, my daughter has a property, residential, and is paying more taxes because she hasn't built her home on it to get to the homeowners' category, while I have Ag, and I pay less than her. And so, how do we hope to get people into housing if they buy a property and their land tax is so high that they struggle with qualifying for a home. So, I really urge my colleagues to think about this one. I think we can solve it with kicking the date a little further out. But I think this is one area we can address. I yield. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Galimba. MS. GALIMBA: Thanks. I think we are very open to dealing with this timing issue and making sure that it works. Yeah, just wanted to thank our colleagues for pointing that out. And I guess I'll wait for the other comments on the main motion. CHR. KANEALI`I-KLEINFELDER: Thank you. Okay, Council Member Kagiwada. MS. KAGIWADA: I was just going to say maybe the amendment not setting a rate is part of the problem. I mean, the reason we took out the —the reason we made this amendment is because it seemed like nobody wanted to deal with trying to set a rate now. So, we took that out of the equation. But now that seems to Page 18 FC-38 June 18, 2024 have a problem that we don't have a rate. So, anyway, happy to deal with the timing issues and look at that again. Thank you for all the input. CHR. KANEALI`I-KLEINFELDER: Council Member Kimball. MS. KIMBALL: Yeah, I just want to clarify, my position is that we didn't want to be locked into a rate that was always going to be 130 percent of the affordable. So, this amendment fixes that but I think in addition we also need a starting rate. Yeah. So, I would say I'm going to support this amendment now. I would like to see a further amendment that actually suggests that initial starting rate and then we would have some flexibility from there. But yeah. Okay. CHR. KANEALI`I-KLEINFELDER: Thank you. MS. LEE LOY: Chair. Sorry. CHR. KANEALI`I-KLEINFELDER: Council Member Lee Loy, on the amendment. MS, LEE LOY: On the amendment. And offering more food for thought, you know, the GE (General Excise) is going to sunset, unless something happens. So, this might be the way for us to forecast an opportunity to capture dollars in anticipation of that. Just suggesting. I yield. CHR. KANEALI`I-KLEINFELDER: Thank you. Okay, seeing no further discussion, the motion to amend Bill 104, Draft 5, with the contents with Communication 600.40, is on the floor. All in favor? Vote on Motion The motion to amend Bill 104, Draft 5, with the contents of to Amend: Comm. 600.40 was carried by the following voice vote: (Approved) Ayes: Committee Members Evans, Galimba, Kagiwada, Kierkiewicz, Kimball, Lee Loy, Villegas, and Chair Kaneali`i-Kleinfelder — 8. Noes: None. Absent: Committee Member Inaba —1. Excused: None. CHR. KANEALI`I-KLEINFELDER: Back to the main motion, Bill 104, as amended. Council Member Evans. MS. EVANS: Thank you. I apologize to my colleagues. I wasn't here two weeks ago. I'm sure there was good discussion on this. But my question has to do with looking at the affordable housing category and this category, I'm sure there was a comment about do we —basically, is the owner of the property going to evaluate affordable housing rate versus long-term housing rate and which one Page 19 FC-38 June 18, 2024 is beneficial to me. And then do we move people away from —I guess you're trying to get people to do long-term affordable housing, and I'm just trying to make sure that we're just —when I'm thinking affordable housing and I'm going to explain it to the community. I understand affordable rental housing because I've had some of my constituents say that they have these income rental properties and they like the affordable housing rate that they get, and they have to sign some agreement to do that. And so, this would be again someone signing some agreement that says it's a long- term rental, and of course then they'd have to apply to the Real Property Tax Division, right, and fill out a form, and show you their —they would actually have to show their lease document? Is that correct, Keita Jo? MR. JO: That is correct. MS. EVANS: Okay. Okay. And right now, the affordable housing rental also has to show you their lease agreement? MR. JO: That's correct. MS. EVANS: Okay. I'm just hoping, you know, as it moves forward, I get a little more clarity if you were to stand and explain affordable versus long-term and how they compare to one another. Because to qualify for affordable housing, does the lease have to be longer than six months? MR. JO: So, the affordable housing program, they need to have an initial six- month lease with the expectation that the lease will be, the property will be leased throughout the year in order to get the affordable rental tax class. MS. EVANS: So, it's similar. So, would you mind explaining. If you were someone that owned property and you could do a rental of six months or more and get the affordable housing versus doing the long-term, which is six months more, what's really the difference? If, I don't know — MS. GALIMBA: I'm willing to take a shot at it and Keita Jo came also chime in if I'm forgetting some of the details of it. But just I think there's a lot more requirements to qualify for the affordable rental class, not least of which there's a rental limit on how much you can charge, which is tied to HUD (Housing and Urban Development) figures, I believe. And that amount is, I think, prohibitive for money homeowners or not attractive. We'll put it that way. And basically, there are very, very limited inventory of affordable housing units on this west side because of that very low rental rate that is allowed in the affordable rental class. So, that's one. Another thing is that it does need to be permitted and it needs to be exactly as permitted. So, if you, you know, changed anything about the unit at all then it Page 20 FC-38 June 18, 2024 potentially would fall out of being allowed in the affordable rental. So, those are the two main ones and sort of anecdotally, I've had someone say that, talking about comparing short-term vacation rental requirements and affordable rental class requirements, that they can do the short-term vacation rental very quickly, whereas it takes an entire day for this person to do all the paperwork in order to qualify their unit for an affordable rental. So, it can be very difficult from what I understand. I mean, it is an admirable class, and I think I'm very much in support of giving folks that incentive, but I think we also need to be realistic and see that we need to create incentives for folks that are not going to fit into that very stringent requirements of affordable rental class. Does that make sense? MS. EVANS: It does. May I do a follow up, Chair? CHR. KANEALI`I-KLEINFELDER: You still have the floor. MS. EVANS: Okay. I'm just kind of thinking kind of rolling it out in my mind. So, there's three -bedroom homes in Waikoloa running for $4,500a month that are probably valued at a million dollars. Okay. So, they can return to these one-year long-term lease at $4,500 a month and they would get a preferred tax rate because it's long-term, and it's not tied to any AMIs (Average Median Income). So basically, it's just not affordable for a lot of people. And so, I just want to, you know, whatever the rates, whatever you consider to plug in in terms of the rate. I'm just trying to thicken out the story, right. I'd rather with affordable housing give them a really good rate that's a long-term rental but keeps it down to — people are getting kicked out of their houses that were paying $3,000 a month, because the homeowners now know they can get $4,500 a month. But again it's about supply. So, it's just whenever you set the rate, just kind of play it out, how will it roll out. But I like the idea of the long-term rentals getting incentivized. My issue is just how it will get applied. Thank you. I yield. CHR. KANEALI`I-KLEWFELDER: Thank you. MS. GALIMBA: Can I? CHR. KANEALI`I-KLEINFELDER: Council Member Galimba. MS. GALIMBA: I just wanted to like answer you that with west side, there basically is no affordable rental inventory. So, it is an attempt to address that less than 100 units on the west side, and that's counting your district, the two Kona districts, or maybe it's a little over 100, counting all of that. But it's really minimal. And the other part of this that I really feel like we're trying to get ahead of the curve that Maui is drowning in, in having to do drastic measures. So, if we can nudge folks a little bit that they would only make $4,500 versus $10,000 with STVR (Short -Term Vacation Rental) we're possibly making some good —doing some good for our County. I yield. Page 21 FC-38 June 18, 2024 CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Villegas. MS. VILLEGAS: I just want to point out, quite frankly and then still, until we stop approving time extensions for large plots of land that then increase the value of the land, we don't end up with developers that can authentically build workforce housing. I live right here in West Hawaii. I know there are no rentals. But it's not because there aren't any homes. It's because we're disproportionately populated at this time, and it's causing extreme challenges reflected in multiple socio-economic issues. And as much as I appreciate this attempt, I also am not comfortable with continuing to tinker with our tax codes. I have people reaching out to me who work in the real estate industry completely confused about already homeowners are getting new tax bills, that they're getting charged more for having a long-term rental in their home. So, where's that make them land. And I want to thank Lisa (Miura) and you, sir, for your help clarifying that, but it caused quite a bit of panic. We've made a lot of changes to our tax codes in this term. And as far as I can see, you guys are really struggling to catch up. You're doing a great job, but it's challenging and you're finding the shortfalls but it's causing a lot of concern by people who are getting mixed messages. So, I just would say to the makers, if you, you know, I hear the passion for affordable housing, but I don't necessarily see that this tax incentive is the way to get it. I think that there are other ways —excuse me? You're saying there's no tax incentive but you're creating another tax class, which is implied that there will be an incentive if you were going to go through all the work to make another tax class. We're not going to make that tax class pay higher taxes. That wouldn't be an incentive, would it? No. So, I just can't support this at this time, and I have concerns for what's already happening, especially in District 7 as it relates to all these different tax classes. And I'm told consistently by constituents that no amount of tax incentives are going to make them do long-term rentals, which I hope is not the case. But I think we're going about this; this option is not going to get us where we actually need to go. And I hope that it will be seeing that this increasing property of property prices is just I yield. CHR. KANEALI`I-KLEINFELDER: Thank you. Going to Hilo. Council Members? Hearing none. Okay, back to Kona. Council Member Kagiwada. MS. KAGIWADA: Thank you. Just wanted to ask our Deputy Administrator Mr. Jo here, can you talk a little bit about what you saw when the affordable rental rates were increased especially on the east side as far as what people did as far as raising their rates or not raising their rates, potentially. MR. JO: Yeah. So, actually what we saw was somewhat surprising. As we see the affordable rental rates increase and the market values increase, participants in affordable rental program buying large or maintaining their rental rates. Again, we do see a disproportionate number of properties in East Hawaii participating in Page 22 FC-38 June 18, 2024 the program and if I were to throw out a number, this is an old application, so it's outdated by about a year. So, last year a three -bedroom property would have to rent for close to $1,800 a month in order to qualify for their affordable rental program. I know that's a large driver of the disproportionate participants. MS. KAGIWADA: Right. But so, was that telling us that maybe a lot of people that are doing long-term rentals are doing it for other reasons than just getting as much money as they can. It seems like, I think we had this discussion that we feel like there are a lot of people that are in the affordable rental program that wouldn't necessarily jump to this program because they're not even raising their rates when they can within the affordable rental program. Is that your kind of summation? MR. JO: Anecdotally, we find that participants in the affordable rental housing program are doing it out of principle. MS. KAGIWADA: Okay. Okay. Well, like I said, I mean I really think this is really more to benefit the west side and if the west side folks aren't interested, that's fine. I think the east side is doing okay. You know; when we talk to Real Property Tax, the benefit was seen as being something that could really help have a place for people on the west side who do not meet the affordable rental rates, but still do rent long-term to people, and they're currently doing that, and they're currently paying a heavy tax burden for that. So, the last thing I'd like to ask is how are you feeling about the way we've structured this, the timing as far as your office's ability to work on this? MR. JO: Okay. So, I wasn't a big fan of the timing initially so pushing it out really is much more palatable for us. Council Member Galimba had talked about vetting for the affordable rental program, and one of the largest process, time- consuming aspects of that process is the vet the applications that we receive to ensure everything is permitted. So, there's a lot vetting that occurs. So, with this bill as it's written, it takes away that permitting requirement. We already have a very similar program. We already have a very similar application, so it's almost cookie cutter for us. So, it's much more palatable than it was before, I should say, as far as an implementation process. CHR. KANEALI`I-KLEINFELDER: Thank you. Circling back to Hilo one more time. MS. KIERKIEWICZ: We're good, Chair. Thank you. CHR. KANEALI`I-KLEINFELDER: Okay. Council Members here in Kona, any further discussion? Okay. Mr. Jo, sorry. Listening to the conversation, so I thought we were really centering in on the discussion -the affordable housing crisis. But looking at this I'm realizing this long-term rental and affordable housing we're actually disassociating the two with this bill, correct? Page 23 FC-38 June 18, 2024 MR. JO: I think what this bill is doing is it's providing another avenue that fulfills a different segment of the rental market. So, you have your affordable rentals and then you have this long-term rental category. CHR. KANEALI`I-KLEINFELDER: I agree. Interesting, because I kind of lumped it in my brain as affordable housing and we're addressing getting more housing available for local families. We are, but I'm looking at this $2 million cap in valuation in the residential class, so no more, no property in the residential class with net real property value of $2 million or more shall be eligible for the long-term rental classification. So, it would be $2 million dollars or less in the residential category, you can be part of the long-term rental tax class, correct? MR. JO: Correct. CHR. KANEALI`I-KLEINFELDER: Okay. So, at that point, we are really putting in these larger high -value homes and we're just pushing them to be available for rent for local families, but not affordable. And that's the disassociation that I'm seeing, which is interesting. I'm not saying I'm against it or love it, but I just find that interesting. With that said, the thing on where you folks are going as the authors of the bill, if that's the intention, okay, and we're pushing for more long-term rental properties in the County. If the intention is to address local families, who we've seen time and time again, don't have the money, as Council Member Villegas has pointed out, to rent perhaps a $10,000 a month property, which maybe most of the residents here, then maybe we lower that dollar figure down in valuation to make sure that we're aligning kind of two principles; the affordable and the long-term rental class is kind of coming together, whereas I see them a little disassociated right now. It might just be my take on it. That's just me looking this over and thinking about what I've heard today. That's why this is interesting. I don't agree with the timing issue. That was an interesting catch, Council Member Kimball. And that needs to be addressed. Mr. Jo, I'm guessing that you couldn't really tell us what the impact of this would be because we have no idea how many people are going to jump in. I think we sat the same way the last time we talked about it. MR. JO: That's correct. It's a wait and see. CHR. KANEALI`I-KLEE%TFELDER: Okay. Okay. Well, I like the idea. I'll support. I'm interested to see where it goes. We're at Committees. I would like maybe just some thought put into that price structure of this rental class we're looking at making and who that's available for. That's what I'm looking at. But I like where you guys are headed. Council Member Kagiwada. Page 24 FC-38 June 18, 2024 MS. KAGIWADA: I just wanted to address one thing. If they set a price of $10,000 and there's no resident here willing to pay that, then they can't stay in the category and they can't get their place rented. I mean, right, so just pointing out, it's not like if they are in the program and they want to rent, they have to do it at the price that somebody, a resident, not a vacationer, can pay for. That's all, I just want to point that out. CHR. KANEALI`I-KLEINFELDER: Thank you. Sorry, Mr. Jo, is that in here, what she was explaining? MR. JO: I think it speaks to just the law of supply and demand, and the palatable, you know, willingness to pay rent. I mean, the market would establish what the maximum rent amount would be. CHR. KANEALI`I-KLEINFELDER: Gotcha. It's more market driven. MR. JO: Yeah. CHR. KANEALI`I-KLEINFELDER: Okay. You did jog my memory though. know I always say one more, one more thing. But the sixth consecutive month and then if there's a breach of lease contract and you are removed from the program —things happen in people's lives and the leases may need to be broken and it's such that the landlord would be penalized under that instance. I don't know if we can address that? Because I, yeah — MR. JO: So, within our own internal processes and procedures with regard to the affordable rental program, we do see that from time to time where leases are broken. We're made aware that a lease is being broken. We ask that the owner provide documentation to support them attempting to release that property out because we recognize the fluidity of the rental market. Sometimes you get good tenants, sometimes you get some bad tenants that leave or what not. Sometimes you need to renovate, and so there's a recognition of that as well. CHR. KANEALI`I-KLEINFELDER: Okay. In Section M, rates of long-term rental class, failure of the property owner to maintain a lease for at least six consecutive months to the same tenants shall breach the classification. So, if there's not I hear you, but I don't see that reflected in in the language. To me, if I read that, if there was a breach, they left less than six months, whereas the catch for the person without just getting immediately booted from the program? MR. JO: Yeah. Either that would be covered in the rules and regulations or if the legislation's amended to include that language. CHR. KANEALI`I-KLEINFELDER: Okay. Okay. Food for thought as you go towards the next hearing. And if so, please let me know where in the -rules and regulations so I know. It's the clarity for the people who participate in the Page 25 FC-38 June 18, 2024 program knowing what happens if, because I'd hate to get people into the class, they lose their lease with their tenant and then they're immediately kicked out of the program. Okay. Thank you. Okay, motion is on the floor to forward Bill 104, as amended, to the Council with a favorable recommendation. All in favor? Mr. Clerk, roll call. Vote on Bill 104: The motion to recommend passage of Bill 104, as amended Draft 6 to Draft 6, on first reading was carried by the following roll (Approved) call vote: Ayes: Committee Members Evans, Galimba, Kagiwada, Kimball, Lee Loy, and Chair Kaneali`i-Kleinfelder — 6. Noes: Committee Members Kierkiewicz and Villegas — 2. Absent: Committee Member Inaba —1. Excused: None. CHR. KANEALI`I-KLEINFELDER: Our last order on the agenda today. Bill 174: AMENDS CHAPTER 19, ARTICLE 7, SECTION 19-53, AND ARTICLE 10, SECTION 19-71, OF THE HAWAI`I COUNTY CODE 1983 (2016 EDITION, AS AMENDED) RELATING TO REAL PROPERTY TAXES Allows residential properties rented for six months or more to be eligible for the Homeowner tax classification and replaces the term "husband and wife" with "married persons". Reference: Comm.905 Intr. by: Ms. Kagiwada and Ms. Galimba Motion to Approve: Ms. Kagiwada moved to recommend passage of Bill 174 on first reading. Seconded by Ms. Galimba. CHR. KANEALI`I-KLEINFELDER: Council Member Kagiwada, go ahead. MS. KAGIWADA: Thank you so much. So, this bill proposes to stop penalizing homeowners who rent a spare room or an ADU (Accessory Dwelling Unit) on their own property to our residents. We have also been referring to Bill 174 as the RPT clean up bill because it addresses aligning the code with the way RPT already operates. For instance, if a homeowner is renting a room in their primary home, and the renters use the same entrance that the homeowners do, the homeowners are allowed to keep their homeowners benefits. These include the homeowner tax rate and the three percent cap on the properties and their real property taxes. This is why we've proposed to remove the word exclusively. Page 26 FC-38 June 18, 2024 Currently, if the homeowner rents a room with a separate entrance or rents an Accessory Dwelling Unit, an ADU, they lose their homeowners benefits. This bill purposes to allow for inclusion of all dwelling units on the homeowners' primary residence by striking the phrase a long-term lease as a disallowable use in the homeowners' tax class. This would allow the inclusion of rooms with separate entrances and ADU's. The bill further defines that rentals for a term not longer than six months shall not qualify as allowable homeowner uses. So, the intent of this bill is simply to stop penalizing homeowners for renting to residents on the primary property. Our hope is that Bill 174 may also encourage homeowners to build ADU's and use them as long-term rentals. The bill itself has a few other little clean up parts, which was mentioned, including —okay. So, it would be striking the word exclusively from the homeowners' class as it's exclusively reserved for properties which are used at the homeowners' principle residence. As I just stated, this is already a practice that is used by Real Property Tax. They allow for rooms to be rented as long as they are using the same entrance as the homeowner. In Section 1, Number 2, A-2, that's where the real property is used for residential purposes, and we've struck whether for short-term or long-term and inserted for a term not longer than six months. And then, as stated in the message, we tried to just clean up where it says, "husband and wife," to "married persons," and where it says either "husband or wife," the leaseholder is married to a person. The other thing that we did strike from the Code is currently, real property tax, taxes for highest and best use, they are not the entity that looks at whether things are legally permitted or how they're constructed, they just look at how it's used, and they tax on that basis. So, we are proposing to strike, "legally permitted" by all codes from the section because that's not really what real property tax does. That's dealt within other departments. So, that's kind of it in a nutshell. I'd love to have my colleague who worked on this with me add anything else, and then also hear from Real Property Tax. Thank you. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Galimba. MS. GALEWBA: Just briefly. This is really kind of what we came across as we were working with RPT on Bill 104, and trying to make that simpler and we found that we could make these small tweaks as well that would, I think, have benefits for our County. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Evans. MS. EVANS: Is this a loophole for people not to pay short-term vacation rental? And the reason I say that is you could have someone residing in your home, and it says, not longer than six months. How do you get to where people — yeah? Page 27 FC-38 June 18, 2024 MR. JO: So, the Code always had a provision or look back to, or look towards in establishing the tax classification for homeowners' tax class. It always had a component that talks about commercial use. But it looks towards another section of the Code 19-71, that basically establishes long-term rental as a use that you could still maintain that tax classification. Now, there is some ambiguity as to what that meant, and as Council Member Villegas mentioned, it's been troubling for a lot of individuals. So, what this does is it provides us the clarity that we need in order to make it really clear that if you're doing a long-term rental under same roof, that you would still maintain the homeowners' class. So, this is really only talking about properties where there's more than one unit, right, it's not a standalone where it's one house that's being totally rented, it's someone who's sharing that space with their primary residence. I don't know if that answers your question. MS. EVANS: Kind of, sort of. I mean, I guess, I could say I have someone in — okay we have a lot of nurses and a lot of people up in Waimea that now are on contract. Most of those contracted folks are four months or less. So, you have homes in Waimea where they are now coming in the front door and, you know, they might rent three bedrooms, you know, but they might live there too. So, what happens then is they're renting it for residential purpose and it's less than six months. So, I mean, maybe that's what we're trying to carve out here, but I'm just trying to think of someone who could have a play with words, and it could be a short-term vacation rental, but we wouldn't know because they're saying, well, you know, they're in the back there for a month or two months, but you know, you consider them residents. They're in our house. I don't know, I guess, how would you enforce this? MR. JO: Yeah, it's actually pretty difficult to enforce. But I think that was one of the clarifications for the maker of the bill that the division was looking towards was the impact to traveling medical personnel or like student housing, whether this six-month term, whether there is a carve out or should be a carve out, or why. We just needed some clarification on that. But there certainly are some circumstances where someone's doing it short-term that they wouldn't get the homeowners tax class if we knew about it or if they're paying their TAT (Transient Accommodation Tax) taxes to the County. MS. EVANS: This is a tough one for me. Yeah, I'm trying to figure this out because you have someone here less than six months. I thinks it's a short-term rental, but when you're saying it's not a short-term vacation rental because it's a transient accommodation, which has different regulations in terms of, I don't know, fire code, paying different taxes. Again, can people get a loophole, play with words, and you go up and they say, "Yeah, they're here residing in our home." "Yup. They're part of the family, so we consider them in. this particular, we'd consider them residential." And so, it's a home. It's a place in our home. I'm just trying to figure out how you could enforce this. Page 28 FC-38 June 18, 2024 MR. JO: So, for us, less than 180 days is less than 180 days. We don't so much care about if it's for vacation and another scenario is like traveling nurses or whatever. They would not get the homeowners tax classification under those circumstances. MS. EVANS: Okay. I yield. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Villegas. MS. VILLEGAS: Yeah. Thank you for the conversation, for your continued, you know, creativity in trying to find the thing that's going to stick and make a difference. And I recognize that intentionality for removing some of the barriers that exist in our Code, and our Code's pretty old in some places. I suppose for me, what this is getting to is, you know, when Bill 108 was originally passed for short-term vacation rentals, providing some boundaries and parameters around them, that was at the request, pleading, demanding, of the constituents predominantly on the west side because we have the highest percentage of short- term vacation rentals here on the west side of the Big Island. There are opportunities for improvement to enforcement of that bill still, correct, and how the tax office, and a lot of the burden's fall onto you guys to identify and then follow up with any kind of enforcement. What concerns me now is we are digging into the minutia of people's business in ways that they didn't ask for and they we're asking for us to get this into each and every —if you walk in my door or you don't walk in my door. Although I love the part about removing that in here, and I love your savvy with being politically correct to remove the terminology that inadvertently potentially excludes those from diverse lifestyles and what not by removing the sanctity of marriage for just being for a man and a woman. Thank you for that. I love that part of this legislation. But I guess that's where my inkling of, "Ali, what are we doing more now on this?" You know, there's got to be other ways to come at this. But here we are messing with tax code again, and it's getting, you know. I really have high respect for your office because you'll never come and sit here and tell us, "Hell no." They would like to. But part of their directive is not to do that, but instead to tell us whether or not it's possible regardless of the back bending, back breaking, under staffed work it brings for them. So, those are my concerns because we have, you know, I've been in office almost five and a half years now, and I haven't seen us mess with the tax code this much. And so, to let things settle, a lot of the issues we're facing with affordable housing and rentals and all those things, damn it, it comes down to greed, and there's only so much we can do with tax rates and different categories versus the principle about what we're seeing in society now days, which is what we're challenged by. So, I'm not particularly opposed to this legislation at all, and I really appreciate you going in and gleaning through the terminology here, in order to improve it Page 29 FC-38 June 18, 2024 and especially bring it up to date for the 21St century of thank goodness, the right to marry. But yeah, I have some confusion on those other things because I, you know, as we've said, I've got people already —I don't know. And I've been told how many times sitting here, essentially, take it easy; one step at a time for things that I'm particularly passionate about. So, that's kind of what I'm hearing from our tax office. So, those are my concerns. I yield. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Kimball. MS. KIMBALL: Thank you. Yeah, highly supportive of this particular proposal. I know it's something that I've heard pretty frequently as one of the decision making issues with respect to deciding whether or not to rent long-term, particularly because with the homeowners class you have that three percent cap. And now if you rent at all, you lose that. And when we talk about value, especially when we have years where we've seen values go up 15, 20 percent, having that cap of three percent is a pretty huge protection, and not having it is a pretty huge deterrent from renting out a long-term rental. So, like what this does, and it mirrors what I'm seeing in other jurisdictions to make sure that there's that alignment. The one thing I would recommend is the language that you've actually chosen to insert for a term not longer than six months, there's other language in Chapter 19 that speaks to consecutive, 180 days. I think that that's probably better for consistency rather than referring simply to six months. And then it needs to be clear that these are contiguous 180 days rather than a cumulative because that is of course tied into other state and County law with regard to what is considered a transient rental and what is considered a long-term rental. So, I didn't say this was one of four, but I would also like to kind of see how all of the short-term vacation rental stuff plays out because there's going to be some interplay there with whether or not we identify short-term vacation rental as 180 days or less or 30 days or less, and how that's going to tie in with this. And also would like to look at separating out that tax class when it's a homeowner and they have an STVR versus and just an unhosted STVR at some point. So, what effective date did you guys put on this? January 1? Do you have a sense of about how many units this would affect, or do we have any idea of the financial impacts? MR. JO: I honestly don't. MS. KIMBALL: I guess it would be a little hard? MR. JO: Yeah. What this does is it provides so much more clarity to our internal processes, which has been part of a lot of robust discussion recently in Real Property Tax. So, this makes it pretty clear, you know, if you're renting out your primary residence whether it's under the same roof or different roof, what Page 30 FC=38 June 18, 2024 directive this provides is we don't care. You're still going to get that homeowners tax class if you're willing to rent your primary residence out. So, it's very simple and clear for us. MS. KIMBALL: So, to the makers, I'm going to suggest that we just hold it here until we revisit that language regarding the term six months. Rather make that adjustment. But I'm supportive. I yield, Chair. CHR. KANEALI`I-KLEINFELDER: Thank you. Going to Hilo. MS. LEE LOY: Yes, Chair. CHR. KANEALI`I-KLEINFELDER: Council Member Lee Loy. MS. LEE LOY: Thank you, Chair. Yeah, like my colleague, supportive. I'd like to hold it here too for the reasons she's stated, but I also want to see the interplay with some future legislation that know Ms. Kimball and Ms. Kierkiewicz is working on. So, that would be my ask. I yield. CHR. KANEALI`I-KLEINFELDER: Thank you. Okay, back to Kona. Council Member Galimba? Council Member Kagiwada. MS. KAGIWADA: Thank you. Just to clarify, I just want to say, for RPT, would this bill make your lives harder or easier? MR. JO: Thank you for asking that. Easier. Much easier. MS. KAGIWADA: Thank you. I yield. CHR. KANEALI`I-KLEINFELDER: Thank you. Council Member Galimba. MS. GALD4BA: I believe we are okay with holding it here so we can make a motion to postpone. Should it be to the next one or should we do two; what's the thinking on the TAR (Transient Accommodation Rental)? Okay. CHR. KANEALI`I-KLEINFELDER: I have a couple questions. MS. GALIMBA: Okay. Go ahead. CHR. KANEALI`I-KLEINFELDER: Thank you. While you think about your date. You know, Mr. Jo, I'm looking at Section 2a-2, I'm not sure when this was created besides looking at either 1983 or 2016, but that $50,000 value for the exemption, would you find that needs to be adjusted? I mean, if this was 1983 or 2016, I don't know, that's years old. I would think that our values have — Page 31 FC-38 June 18, 2024 MR. JO: So, we most recently had legislation I believe it was, I want to say not this current fiscal but the fiscal prior, where we increased that. It used to be $40,000. We also increased, there's a portion of the Code that speaks to 20 percent up to $80,000, we increased that to $100,000. Additionally, we provided additional breaks for individuals who are older, as far as age. So, we most recently adjusted, and I think it was to be in line with the median home price and I think it was trying to target something about $500,000, which was the median in the County at the time. CHR. KANEALI`I-KLEINFELDER: Got it. Very good. And then, those differing sections, maybe you can help me with this. So, Section 1-a, uses which shall not qualify as homeowner include real property which is used for residential rental purposes for a term not longer than six months. And then in Section 2, what was it? Come on, brain. Sorry, Number F. What is the difference between those two sections? Sorry, this is for exemption of and uses of, correct? MR. JO: Yeah. So, one speaks to the tax classification and the other section speaks to the actual exemption itself. And so, those are two separate components to receiving the full benefits of a home exemption. You have preferential tax class and then you get the exemption. CHR. KANEALI`I-KLEINFELDER: Okay. And are they aligned with each other? MR. JO: So, they're enshrined in both places to say, okay, the way this legislation's written is it's enshrined to allow both to occur if you're renting out your property long-term or you're renting your principal residence, or a portion of it long-term. CHR. KANEALI`I-KLEINFELDER: Okay. Why six months? MR. JO: Six months is what the state uses to identify transient accommodations. Anything less than six months. It's also enshrined in a lot of other portions of our Code, right. So, you'll see it in the affordable rental portion of the Code where we're looking at six months' rent, and that's the typical lease term or a long-term rental. CHR. KANEALI`I-KLEINFELDER: I don't know that I agree with that. I mean, if you think you know a person coming for a short-term vacation rental and call it a vacation, I can't see them staying for six months or I can't see them staying for 30 days, I mean, honestly. MR. JO: So, I think there's some confusion. What this Code is actually saying is if you're renting it for less than six months, you're not getting the tax classification. However, if you're renting it for longer than six months, you're still entitled to the homeowners' classification. Make sense? Page 32 FC-38 Motion to Postpone: Vote on Motion to Postpone: (Approved) June 18, 2024 CHR. KANEALI`I-KLEINFELDER: Okay. MR. JO: Yeah, it's the way it's written. CHR. KANEALI`I-KLEINFELDER: Okay. Maybe that's part of it. Is this, with the last Code that we just looked at, when we're seeing these as a pair, as we're classifying long-term, is there overlap with the previous bill where we're going to create a rental class and then disallow people from having rentals within their own home for less than six months, which would kick them out of the homeowner class? MR. JO: That would occur anyways. So, if you're renting something less than six months, you're not considered a long-term rental in the prior legislation, as well as this one is basically specific to properties where you're a homeowner, you're renting out a portion of your property long-term. So, it hits a specific segment of individuals who are renting out their primary residence long-term. And so, this cleans up the Code and makes it really clear that if you're renting long-term on your primary residence or a portion of it, whether it's the same house under one roof, you're renting a couple rooms or if you're renting out a detached `ohana or whatever it is, you're still entitled to that homeowners' tax class. It doesn't exclude you from receiving that anymore. CHR. KANEALI`I-KLEINFELDER: Okay. Thank you. Thank you. Okay. That's very helpful. Okay. So, on the motion to postpone, you have a date you wanted to postpone to? Ms. Galimba moved to postpone Bill 174 to July 23, 2024. Seconded by Ms. Kagiwada. CHR. KANEALI`I-KLEINFELDER: Okay. Any discussion on the motion? Okay. Hearing and seeing none, motion is on the floor. All in favor? The motion to postpone Bill 174 to July 23, 2024, was carried by the following voice vote: Ayes: Committee Members Evans, Galimba, Kagiwada, Kierkiewicz, Kimball, Lee Loy, Villegas, and Chair Kaneali`i-Kleinfelder — 8. Noes: None. Absent: Committee Member Inaba —1. Excused: None. Page 33 FC-38 .�EP11109 Approved: Mr. Matt Kanea Finance Commi MK/tk June 18, 2024 CHR. KANEALI`I-KLEINFELDER: That does bring us to the end of our agenda. There being no further business on our agenda today, Chair Kaneali`i-Kleinfelder adjourned the meeting at 5:30 p.m. Thank you very much. CHR. KANEALI`I-KLEINFELDER: Thank you. -Kleinfelder, (Date) Page 34