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HomeMy WebLinkAboutREP FC 167 2026-08-04 2024-2026REPORT OF THE COMMITTEE ON FINANCE DATE: August 4, 2026 Re: Comm. No. 960/Bill No. 173 PLACE: Council Chambers Kailua-Kona, Hawaii TIME: 9:30 a.m. Council Chair and Members Hawaii County Council Hilo, Hawaii 96720 Your Committee on Finance, to which was referred Bill No. 173, reports as follows: Bill No. 173, transmitted by Committee Member Heather Kimball via Communication No. 960, dated July 6, 2026, amends Chapter 19 of the Hawaii County Code 1983 (2016 Edition, as amended), relating to the establishment of a bed and breakfast home classification for real property taxes. This bill establishes a new "bed and breakfast home" property tax class for any property that is a vacation rental and the owner's principal residence; establishes a three percent annual assessment increase cap for the new tax class; and establishes a temporary tax amnesty period for properties that have existing vacation rentals in violation of the restrictions of the homeowner class to either cease the rental activity or to properly register the rental activity without being penalized. Finance Committee Meeting on July 22, 2026 Committee Member Heather Kimball provided an overview of Bill 173, stating that it would create a new tax classification for an owner -occupied home operating as a bed -and -breakfast or hosted vacation rental, as well as a temporary amnesty period. She also said she would request a postponement because Real Property Tax Administrator Lisa Miura and Assistant Administrator Keita Jo could not be present to comment on the measure. Committee Member Holeka Goro Inaba suggested a simpler alternative to creating another tax class and suggested allowing an owner -occupied bed -and -breakfast to remain within the homeowner tax class. Committee Member Jenn Kagiwada expressed general support for distinguishing local, owner - occupied hosted rentals from unhosted vacation rentals. She asked how the new classification would apply to existing bed -and -breakfast operations. Ms. Kimball stated that it would be limited to the owner's principal residence and would not include properties operated through a nonowner host or caretaker. Committee Member Ashley L. Kierkiewicz questioned whether the proposed amnesty deadline was realistic because the new vacation -rental registration program had not yet launched. She felt that property owners needed sufficient time to learn about the program, register, become compliant, and receive the promised relief. She also said the Real Property Tax staff may not be able to handle this additional workload. Committee Chair Matt Kdneali`i-Kleinfelder asked whether "bed -and -breakfast" was already defined in the Hawaii County Code; Ms. Kimball confirmed that there is an existing definition in Chapter 25. FC Report No. 167 FC-167 Page 2 August 4, 2026 Bill 173 was postponed to August 4, 2026. Finance Committee Meeting on August 4, 2025 Real Property Tax Administrator Lisa Miura, Long -Range Planning Program Manager Bethany Morrison, and Planning Director Jeffrey Darrow were available for questions. Ms. Kimball provided a brief overview of Bill 173 and appreciated the discussion from the last committee meeting and asked Ms. Miura to provide comments on the bill. Ms. Miura explained that Bill 173 would create the County's eleventh primary tax class and its thirteenth classification when residential tiers were included. She asked the Council to consider whether another class would provide greater clarity or more confusion for taxpayers and staff. She reiterated concerns about the additional workload and stated that the department could not handle another tax -class notification or notify everyone before December 31, 2026, with its existing budget and timeline. She also said the existing tax software could not support another tax classification with its own three percent assessment cap without additional programming. Ms. Kagiwada asked Ms. Miura to clarify the difference between the two types of short-term properties. Ms. Miura confirmed that they were different situations, but under the existing tax structure both could be excluded from the homeowner tax class. Ms. Kagiwada then asked whether adding the class without the cap would still create an excessive burden for the department. Ms. Miura replied that it would be administratively possible under the existing system, but other things still needed to be considered, such as establishing eligibility procedures, identifying the properties, and communicating the amnesty requirements and deadline. She stated that the proposed December 31, 2026, deadline would not allow enough time. Committee Member James Hustace asked how many properties might qualify for the new class. Ms. Miura said more than 2,000 properties could fall within the pool of parcels receiving an exemption but not the tax class and said the department would not be able to identify all those as hosted rentals. Committee Member Dennis "Fresh" Onishi questioned whether the County could realistically notify eligible owners by December 31, 2026. He noted that many residents do not watch Council meetings or regularly read the newspaper, so without direct outreach, many eligible owners could remain unaware of the amnesty. Mr. Onishi asked Ms. Morrison to comment and asked whether the Planning Department was driving Bill 173 and the associated registration effort. She explained that the department was working toward a September 2026 launch for the registration platform. Mr. Onishi said he was uncomfortable moving forward with legislation the Council did not have a complete picture of. Ms. Kimball commented that Bill 173 did not originate solely as a Planning Department funding proposal. Mr. Kaneali`i-Kleinfelder explored how the new class would work after removing the cap and suggested that the Council might create a rate instead. Ms. Kimball proposed an amendment via Communication 960.2, which removed the proposed three percent cap while retaining the new bed -and -breakfast homeowner classification, the temporary amnesty provision, and the Council's future ability to establish a tax rate for the new classification. FC Report No. 167 FC-167 Page 3 August 4, 2026 Ms. Kagiwada supported this amendment, saying the amended bill would allow affected owners to make informed decisions during the amnesty period. Bill 173 was amended with eight "ayes," with Committee Member Holeka Goro Inaba absent. Committee Member Michelle Galimba asked if there was a way to do this without adding another tax class. Ms. Miura stated that in previous comments she had suggested that the Council could do this if it did not restrict the homeowner tax class to exclude rental activity of less than 180 days. Committee Member Rebecca Villegas thanked Ms. Miura and her department for their hard work and support of the Council. She said she was "on the fence" with this measure. She described a severe shortage of long-term rentals and a workforce that must travel significant distances to jobs while earning wages that may barely cover transportation and living costs. She urged the Council to find the simplest approach that produced the greatest public benefit, caused the least harm, and did not overwhelm the department. Mr. Hustace expressed particular concern about waiving the rollback taxes. He distinguished those taxes from penalties and interest, arguing that owners who failed to comply still received tax benefits that they were not legally entitled to. Ms. Kimball responded that she would be happy to create an amendment addressing this concern. Ms. Kierkiewicz asked whether removing the three percent cap created enough financial separation between hosted rentals and long-term rentals. Ms. Miura replied that the removal created a much clearer distinction and reduced the likelihood that the proposed class would be more attractive than the long-term rental class. Ms. Kierkiewicz asked Ms. Kimball if she had reached out to the public to seek input on this measure and gauge reactions. Ms. Kimball said the feedback had been mixed. Ms. Kierkiewicz thanked her for her honesty and said that she was also struggling to make a clear decision. Mr. Kdneali`i-Kleinfelder questioned how the new class would work after removing the cap and whether creating another tax class remained necessary. He suggested that the Council could instead amend the homeowner exemption or home -occupation provisions to give owner -occupied bed -and -breakfast operators partial relief. He asked Mr. Darrow to comment. Mr. Darrow explained that home occupations and bed -and -breakfast operations are currently different uses under the Planning Code. Your Committee on Finance is not in accord with the purpose and intent of Bill No. 173, and forwards it to Council with a negative recommendation. Ikh AYES NOES ABS EX GALIMBA X HUSTACE X INABA X KAGIWADA X KANEALI`I-KLEINFELDER X KIERKIEW ICZ X KIMBALL X ONISHI X VILLEGAS X Respectfully submitted, COMMITTEE ON FINANCE MATT KA ALI`I-KLEINFELDER, CHAIR FC REPORT NO.: 167 ADOPTED: SEP 0 2 202