Bill to exempt property taxes for owners renting long-term to Maui fire survivors passes first reading : Maui Now

After hearing nearly four hours of passionate testimony, the Maui County Council on Tuesday passed the first reading of Mayor Richard Bissen’s Bill 131 that provides 100% property tax exemptions to owners of short-term rentals, timeshares and non-owner occupied homes who rent at least one-year to Maui fire survivors.

The bill includes an amendment put forth by Councilmember Tamara Paltin to prevent unintended consequences by preventing landlords from evicting their current renters in order to get the tax break — and likely higher income — by renting to fire survivors.

The second and final reading will be at the Dec. 15 council meeting.

Many testifiers called this bill “the carrot,” which entices owners to rent to fire survivors.

Of the more than 50 people who testified in person or online on Tuesday, or via the 1,014 pages of submitted written testimony from about 680 people — few people were opposed to the carrot. Although one person said it “incentivizes and rewards greed.”

But several people and the Maui County Chamber of Commerce were against what some called the “stick.”

That is Bissen’s proposed plan — announced in a release last week — to fund the loss of potentially tens of millions in County revenue from the tax break by increasing property taxes for the owners of short-term vacation rentals, timeshare units and non-owner occupied homes with an assessed value of more than $1 million who do not rent long-term to fire survivors.

But at the beginning of Tuesday’s meeting, Bissen said his intention was to later discuss “part two.” He said the timing doesn’t work now to discuss tax increases because the tax rates have been set for this fiscal year, which runs until June 30, 2024.

“So this is a discussion that has to take place for the next [fiscal year’,” he said.

For now, the pressing need is to find people stable housing. Several testifiers, some in tears and others shaking, described having to move from hotel room to hotel room, often with only hours notice, and dealing with ever-increasing mental health problems from the stress and uncertainty.

“I’m begging you to house us Lahaina folks,” said Gayle Shufeldt, a 35-year Lahaina resident, in written testimony. “You can help by taking ONLY the STR’s in non-resort zoning, the residential areas and turn them back into long-term rentals so I can find a new home. I’m so exhausted mentally and emotionally having to move every 28 days, not knowing where you’re going next or how long you can stay. … The stress is causing more trauma than we’ve already been through.”

And many voiced their anger, saying then feel they are being treated as “second-class citizens,” with tourists being prioritized over those who have lost their homes. They said there is not a supply problem, but a willingness to help problem.

The inventory of units that are eligible for this property tax exemption is approximately 13,800 short-term rentals, 2,500 timeshare units and 16,000 non-owner occupied, according to Bissen.

The need is long-term homes for approximately 2,700 displaced families (about 7,000 plus people), most who are still living in hotels.

So it would take less than 10% of those owners to rent long-term to solve the immediate problem.

But so far, most are not.

Matt Jachowski, who created the website Maui Hale Match to help displaced families connect with landlords, testified that of the nearly 1,000 families that have signed up for housing on the site, less than 100 landlords have participated. And almost all those landlords have been locals with ‘ohana spare rooms and pre-existing long-term rentals.

“There have been almost no short-term rental or second homeowners who have offered their homes through the site,” he said.

He cited FEMA’s statistics from Dec. 1: “Just 128 households have been placed into long-term rentals by FEMA’s direct lease program. Just 113 households have found their own leases and applied to FEMA to receive continued rental assistance for those leases. So basically the two solutions that are most well-funded to get ‘ohana locals back into long-term rentals are not being successful, and the main issue here is supply.”

Jachowski said while second home and short-term rental owners have stepped up to help, there have been “nowhere near enough. Asking nicely has not worked. Hoping that people do the right thing has not worked.”

He said it is not surprising because about 83% of short-term rental owners have mailing addresses on the mainland.

“So as a county, raising or lowering property tax rates is one of your most powerful levers that you can pull to address this problem,” Jachowski told the council.

Bissen said with booking rates at 70% for short-term units in the state, and given the reduction of bookings in West Maui due to the disaster, the incentive of guaranteed rental income for the whole year, along with savings from eliminating the need to pay for cleaners and booking fees.

“Many of these sit empty and we are encouraged that we can meet our goal of the 2,700 units that we need,” he said. “As mayor, I’m speaking directly now to our short-term rental owners, requesting that they show their kokua [sacrificial help] in stepping up to make these units available to families that have been impacted.”

To alleviate concerns for some, “we intend to have a fund set up through our partners to ensure that should any damage occur that we can take care of that expense,” Bissen said.

He said he also has received concerns from these owners that they’ll be losing money.

“And the answer to that is: ‘That’s right. They will be losing money.’ But what they will be gaining is much more. And what the whole community gains,” he said. “And so that’s the part of the shared sacrifice I talked about.”

Bissen also said this is just one of the many strategies that the County is using to address long-term housing needs as it continues to work with partners to explore other feasible housing options, including “additional dwelling units, modular housing solutions and expediting housing projects.”

If passed, Bill 131 would go into effect on Jan. 1, 2024.

For applicants who file by Jan. 31, 2024, and their lease is in effect by Feb. 1, 2024, property taxes will be exempted from Feb. 20, 2024 through June 30, 2025.

For applicants who file by March 15, 2024 and their lease is in effect by March 16, 2024, property taxes will be exempted from July 1, 2024 through June 30, 2025.

Short-term rental units, also known as transient vacation rental properties, are taxed at a rate of $11.85 per each $1,000 of its assessed value, which is the second highest of all tax rate classifications.

For example, if you have a property assessed at $1 million classified as TVR-STRH, your taxes for this fiscal year are $11,850. If you lease your entire property and the lease begins Jan. 1, 2024, and ends Dec. 31, 2024, you will receive a $5,925 reduction in this year’s taxes (2nd installment) and the full $11,850 in next year’s taxes if you apply by Jan. 30, 2024. That is an estimated savings of $17,775.

But the incentive is not as great for non-owner occupied homes, whose tax rate is $5,850 for $1 million of assessed value.

The bill now also includes an amendment requested by Kuhio Lewis, CEO and president of the Council for Native Hawaiian Advancement, that makes the tax exemption available to property owners who participate in direct-lease programs to fire survivors, including his organization’s Kākoʻo Maui Housing and FEMA’s programs.

Language in the bill also was added to ensure that people who may be prohibited from living in their homes next to the burn zones during the Phase 2 cleanup or feel unsafe to do so due to medical conditions or being pregnant would be considered eligible tenants for the landlord to receive the tax exemption.

But one problem is that many owners have booked their units for the upcoming busy season that runs through March.

In written testimony, 30-year Hawaiʻi residents Bob Eaudry and Sande Greene, owners of Ocean Breeze Hideaway in Kīhei, said they are in their 80s and use their vacation rental that they have owned for 23 years as retirement income.

While they support offering tax incentives to people who rent their vacation rentals to those affected by the fire, they donʻt think it is fair to punish those who do not opt to do so.

“We currently have 28 reservations for next year,” they wrote. “In order to convert to long-term rental, we would have to refund thousands of dollars in deposits and destroy our standing with our guests. How could we afford that? We would not make it financially without the vacation rental income and night end up losing our condo and home.”

They added that their guests have contributed both financially and of their vacation time to help out the fire victims.

“It is so tiresome to be constantly vilified,” they wrote.

And they were not alone, Eve Hogan testified that she was told in the elevator to be “shamed” for owning a vacation rental.

“We are not heartless,” she said. “We took in a family of our that’s living in our home right now for free. We bought them a car.”