LIHU‘E — By a 4-3 vote, the County Council voted down a measure Friday that would have increased the tax rate on vacation rental units and used the funding for affordable housing.
Councilmember Luke Evslin proposed the measure, which would have generated $4.5 million in new revenue by increasing the vacation rental tax rate by $1 to $10.85 per $1,000 of taxable income, bringing it even with the rate for resorts and hotels.
The vast majority of the money created, about $4.4 million, would have gone towards the Housing Revolving Fund for special projects, while the $22,563 would go to the Public Access, Open Space, Natural Resources Preservation Fund, and $100,000 would fund an electronic vehicle charger program.
Councilmember Kipukai Kuali‘i and Council Vice Chair Mason Chock joined Evslin in support of the proposal, while Council Chair Arryl Kaneshiro, along with Councilmembers Bernard Carvalho, Billy DeCosta and Felicia Cowden stood in opposition.
“I’m proposing this increase and allocation for three reasons,” said Evslin. “Number one, we’re over capacity for tourists, which strains our infrastructure and our patience. Number two, vacation rentals take away resident-occupied housing and increase the cost of housing islandwide. And number three, most importantly, we need more money for affordable housing and infrastructure.”
According to the Kaua’i Tourism Strategic Plan, one in eight homes on Kaua‘i is a vacation rental, compared to 1 in 24 homes statewide. In certain areas, 1 in 2.5 homes are vacation rentals. Of those rentals, 53% are owned by non-residents.
Property-tax data shows a net increase of 133 vacation rentals in 2022, most of which were converted from residential or homestead use, continuing a trend from the past two years.
Under the proposal, the rate on vacation rentals would still be lower than the national average for resident-occupied homes, meaning that a person could own a lucrative vacation rental on Kaua‘i and still pay less in property tax than they would on a
resident-occupied home on the mainland.
“If you’re taking a home off the market, then you should help with the construction of an affordable home,” said Evslin.
Among the affordable-housing projects in the works that could be funded through the tax is a planned $8-million property acquisition for a Kilauea affordable-housing project, according to Director of the County Housing Agency Adam Roversi. The pricetag for the project exceeds the current housing budget of $3 million.
Councilmember Kuali‘i and Vice Chair Chock both latched on to the measure and voiced strong support.
“We always talk about affordable housing,” said Kuali‘i. “The administration now is doing some great work with housing, but nowhere near enough. And why? We don’t have enough funding.”
Opposition
Though the council was more amenable to Evslin’s proposal than three years prior — when he put forward a similar measure that was voted down 6-1 — the majority of the council remained cautious about the policy.
“It’s money that’s not necessarily needed at the time,” said Kaneshiro. “I’m very hesitant about going for a tax increase. Usually, I keep that in our pocket — being the conservative person that I am. When the county really needs the money, then we can increase the tax rates.”
He advocated instead for lobbying for grant funds from the state and federal governments or seeking loans for future affordable-housing projects as they arise and using the tax increase as a last resort.
Evslin responded that it would be better to raise a tax when times are good, pointing out that vacation rentals are currently booming, with a 40% increase in rates since before the pandemic.
Cowden was opposed largely because of lack of public involvement in the proposal. “We have to be consistent and fair and predictable,” said Cowden. “We can’t just blindside people with a change.”
The procedure surrounding the budget process requires councilmembers to not reveal the proposals to their colleagues or the public prior to their introduction.
Some councilmembers are also concerned that the revenues would not be earmarked towards affordable housing, meaning that the funds from the tax could be shifted to the general fund next year. An earmark like that would require an amendment to the county charter, which requires a public vote on the matter.
Those in opposition were also concerned about the negative effect it could have on the 46% of local people who have vacation rentals, and about the ability of the county to spend the revenue in the coming year.
Roversi said that the CHA would not be able to use all the funds from the tax next fiscal year.
“We’ve lined up projects for the next year based on the funding we were expecting,” said Roversi. “That said, the development fund is a revolving fund. Funds we don’t use this year roll over to the next. Looking a few years down the line, when we expect to have $12 million, $15 million projects it may be better to begin building that fund gradually over time.”
The council also voted Friday to approve the mayor’s supplemental budget, which included an increase in capital improvement projects funding from $48.9 to $50.9 million.
The mayor proposed that new revenues from the Kukui‘ula Community Facilities District bond issuance be used on transportation infrastructure projects in Po‘ipu and Koloa, and on building new inclusive playground.
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Guthrie Scrimgeour, reporter, can be reached at 647-0329 or gscrimgeour@thegardenisland.com.
