DAVID Y. IGE LINDA CHU TAKAYAMA GOVERNOR DIRECTOR SHAN S. TSUTSUI DAMIEN A. ELEFANTE LIEUTENANT GOVERNOR DEPUTY DIRECTOR STATE OF HAWAII DEPARTMENT OF TAXATION 830 PUNCHBOWL STREET, ROOM 221 HONOLULU, HAWAII 96813 http://tax.hawaii.gov/ Phone: (808) 587-1540 / Fax: (808) 587-1560 Email: [email protected] To: The Honorable Donovan M. Dela Cruz, Chair and Members of the Senate Committee on Ways and Means Date: Wednesday, January 31, 2018 Time: 9:30 A.M. Place: Conference Room 211, State Capitol From: Linda Chu Takayama, Director Department of Taxation Re: S.B. 2999, Relating to Taxation The Department of Taxation supports the intent of S.B. 2999 and defers to the Department of the Attorney General on this measure. DAVID Y. IGE GOVERNOR LUIS P. SALAVERIA DEPARTMENT OF BUSINESS, DIRECTOR MARY ALICE EVANS ECONOMIC DEVELOPMENT & TOURISM DEPUTY DIRECTOR No. 1 Capitol District Building, 250 South Hotel Street, 5th Floor, Honolulu, Hawaii 96813 Telephone: (808) 586-2355 Mailing Address: P.O. Box 2359, Honolulu, Hawaii 96804 Fax: (808) 586-2377 Web site: www.hawaii.gov/dbedt Statement of LUIS P. SALAVERIA Director Department of Business, Economic Development, and Tourism before the SENATE COMMITTEE ON WAYS AND MEANS Wednesday, January 31, 2018 9:30 AM State Capitol, Conference Room 211 in consideration of SB2999 RELATING TO TAXATION. Chair Dela Cruz, Vice Chair Keith-Agaran and Members of the Committee. The Department of Business, Economic Development, and Tourism (DBEDT) supports the intent of SB2999. We defer to the Attorney General’s Office regarding any legal concerns about this bill and the Department of Taxation. Thank you for the opportunity to provide comments on this measure. Legislative Testimony SB2999 RELATING TO TAXATION Senate Committee on Ways and Means January 31, 2018 9:30 a.m. _ _ _ Room 211 The Administration of the Office of Hawaiian Affairs (OHA) will recommend that the Board of Trustees SUPPORT SB2999, which seeks to improve enforcement of land use regulations relating to transient vacation rentals, while facilitating the collection of tax revenue from transient vacation rentals that comply with the law. Given the impact of unlawful transient vacation rentals on housing opportunities for Native Hawaiians and other Hawai‘i residents, OHA appreciates and supports the strong and much-needed enforcement mechanisms that would be provided by this measure. As home prices, rental prices, and homelessness continue to increase, and as O‘ahu anticipates additional population growth and an associated demand for more housing over the next decade,1 land-use planning that ensures housing affordability and availability is more critical now than ever before. As the legislature recognizes, Hawai‘i is in the midst of an affordable housing crisis: recent research indicates a need for 65,000 more housing units by 2025, with half of this demand for units at or below 60% of the Area Median Income (AMI);2 only 11 percent of State’s housing demand is for housing units at or above 140% AMI, or for units that do not meet the State’s current definition of “affordable housing.”3 With 48% of households in the State already unable to afford basic household necessities including housing, food, transportation, health care and child care,4 the lack of affordable housing and rising housing costs require bold and aggressive policies that meaningfully prioritize the housing needs of local residents. Native Hawaiians are particularly disadvantaged by land uses that contribute to our local residential housing challenges, including increased rental housing costs and rental housing shortages in particular. Notably, Native Hawaiians are less likely to own a home and, therefore, disproportionately rely on the rental housing market.5 Native 1See SMS, HAWAIʻI HOUSING PLANNING STUDY, at 34 (2016), available at https://dbedt.hawaii.gov/hhfdc/files/2017/03/State_HHPS2016_Report_031317_final.pdf 2 See id. 3 See id. at 34. 4 ALOHA UNITED WAY, ALICE: A STUDY OF FINANCIAL HARDSHIP IN HAWAI‘I (2017) 5 See OFFICE OF HAWAIIAN AFFAIRS, NATIVE HAWAIIAN HOMEOWNERSHIP HOʻOKAHUA WAIWAI FACT SHEET VOL.2016, NO. 1, page 3, available at Hawaiian households are also much more likely to be “doubled up,” with multi- generational or unrelated individuals living together in single households,6 and Native Hawaiian households are more than three times more likely have a ‘hidden homeless’ family member than all state households.7 Unfortunately, the unaddressed proliferation of illegal vacation rentals may exacerbate the rise in rental housing costs beyond what Honolulu residents and Native Hawaiians are able to afford, and has directly removed much-needed housing units from the residential rental market. The 2016 Hawaiʻi Housing Planning Study estimates that there are 28,397 non-commercial vacation rentals, located in nearly all communities in Hawaiʻi.8 Not surprisingly, the proliferation of such units, which generate nearly 3.5 times more income than the average long term residential rental,9 has correlated with substantially increased housing costs throughout the islands; Honolulu in particular had the highest rates of increase in average monthly rent and average daily rent over the past several years.10 In addition to raising the costs of available long term rental units, the proliferation of illegal vacation rentals also represents a direct loss of housing units from the long term rental market.11 Clearly, allowing the continued illegal use of housing units for vacation rentals will only exacerbate our housing crisis. Without more meaningful regulatory and enforcement mechanisms, there is nothing to stop the negative impacts of illegal vacation rentals on housing opportunities for Native Hawaiians and other local residents. In contrast, each and every illegal vacation rental unit that is returned to long-term residential use is one more unit that can help meet our existing housing demand.12 Accordingly, OHA has https://19of32x2yl33s8o4xza0gf14-wpengine.netdna-ssl.com/wp-content/uploads/NH-Homeownership- Fact-Sheet-2016.pdfSheet-2016.pdf. This figure includes 8,329 DHHL residential lease “owner-occupied” property units. DHHL ANNUAL REPORT 2014, at 47, available at http://dhhl.hawaii.gov/wpcontent/uploads/2011/11/DHHL-Annual-Report-2014-Web.pdf. For non-DHHL properties, the NativeHawaiian homeownership rate is therefore 41.2%, 15.5 percentage points below the statewide rate. 6 24.8% of Native Hawaiian households, compared to 9.6% of state households include more than two generations or unrelated individuals. SMS, supra note 1, at 70. 7 14.1% of Native Hawaiian households, compared to 4.2% of state households have a hidden homeless family member. Id. 8 There are an estimated 45,075 total vacation rental units measured by the study. The study estimates that at least 37% of these rentals are ‘commercial’ rentals, or resort condominium and condominium hotel properties which are legally permitted commercial operations. As such, the study estimates that 28,397 units are non -commercial, i.e. unlawful, transient vacation rentals. SMS, supra note 1, at 58. 9 SMS, supra note 1, at 55. 10 Honolulu’s average monthly rent growth rate was 26.1%, and the six-year growth rate of average daily rental rate was 47%. SMS, THE IMPACT OF VACATION RENTAL UNITS IN HAWAI‘I, 2016, at 8, available at http://www.hawaiitourismauthority.org/default/assets/File/Housing%20and%20Tourism%20113016.pdf 11 The Hawaiʻi Tourism Authority’s 2016 study found that vacation rentals increased by 34% per year between 2005 and 2015. Further investigation found that between 2011 and 2014, units held for seasonal use and not available for long term rent increased by 12%. See id. at 3. 12 See generally SMS, supra note 1. advocated for regulatory and enforcement approaches that may systemically curb and reverse the impact that illegal vacation rentals continue to have on residential housing opportunities in Hawaiʻi. Accordingly, OHA appreciates and strongly supports the robust enforcement framework provided for under this measure. This includes the mandatory compliance monitoring and reporting requirements imposed on transient vacation rental brokers who wish to act as tax collection agents on behalf of rental operators; the requirement that brokers remove listings for illegal vacation rentals; and the strict penalties for noncompliance on both brokers and operators that will deter further unlawful land uses. Such provisions will appropriately hold those most responsible for our transient vacation rental problem directly accountable for their actions, and subject them to the strict penalties that reflect the magnitude of our growing housing crisis. As a final note, research shows that vacation rental activity in the State generally is not likely to provide meaningful and long-term economic benefits to Hawai‘i or its residents, including Native Hawaiians. Data has shown that 70% of properties listed as vacation rentals in Hawaiʻi are owned by out-of-state property owners who do not reside in the islands.13 Native Hawaiians in particular are less likely to benefit directly from a transient vacation rental operation; with Native Hawaiian homeownership rates significantly lower than the state average, they are less likely to own second or additional homes that could be rented as vacation units.14 As previously mentioned, Native Hawaiians also often live in overcrowded households, without the extra rooms needed to operate an owner-occupied vacation rental. As such, while some Hawaiʻi residents may be able to earn extra income from the use of a property as a vacation rental, vacation rental operations primarily benefit nonresident property owners and real estate speculators – who may also seek to buy out any vacation rentals that owned by local residents now and in the future. In addition, other jurisdictions have found that any economic benefits gained from permitted short-term vacation rental operations are far outweighed by the larger social and economic costs of removing long term rentals from the housing market. For example, an economic analysis by the City of San Francisco found a negative economic impact of $300,000 for each housing unit used as a vacation rental, exceeding any economic benefits from visitor spending, hotel tax, and associated revenues.15 Again, the short-term benefits of vacation rental units to some property owners, including non-resident property 13 Notably, the Hawai‘i Tourism Authority report found that 45,075 total properties are available for short term vacation rentals, with between 21,295 and 23,002 as non-commercial vacation rental units advertised in 2016. 70% of these properties are offered by out-of-state property owners. SMS, supra note 10, at 5-6. 14 For non-DHHL properties, the Native Hawaiian homeownership rate is 41.2%, 15.5 percentage points below the statewide rate. See supra note 5. 15 See CITY OF SAN FRANCISCO, OFFICE OF THE CONTROLLER, AMENDING THE REGULATION OF SHORT-TERM RESIDENTIAL RENTALS: ECONOMIC IMPACT REPORT, May 2015, available at http://sfcontroller.org/sites/default/files/FileCenter/Documents/6458 150295_economic_impact_final.pdf?documentid=6457. owners and corporate vacation rental operators, are likely to be substantially outweighed by the fiscal impacts on Honolulu and its residents from increased housing costs, increased real estate speculation, and the need for more social services and housing subsidies. Accordingly, OHA strongly believes that regulatory and enforcement mechanisms that decrease the number of illegal vacation rental units operating in Hawai‘i will best benefit Native Hawaiians and all Hawai‘i residents. Therefore, OHA urges the Committee to PASS SB2999. Mahalo nui for the opportunity to testify on this measure. COUNTY COUNCIL _(,,».-—:;-==\ OFFICE OFTHE COUNTY CLERK Mel Rapozo,Chair " 'F C “ Ross Kagawa, ViceChair JadeK. Fountain-Tanigawa, CountyClerk ArthurBrun , ScottK. Sato, Deputy CountyClerk Mason K. Chock Arryl Kaneshiro °4",?;"V“§x'.lr' Derek S.K. Kawakami _ Telephone: (808)24]-4l88 .IoAnn A. Yukimura OQ\.Yi"\f oll‘ ‘C Facsimile: (808)241-6349 T‘ E-mail: [email protected] Council Services Division 4396 Rice Street, Suite209 LThu‘e, Kaua‘i, Hawai'i 96766 January 30, 2018 TESTIMONY OF MASON K. CHOCK COUNCILMEMBER, KAUA‘I COUNTY COUNCIL ON SB 2999, RELATING TO TAXATION Senate Committee on Ways and Means Senate Committee on Economic Development, Tourism, and Technology Wednesday, January 31, 2018 9:30 a.m. Conference Room 211 Dear Chair Dela Cruz, Chair Wakai, and Members ofthe Committees: Thank you for this opportunity to provide testimony in support of SB 2999, Relating to Taxation. My testimony is submitted in my individual capacity as a Member ofthe Kaua‘i County Council. This measure addresses the transientvacation rentalbusiness and establishes a one-time amnesty program for certain delinquent tax obligations. Among other provisions, the counties will be able to obtain tax records relating to transient vacation rental units, as well as adopt ordinances to amortize or phase out transient vacation rental units that are an essential component to addressing our island residents’ housing needs. Forthereasons stated above, I urge the Senate Committee onWays andMeans and the Senate Committee on Economic Development, Tourism and Technology to support this measure. Should you have any questions, please feel free to contact me or Council Services Staffat (808) 241-4188. Sincerely, M MASON K. CHOCK Councilmember, Kaua‘i County Council AMK:mn AN EQUAL OPPORTUNITY EMPLOYER DEPARTMENT OF PLANNING AND PEHMITTING CITY AND COUNTY OF HONOLULU 650SOUTH KINGSTFIEET,7'"FLOOR I HONOLULU, HAWAII 96813 PHONE: (B08)768-8000 ' FAX: (808)768-6041 DEPT.WEBSITE:www.honoluludgQ.org I CITYWEBSITE:www.honolulu.gov KIRKCALDWEL 0_,/,.,__10In, KATHYK. SOKUGAWA '- I t. ACTING DIFIECTOFI MAYOR _ ':;:____-,1 wit as 1*-Q-LE2; Q T|MOTHYF_T.H|U DEPUTYD|F\ECTOFl ~ »1- _- -- \= EUGENEH.TAKAHASHl DEPUTYDIFIECTOFI January 31, 2018 The Honorable Donovan Dela Cruz, Chair and Members of the Committee on Ways and Means Hawaii State Senate Hawaii State Capitol 415 South Beretania Street Honolulu, Hawaii 96813 Dear Chair Dela Cruz and Committee Members: Subject: Senate Bill No. 2999 Relating to Taxation and Short-term Flentals The Department of Planning and Permitting (DPP) is pleased to strongly support Senate Bill No. 2999. lt introduces significant new tools to help the counties better administer and enforce appropriate regulations on short-term vacation rentals, particularly in our residential neighborhoods. The department takes no position on the establishment of registered tax collection agents and the tax amnesty program in this Bill. However, we do support: I The requirement that registered tax collection agents must share information with the county planning directors and mayors, including the location of the vacation rental property, the name of the operator, and the number of nights the property was rented; I The requirements that operators provide evidence that each property complies with applicable State and county land use laws, as confirmed by the appropriate agency; I The requirement that any advertisement must be removed within seven days of notification if it does not adhere to the compliance requirements; I The ability of counties to impose penalties, including disgorgement of unlawful profits gained from illegal businesses; I The clarification of reasonable notice to correct any zoning violation; I Clarification of the ability of counties to seek injunctive relief regarding short-term rental violations without the necessity of demonstrating irreparable injury; The Honorable Donovan Dela Cruz, Chair and Members of the Committee on Ways and Means Hawaii State Senate Senate Bill No. 2999 January 31, 2018 Page 2 I The ability of the counties to recover attomey fees and other costs of action from the violator; ' I The establishment that advertisements not in compliance with given requirements may be liable for civil fines ranging from $25,000 to $100,000, as determined by each county; and . I A more explicit policy regarding the counties’ ability to amortize both conforming and non-conforming single-family transient vacation rental units. Finally, we are appreciative of section 15 of the Bill, which provides a financial incentive for counties to establish a verification process for transient vacation rentals. Accordingly, we believe that this Bill will help the counties to better enforce county rules and ordinances relating to short-term rentals. We urge your committee to pass this Bill. Thank you for the opportunity to testify. Very truly yours, Kathy So gawa Acting Director Harry Kim Michael Yee Mayor Director Daryn Arai Deputy Director West Hawai‘i Office East Hawai‘i Office 74-5044 Ane Keohokālole Hwy County of Hawai‘i 101 Pauahi Street, Suite 3 Kailua-Kona, Hawai‘i 96740 Hilo, Hawai‘i 96720 Phone (808) 323-4770 Phone (808) 961-8288 Fax (808) 327-3563 PLANNING DEPARTMENT Fax (808) 961-8742 January 29, 2018 Testimony by MICHAEL YEE Director, County of Hawai'i Planning Department before the COMMITTEE ON WAYS AND MEANS Wednesday, January 31, 2018, 9:30AM State Capitol, Conference Room 211 in consideration of SB 2999 Relating to Taxation The County of Hawai'i Planning Department offers testimony in STRONG SUPPORT of Senate Bill 2999, Relating to Taxation. Although, Hawai'i County does not have a transient vacation rental ordinance at this time, SB 2999 will support our eventual enforcement of vacation units. We urge your committee to pass this bill as is. Thank you for the opportunity to provide testimony. www.hiplanningdept.com Hawai`i County is an Equal Opportunity Provider and Employer [email protected]