Special Committee on Real Property Tax Reform Meeting - December 9, 2025

The Special Committee on Real Property Tax Reform convened on December 9, 2025, to deliberate on four bills concerning home exemptions, long-term rental exemptions, and deadlines for affordable housing applicants. The committee heard testimony regarding the adequacy of current exemptions to stimulate affordable housing, the legality of property ownership titles in Hawaii, and the technical challenges of administering mid-year tax adjustments. While two bills received strong support and were passed, others were deferred to allow for further administrative review and data collection.

Consent Calendar

• No specific consent calendar items were listed in the transcript; the meeting proceeded directly to public testimony and discussion items.

Public Comments & Testimony

• Alan Lloyd (on behalf of Maui Democratic Socialists and Maui Tenant and Workers Association):
  • Expressed concern that the $100,000 exemption in Bill 168 is insufficient to incentivize landlords to lower rents to 70% of Fair Market Rent (FMR), noting that landlords could potentially earn more income without claiming the exemption. Proposed that landlords should be required to participate in the program, as voluntary participation has proven historically insufficient (citing the 6% participation rate in the Lahaina Fire Survivor exemption program).
  • Supported the amended version of Bill 168 regarding the affordable long-term rental section but proposed a total exemption for non-owner occupied properties renting at 70% of FMR and owner-occupied properties, regardless of property value ($500,000 vs $400,000 thresholds).
  • Opposed Bill 181, arguing it does not provide sufficient incentive for affordable rentals compared to Bill 168 and lacks language regarding rent certification or a deadline for landlords to state rent amounts.
• Jonathan Helton (Grassroot Institute of Hawaii):
  • Expressed full support for Bill 181, stating the proposed increases mirror the 28% increase in assessed values for homeowner tax classes and over 50% for long-term rental classes since previous adjustments, aiming to provide relief from inflation-adjusted tax bills.
• Royal House of Hawaii (Testifier representing descendants of Royal Patented Lands):
  • Stated a strong position that current property tax exemptions are illegal because non-descendants do not hold clear title to land under the Royal Patent system (referencing Hawaii Revised Statute 172-11).
  • Argued that all exemptions filed by non-descendants constitute fraud on an international level and demanded that lands be returned to the descendants of the Royal Patented Lands.
• Anonymous Gallery Testifier:
  • Questioned why religious organizations (citing 501(c)(3) status) claim property tax exemptions since 1893, asking for a calculation of the revenue lost and a proposal to charge churches a "fair share" using mechanisms similar to federal gaming compacts.
  • Alleged that some religious entities, specifically the Salvation Army, were using county resources during trespassing incidents and raised questions about their exemption status.
• Tom Crowley:
  • Highlighted the hardship affordable housing occupants face when delayed by external factors (permits, inspections), causing them to miss the December 31 deadline and face non-owner-occupied rates for a full year. Proposed granting the Board of Tax Review the authority to grant exemptions after the fact for valid claims.
  • Supported Bill 181 but noted that increasing exemptions disproportionately benefits higher-value properties due to the progressive tax rate structure.
  • Expressed concern regarding the administrative feasibility of verifying rents and the limited incentive of a $100,000 exemption increase for owner-occupied properties.

Discussion Items

• Bill 146 (RPTR 11) - Principal Home Exemption Deadlines:

  • The Chair highlighted the issue of new affordable housing buyers being charged non-owner-occupied rates for up to 12 months due to construction delays preventing them from meeting the December 31 application deadline. Suggested that exemptions should be pre-identified for affordable workforce housing.
  • Director of Finance Mara Martin indicated the department lacks the software to perform mid-year assessment changes due to shared software with the four counties that uses a July 1 lien date. She suggested a half-year exemption as a potential solution, similar to the Big Island, and proposed assessing properties as of January 1 and taxing them as of July 1 at an affordable tax rate.
  • Members discussed granting the Board of Tax Review the power to override strict deadlines, but Corporate Counsel and Chair Lee raised concerns about the legal implications and the potential for non-uniform enforcement. The committee agreed to defer the item.

• Bill 142 (RPTR 7) - Home and Long-Term Rental Exemption Adjustments:

  • The bill proposes a "half-year exemption" allowing for mid-year adjustments to tax classifications. Director Martin expressed concern about the administrative burden and suggested piloting the program with just the home exemption first before adding the long-term rental exemption.
  • Member Paulton explained that the 10-year residency requirement in the draft was intended to prioritize existing local residents over new arrivals taking housing. Member Johnson supported a shorter (5-year) timeline to match existing circuit breaker programs.
  • The committee deferred the item to refine qualifying language and allow time to implement the half-year exemption concept.

• Bill 168 (RPTR 16) - Affordable Long-Term Rental Exemption:

  • Vice Chair Sugimura proposed a new section creating a $400,000 exemption for properties renting at 70% or less of HUD Fair Market Rent (FMR), with a combined $500,000 exemption for owner-occupied units. The program was proposed to start in Fiscal Year 2028.
  • Members discussed the potential financial impact, with Director Martin estimating the cost to be roughly $1.18 million annually if all current long-term rental participants adopted the lower rent standard, a figure considered manageable.
  • The bill was amended to remove sections that would have increased the standard long-term rental exemption, focusing strictly on the new affordable tier. The committee voted to recommend passage.

• Bill 181 (RPTR 17) - Increasing Home and Long-Term Rental Exemnptions:

  • The Director of Finance noted that property values are currently stagnant or decreasing, suggesting that increasing exemptions this year might be unnecessary compared to the previous year's value surges. Member Paulton emphasized that increasing exemptions must be done by the end of January to be effective for the upcoming assessment season, as rates can be adjusted later.
  • Due to the lack of finalized assessment data, the committee decided to defer the item to gather more information on actual valuations before proceeding.

Key Outcomes

• Bill 146 (RPTR 11): Deferred indefinitely until a solution is found to address mid-year assessment limitations and prevent affordable housing buyers from facing full-year non-owner-occupied tax liabilities.
• Bill 142 (RPTR 7): Deferred to allow for the refinement of qualifying criteria (potentially adopting a 5-year residency lookback) and further discussion on the administrative feasibility of the half-year exemption.
• Bill 168 (RPTR 16): Recommended for passage (First Reading) after amendment to establish a new tax exemption ($400,000 for affordable rentals, $500,000 combined) for properties renting at 70% of FMR, effective for Fiscal Year 2028. The committee also agreed to review the potential for increasing the exemption amount during the 2026 application period.
• Bill 181 (RPTR 17): Deferred to await finalized assessment data for the current year to determine if an exemption increase is warranted or if rate adjustments should be pursued instead.
• General Directive: The committee instructed the Department of Finance to provide data on the potential revenue impact of the affordable long-term rental exemption and to explore solutions for mid-year classification changes without compromising software compatibility.