Maui County is revisiting what some leaders describe as a lost opportunity to join the rest of the state in taxing retail transactions to fund public transportation and housing infrastructure.

For more than a decade Honolulu was the only county with its own surcharge tacked onto the state’s 4% general excise tax. The county’s 0.5% tax on retail purchases was established in 2007 to help pay for Oahu’s elevated rail line, which could start passenger service as soon as July 1.

Kauai and Hawaii counties seized the opportunity in 2019 to add a surcharge to fund their own public transportation systems — road and bridge maintenance and repair, bus systems, bike paths and sidewalks.

But Maui County opted out. And the window the Legislature gave the counties to add a surcharge on the state’s alternative to sales tax closed.

That could change if Gov. Josh Green signs a bill that lawmakers passed this session to not only reopen that window but expand the ways in which that revenue can be used.

If House Bill 1363 becomes law, Maui will have another chance to cash in on the state’s tax on virtually every retail transaction, from shave ice and haircuts to lawn service and new cars. And all the neighbor island counties would stand to gain a new use for this multimillion-dollar source of revenue: the costly infrastructure required to get new housing developments off the ground.

Specifically, the bill would let Hawaii, Maui and Kauai counties spend the half-percent GE surcharge revenues on housing infrastructure — water, drainage, sewer, waste disposal and waste treatment systems. 

The idea is that counties would be able to take control of planning and funding infrastructure for new housing developments. Housing developers, in turn, would no longer need to finance costs associated with installing infrastructure upfront, and homebuyers or renters would no longer see those costs passed on to them.

Green has until July 11 to approve or veto the bill.

The mayors of Hawaii, Maui and Kauai counties all say they support the legislation as a new tool to boost housing stock for low and middle income residents in a state where single family home prices jumped a staggering 40% from the start of the coronavirus pandemic to their peak in April 2022, according to a report published last week by the University of Hawaii Economic Research Organization.  

Amid surging demand, the state is not building enough new housing. Illinois is the only state that permitted fewer housing units than Hawaii in 2021 relative to the amount of housing permitted in 2005, according to the UHERO report.  

Maui County Council Chairwoman Alice Lee said the county’s decision to forgo a surcharge in 2019 was a missed opportunity. Maui County leaders predict the surcharge could generate roughly $80 million a year for the county.

“That’s a lot of money that we could be using for housing, for infrastructure, for all of the things that we lag behind in,” Lee said. “The alternative to that would be raising property taxes and we don’t want to do that. So here’s an opportunity where everyone shares in generating those funds. And that’s a lot of money to turn down. We can’t afford to do that anymore, especially now as we are dealing with inflation, possible recession and rising interest rates.”

Last month the Maui council approved a first reading of the county budget for fiscal year 2024, which includes an enabling bill that would allow the state to start collecting a 0.5% county surcharge above the 4% GE tax starting in January. The next council meeting on the budget is scheduled for Tuesday.

Maui Mayor Richard Bissen said he’d want to use most of the surcharge revenue on trying to drive down the cost of housing, with smaller portions funneled toward road resurfacing and repairs. 

“The average cost of a home on Maui is still over a million dollars,” Bissen said. “The average median income is $88,000 a year. So that’s a far stretch for people earning that kind of money to try to afford a home here.”

The new revenue source could also one day help establish a county-owned ferry service — an opportunity under discussion by the Maui County Council as the owners of Expeditions, the Maui-Lanai passenger ferry, consider selling the business. 

Bissen noted that the importance of a ferry service has been underscored in recent years by the reduced number of commercial airlines that continue to serve Lanai. But he said he’d need to see a feasibility study and cost estimates before deciding whether to throw his support behind investing in a county ferry service. 

Big Island Mayor Mitch Roth said he’s still examining how the county would most benefit from the new authorized use for surcharge revenues.

The county’s road repair and maintenance projects already rely on this money. He wouldn’t necessarily want to shift that money away from transportation to help jumpstart new housing developments, he said.

“Unfortunately, our infrastructure, including our roads and highways and buses and bicycle paths, all of those need attention,” Roth said. “And so while this may give us another pot of money to use for housing, it doesn’t give us any more money, just another way we can use it. And I don’t want to pit different departments against each other. We realize that housing is a need, but it would be like robbing Peter to pay Paul.” 

Kauai expects to rake in more than $32 million from its half-percent surcharge in fiscal year 2024 as economic recovery picks up and inflation mellows. 

Kauai Mayor Derek Kawakami said he supports widening the permitted uses of that revenue to include housing infrastructure. But he said he would like to see the county put parameters in place so that any developer who benefits from infrastructure funded with county surcharge revenues would need to build affordable homes that remain affordable in perpetuity.

“We’ve seen time and time again where homes are built as affordable but as soon as the first sale happens it falls way out of reach of our local people,” Kawakami said. “So if there’s going to be government subsidies to build these homes at a certain price point, there should be assurances that there’s a way to protect those homes from being flipped and sold off at market rate or above market rate where it becomes out of reach for local people, especially since this is being funded by taxpayer dollars.”

One way of doing this, the mayor said, is to focus affordable housing development on state and county-owned land. This way government leaders can guarantee that affordable homes will stay affordable into the future. 

Kawakami said the county is working on identifying government-owned land that’s suitable for affordable housing.

In the meantime, Kawakami said the county would focus the lion’s share of county surcharge revenues to address a backlog of deferred maintenance on existing infrastructure, such as wastewater treatment systems. 

“New infrastructure is worth nothing if our existing infrastructure fails,” he said.

Civil Beat’s coverage of Maui County is supported in part by grants from the Nuestro Futuro Foundation.