Maui County’s tax surcharge proposal passes first reading 

Change to bill would end surcharge in 2030, allow council to reconsider

With some calling it a hard decision, Maui County Council members gave the first of two required approvals Friday to adopt a surcharge on top of the state's general excise tax to fund housing infrastructure in the county. 

Council members voted unanimously on first reading to adopt a half-percent surcharge on top of the state's 4 percent GET, which is like a sales tax that is charged when residents and visitors buy products and services ranging from groceries to clothes to even a haircut. If approved on second and final reading, the surcharge will be levied starting Jan. 1. 

The extra revenue, which is estimated at around $80 million a year for the county, would be allotted to housing infrastructure, such as sewer, water reuse, water, drainage, waste disposal and waste treatment systems that connect to county infrastructure, along with pedestrian paths or sidewalks on a county road near or around a public school. 

If the bill is passed, Maui County would be the last in the state to take up a surcharge that other counties adopted years ago. This year, the state Legislature passed a bill that was signed by Gov. Josh Green to allow Maui County another opportunity to establish the surcharge it initially passed on adopting in 2019. Council Chairwoman Alice Lee and county Finance Director Scott Teruya lobbied the Legislature to allow the county another chance. 

On Friday, Lee thanked her fellow council members for making the "hard decision," adding that "it's not a popular decision." On the other hand, "you know this is going to create a lot of benefits for the county," Lee said.

She pointed to the county saving on debt service, as it may not have to float as many bonds for projects, and she also noted how there is a lot of competition for money in the county. 

Previously funding was needed more for social services, but now there are more issues needing funds including purchasing wetlands, protecting endangered species and protecting cultural resources. 

"We have to make sure we have enough funding to address all of these important concerns," Lee said. 

She added that the county will look to ease the burden on residents, such as helping with rent and other housing needs. 

"There is many ways we can help those folks who may feel the pinch of this surcharge," Lee said. 

During a previous committee meeting to discuss the bill, Teruya said that according to the state Department of Taxation, a person could pay an additional $370 if the surcharge is adopted. He added that the department estimates that as much as 30 percent of all GET taxes are paid by nonresidents. 

A couple of amendments -- one in committee and another on Friday -- perhaps made the extra tax burden a little more palatable for members who were on the fence. 

When the bill was heard in the council's Budget, Finance and Economic Development Committee in June, Council Member Tasha Kama proposed and won support for an amendment to allow 20 percent of revenues generated by the surcharge to go toward development of county infrastructure projects that would allow the state Department of Hawaiian Home Lands to proceed with homestead development. 

And on Friday, Council Member Tamara Paltin proposed and won support for an amendment that will allow the county's

surcharge to effectively sunset on Dec. 31, 2030, even if the state decides to allow the surcharge to continue beyond that date.

Paltin, who has been critical of the surcharge and its effects on those who are already financially burdened, said if the state does allow the surcharge to go beyond the sunset date, with her amendment the County Council will need to reconsider the surcharge again via ordinance. 

Paltin, who said in committee that the DHHL amendment was a "game changer," said Friday's vote was still hard, noting how the surcharge would especially burden those in rural areas where costs are even higher. She said some people reached out asking her to consider raising property taxes instead of adding the surcharge, but pointed out that property tax revenue does not go toward water and sewer projects, which the surcharge could support. 

Sewer and water system upgrades come out of user fees, such as water and/or sewer bills.

"So the money is going to come out one way or another," Paltin said. 

But with the surcharge, visitors to the islands will also contribute.  

With developers possibly saving money due to the surcharge paying for infrastructure costs, Paltin said she wanted to ensure those savings are actually passed down to homebuyers, "because we are not doing this to make a windfall for the developers." 

During the series of committee meetings, including one night committee meeting and a council public hearing on the GET surcharge Thursday, there wasn't a large turnout of testifiers on the issue. But the handful of testifiers who did show up were mainly against the surcharge. 

"I wish this thing had gone to a vote on a November ballot. I think most people will say 'no' to this," Kenny Barr of Kihei said Thursday evening.

Barr said that even though the Legislature has allowed Maui County to enact a surcharge, the council does not have to do it. 

He asked the council to reconsider, noting that funding could come from elsewhere. 

He noted that the federal government seems to be "throwing money" the county's way and pointed to the recent $25 million federal grant to go toward the extension of Liloa Drive in Kihei. 

Maui Economic Opportunity CEO Debbie Cabebe, who testified Thursday evening on behalf of the anti-poverty nonprofit, was concerned about the surcharge and its unintended consequences. 

With an increase in taxes, even a half-percent surcharge, "those costs are almost usually passed on to the consumer in some form or another," Cabebe said.

She agreed with other testifiers that "people are struggling." 

But she also said that the intent of the bill is good and recognized that there is limited time for the county to enact the surcharge. She said she appreciated all the hard work council members put into the bill. 

Overall, Cabebe said she hopes that food and medicine could be exempt from the GET, which Paltin pointed out could only be done by the state. 

* Staff Writer Melissa Tanji can be reached at mtanji@mauinews.com.