Honolulu Mayor Jeremy Harris unveiled a proposal yesterday to temporarily suspend property taxes on all new residential construction. Harris unveils tax break
for constructionThe proposal would ax property
taxes on residential buildingBy Lyn Danninger
ldanninger@starbulletin.comHarris said he believes the action is needed to strengthen the building industry and boost the state's sagging economy. He said the tax break may also mean more people could qualify for home mortgages.
Under the plan, new home buyers would be exempt from real property taxes for seven years after construction is completed and would also be applicable to the value of residential renovation projects.
If approved by the City Council, the measure would be in effect until June 30, 2005, Harris said. The city will likely lose an estimated $2.5 million in revenue the first year of the plan, he said. Tax losses of around $5 million per year for each of the following six following years would bring the total loss in city revenues to $32.5 million for the entire period.
The measure is the second stage of an initiative passed three years ago when the city and county gave tax breaks to developers of new commercial, resort and industrial construction projects, Harris said.
Citing Hilton Hawaiian Village's Kalia Tower and the DFS Galleria, Harris said those projects have already generated income for the city and created jobs. Neither may have been contemplated without tax incentives, he said.
Revenue losses from the commercial construction tax credit will amount to about $2.6 million for this year, Harris said.
But City Council Budget Chairman Steve Holmes said he and some council colleagues are concerned about the financial impact of such a plan.
Holmes said he planned to take a "real hard look at the numbers" before going along with the plan.
"We want to make sure the city is still on good financial ground before we would approve it," he said.
Holmes also questioned how much of an economic stimulus a residential construction tax break would actually provide.
"We need to see a direct connection between what we are giving away and a tax stimulus," he said.
Holmes noted the city has already incurred a number of unexpected expenses related to the Sept. 11 tragedy, such as the cost of extra security measures as well as growing costs associated with the state's dengue fever outbreak.
"We already have a lot of overtime costs and our security costs will have to continue into the future," he said.
Holmes also said there is also no way of knowing how much construction would have occurred anyway without the tax relief.
But the president of the Honolulu Board of Realtors, Peter Freeman, welcomed the mayor's proposal, describing it as "creative and innovative."
Similarly, Hawaii Developer's Council President Dana Peiterson described the idea as a move in the right direction.
But Peiterson also said it is too early to know just how much stimulus the tax break would provide.
"It's moving in the right direction but whether this is adequate enough to stimulate a major construction boom is a question that I think you have to ask," he said.