TWENTY-NINTH LEGISLATURE, 2017
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO EDUCATION FUNDING.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that article X, section 1, of the Constitution of the State of Hawaii requires the State to provide a system of public education. Compared to other states, Hawaii is unique because the State, rather than a county or local level jurisdiction, is responsible for public education. As a result, funding for public education in Hawaii is primarily sourced from the general fund of the State.
The legislature further finds that public education in Hawaii is not adequately funded. Compared to school districts of similar size in other states, Hawaii ranks two hundred twenty seventh in per-pupil funding before adjusting for cost of living. At $11,823 per child, Hawaii education spending trails major private schools, which average $15,173 in per-pupil spending. Hawaii also ranks last nationally in capital improvement expenditures for public schools, appropriating about $300 per pupil, compared to averages in other states of $1,200 to $1,500.
The legislature additionally finds that in December 2015, the United States Congress passed the Every Student Succeeds Act (ESSA), which provides states with increased flexibility in limiting the amount of time students spend taking and preparing for standardized testing, designing teacher evaluations that support professional practice, and implementing curricula associated with individual state standards. To realize the promise of the ESSA, Hawaii's school system must be better funded. Currently, the United States Department of Education considers over seventy per cent of Hawaii's public schools to be Title I schools. A majority of public school students are now considered "high-needs" students, meaning the student qualifies for free or reduced price lunch, is an English language learner, or is a special education student. Hawaii public school facilities average sixty-one years in age, with the average school building being forty-four years old and fifty-three buildings being over one-hundred years in age. After adjusting for the high cost of living in Hawaii, teachers are faced with the lowest pay in the United States. Hawaii ranks fifty-first out of fifty states and the District of Colombia in starting and median teacher salaries adjusted for cost of living, according to a 2016 study performed by WalletHub.com.
The legislature also finds that chronic underfunding of public schools undermines the state's goal of providing a quality education to all of Hawaii's children. Insufficient education funding results in delayed repairs to school facilities, overheated classrooms, higher class sizes, a lack of adequate classroom supplies, elimination of arts and career and technical education courses, budget cuts for special education and English language learner programs, and an increasing number of vacant teacher positions statewide. It is necessary to develop a new means of funding Hawaii's public education system to ensure that the State will be able to prepare children to meet the social and economic demands of the twenty first century.
The purpose of this Act is to implement a constitutional amendment permitting the legislature to establish a surcharge on visitor accommodations and residential investment properties to fund the most urgent needs of the department of education, including recruiting and retaining highly qualified teachers, lowering class sizes, improving special education staffing and resources, and growing the number of career and technical education and arts courses offered statewide.
SECTION 2. Chapter 302A, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:
"Part . Education surcharge on residential investment property and visitor accommodations
§302A-A Definitions. As used in this part:
"Consumer price index" means the national consumer price index average over a twelve-month period that is published monthly by the United States Department of Labor's Bureau of Labor Statistics as the "National Consumer Price Index for All Urban Consumers-United States City Average".
"Inflation-adjusted minimum level of funding" means the total amount of funding provided to the department in the fiscal year 2016-2017; provided that this amount shall increase by three per cent for each subsequent fiscal year.
"Operator" means any person, corporation, copartnership, company, or other private business entity that operates one or more visitor accommodations, whether as owner or proprietor or as lessee, sublessee, mortgagee in possession, licensee, or otherwise, or engaging or continuing in any service business that involves the furnishing of visitor accommodations.
"Plan manager" shall have the same meaning as in section 237D-1.
"Property" shall have the same meaning as in section 248-1.
"Residential investment property" means and includes all land and appurtenances thereof and the buildings, structures, fences, and improvements erected on or affixed to the same, and any fixture which is erected on or affixed to such land, buildings, structures, fences, and improvements, including all machinery and other mechanical or other allied equipment and the foundations thereof, and including apartments and condominiums, that is dedicated for residential use for which the owner does not qualify for a county homeowner's exemption.
"Tax year" means the fiscal year beginning July 1 of each calendar year and ending June 30 of the following calendar year.
"Visitor accommodation" means and includes all transient accommodations pursuant to section 237D-1, resort time share vacation units pursuant to section 237D-1, and any other dwelling or lodging located in the State and let by an owner or operator for less than one hundred eighty days. Visitor accommodations shall not include any facility owned or used by a government agency, school or college dormitory, homeless facility pursuant to section 346-361, or tenement home, group home, group residence, group living arrangement, or boarding house certified pursuant to section 445-94.
§302A-B Education surcharges on residential investment property and visitor accommodations; establishment; purpose. (a) There is established an education surcharge on residential investment property and an education surcharge on visitor accommodations in the State of Hawaii. The purpose of the education surcharges is to increase funding for the department to provide a quality public education to all of Hawaii's children. Revenue generated by the education surcharges may be used for:
(1) Recruiting and retaining public school teachers;
(2) Lowering public school class sizes;
(3) Improving special education staffing and resources; and
(4) Offering additional instruction in career and technical education, visual arts, music, theatre, dance, Hawaiian and Polynesian studies, and Hawaiian language.
(b) Revenue generated by the education surcharges on residential investment property and visitor accommodations shall be placed in the quality education special fund and shall be in addition to all other funds appropriated for the department. Moneys budgeted for the department from sources of funding other than the quality education special fund, including for capital improvement projects, shall remain equal to or greater than the inflation-adjusted minimum level of funding, except when the consumer price index for the twelve-month period ending June 30 of the preceding calendar year is less than zero.
§302A-C Applicability. (a) There shall be levied, assessed, and collected an education surcharge on residential investment property and an education surcharge on visitor accommodations as provided in this part. With respect to the surcharges, the superintendent of education shall have all the rights and powers provided under this part.
(b) The education surcharges on residential investment property and visitor accommodations shall be imposed statewide on all:
(1) Residential investment properties; and
(2) Visitor accommodations, regardless of occupancy.
(c) A corporation, copartnership, company, or other private business entity that owns or operates residential investment property or one or more visitor accommodations shall be subject to any applicable surcharge established by this part. Property of a corporation, copartnership, company, or other private businesses shall be assessed the surcharge under its corporate or firm name.
(d) A person or private business that is a wholly owned subsidiary or acting as an agent or on behalf of a corporation having its principal place of business outside of Hawaii shall be subject to any applicable surcharge on residential investment property established by this part.
(e) Every personal representative, trustee, guardian, or other fiduciary shall be responsible for the performance of all such acts required by this part with respect to any applicable surcharge on residential investment property or visitor accommodations in their fiduciary capacity and shall be liable for the payment of a surcharge on residential investment property or visitor accommodations held in the fiduciary's capacity, but shall not be personally liable and may retain, out of the money or other property which may be obtained in the fiduciary's capacity, so much as may be necessary to pay the surcharge, recoup the payment thereof, or recover the amount paid from the beneficiary to whom property or visitor accommodations subject to a surcharge pursuant to this part have been distributed.
(f) No education surcharge shall be established upon any property that is not subject to property taxation or that is otherwise exempt under this part.
(g) The penalties provided by section 231-39 for failure to file a tax return shall be imposed on the amount of the applicable education surcharge for failure to file a return pursuant to section 302A-E(f), failure to pay, file appropriate documentation with regard to, or correctly report the amount of the surcharge.
§302A-D Education surcharge on residential investment property; levy; assessment. (a) There is levied and shall be assessed and collected each year on all residential investment property in the State of Hawaii a surcharge as follows:
Property value Surcharge per $1,000 of total property value
Under $500,000 $3.50
$500,000 under $750,000 $4.50
$750,000 under $1,000,000 $5.50
$1,000,000 under $2,000,000 $6.50
$2,000,000 and over $7.50
(b) The education surcharge on residential investment property shall be imposed on the most recent valuation that is assessed by the county where the property is located for the purpose of determining the annual county property tax liability.
(c) For the purposes of this part, life tenants, personal representatives, trustees, guardians, or other fiduciaries may be; and persons holding government property under an agreement for the conveyance of the same to such persons shall be, considered as owners during the time any residential investment property is held or controlled by them as such, including:
(1) Lessees holding under any government lease during the time any residential investment property is held;
(2) Any tenant occupying government land for a period of one year or more;
(3) Persons holding any residential investment property under an agreement to purchase the same;
(4) Persons holding any residential investment property under a lease for a term to last during the lifetime of the lessee; and
(5) Persons bearing tax liability on the property during the time period for which an educational surcharge on the property has been assessed.
§302A-E Education surcharge on residential investment property; notice and returns. (a) Notices of the amount of the education surcharge on residential investment property shall be transmitted by each county through the United States mail to any property owner subject to the education surcharge. Notice of the surcharge amount shall be transmitted no later than October 31 of each calendar year to the owner's last known address or place of business.
(b) Each county shall by ordinance permit an owner to pay the education surcharge in the same manner provided for the payment of real property taxes.
(c) Whenever any county director of finance finds that there is not sufficient evidence to form sound appraisal of a residential investment property, for assessment purposes, of the value of the property or properties, or portions thereof, it may require an owner to file a return within thirty days. Consideration of and liability for a return, including in determining the fair market value of a property or properties, shall made in the same manner and with the same limitations as for real property tax returns in the county in which the property is located.
(d) All returns made under this section shall be open to inspection by the public, and shall be admissible in evidence against the owner making the return, in any state court in any action wherein the value of the residential investment property, or portion thereof, covered by the return, may be in dispute.
(e) No owner shall be deemed to be aggrieved by any assessment made upon the owner's property that is based upon the opinion of value set forth in the owner's return unless the owner shows lack of uniformity or inequality as set forth in section 232-3.
(f) Failure to file a return required under this section shall render the owner liable for payment of an additional sum equal to the sum defined in and prescribed for failure to file a tax return under section 231-39(b)(1).
(g) If any return is sent by United States registered or certified mail, a record authenticated by the United States Postal Service of the registration or certification shall be considered evidence that the return was delivered to the county director of finance. The date of registration or certification shall be deemed the postmarked date for filing purposes.
(h) Each county director of finance shall make publicly available a form for a return related to the education surcharge on residential investment property for use in collecting the education surcharge.
§302A-F Education surcharge on residential investment property; appeals. (a) Any owner of residential investment property who is aggrieved by an assessment used to determine the amount of the education surcharge on residential investment property for any year or by a refusal to be granted an exemption from the education surcharge may appeal from such assessment in the manner provided in the case of real property tax appeals.
(b) Each of the counties shall by ordinance provide for appeals from assessments used to determine the amount of the education surcharge and denial of an exemption in the same manner as provided in the case of real property tax appeals.
(c) Any county decision on an appeal for relief or exemption from the education surcharge may be appealed to the tax appeal court as provided in chapter 232.
§302A-G Education surcharge on visitor accommodations; levy; assessment. (a) There is levied and shall be assessed and collected each year on all visitor accommodations in the State of Hawaii a surcharge.
(b) The surcharge shall be:
(1) $3 per day for each visitor accommodation furnished by an operator or plan manager at a cost of less than $150 per day; and
(2) $5 per day for each visitor accommodation furnished by an operator or plan manager at a cost of $150 per day or greater.
(c) On or before the final day of each calendar month, every operator or plan manager subject to an education surcharge on visitor accommodations during the preceding calendar month shall file a sworn return with the director of finance shall prescribe together with a remittance for the amount of the surcharge required by this section.
(d) Notwithstanding subsection (c), the director of finance, for good cause and in writing, may permit an operator or plan manager to file a return required by this section and make payments thereon:
(1) On a quarterly basis during the calendar or fiscal year, the return and payment to be made on or before the final day of the calendar month after the close of each quarter; or
(2) On a semiannual basis during the calendar or fiscal year, the return and payment to be made no later than the final day of the calendar month after the close of each six-month period;
provided that the director of finance is satisfied that the grant of the permit will not unduly jeopardize the collection of the surcharge due thereon or the operator's or plan manager's total surcharge liability.
(e) The director of finance, for good cause and in writing, may permit an operator or plan manager to make monthly payments based on the operator's or plan manager's estimated quarterly or semiannual surcharge liability; provided that the operator or plan manager files a reconciliation return at the end of each quarter or each six-month period during the calendar or fiscal year.
(f) If an operator or plan manager filing a return on a quarterly or semiannual basis, as provided in this section, becomes delinquent in either the filing of the return or the payment of the surcharge due thereon, or if the liability of an operator or plan manager who possesses a permit to file a return and make payments on a quarterly or semiannual basis exceeds $5,000 during the calendar year, or if the director of finance determines that any such quarterly or semiannual filing of return would unduly jeopardize the proper administration of this part, including the assessment or collection of the education surcharge on visitor accommodations, the director of finance, at any time, may revoke an operator's or plan manager's permit, in which case the operator or plan manager shall then be required to file an immediate return and make payments thereon as provided in subsection (c).
(g) Payments collected by the department under this section shall be deposited into the quality education special fund established by section 302A-K.
§302A-H Education surcharge on residential and investment property; disposition of proceeds. (a) The education surcharge on residential investment property shall be collected by the counties in accordance with this section. All moneys collected by the counties pursuant to the establishment of the education surcharge shall be paid into each county's treasury within ten working days after collection and shall be placed by each county's director of finance in special accounts. Out of the revenues generated by the education surcharge paid into each respective county treasury special account, the director of finance of each county shall deduct five per cent of the gross proceeds of a respective county's education surcharge collection to reimburse the county for the costs of assessment, collection, and disposition of the education surcharge incurred by the county.
(b) The amounts deducted for costs of assessment, collection, and disposition of the education surcharge shall be withheld from payment to the State by the counties out of the revenue generated by the education surcharge for the current calendar year.
(c) For the purpose of this section, the costs of assessment, collection, and disposition of the education surcharge shall include any and all costs, direct or indirect, that are deemed necessary and proper to effectively administer this part.
(d) After the deduction and withholding of the costs under subsections (a) and (c), the director of finance of each county shall, on a quarterly basis, pay the remaining balance of revenue collected under the education surcharge to the state director of finance. The quarterly payments shall be made after the education surcharge has been paid into the county treasury special accounts and after the disposition of any appeal.
(e) Education surcharge payments received by the state director of finance from the counties shall be deposited into the quality education special fund established by section 302A-K.
§302A-I Exemptions. (a) This part shall not apply to:
(1) Property rented for an amount of $1,500 or less per month, not including any applicable maintenance fees, utility fees, and service charges;
(2) Property rented to a person or household whose income level would qualify the person or household for the federal public housing program;
(3) Property rented to a person or household receiving rental assistance through the state rent supplement program pursuant to section 356D-151;
(4) Property rented to a resident aged sixty-five years or older, provided that the resident's annual income is less than $75,000;
(5) Property leased, purchased, or otherwise obtained by a lessee, tenant, purchaser, or homesteader under the Hawaiian Homestead Act of 1920, or a lease of land made for a term of nine hundred and ninety-nine years under provisions of law which were repealed by section 3 of Joint Resolution 12, Session Laws of 1949, ratified by the Congress of the United States by the Act of September 1, 1950 (64 Stat. 572);
(6) Property rented to a person who is blind or deaf, or a person totally disabled, as those terms are defined in section 235-1; provided that the person's blindness, deafness, or total disability shall be verified by a licensed physician, ophthalmologist, optometrist, or otolaryngologist;
(7) Property rented to a totally disabled veteran;
(8) Property used exclusively for charitable purposes, including property used for church purposes and cemeteries that are maintained by a religious organization;
(9) Property used for school purposes including:
(A) Prekindergarten facilities, including any property used to administer the executive office on early learning public prekindergarten program under section 302L-7;
(B) Kindergartens, elementary schools, middle schools, intermediate schools, and high schools, which carry on a program of instruction meeting the requirements of compulsory school attendance pursuant to section 302A-1132; and
(C) Colleges or junior colleges offering a general program of instruction;
(10) Property owned by a nonprofit corporation to which admission is restricted by corporate charter to members of a labor union or government employees' association, one of the primary purposes of which is to improve employment conditions of its members;
(11) Property dedicated to public use by the owner, which dedication has been accepted by the State or any county, reduced to writing, and recorded in the bureau of conveyances;
(12) Property that has been set aside for public use for a period of not less than ten years after enactment of this section; and
(13) Property owned by any entity granted a transient accommodations tax exemption under section 237D-3.
(b) A person who is eligible for a county homeowner's exemption on property tax who also owns more than one residential investment property shall be entitled to designate which residential investment property owned by that person shall be exempt from this part.
(c) No exemption from this part shall be allowed to any corporation, copartnership, company, or other private business entity, unless otherwise specified by law.
(d) An exemption shall only be granted for a residential investment property or a visitor accommodation for which every owner or ownership interest qualifies for one or more exemptions provided by this section.
§302A-J Enforcement. (a) The superintendent of education shall administer and enforce this part; provided that each county director of finance and the state director of finance, as applicable, shall administer and enforce:
(1) The examinations of books and records by any person or private entity subject to the education surcharge on residential investment property or the education surcharge on visitor accommodations; and
(2) Procedure and powers upon failure or refusal by a person or private entity to file a return, sworn return, or proper return.
(b) The department may contract with any state or county department or agency for the purposes of implementing or enforcing this part.
(c) The superintendent of education shall adopt, amend, or repeal rules under chapter 91 to carry out this part.
§302A-K Quality education special fund. (a) There is established within the state treasury a special fund to be known as the quality education special fund to be administered by the department and into which shall be deposited:
(1) The proceeds of the education surcharge on residential investment property established under section 302A-D;
(2) The proceeds of the education surcharge on visitor accommodations established under section 302A-G;
(3) All other funds received by the department and legally available for the purposes of the quality education special fund; and
(4) Interest accrued on all amounts in the quality education special fund.
(b) The quality education special fund shall not be subject to sections 36-27, 36-30, and 37-53. Expenditures from the special fund shall be subject to sections 37-31, and 37-33 through 37-40. Funds that are credited and transferred back to property owners from the special fund shall not be considered income and shall not be subject to state or county taxes.
(c) Moneys in the quality education special fund shall be allocated by the legislature through appropriations out of the special fund, in consultation with the department and the exclusive representatives of any appropriate bargaining units, for the purposes of:
(1) Recruiting and retaining public school teachers;
(2) Lowering public school class sizes;
(3) Improving special education staffing and resources; and
(4) Offering additional instruction in career and technical education, arts, music, theatre, dance, Hawaiian studies, and Hawaiian language.
(d) All amounts in the quality education special fund shall be exempt from all taxes and surcharges imposed by the State or the counties.
(e) No later than twenty days prior to the convening of each regular session, the department shall post on the department's website a report containing an accounting of the receipts of and expenditures from the quality education special fund. The legislature shall provide to the department any information necessary to complete and post the report required by this section."
SECTION 3. In codifying the new sections added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.
SECTION 4. This Act shall take effect upon ratification of the constitutional amendment proposed in S.B. No. 683, Regular Session of 2017, permitting the legislature to establish a surcharge on residential investment properties and visitor accommodations to fund public education.
Education Surcharge; Residential Investment Properties; Visitor Accommodations
Establishes an education surcharge on residential investment properties and visitor accommodations for the purpose of funding public education. (SD1)
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.