HB2385

SECTION 1. The legislature finds that, in 2023, affordable housing was declared an emergency in the State, and Hawaii's housing supply was cited as the most expensive in the nation. It has been estimated that fifty thousand homes will be needed in the next five years to address the State's housing crisis.

The legislature also finds that the general excise tax exemption for low-income housing projects that are approved and certified pursuant to sections 237-29 and 201H-36, Hawaii Revised Statues, is a valuable incentive for the development and operation of affordable rental housing in the State. However, it has proven increasingly difficult to offset rising construction costs and interest rates using these exemptions alone, creating the need for additional incentives to achieve project development and completion.

The legislature further finds that county assistance programs that encourage the development of affordable housing, when leveraged in addition to state-administered incentives, would help to achieve comprehensive project financing and maximize support for affordable housing development.

Accordingly, the purpose of this Act is to address the ongoing shortage of affordable housing in the State by authorizing the Hawaii housing finance and development corporation to approve and certify general excise tax exemptions for certain housing development projects developed under county housing incentive programs.

SECTION 2. Section 46-15.1, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Notwithstanding any law to the contrary, any county shall have and may exercise the same powers, subject to applicable limitations, as those granted the Hawaii housing finance and development corporation pursuant to chapter 201H insofar as those powers may be reasonably construed to be exercisable by a county for the purpose of developing, constructing, financing, refinancing, or otherwise providing low- and moderate-income housing projects and mixed-use developments; provided that no county shall be empowered to cause the State to issue general obligation bonds to finance a project pursuant to this section; provided further that county projects initially approved and certified prior to July 1, 2026, shall be granted an exemption from general excise or receipts taxes in the same manner as projects of the Hawaii housing finance and development corporation pursuant to section 201H-36; provided further that county projects shall prioritize walkability to the extent practicable; provided further that section 201H-16 shall not apply to this section unless federal guidelines specifically provide local governments with that authorization and the authorization does not conflict with any state laws. The powers shall include the power, subject to applicable limitations, to:

(1) Develop and construct dwelling units, alone or in partnership with developers;

(2) Acquire necessary land by lease, purchase, exchange, or eminent domain;

(3) Provide assistance and aid to a public agency or other person in developing and constructing new housing and rehabilitating existing housing for elders of low- and moderate-income, other persons of low- and moderate‑income, and persons displaced by any governmental action, by making long-term mortgage or interim construction loans available;

(4) Contract with any eligible bidders to provide for construction of urgently needed housing for persons of low- and moderate-income;

(5) Guarantee the top twenty-five per cent of the principal balance of real property mortgage loans, plus interest thereon, made to qualified borrowers by qualified lenders;

(6) Enter into mortgage guarantee agreements with appropriate officials of any agency or instrumentality of the United States to induce those officials to commit to insure or to insure mortgages under the National Housing Act, as amended;

(7) Make a direct loan to any qualified buyer for the downpayment required by a private lender to be made by the borrower as a condition of obtaining a loan from the private lender in the purchase of residential property;

(8) Provide funds for a share, not to exceed fifty per cent, of the principal amount of a loan made to a qualified borrower by a private lender who is unable otherwise to lend the borrower sufficient funds at reasonable rates in the purchase of residential property; and

(9) Sell or lease completed dwelling units.

For purposes of this section, a limitation is applicable to the extent that it may reasonably be construed to apply to a county."

SECTION 3. Section 104-2, Hawaii Revised Statutes, is amended by amending subsection (i) to read as follows:

"(i) The terms of section [~~201H-36(a)(5)~~] 201H-36(a)(6) prevailing wages shall be deemed the prevailing wages serving as the basis of compliance with this chapter for work on the project when:

(1) The Hawaii housing finance and development corporation has approved and certified a qualified person or firm involved with a newly constructed, or moderately or substantially rehabilitated project under section [~~201H-36(a)(5)~~] 201H-36(a)(6) for exemption from general excise taxes;

(2) The qualified person or firm has entered into a contract with a general contractor or subcontractors whose workforce is subject to either:

(A) A collective bargaining agreement with a bona fide labor union for which a section [~~201H‑36(a)(5)~~] 201H-36(a)(6) prevailing wage for the laborers and mechanics employed for the construction project has been approved by the director; or

(B) A project labor agreement with the group whose wages are reflected in the Hawaii prevailing wage schedule for which section [~~201H-36(a)(5)~~] 201H‑36(a)(6) prevailing wages for the laborers and mechanics employed for the construction project have been approved by the director; and

(3) The qualified person or firm has received no other direct or indirect financing for the construction project from any other governmental contracting agency, including the Hawaii housing finance and development corporation."

SECTION 4. Section 201H-36, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

"(a) In accordance with section 237-29, the corporation may approve and certify for exemption from general excise taxes any qualified person or firm involved with a newly constructed, or a moderately or substantially rehabilitated, project that is:

(1) Developed under this part;

(2) Developed under a government assistance program approved by the corporation, including but not limited to the United States Department of Agriculture's section 502 direct loan program and Federal Housing Administration's section 235 program;

(3) Developed under the sponsorship of a private nonprofit organization providing home rehabilitation or new homes for qualified families in need of decent, low‑cost housing;

(4) Developed by a qualified person or firm to provide affordable rental housing where at least fifty per cent of the available units are for households with incomes at or below eighty per cent of the area median family income as determined by the United States Department of Housing and Urban Development, of which at least twenty per cent of the available units are for households with incomes at or below sixty per cent of the area median family income as determined by the United States Department of Housing and Urban Development; [or]

(5) Developed under a county assistance program approved by the corporation, where at least fifty per cent of the available units are for households with incomes at or below one hundred per cent of the area median family income as determined by the United States Department of Housing and Urban Development; or

[~~(5)~~] (6) Approved or certified from July 1, 2018, to June 30, 2030, and developed under a contract described in section 104‑2(i)(2) by a qualified person or firm to provide affordable rental housing through new construction or substantial rehabilitation; provided that:

(A) The allowable general excise tax and use tax costs shall apply to contracting only and shall not exceed $30,000,000 per year in the aggregate for all projects approved and certified by the corporation; and

(B) All available units are for households with incomes at or below one hundred forty per cent of the area median family income as determined by the United States Department of Housing and Urban Development, of which at least twenty per cent of the available units are for households with incomes at or below eighty per cent of the area median family income as determined by the United States Department of Housing and Urban Development; provided that an owner shall not refuse to lease a unit solely because the applicant holds a voucher or certificate of eligibility under section 8 of the United States Housing Act of 1937, as amended.

(b) To obtain certification for exemption under this section, rental housing projects shall, unless exempted by the corporation, enter into a regulatory agreement with the corporation to ensure the project's continued compliance with the applicable eligibility requirements set forth in subsection (a), as follows:

(1) For moderate rehabilitation projects, a minimum term of five years as specified in a regulatory agreement;

(2) For substantial rehabilitation projects, a minimum term of ten years as specified in a regulatory agreement; or

(3) For new construction projects, a minimum term of thirty years from the date of issuance of the certificate of occupancy[.]; provided that for new construction projects developed under a county assistance program, the minimum term shall be fifteen years from the date of issuance of the certificate of occupancy."

SECTION 5. The Hawaii housing finance and development corporation shall amend its administrative rules, pursuant to chapter 91, Hawaii Revised Statutes, to conform to this Act.

SECTION 6. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect on July 1, 2026; provided that:

(1) The amendments made to section 46-15.1, Hawaii Revised Statutes, by section 2 of this Act shall not be repealed when that section is repealed and reenacted:

(A) On June 30, 2028, pursuant to section 4 of Act 45, Session Laws of Hawaii 2024;

(B) On July 1, 2030, pursuant to:

(i) Section 3 of Act 141, Session Laws of Hawaii 2009, as amended by section 3 of Act 102, Session Laws of Hawaii 2015, as amended by section 1 of Act 80, Session Laws of Hawaii 2019, as amended by section 2 of Act 90, Session Laws of Hawaii 2023; and

(ii) Section 3 of Act 98, Session Laws of Hawaii 2012, as amended by section 4 of Act 102, Session Laws of Hawaii 2015, as amended by section 50 of Act 55, Session Laws of Hawaii 2016, as amended by section 2 of Act 80, Session Laws of Hawaii 2019, as amended by section 3 of Act 90, Session Laws of Hawaii 2023; and

(2) The amendments made to section 104-2, Hawaii Revised Statutes, by section 3 of this Act shall not be repealed when that section is repealed and reenacted on June 30, 2030, pursuant to section 5 of Act 54, Session Laws of Hawaii 2017, as amended by section 4 of Act 39, Session Laws of Hawaii 2018; and

(3) The amendments made to section 201H-36, Hawaii Revised Statutes, by section 4 of this Act shall not be repealed when that section is repealed and reenacted on June 30, 2030, pursuant to section 5 of Act 54, Session Laws of Hawaii 2017, as amended by section 4 of Act 39, Session Laws of Hawaii 2018.

INTRODUCED BY:

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HOUSE OF REPRESENTATIVES	H.B. NO.	2385
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII