SB3028 HD2

PART I

SECTION 1. The legislature finds that the Hawaii transit-oriented development strategic plan highlights a lack of infrastructure necessary to support affordable housing and mixed-use development near transit. Furthermore, the transit-oriented development infrastructure and finance delivery strategy (2023), developed by the office of planning and sustainable development, identifies the current fragmented infrastructure funding process as a source of inequitable outcomes. The first recommendation of the report is to increase the conveyance tax on high-value, non-owner-occupied homes and allocate a portion of the revenue to finance infrastructure in transit-oriented development zones.

The legislature also finds that the conveyance tax, a one-time tax levied at the time of a property conveyance, is identified as an appropriate revenue source for affordable housing, infrastructure, land conservation, and homeless services. Despite dramatic increases in housing prices over the past thirteen years, the conveyance tax rates have not been updated since Act 59, Session Laws of Hawaii 2009. In fact, Hawaii's conveyance tax remains significantly lower than comparable high-cost areas in the nation.

The legislature recognizes that without reform, the current conveyance tax rate structure could disproportionately affect affordable multifamily housing, as high total property values for these complexes do not reflect the lower per-unit costs. High conveyance taxes on these properties could be passed on to renters. Moreover, the current rate structure may create market inequities, where even small increases in property value could result in disproportionate tax burdens. Because the property values upon which the conveyance tax is imposed are not tied to inflation, rising home prices will eventually push moderately priced homes into higher tax brackets, compounding the issue.

The legislature further finds that the department of Hawaiian home lands requires dedicated, predictable annual funding to support multi-year planning, procurement, and sequencing of infrastructure and housing so that homes can be delivered to all beneficiaries. Consistent revenue is not only operationally necessary, but also fiscally efficient because department dollars leverage other public and private capital. Deployments through Act 279, Session Laws of Hawaii 2022, have unlocked billions in projected vertical development, and recent low-income housing tax credit transactions show more than five times leverage on department investments. Establishing dedicated conveyance tax funding for the department of Hawaiian home lands, including a maximum of $60,000,000 annually, is therefore warranted and is a core recommendation of the 2025 Act 279 Working Group's interim report.

Accordingly, the purpose of this Act is to:

(1) Restructure the conveyance tax to a marginal rate system for the sale of properties with residential use, applying higher rates only to property values exceeding specified thresholds;

(2) Adjust the conveyance tax for multifamily properties to reflect value on a per-unit basis;

(3) Tie conveyance tax rates to a cost-of-living adjustment to maintain equity over time;

(4) Establish the transit-oriented development infrastructure subaccount within the dwelling unit revolving fund and allocate a portion of conveyance tax revenues to the subaccount;

(5) Establish a dedicated conveyance tax allocation to the department of Hawaiian home lands to provide predictable funding for multi-year planning and infrastructure and to leverage additional public and private capital for beneficiary housing; and

(6) Establish and appropriate funds out of the Hawaiian home lands infrastructure and housing special fund.

PART II

SECTION 2. Section 201H-191, Hawaii Revised Statutes, is amended to read as follows:

"§201H-191 Dwelling unit revolving fund. (a) There is created a dwelling unit revolving fund. The funds appropriated for the purpose of the dwelling unit revolving fund, conveyance taxes received pursuant to section 247-7(4), to be deposited into the transit-oriented development infrastructure subaccount, and all moneys received or collected by the corporation for the purpose of the revolving fund shall be deposited in the revolving fund. [~~The~~] Except as provided in subsection (c), the proceeds in the revolving fund shall be used:

(1) To reimburse the general fund to pay the interest on general obligation bonds issued for the purposes of the revolving fund;

(2) For necessary expenses in administering housing development programs, regional state infrastructure programs, and the government employee housing program pursuant to part V; [~~and~~]

(3) To carry out the purposes of housing development programs, regional state infrastructure programs, and the government employee housing program pursuant to part V, including but not limited to the expansion of community facilities and regional state infrastructure constructed in conjunction with housing and mixed-use transit-oriented development projects, permanent primary or secondary financing, and supplementing building costs[,] and federal guarantees required for operational losses[,]; and [~~all~~]

(4) All things required by any federal agency in the construction and receipt of federal funds or low-income housing tax credits for housing projects.

(b) Subject to the requirements of subsection (a), proceeds in the revolving fund may be used to:

(1) Establish and operate regional state infrastructure subaccounts pursuant to section 201H-191.5; and

(2) Administer, implement, and finance the government employee housing program pursuant [[]to[]] part V.

(c) There is established within the dwelling unit revolving fund a transit-oriented development infrastructure subaccount. The subaccount shall consist of moneys deposited pursuant to section 247-7(4), interest earned on such moneys, and any other moneys appropriated or transferred to the subaccount. Moneys in the subaccount shall be used for infrastructure that:

(1) Is located within a county-designated transit-oriented development area that meets standards for transit‑supportive density; or

(2) Is located outside a county-designated transit‑oriented development area; provided that the corporation determines that the infrastructure directly enables housing development within a transit‑oriented development area.

The corporation may use moneys from the subaccount for state infrastructure expenditures, to finance county infrastructure projects, or to provide grants to counties for eligible infrastructure projects; provided that any grant awarded pursuant to this subsection shall require a fifty per cent county match and shall be subject to legislative appropriation.

(d) For purposes of this section:

"County-designated transit-oriented development area" has the same meaning as in section 226-63(d).

"Transit-supportive density" has the same meaning as in section 206E-246."

SECTION 3. Section 247-2, Hawaii Revised Statutes, is amended to read as follows:

"§247-2 Basis and rate of tax. (a) The tax imposed by section 247-1 shall be based on the actual and full consideration (whether cash or otherwise, including any promise, act, forbearance, property interest, value, gain, advantage, benefit, or profit), paid or to be paid for all transfers or conveyance of realty or any interest therein, that shall include any liens or encumbrances thereon at the time of sale, lease, sublease, assignment, transfer, or conveyance, and shall be at the following rates:

(1) [~~Except as provided in paragraph (2):~~] For the sale of a property with a residential dwelling unit for which the purchaser is eligible for a county homeowner's exemption from property tax:

(A) [~~Ten cents per $100 for~~] For properties with a value of less than $600,000[;]: 10 cents per $100;

(B) [~~Twenty cents per $100 for~~] For properties with a value of at least $600,000, but less than $1,000,000[;]: $600 plus 30 cents per $100 of excess over $600,000;

(C) [~~Thirty cents per $100 for~~] For properties with a value of at least $1,000,000, but less than $2,000,000[;]: $1,800 plus 45 cents per $100 of excess over $1,000,000;

(D) [~~Fifty cents per $100 for~~] For properties with a value of at least $2,000,000, but less than [~~$4,000,000;~~] $3,000,000: $6,300 plus $2 per $100 of excess over $2,000,000;

(E) [~~Seventy cents per $100 for~~] For properties with a value of at least [~~$4,000,000,~~] $3,000,000 but less than $6,000,000[;]: $26,300 plus $4 per $100 of excess over $3,000,000;

(F) [~~Ninety cents per $100 for~~] For properties with a value of at least $6,000,000, but less than $10,000,000[~~; and~~]: $146,300 plus $5 per $100 of excess over $6,000,000; and

(G) [~~One dollar per $100 for~~] For properties with a value of at least $10,000,000 [~~or greater; and~~]: $346,300 plus $6 per $100 of excess over $10,000,000;

(2) For the sale of a [~~condominium or single family residence~~] property with a residential dwelling unit for which the purchaser is ineligible for a county homeowner's exemption on property tax:

(A) [~~Fifteen cents per $100 for~~] For properties with a value of less than $600,000[;]: 15 cents per $100;

(B) [~~Twenty-five cents per $100 for~~] For properties with a value of at least $600,000, but less than $1,000,000[;]: $900 plus 35 cents per $100 of excess over $600,000;

(C) [~~Forty cents per $100 for~~] For properties with a value of at least $1,000,000, but less than $2,000,000[;]: $2,300 plus 65 cents per $100 of excess over $1,000,000;

(D) [~~Sixty cents per $100 for~~] For properties with a value of at least $2,000,000, but less than [~~$4,000,000;~~] $3,000,000: $8,800 plus $5 per $100 of excess over $2,000,000;

(E) [~~Eighty-five cents per $100 for~~] For properties with a value of at least [~~$4,000,000,~~] $3,000,000 but less than $6,000,000[;]: $58,800 plus $7 per $100 of excess over $3,000,000;

(F) [~~One dollar and ten cents per $100 for~~] For properties with a value of at least $6,000,000, but less than $10,000,000[~~; and~~]: $268,800 plus $8 per $100 of excess over $6,000,000; and

(G) [~~One dollar and twenty-five cents per $100 for~~] For properties with a value of at least $10,000,000 [~~or greater,~~]: $588,800 plus $9 per $100 of excess over $10,000,000; and

(3) For the sale, lease, sublease, or assignment of any property with no residential dwelling unit:

(A) For properties with a value of less than $600,000: 10 cents per $100;

(B) For properties with a value of at least $600,000, but less than $1,000,000: 20 cents per $100;

(D) For properties with a value of at least $2,000,000, but less than $4,000,000: 50 cents per $100;

(E) For properties with a value of at least $4,000,000, but less than $6,000,000: 70 cents per $100;

(F) For properties with a value of at least $6,000,000, but less than $10,000,000: 90 cents per $100; and

(G) For properties with a value of at least $10,000,000: $1 per $100,

of [~~such~~] the actual and full consideration; provided that in the case of a lease or sublease, this chapter shall apply only to a lease or sublease whose full unexpired term is for a period of five years or more[~~, and in those cases, including (where appropriate) those cases where the~~]; provided further that if a lease has been extended or amended, the tax in this chapter shall be based on the cash value of the lease rentals discounted to present day value and capitalized at the rate of six per cent, plus the actual and full consideration paid or to be paid for any and all improvements, if any, that shall include on-site as well as off-site improvements, applicable to the leased premises; [~~and~~] provided further that the tax imposed for each transaction shall be [~~not~~] no less than $1. For the purposes of this section, any conveyance of property that is used for transient accommodations, as defined in section 237D-1, for any period during the two years before the date of conveyance shall be taxed at the rates under paragraph (2), regardless of whether the purchaser is eligible for a county homeowner's exemption on property tax.

The rates in this section shall apply to the transfer or conveyance of a multifamily residential property; provided that "value", for purposes of determining the applicable rate, shall be an amount calculated by dividing the actual and full consideration for the transfer or conveyance of realty or any interest therein by the number of residential dwelling units in the property.

As used in this subsection, "multifamily residential property" means a structure that is located within the state urban land use district and divided into five or more dwelling units.

(b) For each taxable year beginning after December 31, 2026, the director of taxation, no later than December 15 of the preceding calendar year, shall recompute the "value" in subsections (a)(1), (2), and (3) by multiplying the dollar amounts for the preceding taxable year by a cost-of-living adjustment factor, if the cost-of-living adjustment factor is greater than 1.0, and rounding off the resulting product to the nearest $1; provided that if the cost-of-living adjustment factor is less than or equal to 1.0 in a given year, then no adjustment shall occur in the following year.

As used in this subsection, "cost-of-living adjustment factor" means a factor calculated by adding 1.0 to the quotient of the percentage change in the Urban Hawaii Consumer Price Index for all items divided by one hundred, as published by the United States Department of Labor, from July of the preceding calendar year to July of the current calendar year; provided that if the Urban Hawaii Consumer Price Index is discontinued, the Chained Consumer Price Index for All Urban Consumers, as published by the United States Department of Labor, shall be used to calculate the cost-of-living adjustment factor.

(c) Notwithstanding subsection (a), the total conveyance tax imposed on the transfer or conveyance of a parcel shall not exceed:

(1) Four per cent of the actual and full consideration for the conveyance, if the purchaser is eligible for a county homeowner's exemption from property tax with respect to that parcel; or

(2) Six per cent of the actual and full consideration for the conveyance, if the purchaser is ineligible for a county homeowner's exemption from property tax with respect to that parcel.

For the conveyance of a multifamily residential property as defined in subsection (a), the cap under this subsection shall be applied on a per-unit basis, calculated by dividing the actual and full consideration by the number of residential dwelling units; and the total tax imposed on the conveyance shall not exceed the applicable per-unit cap multiplied by the number of residential dwelling units."

SECTION 4. Section 247-7, Hawaii Revised Statutes, is amended to read as follows:

"§247-7 Disposition of taxes. All taxes collected under this chapter shall be paid into the state treasury to the credit of the general fund of the State, to be used and expended for the purposes for which the general fund was created and exists by law; provided that of the taxes collected each fiscal year:

(1) [~~Ten~~] Five per cent or [~~$5,100,000,~~] $10,000,000, whichever is less, shall be paid into the land conservation fund established pursuant to section 173A-5; [~~and~~]

(2) [~~Fifty~~] Twenty per cent or [~~$38,000,000,~~] $40,000,000, whichever is less, shall be paid into the rental housing revolving fund established by section 201H-202[.];

(3) Thirty per cent or $60,000,000, whichever is less, shall be paid into the Hawaiian home lands infrastructure and housing special fund established pursuant to section 26- ; and

(4) Twenty per cent or $40,000,000, whichever is less, shall be paid into the transit-oriented development infrastructure subaccount of the dwelling unit revolving fund established pursuant to section 201H‑191(c)."

PART III

SECTION 5. Chapter 26, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§26- Hawaiian home lands infrastructure and housing special fund. (a) There is established within the department of Hawaiian home lands a special fund to be known as the Hawaiian home lands infrastructure and housing special fund. The fund shall be administered by the department of Hawaiian home lands.

(b) The following shall be deposited into the special fund:

(1) Conveyance tax revenues allocated pursuant to section 247-7(3); and

(2) Funds appropriated by the legislature or otherwise made available for the purposes of this section.

(1) Multi-year planning, procurement, and sequencing of infrastructure and housing to deliver homes to beneficiaries of the Hawaiian home lands program; and

(2) Leveraging additional public and private capital for the purposes of paragraph (1)."

SECTION 6. There is appropriated out of the Hawaiian home lands infrastructure and housing special fund the sum of $ or so much thereof as may be necessary for fiscal year 2026-2027 for the purposes of the special fund.

The sum appropriated shall be expended by the department of Hawaiian home lands for the purposes of this Act.

PART IV

SECTION 7. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on July 1, 3000.

THE SENATE	S.B. NO.	3028
THIRTY-THIRD LEGISLATURE, 2026		S.D. 2
STATE OF HAWAII		H.D. 2