The state Legislature continues to look at filling the void left by federal funding cuts and added administrative costs — together an estimated $3 billion in lost revenue over the next six years.
The Senate is attempting to recoup funds by reducing sweeping income tax cuts that went into effect last year and by reevaluating tax credits for things like renewable energy.
The tax cut that started in 2025 is expected to cost the state well over a billion dollars in revenue when fully implemented by 2031. The Senate Ways and Means Committee advanced a measure that would change the phased tax cut plan.
It preserves the future income tax cuts for most people, but pauses them for the top five highest tax brackets. That includes individuals who make over $175,000 a year, or couples who make over $350,000 a year.
Ways and Means Committee Chair Donnovan Dela Cruz explained that this approach is part of a larger plan to ensure that the state can address the revenue shortfall.
“Protecting the tax cuts to working families is a shared responsibility, and we must all do our part,” he said. “The additional amendments … are part of a larger package that will help the legislature balance its financial plan, while also delivering on meaningful tax reform that was promised to the taxpayer by making amendments to the bracket adjustments … and maintaining the standard deduction increases.”
Dela Cruz added that the committee is looking at reducing long-term position vacancies, and cutting redundant state programs and excess special funds.
The measure being considered also broadens the scope to sunset other tax credits in 2029, like those for renewable energy.
One of the tax incentives on the chopping block is the Renewable Energy Technologies Income Tax Credit, which covers up to 35% of the cost of a new rooftop solar installation. If the measure is adopted, the credit would be eliminated on Jan. 1, 2029.
Lawmakers proposed legislation last year to sunset the renewable energy tax credit. But the solar industry and other proponents of renewable energy pushed back, arguing that state incentives should remain in place, especially as the federal government rolled back its own tax breaks for residential and commercial solar.
Gov. Josh Green ultimately sided with the solar industry and vetoed the measure to eliminate the renewable energy tax credit and other incentives.
Now the industry may once again have to go to bat to save the renewable energy tax credit. Hawaiʻi Solar Energy Association Executive Director Rocky Mould testified in opposition to the sunsetting of the tax credit during Thursday’s Ways and Means Committee hearing.
“This tax credit is a positive investment fiscally, and I'll say that it's very important for the market and the outside money that's coming in to have a stable investment environment,” he said.
Mould noted that solar installers are already navigating major disruptions in the market with the elimination of the federal residential solar tax credit, which sunset on Dec. 31, 2025.
“We're seeing a lot of change… so even changing something out a few years is causing some pain in the market,” Mould said.
Dela Cruz explained that because the sunset of the tax credit is in 2029, the bill wouldn’t outright eliminate it.
“Instead of revisiting the income tax in several years, we want to revisit the tax credits in several years,” he said. “That doesn't mean that it's going to end. The committee chairs can introduce legislation to extend the sunset or remove the sunset on an individual basis, but it allows us to review each one and the effectiveness of each one.”
This comes after the House Finance Committee passed a version of the measure that eliminates any further reductions to income taxes and increases the rate charged to those in the top three tax brackets by 1%.
Both versions are awaiting second reading by their respective chambers.
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