Hawaiʻi has a severe housing shortage that’s fueling poverty, homelessness and an exodus of residents.
This year’s general election ballot includes a constitutional amendment measure that supporters say could help address the crisis — without raising taxes.
The question, if approved by a majority of voters, would give counties a new way to pay for sewer, water, drainage and other vital infrastructure for new homes in a defined district. The counties would have the authority to issue bonds that would be paid off by higher property tax revenue generated by the redeveloped area.
“The biggest challenge of infrastructure in Hawaiʻi is that it costs a lot of money, and somebody's gotta pay for that,” said state Rep. Luke Evslin, who chairs the House Housing Committee. “And often, if you're building infrastructure at the scale we need, that would result in tax increases. So this is one of the few, if maybe only ways, we can build out that infrastructure without raising taxes.”
Evslin, a Democrat who represents Līhuʻe, estimates Hawaiʻi needs 78,000 more apartments and houses to keep pace with existing demand. Currently, only 5,000 homes are built each year.
Housing in Iwilei
One example of where the bonds could be used is Iwilei, a Honolulu neighborhood shaped by plantation-era trains that delivered sugar, pineapple and people to town. The city’s new Skyline commuter train is being built through the district and kickstarting the area’s redevelopment.
The Iwilei-Kapālama area could host about 27,500 new housing units, according to a 2023 report prepared for the state’s Office of Planning and Sustainable Development.
But like a lot of places in Hawaiʻi, the existing sewer and water infrastructure is old and insufficient. Streets, dating to the old rail days, are disjointed and don’t connect to major roads like Nimitz.
Some intersections don’t drain properly after heavy rains. In 2021, a Hawaiian Electric substation in Iwilei flooded during a storm. Customers served by a high-voltage underground cable lost power for up to two days.
Building infrastructure to accommodate the new housing would cost $670 million, according to the 2023 report.
The technical term for bonds proposed by the amendment is “tax increment financing.” Hawaiʻi lawmakers are calling Hawaiʻi’s proposed version “resilient infrastructure for shelter and equity” — or RISE bonds.
What happens if revenue doesn’t grow?
Hawaiʻi and Arizona are the only states that don’t allow this type of public financing, according to a report by the Hawaiʻi Institute for Public Affairs, a non-partisan, non-profit think tank.
The biggest risk of this funding mechanism is that no growth occurs or tax revenue actually declines after redevelopment, said Perry Arrasmith, the think tank’s president.
Paradise, California’s tax increment financing bonds defaulted after a wildfire destroyed much of the town in 2018. The Great Recession and housing market decline depressed revenue in Riverbank, California.
The counties aren’t on the hook when revenue falls short. That’s because the bonds are repaid by the dedicated stream of increased property tax revenue and not the county general fund. Bondholders take the loss if there’s a default.
Still, failed projects could damage a county’s reputation with credit rating agencies, the Hawaiʻi Institute for Public Affairs report said. Counties can reduce these risks by using independent market analysis and creating debt service reserves, it said.
Not wanting 'luxury towers'
Without RISE bonds, counties could finance the infrastructure with more general obligation bonds, which they would pay off using regular city revenue. But the state constitution says county general obligation bond debt may not exceed 15% of its assessed real property value. This limits how much the county can finance this way.
The city could also raise taxes, which would be unpopular. If the cost of infrastructure is borne by developers, as is often the case, they would pass it on to the new homebuyers and renters in the form of more expensive housing.
“We don't want Iwilei to be luxury towers, and if we had to pin all that cost on the eventual residents, that's what we're gonna get,” said Tyler Dos Santos-Tam, a Honolulu City Council member whose district includes Iwilei.
Planners have identified areas in Hawaiʻi, Kauaʻi and Maui counties where the bonds could also be used.
The RISE bonds idea encountered minimal opposition in the Legislature. The bill creating the proposed amendment passed unanimously in the state House and Senate.
Unionized carpenters and Hawaiʻi real estate agents are among those backing a television ad campaign for the ballot question.
The political action committee RISE Together Hawaiʻi has raised nearly $2 million from these groups.
The measure will pass if a majority of voters say “yes.” Blank votes will count as “no.”
