Maui County Council members ushered a tax-break proposal forward Tuesday that government leaders hope will entice the owners of short-term rentals into helping with the long-term housing needs of thousands of people who survived the August wildfires.

Bill 131, submitted to the council last week by Mayor Richard Bissen, was passed on first reading after impassioned public testimony but little discussion among council members. It is scheduled for second and final reading Dec. 15.

The measure provides substantial tax breaks for properties that convert to long-term rentals. Specifically, it would exempt timeshare units, nonowner-occupied dwellings and vacation rentals from all property taxes through fiscal year 2025 if they are rented for at least 12 months to tenants who lost their homes in separate blazes in Lahaina and Upcountry Maui.

The county reports that 2,836 dwellings were destroyed and many of the residents displaced by the disaster are still waiting to find interim long-term housing until more permanent homes are made available. They include the 6,516 individuals who were being housed in 33 hotels on Maui and Oahu as of last week under an American Red Cross program that expires in February.

Bissen told council members there is an urgent need to identify 2,700 homes for these families and others who have been unable to find stable housing. Data from the county Department of Finance shows there are 13,718 transient vacation rentals, 8,796 nonowner-occupied units and 2,470 timeshare condominium units in South and West Maui combined, many of which are sitting empty, according to the mayor.

Under Bill 131, owners who apply for the exemption by Jan. 31 with a 12-month lease in effect by Feb. 1 would be granted the tax break for the second half of the current fiscal year and the entirety of fiscal year 2025.

Property owners with a lease in effect by March 16 would be able to claim the exemption for fiscal year 2025 if they apply by March 15.

Scenarios for properties with an assessed value of $1 million show that owners of nonowner-occupied units would see their $5,850 annual tax bill reduced to zero, while short-term rentals would be exempt from $11,850 in taxes and timeshares would save $14,600 in taxes.

The measure includes a provision from council member Tamara Paltin of West Maui preventing landlords from evicting current long-term tenants to take advantage of the new tax breaks.

“While we are all navigating these new circumstances to this disaster, one thing is certain: I believe we all share a profound kuleana and caring for our people,” Bissen told the council. “With that responsibility comes a shared sacrifice to ensure that all people are returned to a place they can call home.”

Speaking directly to short-term rental owners, Bissen said Bill 131 offers them a 100% tax exemption and guaranteed rental income on a year-to-year basis along with savings on booking, cleaning and other fees associated with short-term rentals.  

The mayor also said he intends to establish a fund with other partners to cover the costs of any damage caused by tenants, a worry expressed by many owners, and plans to go after illegal vacation rentals, but was saving that “robust discussion” for another day.

Addressing owners’ overriding concerns about the substantial loss of income they face by converting to long-term rentals, Bissen responded that “the answer to that is that’s right, they will be losing money. But what they will be gaining is much more and what the whole community gains.”

If the incentives offered in Bill 131 aren’t enough to persuade owners of vacation rentals to step up, the county will move to what Bissen called “Part 2” of his plan to provide more housing, namely tax increases for those properties that do not voluntarily convert to long-term rentals.

Since tax rates are already set for the current fiscal year, any increases wouldn’t go into effect until fiscal year 2025. In any event, the county won’t be able to calculate tax revenue losses from the new exemptions until it is able to certify how many properties would get them, so it’s too early to propose any rate adjustments to cover those losses.

Bissen told Civil Beat after Tuesday’s meeting that Bill 131 gives short-term rental owners two chances to take advantage of the tax breaks depending on how quickly they can rent their units to fire survivors, and that it shouldn’t have come as a surprise since the county’s critical housing needs in the wake of the wildfires have been well-publicized. 

“This isn’t intended to divide people. In fact, this is about as shared sacrifice as you can get. You either open your place up or you pay a little more, and if you’ve got to choose the financial side of it, then that’s a choice,” he said.

While supporting Bill 131, Council Chair Alice Lee told Civil Beat she’s skeptical whether enough short-term rental owners will respond to the enticements and is wary that penalizing them for not converting to long-term rentals will trigger costly litigation when the county is already facing dozens of lawsuits over the wildfires.

Short-term rentals also might not be a good fit for people with extended families, pets and other circumstances who need a little more leeway in their living situations, or those limited to locations not close to jobs and schools, she said.

Lee sees the building of 1,500 modular units as a more viable option “because going from a hotel to a short-term rental is still restrictive, maybe not as restrictive as a hotel but still restrictive,” and residents could stay put until relocating to a permanent home. 

An overwhelming percentage of the oral and written testimony submitted on Bill 131 urged council members to pass the measure and expedite other steps to increase Maui’s housing inventory.

Some supporters called owners who don’t want to rent to fire survivors “heartless” and “greedy,” among other labels.

“Shame on you for having assets in a small community and not wanting to help,” said Gretchen Losano.

A tearful Laurie Robertson, who said she has had to move four times after losing her home in Wahikuli, called the bill an important step toward addressing Maui’s housing crisis and urged owners to “demonstrate true aloha” and “prioritize the well-being of our community over profit.”

Shannon I’i called on officials to act with urgency in all fire-related matters and was not having owners’ complaints about potential income losses. 

“Too bad, cry me a river,” she said.

The smaller number of vacation rental owners who opposed the bill argued it would be unfair to single out one class of property owners and pushed the county to instead crack down on illegal operators. They said converting to long-term rentals would force them to cancel reservations at great cost to their finances and reputations.

Others who are longtime Maui residents pointed out that not all vacation rental owners are wealthy and live off-island, with some saying they rely on the rentals for retirement income and that their guests contribute to the local economy.

Bob Fenton, regional administrator for the Federal Emergency Management Agency, also has used the phrase “shared sacrifice” in aggressively pursuing short-term rentals for a direct leasing program that launched in November.

So far FEMA has secured only about 100 units and placed just 30 families in the program in which property owners lease units to FEMA, which then acts as a landlord and subleases to fire survivors.

Fenton told the council last week that he is hopeful Bill 131 and similar measures will bring more vacation rentals into the direct leasing program, which requires a 12-month rental with an option to extend another six months.

The council recently approved a partial exemption for six-month rentals to fire survivors to attract short-term rental owners who want to be able to use their own units for part of the year.

And the county since January 2022 has offered an exemption of up to $200,000 for long-term rentals of at least 12 months, and an exemption of up to $100,000 is available to owner-occupied properties with dwelling units used for long-term rentals. Approximately 4,000 properties received those tax breaks last year.

Civil Beat’s coverage of Maui County is supported in part by grants from the Nuestro Futuro Foundation.