SB 2464: Constitutional Amendment; Public Education; Residential Investment Property Surcharge

A BILL FOR AN ACT

PROPOSING AMENDMENTS TO ARTICLES VIII AND X OF THE CONSTITUTION OF THE STATE OF HAWAII TO AUTHORIZE THE LEGISLATURE TO ESTABLISH A SURCHARGE ON RESIDENTIAL INVESTMENT PROPERTY TO INCREASE FUNDING FOR PUBLIC EDUCATION.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that article X, section 1, of the Constitution of the State of Hawaii requires the State to provide a system of public education, which includes K-12 and post-secondary education institutions.  Compared to other states, Hawaii is unique because the State is responsible for funding public education and has only one public higher education system.  As a result, funding for public education in Hawaii is primarily sourced from the State's general revenues.

     The legislature further finds that public education in Hawaii is not adequately funded.  According to a 2017 analysis of real property tax in Hawaii performed by the department of business, economic development, and tourism, education expenditures in Hawaii – at 27.3 per cent combined state and local government expenditures – ranked the lowest in the nation.  At $12,855 per child, Hawaii trailed mainland school districts of similar size when adjusted for cost of living.  A December 2024 research brief further reports that, despite having the fourth-highest median household income, Hawaii ranks thirty-ninth nationally in public school spending per $1,000 of per capita income.  This persistent underfunding has contributed to one of the highest private school enrollment rates in the country, as many families opt out of the public school system.

     The legislature additionally finds that sixty-six per cent of Hawaii's public schools and public charter schools are designated as Title I schools by the United States Department of Education, meaning they serve high concentrations of low-income students and receive federal funding to help ensure all children meet academic standards.  A majority of public school students are now considered high-needs, which includes students who qualify for free or reduced-price lunch, English language learners, and students receiving special education services.

     The legislature notes that the Trump administration is proposing substantial reductions and eliminations in federal education funding that will place additional pressure on state and local education systems.  The administration's proposed federal budget would cut the United States Department of Education's overall budget by approximately fifteen per cent and eliminate all funding for English language learner and migrant education programs.  It would also consolidate eighteen existing funding streams — including programs supporting rural schools, civics education, at-risk youth, and students experiencing homelessness — and reduce the combined funding from roughly $6,500,000,000 to $2,000,000,000.  According to a tool developed by the Education Law Center and New York University's Metropolitan Center for Research on Equity and the Transformation of Schools, Hawaii public schools may lose an estimated $72,457,243 in federal K-12 funding under these proposed 2026 cuts.  These federal funding shifts underscore the urgency of generating new, reliable revenue tools to support Hawaii's K-12 and post-secondary education systems.

     The legislature further finds that chronic underfunding undermines the State's goals of providing quality education and preparing a well-educated workforce.  It leads to delayed repairs to school facilities, overheated classrooms, larger class sizes, inadequate classroom supplies, elimination of arts and career and technical education courses, budget cuts for special education and English language learner programs, higher in-state tuition at the university of Hawaii, and more vacant teacher positions statewide.

     The legislature additionally finds that Hawaii has consistently ranked among the worst states for teachers in terms of salary competitiveness and working conditions.  Teachers in Hawaii earn 15.5 per cent less than other residents with bachelor's degrees.  Research shows that low teacher pay contributes to high attrition rates, which in turn negatively affects student outcomes.

     The legislature also finds that Hawaii's K-12 school and university facilities are aging and require investment.  As of 2022, the average age of public school buildings in Hawaii was seventy-two years, and approximately twenty per cent of public schools were over one hundred years old.  Similarly, many buildings at the university of Hawaii were constructed more than forty years ago.  Classroom facilities, student housing, campus infrastructure, and support systems have not received adequate investment for proper maintenance or modernization.

     The legislature further finds that funding for public higher education in the State has declined as a portion of the state budget from nine per cent in 2013 to seven per cent in 2022.  Meanwhile, college costs continue to rise nationally.  The 2022 Hawaii Databook notes that faculty, staff, and personnel at the university of Hawaii declined between 2019 to 2022.  Reduced state funding threatens the sustainability and availability of programs at the State's only public higher education institution.

     The legislature further notes that the cost of housing is a major barrier to affordability in Hawaii.  Real estate owned by nonresident investors contributes to housing unaffordability and economic inequality.  At the same time, the State needs a highly educated local workforce to support its industries and communities.

     The legislature believes that it is necessary to develop a new means of funding public education to ensure that Hawaii can meet the social and economic demands of the twenty-first century.  Enabling funding from real estate speculation to support public education infrastructure is both necessary and rational.

     The purpose of this Act is to propose an amendment to the Constitution of the State of Hawaii to repeal the counties' exclusive power to tax real property, and to authorize the legislature to establish a state surcharge on real property taxes levied by the counties on certain residential investment properties, for the purpose of helping to fund public education for all of Hawaii's children and adults.

     SECTION 2.  Article VIII, section 3, of the Constitution of the State of Hawaii is amended to read as follows:

"TAXATION AND FINANCE

     Section 3.  The taxing power shall be reserved to the State, except so much thereof as may be delegated by the legislature to the political subdivisions[, and except]; provided that all functions, powers and duties relating to the taxation of real property shall be exercised [exclusively] by the counties, with the exception of the county of Kalawao[.]; provided further that the legislature may establish a surcharge on the counties' taxation of residential investment property as provided in Article X, section 1.  The legislature shall have the power to apportion state revenues among the several political subdivisions."

     SECTION 3.  Article X, section 1, of the Constitution of the State of Hawaii is amended to read as follows:

"PUBLIC EDUCATION

     Section 1.  The State shall provide for the establishment, support and control of a statewide system of public schools free from sectarian control, a state university, public libraries and [such] other educational institutions as may be deemed desirable, including physical facilities therefor.  There shall be no discrimination in public educational institutions because of race, religion, sex or ancestry; nor shall public funds be appropriated for the support or benefit of any sectarian or nonsectarian private educational institution[, except]; provided that proceeds of special purpose revenue bonds authorized or issued under section 12 of Article VII may be appropriated to finance or assist:

     1.  Not-for-profit corporations that provide early childhood education and care facilities serving the general public; and

     2.  Not-for-profit private [nonsectarian and] sectarian and nonsectarian elementary schools, secondary schools, colleges and universities.

     The legislature may by law establish a surcharge on real property taxation levied by the counties on residential investment property valued at three million dollars or more to help fund public education for all of Hawaii's children and adults.

     For the purposes of this section:

     "Residential investment property" means all real property including apartments and condominiums and appurtenances thereto, including buildings, structures, fences and improvements erected on or affixed to the real property, and any fixture that is erected on or affixed to the land, buildings, structures, fences and improvements; and all machinery and other mechanical or other allied equipment, and the foundations thereof, that are dedicated for residential use and that do not serve as the owner's primary residence; provided that the surcharge shall not apply to any affordable housing development that is subject to a regulatory agreement with the State or a county."

     SECTION 4.  The question to be printed on the ballot shall be as follows:

     "Shall the legislature be authorized to improve funding for public education by establishing a surcharge on residential investment properties valued at three million dollars ($3,000,000) or more, not including any property that serves as an owner's primary residence?"

     SECTION 5.  Constitutional material to be repealed is bracketed and stricken.  New constitutional material is underscored.

     SECTION 6.  This amendment shall take effect upon compliance with article XVII, section 3, of the Constitution of the State of Hawaii.

Report Title:

Constitutional Amendment; Public Education; Residential Investment Property Surcharge

Description:

Proposes amendments to the Hawaii State Constitution to repeal the counties' exclusive power to tax real property, and to authorize the Legislature to establish a state surcharge on real property taxes levied by the counties on certain residential investment properties, for the purpose of helping to fund public education for all of Hawaii's children and adults.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.