Before an admiring crowd that unconventionally stood up to praise the governor during the press conference that followed the bill signing, with some hissing at this journalist for pressing the governor on her reasoning, Lingle shrugged off the promise she made annually since campaigning in 2002 to hold the line on state tax increases.

Reading from her campaign platform, "A New Beginning," Lingle said her promise to keep Hawaii green and expand conservation lands, trumped the pledge she made with the Americans for Tax Reform in 2002 and to taxpayers during the 2003, 2004, and 2005 legislative sessions, to knock down any tax increases.

When asked what she’d say to voters who supported her as the first Republican governor in more than 40 years because of her pledge not to raise taxes, Lingle said: "I did what was right for all the people in the state and I put it above my political career." Her statement garnered resounding applause and cheers from environmental activists and Democrat Rep. Brian Shatz, who authored the bill.

Lingle then promised to fight for tax reductions "10 times" that of the tax increase she signed into law yesterday, but when pressed by Hawaii Reporter, Lingle declined to say how or when she’d keep that pledge.

Environmental Activists Wild About "Legacy Lands" Portion of Bill

The governor says a portion of the tax collected -- 25 percent or $8.75 million -- will go to "watershed protection" and another 10 percent or $3.5 million -- will be spent on land purchases by the state.

In addition, 35 percent or an estimated $12.5 million will go directly into the state general fund to be spent on any services and programs the state Legislature sees fit.

Environmental groups yesterday praised the governor, including the Sierra Club, which said "The Legacy Lands Act (as the environmentalists like to call the tax hike) is a major milestone and wonderful news for local communities who have been struggling to protect their coastal and natural areas for future generations." The Native Hawaiian Legal Corporation issued a statement that said "Our native communities should be very encouraged by this commitment to preserving Hawaii’s land and resources through the Legacy Lands Act."

The state already owns and manages an estimated 1.5 million acres -- Peter Young, director of the state Department of Land and Natural Resources says, but he could not estimate how much the $3.5 million the tax hike will generate for more land would expand the state land area or how much additional money managing that land would cost taxpayers.

He says the additional money collected from the tax increase will be used with matching federal funds to expand the state’s land ownership and to purchase easements on property that will ensure the land remains agricultural or conservation land.

Critics of the tax hike, namely the Legacy Lands portion, say the state already can trade or condemn lands for any piece government officials feel they may need and the Nature Conservancy and several other conservation-oriented groups have tax advantages to solicit donations and take over key land sites.

Republicans and Realtors opposed to the conveyance tax hike say the tax originally was established as a charge to compensate for the recordation costs of the state. The tax was not supposed to be a revenue enhancer for the state, but has since been used to fund social programs and now, government land purchases.

Making Housing More ‘Affordable’?

Lingle’s opening statements on why she signed HB 1308, did not focus on the tax increase and how it would affect home buyers and sellers, rather Lingle talked about her vision for making homes "more affordable" in Hawaii.

Though challenged on her seemingly contradictory statement -- contradictory because under this bill an estimated half of all home sellers will pay a higher tax -- Lingle maintained the tax increase will actually make housing costs more affordable -- for some people.

That is because a portion of the tax collected -- 30 percent or $10.5 million -- will go to the Rental Housing Fund and this money will allow an estimated 300 more homes to come onto the housing market, the governor says.

Tax on the Rich?

The conveyance tax hike would affect only the "rich" in Hawaii, the governor maintained, those involved in real estate transactions of $600,000 and above. She noted real estate sales figures in 2004 documented that just 4.7 percent of real estate transactions would have been affected by the tax increase had it been in place in 2004.

When pressed by Hawaii Reporter on her 2004 figures, and reminded that the median price for real estate sales in three of four counties currently exceeds $600,000, the governor said she is not privy to those recent figures. She maintained she based her decision on the 2004 numbers.

But Realtors say the governor’s figures she used to justify the tax hike are embarrassingly outdated. In fact, on Oahu, the median price of a home as of May 2005 was $610,000 -- $10,000 over the $600,000 limit that kicks in the tax hike when the property is sold. On Maui, the median sale price of a home is now $780,000 or $180,000 above the $600,000 limit. On Kauai, the median price of a home is now $665,000, or $65,000 above the cap. Only on the Big Island is the median price below $600,000 -- as of May 2005, it was listed at $371,000.

Producing to the media a list of the 50 most expensive properties sold in Hawaii in 2004, Lingle attempted to move the focus of the media attending her press conference away from the tax on the average homebuyer and seller to those who were rich in real estate. She pointed out the highest sale in Hawaii in 2004 was $716,775,223 by Kyo-Ya Co. Ltd.

She even went as far to claim that the tax hike also might affect the real estate market by forcing prices lower with the sellers listing properties at $599,000 and below to avoid the $600,000 price that will enact the tax hike.

But she did not explain her basis for this statement or quote any economists or real estate organizations who might agree with her assessment, or give any in-depth information on the details of the tax.

Already home sellers are paying 10 cents on every $100 of their property sale price in conveyance tax. Sellers also pay several thousand more dollars -- or around 7.5 percent of their home sale price -- in fees and taxes for such services as notary fees, drafting fees, survey fees, escrow fees, recording fees, state and federal withholding tax (for non-residents), and the real estate sales commission.

Under this new tax hike, the cost will double for those selling properties between $600,000 and $1 million to 20 cents per $100, and for properties $1 million and up to 30 cents per $100.

An additional 5 cents per $100 at any level of sale can be tacked on for the seller if the buyer does not qualify for the homeowners’ exemption, but it can take up to a year to determine whether the home buyer qualifies or not.

The governor says the tax hike may not be popular, but it's needed, while the Realtors maintain this increase in cost is a major burden, especially for those struggling to buy a first-time home in Hawaii.

The law goes into effect on July 1, 2005.

Reach Malia Zimmerman, editor and president of Hawaii Reporter, via email at mailto:Malia@hawaiireporter.com

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