RISE Bonds
by Tom Yamachika, President, Tax Foundation Hawaii
In the upcoming general election, the voters of Hawaii will be asked to authorize the issuance of “Resilient Infrastructure for Shelter and Equity,” or RISE, bonds. We have been getting a lot of questions about these.
For those who would like a more comprehensive explanation of what these are along with their risks and benefits, the Hawaii Institute for Public Affairs (HIPA) has put a lot of work into breaking the issue down.
RISE bonds are a form of tax increment financing. It’s not a new concept and has been done in several other places. The basic idea is that a city, county, or other jurisdiction that has a property tax sets up a zone that is to be developed. The jurisdiction borrows money to finance infrastructure, such as water and sewer lines, to be built in the zone. It agrees that any property tax collected from that zone that is above the amount it collected before the development, namely the “tax increment,” is dedicated to pay off principal and interest on the bonds. If everything goes well, the infrastructure is built, more housing is built around and above it, and the bonds are paid off via the tax increment.
If everything goes well, that is. Hold that thought; we will come back to it.
For those of you who think, “But don’t we already have laws on the books authorizing tax increment bonds?” you would be right. Sections 46-101 to 46-113, HRS, entitled “Tax Increment Financing,” are indeed on the books and have been since 1985 (Act 267, Session Laws of Hawaii 1985). We understand that these bonds were never authorized because some in our Attorney General’s office believed that a constitutional provision, not just a statute, was needed to authorize this kind of bond. Thus the need for a constitutional amendment.
The amendment being presented to voters, however, goes further. There is currently a debt limit written into the Hawaii Constitution; we have had a debt limit since we became a state, as the Hawaii Supreme Court wrote in Convention Center Authority v. Anzai, 78 Haw. 157, 890 P.2d 1197 (1995). The constitutional amendment would add language saying that RISE bonds don’t count against the debt limit.
This part of the amendment is what gives us pause. We have a limit on how much the county can borrow. This limit protects us against government borrowing too much and putting taxpayers on the hook for something today that a later government might not be able to fix easily. RISE bonds are borrowing. Both RISE bonds and other county debts are paid back from the same tax base, mostly property taxes. So why does one kind of debt count and the other kind not count?
Let’s go back to the question we parked before. What happens if the development does not go as planned? Maybe there are cost overruns, permitting delays, or unforeseen developments like the discovery of ancient Hawaiian burial sites where infrastructure was planned. The county has still borrowed the money and still needs to pay it back with interest. Who winds up holding the bag? Would we try to saddle the developer(s) with it? If so, then the prices of housing the developer builds will inevitably get hoisted. Do we call this a county-wide problem, and brace for a property tax increase? Or do we do some combination of the above?
At this point, legitimate questions can and should be raised about how these RISE bonds are going to work here and what the off-ramps are if things go south.