SB236

PART I

SECTION 1. The legislature finds that the health of Hawaii's people and quality of Hawaii's waters are being harmed by pollution from cesspools. Hawaii has more than eighty thousand cesspools that discharge about fifty million gallons of wastewater into the State's groundwater every day. Cesspools are antiquated, substandard systems that damage public health; pollute drinking water; and lower water quality in streams, ground waters, nearshore marine areas, and the ocean. Cesspool pollution also harms public recreation and the precious coral reefs on which Hawaii's economy, shoreline, fisheries, and native species depend.

The purpose of this Act is to implement various recommendations of the working group established by Act 132, Session Laws of Hawaii 2018, including:

(1) Accelerating the dates for required upgrades, conversions, or connections of:

(A) The 13,821 priority level 1 cesspools in the State to 2035, with certain exceptions; and

(B) The 12,367 priority level 2 cesspools in the State to 2040;

(2) Appropriating funds to provide financing assistance via the cesspool compliance pilot grant project established pursuant to Act 153, Session Laws of Hawaii 2022;

(3) Establishing a cesspool upgrade, conversion, or connection income tax credit; and

(4) Requiring the auditor to periodically review the cesspool upgrade, conversion, or connection income tax credit.

PART II

SECTION 2. Chapter 342D, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§342D- Cesspools; mandatory upgrade, conversion, or connection; priority level 1; priority level 2. (a) Every cesspool in the State categorized as priority level 1 according to the university of Hawaii's Hawaii cesspool prioritization tool shall be:

(1) Upgraded or converted to a director-approved wastewater system; or

(2) Connected to a sewerage system,

before January 1, 2035; provided that priority level 1 cesspools on recreational residence leases within the Kokee state park and Waimea Canyon state park on the island of Kauai shall be upgraded, converted, or connected before January 1, 2040.

(b) Every cesspool in the State designated as priority level 2 according to the university of Hawaii's Hawaii cesspool prioritization tool shall be:

(1) Upgraded or converted to a director-approved wastewater system; or

(2) Connected to a sewerage system,

before January 1, 2040.

(c) The director may grant an exemption from the requirements of subsections (a) and (b) to the property owner of a cesspool who applies for an exemption and presents documentation showing a legitimate reason that makes it infeasible to upgrade, convert, or connect the cesspool. For the purposes of this subsection, a legitimate reason shall include but not be limited to:

(1) Small lot size;

(2) Steep topography;

(3) Poor soils;

(4) Accessibility issues; or

(5) A planned development of sewerage upgrades to an area.

(d) The department may grant extensions of up to five years at a time from the requirements of subsections (a) and (b) based on demonstration of financial inability to pay for or finance a cesspool upgrade, conversion, or connection; provided that the department of health may adopt rules pursuant to chapter 91 necessary to effectuate the purposes of this subsection.

(e) Notwithstanding any law to the contrary, no penalty or other assessment for any violation of this section shall constitute a lien on the real property. Notwithstanding any law to the contrary, no seizure of real property shall be authorized for any violation of this section.

(f) For the purposes of this section, "cesspool" has the same meaning as defined in section 342D-72."

SECTION 3. Section 342D-72, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) [~~Before~~] Except as otherwise provided in section 342D- , before January 1, 2050, every cesspool in the State, excluding cesspools granted exemptions by the director of health pursuant to subsection (b), shall be:

(1) Upgraded or converted to a director-approved wastewater system; or

(2) Connected to a sewerage system."

PART III

SECTION 4. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2025-2026 and the same sum or so much thereof as may be necessary for fiscal year 2026-2027 to implement the cesspool compliance pilot grant project established pursuant to Act 153, Session Laws of Hawaii 2022.

The sums appropriated shall be expended by the department of health for the purposes of this Act.

PART IV

SECTION 5. Chapter 23, Hawaii Revised Statutes, is amended by adding a new section to part VII to be appropriately designated and to read as follows:

"§23- Review for and every fifth year thereafter. (a) The credits under the income tax listed in subsection (c) shall be reviewed in and every fifth year thereafter.

(b) The auditor shall submit the findings and recommendations of the reviews to the legislature and governor at least twenty days prior to the convening of the immediately following regular session.

(c) This section shall apply to section 235- --Credit for qualified expenses for upgrading or converting a qualified cesspool or connecting a qualified cesspool to a sewerage system."

SECTION 6. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to part I to be appropriately designated and to read as follows:

"§235- Cesspool upgrade, conversion, or connection; income tax credit. (a) There shall be allowed to each taxpayer subject to the tax imposed under this chapter a cesspool upgrade, conversion, or connection income tax credit that shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.

(b) In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for qualified expenses incurred by the entity for the taxable year. The expenses upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined by rule.

(c) The cesspool upgrade, conversion, or connection income tax credit shall be equal to the qualified expenses of the taxpayer, up to a maximum of $10,000; provided that, in the case of a qualified cesspool that is a residential large capacity cesspool, the amount of the credit shall be equal to the qualified expenses of the taxpayer, up to a maximum of $10,000 per residential dwelling connected to the cesspool, as certified by the department of health pursuant to subsection (e). There shall be allowed a maximum of one cesspool upgrade, conversion, or connection income tax credit per qualified cesspool. The cesspool upgrade, conversion, or connection income tax credit shall be available only for the taxable year in which the taxpayer's qualified expenses are certified by the department of health.

(d) The total amount of tax credits allowed under this section shall not exceed $ for all taxpayers in any taxable year; provided that any taxpayer who is not eligible to claim the credit in a taxable year due to the $ cap being reached for that taxable year shall be eligible to claim the credit in the subsequent taxable year.

(e) The department of health shall:

(1) Certify all qualified cesspools for the purposes of this section;

(2) Collect and maintain a record of all qualified expenses certified by the department of health for the taxable year; and

(3) Certify to each taxpayer the amount of credit the taxpayer may claim; provided that if, in any year, the annual amount of certified credits reaches $ in the aggregate, the department of health shall immediately discontinue certifying credits and notify the department of taxation.

The director of health may adopt rules under chapter 91 as necessary to implement the certification requirements under this section.

(f) The director of taxation:

(1) Shall prepare any forms that may be necessary to claim a tax credit under this section;

(2) May require the taxpayer to furnish reasonable information to ascertain the validity of the claim for the tax credit made under this section; and

(3) May adopt rules under chapter 91 necessary to effectuate the purposes of this section.

(g) If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of the credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. All claims for the tax credit under this section, including amended claims, shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(h) For the purposes of this section:

"Cesspool" has the same meaning as defined in section 342D‑72.

"Qualified cesspool" means a cesspool that is:

(1) Certified by the department of health to be:

(A) Located within a priority level 1 or 2 area according to the university of Hawaii's 2022 Hawaii cesspool hazard assessment and prioritization tool; or

(B) A residential large capacity cesspool; or

(2) Certified by a county or private sewer company to be appropriate for connection to its existing sewerage system.

"Qualified expenses" means costs that are necessary and directly incurred by the taxpayer for upgrading or converting a qualified cesspool to a director of health-approved wastewater system, or connecting a qualified cesspool to a sewerage system, and that are certified as qualified expenses by the department of health.

"Residential large capacity cesspool" means a cesspool that is connected to more than one residential dwelling.

"Sewerage system" has the same meaning as defined in section 342D‑1.

"Wastewater" has the same meaning as defined in section 342D‑1."

SECTION 7. Section 23-91, Hawaii Revised Statutes, is amended as follows:

1. By amending subsection (a) to read:

"(a) The auditor shall conduct a review of the tax credits, exclusions, and deductions listed in sections 23-92 to [~~23-96.~~] 23- ."

2. By amending subsection (c) to read:

"(c) Based on the review, the auditor shall recommend whether the credit, exclusion, or deduction should be retained without modification, amended, or repealed.

The auditor may recommend that a credit, exclusion, or deduction be removed from review under sections 23-92 to [~~23-96.~~] 23- ."

SECTION 8. Section 23-95, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) This section shall apply to the following:

(1) Section 235-5.5--Deduction for individual housing account deposit;

(2) Section 235-7(f)--Deduction of property loss due to a natural disaster;

[~~(3)~~ ~~Section 235-16.5--Credit for cesspool upgrade, conversion, or connection;~~

~~(4)~~] (3) Section 235-19--Deduction for maintenance of an exceptional tree;

[~~(5)~~] (4) Section 235-55.91--Credit for the employment of a vocational rehabilitation referral;

[~~(6)~~] (5) Section 235-110.2--Credit for in-kind services contribution for public school repair and maintenance; and

[~~(7)~~] (6) Sections 235-110.8 and 241-4.7--Credit for ownership of a qualified low-income housing building."

PART V

SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 10. This Act shall take effect upon its approval; provided that:

(1) Section 4 shall take effect on July 1, 2025; and

(2) Part IV shall apply to taxable years beginning after December 31, 2024.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	236
THIRTY-THIRD LEGISLATURE, 2025
STATE OF HAWAII