City budget likely to include tax hike
By Treena Shapiro
Advertiser Staff Writer
A hiring freeze, a property-tax hike and cuts across all executive departments will likely be incorporated into the city's budget expected to be unveiled by Sunday.
New budget director Ivan Lui-Kwan has been working to find a way to balance the $1.1 billion operating budget for the fiscal year beginning July 1 in light of a shortfall that Lui-Kwan projects to be between $100 million and $130 million.
The shortfall is because of factors that include rising expenses that the city has no control over, such as payments into the employees' retirement system and the health fund, as well as negotiated pay raises for the city's 8,000 employees.
As executive department heads have gone through their "cry and tell" sessions to defend their budget requests, Lui-Kwan has witnessed passion unlike anything he had experienced in the private sector.
"There has been pain," he said.
Lui-Kwan will submit to the City Council by Sunday a budget that is virtually the same amount as the current $1.1 billion operating budget. The submission signals the start of the council's budget season, which will last until June 15.
Last year, questions about the long-term impact of budget proposals led to contentious hearings. This year, the sessions are expected to be less combative, but there likely will still be some disagreements over increasing taxes.
Although the departmental budgets were lean to begin with, Lui-Kwan said, the budget he will submit to the City Council already will be $100 million less than department heads requested. All departments will take a hit, even police and fire, which have been spared in the past.
Lui-Kwan, however, did not offer details on how much the departments had been cut.
The cuts will mean less of a tax increase, but Lui-Kwan must still meet the $100 million to $130 million shortfall.
University of Hawai'i political science professor Neal Milner said this approach to balancing the budget suggests that the administration has run out of alternatives, and the tax hike is really a last resort.
"I would be very amazed if you can cut the budget in any way that does not put that on the table," Milner said. "This is not business as usual. (They're) going to have to hear other alternatives."
Milner doesn't expect to see any proposals for big-ticket items, such as parks and swimming pools, when the city already has a serious enough issue in dealing with the maintenance of facilities built in recent years.
In addition to dealing with balancing the city operating budget, Lui-Kwan said the construction budget will be $150 million less than last year's $455 million budget.
"I don't see any new parks coming on line," he said. "What I see are improvements, making sure that our equipment is safe for the children who use it and that the facilities are maintained properly so that we can provide a pleasing environment to the citizens."
Although the details had yet to be finalized, Lui-Kwan said one way to cut operating expenses is to eliminate more than 1,000 positions that have been paid for but not filled, saving the city $33 million.
He said he has informed departments that they will have the necessary employees, "but you're still going to have to work hard because you're not going to have the number of people you say you need."
New hires would be restricted to public safety positions, such as uniformed police officers, firefighters and emergency medical personnel; employees required to ensure that enough revenue is brought in; and other critical positions, such as those that involve the processing of data for building permits. Positions paid for with state and federal money will be maintained.
"Typically, these positions would be funded because they're needed to fund the city properly," he said.
A hiring freeze would likely be less controversial than a potential property tax hike, which some council members already have opposed.
Increased real property assessments this year will bring in an additional $20 million if rates are not adjusted, but Lui-Kwan said he also has been considering ways to add another $29 million in property tax revenues by raising rates. That would bring revenue back to $433 million, the amount it was when Mayor Jeremy Harris took office in 1994.
All property classifications are being considered for the tax increase, he said.
The freeze and increased property revenues would amount to about $82 million, which is less than Lui-Kwan's estimated shortfall. That means the city would still have to find more ways to cut the operating expenses or find other revenue sources.
Council Chairman Gary Okino calculates that the budget deficit is closer to $200 million. Okino said he expects the administration to borrow the $30 million to $40 million left in the sewer fund, but he noted that "next year is going to be a problem."
Both Okino and Lui-Kwan have talked about long-term initiatives, such as creating new fees, revamping the city's purchasing program and cutting construction spending.
Okino said he is hopeful that the administration will act on these plans.
"It seems like they're serious about trying to do some of these major things," he said. "It's a hopeful time."
But as he pointed out, none of these initiatives will help in the short term.
Okino said he expects the budget hearings to be calmer than last year's, but he expects some disagreements, not just between the council and administration, but among council members themselves.
Although they might not agree on the numbers, he noted that this time around the council and the administration agree that the city has a budget problem.
"I think we're on the same page as far as the shortfall is concerned," he said.
Milner said he expects the budget hearings, which begin March 4, to be contentious, but said that they could also be productive.
He pointed out that many of the new council members campaigned on fiscal responsibility and accountability.
He expects debate over increasing taxes, as council members are "certainly going to try to make a record for themselves and for their various districts showing that they fought as hard as they could to keep this from happening, or 'we worked as hard as we could to limit it as much as possible.' "
Reach Treena Shapiro at tshapiro@honoluluadvertiser.com or 525-8070.
