Every cent counts for Hawai'i's counties

By Christie Wilson
Advertiser Neighbor Island Editor

A little more than halfway through the fiscal year, the leaders of Hawai'i's counties are counting their spare change and rechecking expenses as the purse strings draw tighter with the looming prospects of war and pay raises for public employees.

Mayor Jeremy Harris has to submit a balanced budget to the Honolulu City Council by March 2. Advertiser library photo

But that is penny-ante stuff when compared with Honolulu's expected $180 million budget shortfall.

The Honolulu City Council is waiting to hear how Mayor Jeremy Harris is going to attack the deficit. The mayor has to submit a balanced budget to the council by March 2, and so far, he has not been willing to comment on whether he will propose a tax increase.

The last property tax hike was in 1999.

"We've really fallen behind as far as sewer repairs, road resurfacing and ADA (disability) curbing, and at the same time our debt service is growing. Soon our debt service will be 20 percent of our budget," said Ann Kobayashi, City Council budget chairwoman. "We've been borrowing money to pay back borrowed money, and that's the part that really frightens me."

The current budget calls for $1.12 billion in spending for an island that is home to three-quarters of the state's population of 1.2 million. An estimated $104 million of that amount is for debt service, and in five years, the annual debt payment is expected to more than double to $223 million.

The cost for needed projects is staggering: $1 billion for sewer upgrades, $90 million for curb ramps, $150 million for road resurfacing and more. The budget crisis already has brought $60 million worth of capital improvement projects "to a grinding halt," said administration spokeswoman Carol Costa.

Property taxes — the city's largest single source of revenue — are projected at $384 million, an increase from the previous year but well below earlier levels. Although property values are expected to increase 6.6 percent this year, that translates into a paltry $10 million to $14 million in extra revenue, Costa said.

"You can't continue to ask for soccer fields and new skateboard parks and not expect to have to pay the cost for that," she said. "We're going to have to look at every fee and at all of our funding sources."

By paying cash for smaller capital improvement projects and taking advantage of favorable interest rates for larger projects, Maui County — population 128,000 — has avoided piling up huge debts and earned itself a sterling bond rating, said Riki Hokama, County Council budget and finance chairman.

"We've been borrowing money to pay back borrowed money," said Ann Kobayashi, City Council budget chairwoman. Advertiser library photo

"Four years ago, we made a tough decision to raise property taxes to meet our obligations. Since then, we've been very conscientious and conservative about the amount of borrowing we do. We've borrowed where it was prudent, but we also put additional money in the general fund for capital improvement projects," Hokama said.

For example, the county used cash to pay for $450,000 in improvements to the Lahaina Civic Center, as well as to construct park facilities and parking lots that initially were earmarked for bond money. This year the county had enough bulk in its budget to pay for additional police positions, give $100,000 to a dental clinic for low-income patients and contribute $1 million toward the Maui Coastal Land Trust's acquisition of 250 acres of coastal land in Waihe'e.

Hokama said he does not foresee the need for tax or fee increases in the upcoming fiscal year — barring circumstances beyond the county's control.

"If war breaks out, our history with the last Gulf War has shown that it does impact property valuations, it does impact the amount of appeals that people request on their tax bills and it does make a difference on the amount of (transient accommodations tax) we receive," he said.

Former county Finance Director Wesley Lo, who left his post earlier this month when a new administration took over, said Maui has always enjoyed healthy carryover savings, but that the lingering impact of Sept. 11 forced the county to draw on that money.

Although property values have increased, Lo said the county may face potentially costly appeals this year from its largest taxpayers, namely hotels that have been experiencing below-normal occupancy.

Kaua'i County also is operating with a smaller cushion. The island previously enjoyed a $7 million to $8 million annual surplus, but may finish the current fiscal year closer to break-even status, according to Mayor Bryan Baptiste. He said he is looking for ways to curb spending over the last half of the budget year, which ends June 30.

The current budget of $90.4 million includes $41.7 million in property tax revenues.

In the next fiscal year, some of the island's 58,500 residents will benefit from recently passed property tax relief that could cost the county $1 million.

Already straining under an obligation to pay for employee retirement and health programs, Baptiste said the counties will begin negotiations this year with unions representing public workers.

"With the impending raises for the public sector unions as well as the tax cuts we've given to the people of Kaua'i, we're trying to be very conservative," he said. "Next year we'll have some major funding obligations ... We're not sure where that's going to take us."

After inheriting a $7.6 million deficit when he took office two years ago, Big Island Mayor Harry Kim raised property taxes and golf and vehicle fees, and is now pushing for increases in the county fuel tax and landfill tipping fees for commercial trash haulers.

Increases in the Big Island's property tax rates brought in an extra $7.4 million to the county's current $205 million budget. An increase in the minimum tax from $25 to $100 resulted in an additional $2.1 million, while higher property values boosted revenues by $4.6 million.

While projections for $107 million in property tax revenues appear to be on target, Big Island officials worry that the county's share of the transient accommodations tax, also known as the hotel room tax, will fall short of the $15 million estimate. The first six-month check from the state didn't even cover half that amount, even though it included the busy summer season when tourists flocked to the island for the Kilauea eruption.

A resurgent Big Island economy is helping stabilize the county's financial footing, but Kim — who seems impervious to political considerations — is continuing to trim departmental spending and crack down on property tax delinquencies. He also has asked the council to approve an increase in landfill tipping fees and will propose raising the county tax on gasoline that will be felt by a large portion of the island's 149,000 residents.

"Maybe I'm a little naive, but if we're going to increase taxes and can clearly show them the picture and what you are going to do with the money, the public will be more accepting," Kim said.

Reach Christie Wilson at cwilson@honoluluadvertiser.com or (808) 244-4880.

Correction: O'ahu property tax rates were raised in 1999. A previous version of this story contained incorrect information.