Borrow money to pay salaries?

By Robbie Dingeman
Advertiser Staff Writer

City Council members yesterday questioned a decision by the Hannemann administration to pay for at least $6.1 million in city employee salaries out of the construction budget, a practice that a tax watchdog group likened to "paying your electric bill with your credit card."

The construction budget is financed through government bonds — borrowed money typically used for such things as the construction of police and fire stations, major sewer and road work, and other public works projects.

The proposal represents a policy shift and means the city would pay interest on top of the salaries, said Councilwoman Barbara Marshall.

"What are we really paying" for that $6.1 million? she asked as council members pored over details of the spending plan submitted by Mayor Mufi Hannemann.

The proposal also departs from Hannemann's emphasis on reducing debt, but Ken Shimizu, deputy director for the city Department of Environmental Services, defended it as a way to keep the already sizable proposed increases in the city's sewer service charge from going even higher.

Lowell Kalapa, president of the Tax Foundation of Hawai'i, said the practice has been used by the state before for highway construction and that it can be defended as a temporary fix.

But he thinks it's a bad idea.

"It's something we don't agree with because you are using borrowed money to pay for current costs," Kalapa said.

The $6.1 million line item specifies that the money is intended to "plan, design, inspect and provide related equipment for wastewater capital projects."

Only $5,400 of that is set aside for equipment, and on questioning by council members, Shimizu said the rest of the money was for salaries.

Marshall said city officials had used cash construction-budget funds in past years to cover employee salaries on sewer projects, but this was a far different issue.

Hannemann has proposed increasing sewer service fees 25 percent this year and 10 percent more for each of the next five years, which would double the current average monthly sewer bill from $33 to $66 at the end of that period.

Shimizu said without shifting salaries to the construction budget, the fees would have had to increase 35 percent the first year.

Council Budget Committee chairwoman Ann Kobayashi said she understands that Hannemann has been left with hard decisions by the last administration's policy of putting off unpopular rate increases through borrowing money and using special funds to pay for citywide projects.

"The sewer fund was raided, so I understand why it has to be paid out of the construction budget," Kobayashi said.

But Kalapa said it's hypocritical for the new mayor to complain about the debt burden because of the policies of the previous administration and then propose running up the debt in a different way.

Hannemann has proposed a $1.3 billion operating budget and an additional $451 million in the capital improvement or construction budget.

Funding questions aside, Kobayashi said, she is happy about the emphasis on sewer work in the construction budget.

Reach Robbie Dingeman at rdingeman@honoluluadvertiser.com or 535-2429.