Higher sewer fees and business property taxes likely will win final City Council approval today, along with a $1.6 billion city operating budget for the coming fiscal year.

A last-ditch push to lower business tax rates and cut city spending could produce some political fireworks but probably won't be successful.

The four-year package of sewer fee hikes would begin taking effect next month and would raise the average home's monthly charge to more than $90 by 2011. The average monthly fee is currently $45.44 and would increase to $56.81 in July.

Officials say the money is sorely needed to pay for numerous repair projects and upgrades after years of neglect and sewage spills that have led to harsh federal scrutiny.

"It's a heinous increase, but the sewer system has been neglected by administration after administration after administration," said Council Chairwoman Barbara Marshall. "We have to pay for the work somehow."

Owners of working farms stand to gain the biggest tax break offered today: a $2.87 decrease in the agricultural property tax rate.

The rate — applied to the assessed value of a property to determine its tax liability — will drop from $8.57 to $5.70 per $1,000 of assessed value.

"I think that anything we can do to boost the shaky agricultural industry and keep farms in business is a good thing," Marshall said.

Tax rates for homes and apartments are also headed downward, but actual tax bills could still be higher for properties that have substantially increased in value.

To help offset that, the council is poised to extend for a second year a $200 tax credit for homeowners who have qualified for an owner-occupant exemption.

Mayor Mufi Hannemann had called for a $376 credit, and for tax rates on homes and apartments to remain as they are now: $3.59 per $1,000 of assessed value.

When proposing that combination in February, Hannemann said it would benefit homeowners who live here, rather than speculators and out-of-state owners of second homes. He also called for a separate tax classification for homeowners.

"The administration still believes the establishment of a homeowners classification for owner-occupants is a long-term solution for property taxes and will continue to work with council members toward that end," spokesman Bill Brennan said.

The council is moving toward lowering tax rates for homes and apartments by 30 cents, to $3.29 per $1,000 of value, while rejecting the higher owner-occupant credit.

Owners of rental properties that don't qualify for the credit will benefit more from the lower tax rate, and the hope is that some will pass the savings on to tenants by avoiding or slowing rent increases, Marshall said.

RENTER PLAN SHELVED

The council earlier shelved Hannemann's plan to spend $11 million to assist low-income renters with one-time payments of $150 each.

"The view was that it's better to use that $11 million to lower the rate on residential properties than to give them to specific individual renters," said council Budget Chairman Todd Apo.

A majority of council members appear to back tax rate increases for properties classified as hotel and resort, commercial or industrial.

Those rates would rise to $12.40 per $1,000 of value, up from the current $11.97.

Tax Foundation of Hawai'i President Lowell Kalapa said higher taxes likely will squeeze small businesses the most and result in higher prices for consumers.

O'ahu residents, rather than tourists, will surely pay the bulk of such increased costs for goods and services, he said.

"That tax burden gets passed on to me every time I go to the store," Kalapa said. "They're just hiding it in the cost of the rice and the bread and the butter that I buy at the store."

Instead, the council should lower tax rates and cut spending on grants and other nonessential programs and projects, he said.

Councilman Charles Djou has proposed to avoid the business tax increases by slashing $11 million from a benefits fund for retired city workers.

PROPOSAL SUPPORTED

It's not yet clear how much money should be set aside for retiree healthcare and other post-employment benefits, or how soon the liability must be fully covered, Djou said.

But it appears unlikely that four of the other eight council members will join him to approve the plan, which would also trim $250,000 from public communication projects Djou termed "the mayor's propaganda budget."

Hannemann's spokesman dismissed that characterization and said the administration "is committed, and has a duty, to bringing vital information and education to the public on city programs and issues."

Apo said he would be reluctant to back any significant changes to tax rates or the budget at the last minute, after numerous public hearings and tentative approval last month.

Marshall said she also opposed any big changes, and questioned whether Djou's plan to keep business property tax rates unchanged should be taken seriously.

"The budget is terribly, terribly complex, and I think this is real late in the game to be messing with this stuff," Marshall said.

RECYCLING PROJECT

The spending plan backed by the council Budget Committee sets aside $40 million for the retirement benefits, down from the $61 million Hannemann had proposed.

That version also includes $2 million that could help pay for a residential curbside recycling pilot project the city is considering for Kailua, Hawai'i Kai or Mililani.

The committee inserted the money to avoid charging a $10 monthly fee to homes that want to retain twice-weekly trash pickup.

But city waste managers prefer the fee plan — partly because it could prompt residents to recycle more — so it remains unclear how the project will proceed.

Reach Johnny Brannon at jbrannon@honoluluadvertiser.com.