Declining tax revenues have led to an order from Mayor Mufi Hannemann to all city departments to cut 2 percent to 3 percent from their budgets.

Department heads who supervise the city's more than 8,300 employees say they will have to institute measures such as suspend city job fairs, delay filling vacant positions and even use less air conditioning at city hall.

In a memo sent out in the third week of July, the city asked department heads to trim up to 3 percent of their operating budgets for fiscal year 2009. That would amount to $54 million out of the city's $1.8 billion operating budget.

Mary P. Waterhouse, director of the city's budget and fiscal services department, said the city is working on ways to recover and even increase revenue.

"First of all, I want to emphasize that we will not compromise public health and safety," Waterhouse said in a statement. "We are scrutinizing purchases and looking for ways to improve revenues.

"We know this is going to be difficult for the departments, and we are working closely with them to try to help them figure out where the restrictions on spending will come. We can see there are going to be difficult economic times ahead, and we are being fiscally prudent, as we have always been, in the matter."

The projections are based on declining revenues due to an array of factors, including high oil prices and a decline in visitor arrivals, both of which lower tax revenues.

For example, the city's gas tax revenues for the first six months of 2008 are down $3.63 million from the same period last year, according to the state Department of Taxation. Honolulu collects 16.5 cents on every gallon of gas sold on O'ahu.

Additionally, decreasing permit and user fees, and uncertainty about property tax revenue, have pushed the city to try and get ahead of any revenue decline.

How each department will adjust to the spending restrictions has been left to the discretion of their directors.

Kenneth Y. Nakamatsu, head of the city's human resources department, said he will have to delay hiring for vacant city positions by three months or more. The city had been pushing to fill positions through job fairs and community outreach.

Nakamatsu said another effect is that his department will not be able to hold job fairs for employees who are laid off by businesses running into economic problems.

"No organization is insulated from a falling economy," Nakamatsu said. "This is preferable to laying off employees. We're doing everything we can first before even talking about layoffs."

Russell Takara, deputy director of the city's department of design and construction, said he is considering everything from delaying certain contracts to raising the air conditioning temperature at city hall to cut down on energy costs.

"The big thing really comes to labor. When you look at anybody's budget, the big-dollar number is the labor," Takara said. "Our issue at design and construction is that we hire a lot of engineers and inspectors, and one of the problems we've had is filling the vacancies. It's tough, this 3 percent (cut) means we just won't hire as fast."

DIFFERING OPINIONS

Some City Council members said the city can still come up with the funds and work through the economic issues, while other council members say the city has been spending way too much money.

"Things are not good. I can tell you that the city's fiscal year 2009 budget does not project any decline in gas tax revenues," council member Charles K. Djou said. "We have grown the city government from $1.5 billion under (former Mayor Jeremy) Harris to over $2.7 billion under Hannemann. Because of this astronomical growth in government spending, there will be fiscal pain, and cuts will have to be made."

Council chair Barbara Marshall called the declining gas tax revenue "staggering" and "frightening," but maintained that the city is in a good position to weather the economic turmoil.

"They've already prudently told departments to cut their budgets by 2 to 3 percent," she said. "I believe the city is currently fiscally sound, and I'm pleased the administration isn't resting on its laurels — but taking precautionary steps to stay ahead of any downturn in the economy."

FEELING THE PINCH

Council budget committee chair Todd K. Apo said the city will need to maintain conservative spending practices while working to increase revenue streams.

"We will see whether the $14 million Energy Contingency fund is enough (to cover fuel tax revenue losses)," he said. "Reduced property values ... won't affect us for the current budget."

Apo said cutting spending now could prevent the city from having to raise property taxes next year.

If property values are down in next year's assessments, which come out in December, and spending remains the same, the city may be forced to raise tax rates, he said.

Last year, the total assessed value of residential property on O'ahu decreased for the first time in six years, falling 2.7 percent.

Downturns in the economy are nothing new, and the city has faced economic troubles in the past as all markets move in cycles.

The state felt the economic pinch in the late 1990s and again after Sept. 11, 2001, but rebounded after the global economy strengthened and consumer habits improved, said Jack P. Suyderhoud, a professor of business economics at the University of Hawai'i's Shidler College of Business.

The economic downturn is being felt by municipalities from New York to Los Angeles as well as the federal government.

New York City is facing a $2.8 billion budget shortfall and Mayor Michael R. Bloomberg is asking city departments to cut spending by 5.6 percent. In January, Phoenix reported the need to trim more than $70 million from its budget by June 2009 to compensate for shortfalls.

On Tuesday the White House budget director blamed a slowing economy, unexpected inflation and tumbling housing prices for the $482 billion budget deficit forecast for fiscal year 2009.