WAILUKU — A 300-million-gallon reservoir Upcountry will top the list of capital improvement proposals when Mayor Charmaine Tavares presents her annual budget to the Maui County Council on Friday, The Maui News reported.

But overall it will be a tight budget year, with flat revenues, rising costs and another whopping bill for unfunded retiree benefits, she said.

Tavares said she would not propose any major new initiatives in her spending plan, but she would again focus on maintenance and upgrades of core county infrastructure, such as sewers and water facilities.

The mayor has already asked for $3.75 million from the state Legislature for an Upcountry water storage project, and said last week she would request matching funds in the county budget. The county is still evaluating sites for the reservoirs, which Tavares said would be her "highest priority project."

After a period of record growth, when revenues increased more than 72 percent in just four years, county finance officers had predicted a slowing of real property taxes, and that's proved to be the case, said Finance Director Kalbert Young. Property taxes, fuel taxes and hotel-room taxes have all leveled off. He expected the overall size of the 2008-09 budget to grow no more than a few percentage points from this year's $549.6 million spending plan.

"It is effectively flat," he said.

But with labor, energy and materials costs continuing to go up, the county will end up with a net loss of revenue from this year.

"You're actually going in the hole," Tavares said.

Employee expenses make up one of the largest increases in costs to the county in the coming year, with more than $10 million in union-negotiated pay raises.

The county is also facing another multimillion-dollar payment toward retiree benefit liabilities.

Last year, the County Council learned on the last day of budget deliberations that the county's share of post-employment benefits for that year would be $19 million. The council scrambled to set aside $11 million toward the fund.

This year, the county's installment is more, $20 million, and it should also pay the $8 million balance from last year if it wants to be fully caught up, Young said.

The fund covers anticipated costs of health benefits and pensions that will come due when current county employees retire in the future.

The county pays into a statewide system that manages the benefits for all government employees. But the system isn't set up to begin receiving payments, so the county has some leeway in setting aside its payments.

"If they can't fund the whole thing (this year), it's not totally detrimental," Young said.

Tavares said she was looking at how much the county would be able to afford paying toward unfunded retiree benefits, but said it would be a "considerable sum."

While Young said the initial estimate for the county's total liabilities for retiree health benefits was $300 million to $400 million, now the estimate has risen to between $500 million and $600 million.

In addition, the county's bill is still being calculated for pensions, and Young said he anticipates the county's share of pension liabilities will be between $400 million and $500 million.

"That's a lot of lettuce," he said.

In addition to other financial pressures, the county has been notified that there will be no State Revolving Fund loans available for sewer, water and sanitation projects this year, Tavares said. The county budgeted for $24.3 million in revolving fund loans last year.

The loss forced the administration to re-evaluate its capital improvement program and focus its resources on projects directly impacting health and safety, Tavares said.

"It really put a cramp in our style," she said.

Tavares said she would also hold back on expanding the county work force, adding around 30 new employees to the payroll, compared with more than 100 last year.

She said she wanted to promote "efficiency" in county departments, and approved only new jobs that were necessary and she believed would actually be filled.

"We took a hard look at the positions being requested, especially in light of the fact that a lot of current positions are vacant," she said.

Dwindling revenues will likely put increased pressure on the county's carryover savings, a fund that pools surplus collections and unspent revenues. That's a concern because the county has tapped that account to fund programs and projects over the past several years, Young said.

With $35.6 million in carryover savings for the current year, there will be enough padding to cover spending for the immediate future. But Young predicted that by 2010 the county would have to find another way to pay for programs that had been funded by carryover savings.

"It's going to put a burden on current revenues, and that means taxes," he said.

The news could get worse within a year or two, Young added, with key indicators like real estate sales and federal interest rates suggesting the economy will begin to deflate — and the county could see an actual decline in revenues.

"The belief by the economic pundits is it's going to start dropping off," Young said. "What we don't know is the duration and where the bottom is going to be."

For more Maui news, visit http://www.mauinews.com/default.aspx">The Maui News.