Without added revenue, city budget falls $46.6 million short

By Andrew Pereira
Published On: Feb 28 2014 07:15:07 PM HST
Updated On: Feb 28 2014 07:33:19 PM HST

City council may reject some of Mayor Kirk Caldwell's revenue generating ideas which could leave a $46.6 million dollar gap in his balanced budget proposal.


The city faces a budget shortfall of $46.6 million in the fiscal year that begins July 1 if the City Council fails to approve five revenue-generating ideas proposed by Mayor Kirk Caldwell, who outlined his operating ($2.14 billion) and capital improvement ($639.7 million) budgets during a Friday news conference.

Click here to watch Andrew Pereira's story.

"I have submitted a balanced budget to the council," the mayor said. "Their job now is to pass a balanced budget."    

Caldwell is proposing to raise the property tax rate by $2 on investment homes worth $1 million or more that don't qualify for a homeowner's exemption. Under the plan, 7,300 homes on Oahu would be taxed at $5.50 for every $1,000 of value under a newly created residential classification known as Class A. The mayor also wants to raise the hotel and resort property tax rate by $1, bringing it to $13.40 per $1,000 of value. Both measures if passed by the council would raise $26.4 million and $8.2 million respectively.

However, council chairman Ernie Martin expects pushback on both of the mayor's proposed property tax increases.

"Anytime you propose to increase property tax rates, irrespective of the classification, anticipate ample testimony against it," he said.

Caldwell also outlined a plan to increase fees on building plan reviews that would allow the city to reap an additional $500,000. But it's the mayor's plan to place ads on city buses and charge a $10 monthly fee for weekly garbage pickup that may face the most opposition. The two measures would raise $11.5 million in the upcoming fiscal year and $28 million in subsequent years.  Both ideas have already been soundly defeated in committee by council members.

"I think the mayor well knows to include them in at this point is very disingenuous, only because the council has already given the indication that it'd be a very tough sell," Martin told KITV4.

Meanwhile, the mayor is also embarking on a plan to right-size government that was spearheaded last year by councilman Ikaika Anderson. The plan involves deactivating 618 city positions and moving money from a salary provisional account for about $37 million in savings. Managing director Ember Shinn, who worked on the strategy, said only positions that are not currently filled will be affected.

"We took a five-year look back and that's how we identified a lot of these deactivated positions," said Shinn. "Whether they were vacant for five years, I can't answer that. It would be dependent on each of the specific positions, but we did a historical analysis."

Last year, Caldwell said Honolulu was facing a projected budget deficit of $156 million for fiscal year 2015. However, the mayor's revenue-enhancing proposals, coupled with a 7.5 percent average increase in property tax assessments, closed the gap.

Martin says if state lawmakers lift the cap on Honolulu's share of the hotel room tax, it will mean about $30 million more to city coffers. Currently, the city nets $41 million from the tax, which is added to the price of every hotel room on Oahu.

The mayor's operating budget is $77 million more than the current year's budget, mostly due to $90 million the city failed to receive because the proposed sale of 12 affordable housing properties fell through. The capital improvement budget proposed by Caldwell increases overall spending by $4.6 million, compared to the fiscal year 2014 budget.

The council now has four months to go through the mayor's proposed spending plan, with hearings starting up Monday.

One item the council is unlikely to tackle is the city's unfunded liability for workers' pension and health benefits, which stands at $1.7 billion according to Budget and Fiscal Services director Nelson Koyanagi.

Caldwell says Honolulu is in a much better position than a bankrupt city like Detroit because of more money being set aside every year for post-employment benefits, the city's double-A bond rating and the move to downsize government.   

"Bond raters like to see hard decisions being made in terms of controlling costs and also looking for ways to raise revenue because they know the cost of government never goes down," said the mayor. "Detroit didn't do any of that."


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