The Honolulu City Council adopts a new budget every year, but this year is going to put everyone, from the city’s administration to the elected leaders themselves, on an especially steep learning curve.
The issue isn’t the numbers themselves, although they’re pretty daunting: $3.41 billion for operating expenses and $1.34 billion in capital improvement projects.
It’s because, amid some significant changes in the fiscal landscape, such as rising labor expenses and increasing property assessments driving up tax bills, there is also at least one brand-new cost bucket the city will have to manage.
Rail.
The city will be spending $85.06 million for fiscal 2024, which starts July 1, for operations and maintenance of rail’s partial segment, running from East Kapolei to Aloha Stadium starting June 30.
But Andrew Kawano, the city’s Budget and Fiscal Services director, said part of the job will involve searching for ways to save money — more solar panels to cut electricity costs? — and to generate new revenue, such as selling advertising on the trains.
Kawano said he feels fairly confident that the budget is sufficient for rail’s inaugural operations year, but this resolve to think outside the box, looking for ways to better manage the resources, is the right attitude.
The reason for his general optimism may be the anticipated increase in tax revenue, both from property taxes and the City and County’s transient accommodations tax paid by tourists. For the first two years, 33% of that revenue will go to rail, which then will get a 50% share thereafter.
The Blangiardi administration believes this revenue boost will be necessary to cover everything from increasing investments in police personnel, to the rising salary costs negotiated for unionized city workers.
In this general spending category are also the raises for city management set by the Salary Commission, including the controversial 64% pay hikes for the Council itself. (As an aside: Those Council raises should be rejected, then be phased in more gradually.)
Addressing the public clamor for property tax relief, the Council approved a one-time $350 tax credit to be applied to the tax bills going out to Oahu’s 152,000 parcels. That equates to an additional tax exemption of $100,000, Kawano said during an interview on the Honolulu Star-Advertiser’s June 5 “Spotlight Hawaii” webcast.
During this coming fiscal year, the Blangiardi administration will have to document spending carefully and then consider in the next budgetary cycle whether more permanent tax relief would be possible.
There is at least one long-term adjustment that was made by the Council, which lowered the “Residential A” property tax rate for the first million dollars of value. The idea was to help the tenants who rent many of these properties, because a higher rate is generally passed on in the form of rent increases. The effect of the decrease on these rents would be worth monitoring.
Beyond that, Kawano cited the possibility of raising the income ceiling for one of the city’s existing low-income tax credits that limits the combined income of the owners to $60,000. That limit has been in place for about a decade, he said in the webcast, adding: “We could look at increasing that limit, but we have to be very careful.”
Correct. There are a lot of priorities requiring revenue. There are vacancies to fill, expenditures that conceivably could be put on hold, Kawano said, but not everything lies within the administration’s control.
The negotiated pay and benefit increases for city workers will add an estimated $160 million to the fiscal 2025 bottom line. Kawano said most of the cash appropriations in the operating budget already were endorsed by the mayor. The budget increases were largely in the capital improvement project side of the budget, he added, which are funded by the issuance of general obligation bonds.
The Blangiardi stance on bond funding is a sound one, even if it sometimes rubs the Council the wrong way. For example, an estimated $253 million in bond-financed appropriations for affordable housing and related projects will lapse June 30.
But in a telephone interview with the Star-Advertiser last week, Kawano said this often happens with a project because in the process of encumbering the appropriation, city officials discover a need to amend the terms to make it more successful.
The administration still plans to deliver the affordable units, but rightly believes in a more measured, gradual approach to bond financing. Not borrowing more than is needed to spend at a given time seems a prudent fiscal policy.
On the whole, the just-approved city budget represents a reasonable balance of aggressive pursuit of top-tier priorities — bolstering basic services by filling key vacancies, enlarging the inventory of affordable housing units, investing in homelessness services — and caution in how new endeavors such as rail operations is handled.
Now it’s up to the Council — and the public — to track how this plays out. They will get another chance to make the inevitable needed fixes next year.
