Mayor Mufi Hannemann gave final approval to the city’s $1.8 billion operating budget that is balanced in part on a property tax rate increase for landlords and others who own homes they do not live in.

Although the budget raises spending by 1 percent from the current fiscal year, it also assumes up to 24 furlough days for certain city employees and continued 5 percent pay cuts for members of the mayor’s Cabinet and other workers not covered by collective bargaining.

The budget’s slight increase is due largely to already set expenses such as previously arbitrated pay raises for police and firefighters, negotiated raises for bus drivers, and other work-force costs, the Mayor’s Office said.

Also included is $14 million for public safety needs for next year’s Asia-Pacific Economic Cooperation conference. The city hopes to get federal reimbursement for much of those costs, the Mayor’s Office said.

The so-called "non-homeowner" tax class was among the more contentious proposals in the budget. The rate for the new class was set at $3.58 per $1,000 of property value, 16 cents higher than the standard owner-occupant homeowner class rate.

Administration officials said the new class was needed to help balance the budget and go after a category of property owners — speculators and investors — many of whom do not live in Hawaii.

Hannemann contends that because property values across the state have decreased by 7.8 percent, the average property owner would see a lower tax bill regardless of which class they fall into.

"People need to focus on the tax bill, not the tax rate," Hannemann said.

Three City Council members, Ikaika Anderson, Romy Cachola and Ann Kobayashi, opposed the separate rate, arguing it could unfairly hit some owners who have a second property they rent to family members.

Others argued that in areas where property values have not decreased, the higher rate would lead to higher tax bills that simply would be passed on to renters who could least afford it.

"We’re asking nonowner occupants, i.e. renters, to pick up a bigger burden of the decline in property values," said Lowell Kalapa, executive director of the Tax Foundation of Hawaii, a nonprofit policy analysis group.

The separate rate might be short-lived, as Council members already have advanced a proposal to do away with the distinction for the next budget cycle.