In past years, when Mayor Kirk Caldwell unveiled his annual proposed budget package in early March, he has pointed to a “where the city gets its dollars” pie chart. This year was no different, with property taxes again accounting for the biggest slice of operating resources — more than one-third of the revenues pie.
Property tax revenues are climbing, due in part to increasing assessed values. But gains are being offset by a growing stack of expenses that the city has little control over, such as pension-related payments to growing ranks of city retirees. Also looming on the horizon is payment for rail’s operation as the first leg of the cash-strapped transit line is slated to be boarding passengers at the end of 2020.
Establishing and holding onto a realistic sense of financial sustainability in city operations hinges on setting sound limits now on controllable government spending, and proceeding cautiously with proposals for raising tax rates and imposing fees for various city services.
Among Caldwell’s pitches to help make financial ends meet in the coming fiscal year is a $5 monthly fee for curbside trash pickup, which would generate $5.6 million annually. In recent years, two previous proposals were shot down. This time around, the community response could be more agreeable, if the element of give-and-take seems reasonable.
On the expenditures side of the ledger, Caldwell needs to explain his call for more than 110 new or reactivated jobs. Is this reasonable in times of tight spending? The city already has more than 8,000 employers in 26 departments. Their training and job responsibilities should be made flexible enough to align with ever-evolving city needs. Otherwise, taxpayers are shortchanged.
Caldwell’s request takes tax-hike aim at traditional visitor lodging — hotels and resorts — and higher-end residential “investment” properties. Both are easy targets: financially flush, non-local owners. Still, there are related matters to also weigh.
Last week, Caldwell described the tourism industry as “extremely healthy,” while local economists relayed a more guarded take, noting that visitor arrival counts have been essentially flat since April, when challenges such as flooding and lava flows began kicking in. A rebound bump is expected, but the forecast is scaled down, according to a University of Hawaii Economic Research Organization (UHERO) report.
Under Caldwell’s proposal, owners of hotel and resort land would pay $13.90 for every $1,000 of assessed value — a $1 increase over the current rate. Meanwhile, the Residential A “Tier 2” bracket would pay a $10.50 rate on any value higher than $1 million — up from the current $9 rate paid on that portion of the tax.
While the impulse to raise taxes on deep-pockets property owners is understandable, it should be noted that many would likely pass along a new levy burden to visitors already shelling out for the nation’s priciest average daily room rate ($278 in 2018), and residential renters struggling with Hawaii’s high cost of living.
Finding a workable property tax balance is a difficult task. Given the rising expenses in Honolulu’s foreseeable future, all tax classes should be sized up to assess trickle-down burdens. However, it’s sensible — and fair — to tap the tourism operations generating large revenue streams and the luxury-bracket residential investors.
Over the past decade, the proposed operating budget emerging from the mayor’s office has increased by $1 billion — to $2.83 billion for the 2020 fiscal year. As the price tag for debt service and other obligations continue to climb, the city must strive for a no-nonsense sustainability. In the absence of it, Honolulu could slide into a deficit that upcoming generations may be unable to shake.
