City budget dims hopes of reduced property taxes

Some City Council members say they are concerned that tax help this year for most homeowners could be out the door because the mayor's proposed $1.49 billion operating budget would keep residential property tax rates the same.

"If the rate stays the same ... people are going to pay very high tax bills," Budget Chairwoman Ann Kobayashi said.

'NO FRILLS' BUDGET JUMPS 10 PERCENT Mayor Mufi Hannemann's proposed $1.49 billion operating budget for the fiscal year beginning July 1 is about $131 million higher than the current year's budget, a growth of nearly 10 percent. The breakdown of the higher costs: » $40 million for salaries » $23 million, debt payments » $18 million, fuel costs » $14 million, electricity costs » $7 million, judgments and losses » $6 million, miscellaneous expenses such as rent, mileage » $5 million, federal mandates for storm-water pollution controls » $5 million, green-waste curbside recycling » $5 million, transit project » $4 million, commuter ferry from West Oahu to downtown » $4 million, retirement costs Source: City and County of Honolulu

But in unveiling the details of his operating and construction budgets yesterday, Mayor Mufi Hannemann continued to warn that fiddling with the rate could do more long-term harm than short-term good.

"I want to be clear: Once you cut the rate it's very hard to adjust it," Hannemann said.

The mayor said his proposed "no frills" budget climbed nearly 10 percent, or $131 million.

"The budget has gone up in terms of the dollars because of some of the mandates that we have or some of the things that we need to do to catch up," Hannemann said, noting that property tax rates -- including the residential rate of $3.75 per $1,000 valuation -- will not change.

Hannemann's proposed capital improvement budget of $629 million is 32 percent higher than this year's construction budget.

About $344 million of that budget is being proposed to work on the city's aging sewer system.

"We've recognized all along that the city needs to relieve the burden being placed on property tax payers," he said.

As a result, Hannemann said, he will approve two of the three bills passed last week by the Council to ease the tax burden.

He will approve Bill 1, which doubles the minimum homeowner's exemption to $80,000 -- but that bill does not take effect until next year.

He will also sign Bill 80, which moves up the start date to this year of a tax credit that would cap property taxes for property owners making $50,000 or less at 4 percent of their income.

Hannemann's administration has said it is difficult to project how many taxpayers will take advantage of the tax credit, but estimates on the fiscal hit on the budget would range from $3 million to $40 million.

"The Council would like to focus on low-income folks. In a spirit of cooperation, because it's addressing homeowner-occupants, I'm willing to support these measures, although it's not clear just how much relief these bills provide," he said.

But Hannemann said he has not yet made a decision on Bill 12, designed to stabilize tax bills with a new method to set property tax rates.

Proponents of Bill 12 say it will provide more accountability to setting tax rates because the city will only take in revenues it needs to pay its bills, forcing the Council and mayor to justify increases in spending.

Opponents say Bill 12 does not do anything more than what the Council and mayor can currently do in setting rates.

"It's not clear (if rates will go down). That's why I'm taking my time to review that," he said.

Hannemann's operating budget includes adding $20 million to the city's fiscal stability reserve fund, which Hannemann says is needed to help with fiscal rainy days such as when there are economic downturns, natural disasters and other emergencies.

But that number might still be too high, some councilmembers said.

"That's what we want to look at: If there is extra money, how is it being used?" said Kobayashi, who is also concerned about the additional debt the capital improvement will bring in.

"The Council will looking hard for anything that might be questionable that we could translate into additional relief," Council Chairman Donovan Dela Cruz said.

Councilman Charles Djou praised the mayor's focus on basic city services, but he said that the city's spending should also be held in check. "We should be cutting the rate of spending and providing greater tax relief."