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Tax hike on 'inevitable' track


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POSTED: Monday, April 13, 2009

It has been six weeks since Mayor Mufi Hannemann submitted his proposed $1.8 billion operating budget to the City Council, and in that time the overall financial picture has gone from bad to worse.

               

     

 

PROPERTY TAXES

        A look at residential real property tax rates on Oahu since fiscal year 2006. The rate is the amount of tax paid per $1,000 of property valuation.
       

» FY 2006: $3.75
        » FY 2007: $3.59
        » FY 2008: $3.29
        » FY 2009: $3.29
        » FY 2010: $3.59 (proposed)
        Source: Office of the Mayor

       

 

       

Tax collections are forecast to be lower than originally thought, and state lawmakers are looking more and more at diverting the hotel room tax — a key source of funding for the counties.

Gov. Linda Lingle says state workers must share the pain and agree to cuts in pay and benefits — or face layoffs — while the county mayors balk at her plan.

To Lowell Kalapa this all leads to one inevitable conclusion.

“;We've built so much into our city system that unless the city does exactly what the state is trying — which is to actually reduce the size of government — it's inevitable that we're going to have to raise taxes someplace,”; said Kalapa, director of the Tax Foundation of Hawaii, a tax policy analysis group.

“;Right now it looks like it's going to fall on the homeowners.”;

That likely means an increase in the real property tax rate.

Hannemann already has proposed increasing the rate by 30 cents, putting it at $3.59 per $1,000 of property valuation.

Coupled with increases in various fees — some bus rates, golf course green fees and zoo admissions — the mayor's budget proposal aims to make up a $50 million budget shortfall in the 2010 fiscal year that begins July 1.

The Council's Budget Committee gets its first crack at the mayor's plan starting today.

Budget Chairman Nestor Garcia acknowledged that a rate hike might be in order.

“;From what I've seen so far in the first pass, it seems that with that (rate increase) coupled with the other fee hikes that he's proposing, and some judicious cutbacks, we should be able to deal with our budget problems for the coming fiscal,”; Garcia said.

But it does not end there.

If property values drop significantly, there is fear that the property tax rate increase might not be enough.

And Hannemann has warned that even if his budget proposal was adopted completely, the city still would face a $176 million budget deficit in the 2011 fiscal year.

Garcia is wary of that, too.

“;I think when you see what I am proposing in this first pass of the budget, you'll see that this budget chairman is the first in a number of years to cut the budget ... not just for this year, but for the next fiscal,”; he said. “;I think the mayor might have some issues, but I think we need to have that discussion.”;

Some Council members already have submitted ideas on where to cut.

Councilman Donovan Dela Cruz has proposed reducing funds for neighbor island and out-of-state travel, decreasing amounts spent on advertising and publications, and postponing the funding of office rent and equipment for six months.

Dela Cruz said he believes the Council might even be able to reduce the real property tax rate.

“;Any type of thing that we can consider delaying a little bit or reducing, I think we've got to take that seriously,”; he said. “;This is not a time to be expanding the budget dramatically.”;

In addition to reducing government spending, Garcia said he also wants to explore options such as raising the 16 1/2 -cents-a-gallon fuel tax on Oahu.

Hannemann already has floated the idea of more fees in the future, such as a charge for garbage pickup, noting that other major cities already charge for similar services.

To an observer such as Kalapa, a potential fee for garbage collection is proof itself that the county needs to rein in spending.

“;We have a very, very high cost of county government,”; he said. “;Health and safety are the missions of the city. They're the basics.

“;He is forgetting one of his own campaign promises — nice to have versus need to have — and we need to have garbage pickup. That shouldn't be an option.”;