Thursday, May 27, 1999

City & County of Honolulu

Two weeks later:
What budget battle?

New City Council leaders say
they've found a way to keep
spending and revenues balanced
without fee hikes

Bill offers tax break to construction industry

By Gordon Y.K. Pang


What a difference two weeks makes.

Under new leadership on the City Council, the seemingly intractable budget squabble has apparently been resolved.

There will be no increases in bus fares or golf fees, and the proposed garbage pickup fee has been eliminated. Tax revenues will be the same as this year.

At the same time, major services will remain intact. There will be no closure of pools, elimination of the children's petting exhibit at Honolulu Zoo or reduced hours at satellite city halls.

Since Jon Yoshimura was elected City Council chairman on May 17, the Budget Department and the staff of the new Council leadership have been able to come up with $21 million in revenues and savings to make up for not raising garbage and golf fees and balance next year's $1.02 billion operating budget.

Yoshimura and new Budget Chairwoman Rene Mansho held a news conference yesterday to announce the proposed changes.

Yoshimura said even he was awed at the speed at which the city's budget problems were resolved.

"How can it be so easy?" Yoshimura said. "How can this budget mess all of the sudden be solved?"

Yoshimura said he came to the conclusion that the budget battle that took place between the administration of Mayor Jeremy Harris and former Council Chairman Mufi Hannemann "was political theater and wasn't real."

Asked if the ease in finding new sources of revenue and areas to cut meant the administration's initial budget was padded, Yoshimura said: "Yeah, it was."

But while Hannemann and then-Budget Chairman John Henry Felix skirmished with the mayor, Yoshimura said, "we worked with the mayor to find the cuts in his budget, on their terms and on our terms."

Hannemann said the fact that Yoshimura acknowledged the budget was padded "verified what Felix and I said ... that the administration wasn't being truthful from the beginning."

The proposal unveiled yesterday calls for a $1.024 billion budget, up $8 million from the mayor's initial $1.016 billion proposal.

Mansho said the increase can be attributed to recently approved raises for city workers totaling $39 million. She said she expects all of that money to be provided by the state Legislature through a reduction in the counties' share of employee retirement funds and increased grants.

Mansho's recommendation also calls for nixing the mayor's plan to lease equipment, saving $2.2 million. Instead, the city will purchase the equipment through $14.4 million of bond money.

Other savings would be achieved by cutting funding for what Mansho called "a handful" of positions and delaying the hiring of dozens of other city workers by a month to six months.

New sources of revenue include the projected sale of leased fee interests at Kukui Plaza for $4.4 million and $3.8 million in unanticipated savings from employee health and retirement costs.

Mansho said while her plan calls for a larger budget than proposed by the mayor, it is still 3 percent less than the current year's budget.

Mansho's proposal for a capital improvements budget is $267 million, $15 million more than Harris' proposal. The old Council leadership had sought cutting the capital improvements budget to under $200 million.

A key difference is that unlike the Hannemann-Felix plan, the Yoshimura-Mansho proposal calls for keeping $38 million to be divvied up among 19 community visioning teams set up by Harris.

Construction industry
tax-break bill advances

By Gordon Y.K. Pang


Hotel owners and developers endorsed a bill giving tax breaks for seven years to owners of new commercial buildings, calling it a boost for a work-starved construction industry.

Some City Council members, however, questioned how significant the tax break would affect the economy while depleting the city of needed revenues.

The Council's Budget Committee yesterday moved the bill despite reservations by some members.

Under the proposal, owners of new commercial buildings would gain a seven-year exemption from property taxes after completion of a project. Building owners making additions or renovations to existing structures would also get a "holiday" from taxes on the improved sections.

The exemption would only apply to hotel, resort, commercial, industrial, agricultural or conservation uses. Residential buildings would not be able to get the exemption.

The exemption would only be in effect for tax years from July 1, 2000, to June 30, 2011. Building permits for qualifying construction work would have to be obtained after the bill is approved. Work would have to be completed no later than June 30, 2002.

A trade-off

Budget Director Roy Amemiya estimated the plan would mean $3 million less in annual tax revenue for the city over the 11-year life of the program.

Rick Egged, president of the Waikiki Improvement Association, said a recent survey of the organization's members shows more than $1 billion in construction projects are waiting to get under way.

"A bill of this nature provides tremendous incentive for reinvestment," he said, adding that the plan could generate as many as 2,000 construction jobs and 10,000 related jobs.

Bruce Coppa of the Pacific Resource Partnership said government projects have helped keep the construction industry busy to some extent but cannot sustain it much longer.

"The economy is bad," agreed Council Budget Chairwoman Rene Mansho, a supporter of the measure. "People aren't going out there and investing like they used to."

Council Chairman Jon Yoshimura called the bill "the most significant act the city can do to kick-start the economy. This would send a positive message to our business community."

Inequity feared

Councilman Steve Holmes, the only one of four Budget Committee members present to vote against the plan, said he's afraid the exemptions will leave those without exemptions carrying the burden.

The new construction would result in the need for additional roads, sewer lines and other improvements, but those directly benefiting from the improvements would not be paying for them, he said.

"The existing tax base ends up paying the difference," Holmes said.

"Who's going to have to pick up the slack?" echoed Councilman John Henry Felix, who said he has serious questions about the plan but is not ready to oppose it.

Felix cited a letter from Nick Ordway, a University of Hawaii-Manoa economics professor. In it, Ordway questioned whether the exemption would generate enough construction to overcome potential property tax losses resulting from the exemptions.

Ordway's estimate of losses is $12 million annually, or four times what Amemiya predicts.

Amemiya said Ordway's numbers were improperly calculated.

The Tax Foundation of Hawaii also raised serious questions about the effectiveness and potential adverse impacts of the bill.

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