Price of Paradise


City Budget Blues
Like the state, Honolulu balanced the city budget last time by raiding special funds and scraping together every available dollar. Next year, something has to give. Council Chairman Gary Okino says raising taxes and fees might be the only recourse, while Councilman Charles Djou says the city should cut services because raising taxes will just make things worse.

Tax hike may be needed | Fixing economy will fix budget



The city’s fiscal challenge
may force a hike
in property taxes

By Gary H. Okino

HONOLULU is on the verge of its greatest fiscal challenge ever. In a few months, Mayor Harris must propose a balanced budget for the next fiscal year. At last count, a revenue shortfall of at least $159 million is expected.

A deficit of this magnitude raises serious doubts about balancing the budget without increasing user fees and taxes.

Nobody wants to raise taxes but an increase may be inevitable. The facts tell the story.

This year, to avoid raising taxes the mayor relied upon a package of short-term, quick-fix revenue schemes to make up a $146 million shortfall. These included raiding the sewer fund of $60 million, transferring $18 million from the solid-waste fund, selling $15 million in city assets and deferring $53 million in debt payments to future years.

The use of these nontraditional revenue sources enabled us to squeak by, but it also left us deeper in the hole for next year. Obviously, such tactics are neither sustainable nor responsible.

NEXT YEAR, with no sewer or solid-waste fund money to transfer, we must find $78 million elsewhere. With no other city assets to sell, we also must find another $15 million.

Top that off with a projected $66 million increase in general obligation bond debt service payments, and we face a revenue shortfall of $159 million -- and that assumes no increase in operating expenditures.

During the next several years, Honolulu must fund nearly $1 billion in court-ordered sewage treatment improvements. Compliance with the Americans with Disabilities Act will cost another $90 million. We need hundreds of millions more to resurface roads, upgrade sewer lines and fix city parks.

Add in the increased cost of homeland security and rising debt service ($104 million in fiscal year 2002, increasing to $232 million in fiscal year 2009), and the long-term picture becomes really disturbing.

So, what are our options? We can cut services, but which ones? Can citizens live with one rather than two weekly trash pickups?

How about fewer programs like Sunset on the Beach?

These are really tough choices. To help make them, I propose an advisory committee to review city services, identify necessary core functions and recommend which nice-but-nonessential services should be sent to the chopping block.

However, since the city payroll has been greatly reduced already, this option will only yield marginal savings unless we cut major functions many residents consider essential.

Another solution is to seek greater efficiency in our current operations. But again, short of major restructuring, such as merging waste-water functions with the Board of Water Supply, the city is already operating close to the bone. Moreover, the efficiencies we may recommend could take years to implement.

We also can eliminate state-county duplications, but such efforts have not been productive in the past. The state now faces its own fiscal problems, and the chances of transferring functions are slim at best.

FINALLY, we must look at enhancing revenues -- primarily property taxes, user fees and state and federal grants. We simply cannot meet continually rising costs without increasing our revenues. The question is, which sources to tap and for how much.

Honolulu is not alone in facing these challenges. Last year, Hawaii County took the difficult step of raising property taxes by 25 percent to balance its budget.

In two weeks the Hawaii State Association of Counties will convene a conference to discuss fiscal sustainability and explore options to deal with our fiscal dilemmas. We hope to find new solutions to our common problems.

It's now crunch time. The mayor and Council must work together to craft a realistic financial plan -- a plan that takes a long-term, sustainable perspective rather than simply budgeting for today's needs at tomorrow's expense.

We'll have to make tough choices. It will be up to the mayor and the new Council to devise a balanced budget that assures all citizens get the most for their hard-earned tax dollars.

Gary Okino is chairman of the Honolulu City Council and represents District 8 (Halawa, Aiea, Pearl City and Waipahu).



Fix the economy
and the city’s budget
problems will disappear

By Charles Djou

HONOLULU has a major budget problem. In 2003, city taxpayers likely will face a budget deficit approaching $160 million on a budget of about $1 billion.

In addition, the city will have tremendous new financial demands, including long-overdue pay raises for our police officers, maintaining our waste-water systems in compliance with federal environmental laws and finding a new landfill for our garbage.

These fiscal demands present a massive challenge for the new Honolulu City Council to meet. Some have suggested raising property taxes to meet those demands.

Although the operation of city government is extremely important, the health of our state economy is even more important.

Today, our economy is in the early stages of recovery after a decade-long economic slump. Hawaii's economic recovery, however, is immature at best. Without clear support of business by our government, Hawaii's economy can easily slip back into another period of prolonged economic decline.

TO BUILD a healthy, vibrant and growing community, we need a healthy, vibrant and growing economy. A tax increase at the city level, however, will only push our economy into a "double-dip" recession.

Raising taxes, just as our economy is beginning to show signs of real recovery, will likely destroy any hope of a prosperous and healthy community.

Furthermore, a possible war in Iraq presents additional challenges. The Gulf War, coupled with the burst of the Japanese asset "bubble," threw our economy into a tailspin in 1991. Today, with the Japanese econ- omy continuing to languish, a tax increase coupled with a war could kill any hope of building a vibrant state economy.

Property tax increases are more painful than income or excise tax increases, which are assessed throughout the year. Most residents pay their property taxes in lump sums twice a year. Increasing the property tax would directly reduce individual disposable income.

Although a property tax increase would hurt everyone, it would hurt retail merchants and small businesses most because they depend on the spending of disposable income.

RAISING property taxes to fix the city's fiscal woes is simply a bad option. A tax increase would poison any prospect of a sustained economic turnaround.

City government must look to other alternatives. Unfortunately, there is no magic bullet to solve our budget problems. We have to explore multiple options:

>> We must use the newly passed privatization legislation to transfer more public services, such as waste management and park maintenance, to the private sector when private companies can handle such services more efficiently and cost-effectively.

>> The state must share revenues more equitably. The counties repeatedly demand a share of traffic and parking fines, which they collect, but the state still keeps all the money.

>> The city must reduce its capital expenditure budget to reduce its ever-increasing debt load. Honolulu can no longer afford every skate park, bandstand or soccer field that is requested.

>> The City Council should look at revising the procurement code to reduce the numerous cost overruns on city projects. The U.S. Navy has adopted a good public procurement system that deserves our attention.

>> Civil service reform must be re-examined. The city's budget demands are different from the state and the other counties, but state law still mandates that we pay our civil servants the same as state workers and employees in all other counties. We need to end this anachronism. Let the city negotiate wages based on its own budget realities, institute merit-based pay and provide city managers an easier hiring and firing process.

>> Finally, the city has to cut services and programs. To balance the budget, many popular programs may have to be eliminated or severely limited. No one wants to cut programs, but we can't solve our budget problems without deep cuts.

Balancing the budget next year will be painful and difficult. Increasing city taxes, however, would cause far more harm than good.

It will not be easy, but we must dramatically alter the nature of municipal services, reducing the size and scope of city government to a level we can afford.

Charles Djou was elected to the Honolulu City Council last month, representing District 4 (East Honolulu). He is completing his term as the Republican state representative for Kaneohe.




Price of Paradise
The Price of Paradise appears each week in the Sunday Insight section. The mission of POP is to contribute lively and informed dialog about public issues, particularly those having to do with our pocketbooks. Reader responses appear later in the week. If you have thoughts to share about today's POP articles, please send them, with your name and daytime phone number, to, or write to Price of Paradise, Honolulu Star-Bulletin, 7 Waterfront Plaza, Suite 210, 500 Ala Moana, Honolulu, HI 96813.
John Flanagan
Contributing Editor

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