$100 million
deficit burdens cityCouncil members say they
have no new tricks to deal with
the expected shortfall next year
The city's financial woes are not over: A budget shortfall of almost $100 million is already in the forecast for the fiscal year that begins July 1, 2004.
"We are worried about that," Council Budget Chairwoman Ann Kobayashi said yesterday.
Part of the reason for the shortfall is increased costs due to employee retirement and health fund contributions, collective-bargaining raises and bond debt. They are some of the same culprits that led to belt-tightening as the City Council wrapped up the city's $1.2 billion operating for the coming fiscal year.
"The fixed costs -- the health and the retirement benefits -- continue to rise dramatically," said city Budget Director Ivan Lui-Kwan. "We are also concerned about collective-bargaining pay increases dramatically increasing the budget, but this is within the control of the Council. We do see a very challenging, difficult budget year."
But with next year being an election year and most of the budget-balancing tricks already used, raising taxes and fees for the fiscal 2005 budget could be excruciating for the Council.
"You think we had problems this year passing a budget?" Council Chairman Gary Okino said. "I don't even want to think of next year."
The Council is poised to pass tomorrow a property tax rate increase that that will generate an estimated $23 million more in revenues.
Mayor Jeremy Harris' administration has said the property tax increase equals the amount the city will have to pay in increased retirement and health costs from the current fiscal year to next fiscal year -- an amount the city has no control over but which it has to pay.
But to raise taxes or other new revenue next year, an election year, will not be an easy task for the Council, especially with five out of nine members up for re-election.
"That's the problem," said Okino. "Raising taxes is going to be even more difficult. We struggled this year with a 2.7 percent increase, and then I can see next year being a whole lot bigger,"
Okino, whose term does not end for 2 1/2 years, added, "I definitely think taxes are going to have to be raised even more than it's being raised this year."
This year, the Council was split over whether to increase taxes even more than the mayor was proposing.
Okino said there is still a possibility the Council could increase user fees including some sort of trash-pickup fee once the administration nails down the details of a trash collection service that would include curbside recycling.
However, that proposal will likely meet with stiff opposition from other members of the Council.
The administration proposal to institute an $8 monthly fee to keep a second day a week of general trash pickup as part of a larger curbside recycling plan was dumped by the Council's budget committee.
Complicating the budget picture is the lack of ways to cut the budget or increase revenues.
"We've used all our bullets already," Okino said. "This year, we used up the last of the sewer funds, and we finally killed all the vacant positions."
In the past, savings on positions that have not been filled during the fiscal year have been carried over and considered revenue for the next fiscal year. This past year, the administration did away with $33 million, or nearly 1,000 vacant positions, to help balance the budget.
"The carryover basically exists because of those vacant funded positions," Okino said. "I think our carryover account is going to be a lot smaller."
The Council chairman said the next two years are going to be critical in getting a handle on the budget because debt service and fixed costs are expected to double in some cases.
Like last year, Okino said, he hopes talking about the budget shortfall early will signal how serious the problem is.
"It is (serious). I was talking about this year's problems ... a year in advance, too," he said.
City & County of Honolulu
