DENNIS ODA / DODA@STARBULLETIN.COM In a news conference yesterday, Mayor Mufi Hannemann gestured to illustrate how money spent on public safety and the money spent on debt were heading in opposite directions. He also announced the appointment of radio executive Jeff Coelho, right, as city managing director.

Fiscal woes
concern mayor

City program cuts and sewer fee
hikes are being reviewed in light
of rising debt

Crushing debt and long-ignored maintenance will make the city's financial health worse before it gets better.

That was the message yesterday from Mayor Mufi Hannemann as he reported on the ailing condition of the city's finances: rising debt making up the largest portion of the city's operating budget, cash reserves on the decline, infrastructure maintenance and equipment modernization being deferred, and some past questionable budget practices.

"I always felt that things were not always fiscally rosy at City Hall," said Hannemann, who added that he was "mildly surprised" at the magnitude of the findings.

City sewer fees to rise Mayor Mufi Hannemann said to expect sewer fees to rise and gave the following reasons to justify an increase: » $340 million was transferred from the sewer fund to pay for other city services. » Sewer fees have not increased in 12 years. » Expenditures have gone up significantly to repair, maintain and improve the sewer system while also complying with federal and state laws.

Spurred by an improving economy and evidenced by good credit ratings, the city's fiscal health on the surface is "adequate."

"When you dig a little deep and you go beneath it, we've got some real problems here," Hannemann said at a news conference.

During the report of findings of his "Mayor's Review," Hannemann said he is going to have to make some painfully tough decisions in the coming month to get the city's finances back on the road to recovery.

His solutions could include cutting existing city services, creating new revenue sources or generating more revenue from current sources or a combination of these.

Hannemann said he has already canceled nearly $20 million in construction projects for signs and landscaping, and consultant contracts.

Hannemann also said he is definitely going to raise sewer fees, although he would not say by how much and is still considering raising other kinds of fees.

One of the prime culprits in the deteriorating financial condition is debt.

"Debt levels have been ramping up rapidly, and they've now gotten to the point where debt service -- the payment of principal and interest -- the outflow cash for that is now the biggest item in the budget," said accounting executive John Zabriskie, who along with Hannemann's senior adviser Paul Yonamine conducted the review. "It exceeds public safety combined. So what we pay for fire, what we pay for police, emergency, etc., all combined is less than debt service now."

Debt service is close to $300 million and climbing, about 25 percent of the city's budget. It should be 20 percent or less, said Zabriskie, who will become Hannemann's unpaid policy director.

Other signs of the decline include:

» Cash reserves declining by $251 million in the past five years.

» Expenditures now outpacing revenues by $200 million.

» Insufficient funding to fund core city services such as sewers and roads.

"We think that there's $1 billion of expending that should've taken place in the past that effectively has been lobbed forward to fiscal '06 and beyond," Zabriskie said. "A whole host of things that should've been taken care of that now has to be taken care of in the future."

That means more and costlier replacements and maintenance, he said.

To make the finances healthy again, the city is going to have to play "catch-up" and spend more in the operating and capital budgets in the next couple of years to make the fixes in the infrastructure, Hannemann said. Also, the city needs to purchase updated technology to help it operate more efficiently, saving it money in the long term.

Other causes for fiscal decline include the sale of $60 million in city assets over five years, the raiding of the sewer fund and the lack of sewer fee increases.

Rising employee costs are also contributing to the fiscal mix, but Hannemann said that giving employees raises in upcoming union contract negotiations is still a possibility.

"I do value rewarding city employees, but then at the end of the day, too, I want them to know that we do expect more from them in terms of right now supporting many of the decisions that we're going to have to make that's going to require some pain across the board," the mayor said.

City Councilman Charles Djou congratulated the mayor for providing a realistic look at the city's finances. He said he basically sees the city as being broke now, and he lobbied again for a debt and spending ceiling.

He said he also would like to see the mayor talk more about cutting spending, and he does not believe there is room in the budget for pay raises.

Mayor’s team picks
radio exec

Managing director nominee
Jeff Coelho gets mixed reviews

Mayor Mufi Hannemann's pick for city managing director -- a longtime radio executive who unsuccessfully ran for City Council in 2002 -- says he wants to focus on "giving back to the community" and beefing up basic services, including sewer maintenance.

"It's definitely a big challenge but I'm looking forward to it," said Jeff Coelho, general manager of Honolulu-based Visionary Related Entertainment, which operates radio stations KUMU AM/FM, KPOI FM, KQMQ FM and KDDB FM. "There's so much to do that we have to identify the areas that I can help the mayor."

Coelho's appointment still must be confirmed by the City Council, and some Council members said yesterday that they would have preferred a nominee with background in city governance.

"It certainly would have been advantageous for him to know the city," said Councilman Gary Okino, chairman of the Public Safety Committee. "But I understand how difficult it is to find anybody to take the job."

City Councilwoman Barbara Marshall said she was surprised when she heard about Coelho's nomination. Marshall won against Coelho and three others in 2002 for the City Council seat that covers Kailua, Kaneohe and Waimanalo.

"He has no experience in government," Marshall said, adding that she hopes to speak to him about his qualifications. "It's just nice when somebody has some exposure (to government)."

But colleagues said Coelho's management experiences in radio will give him an edge in city government.

"Radio is tough," said Sumee Mikkelsen, promotion director at Visionary. "You are in the spotlight constantly. ... You are under a lot of pressure."

Coelho is set to step down from his position at Visionary on Feb. 28 and take on his city duties March 1.

Hannemann told reporters that Coelho "has impeccable management" skills.

"He comes with that set of local values that I find very important in leadership at City Hall," Hannemann added.

Coelho and Hannemann have known each other for almost 20 years.

Hannemann's first nominee for managing director was John Reed, a businessman and tourism official. But in early January, Reed declined the position after allegations surfaced that he made racially insensitive remarks while chief executive officer of a company based in California.

Denying the allegations, he said he decided to step down to protect his family from negative publicity.

Coelho said he asked the mayor in mid-January to consider him for a position, not necessarily the managing directorship.

"For me, I could continue staying in the radio business because I enjoy it," the 57-year-old Coelho said. "But I just felt I could do a better job giving back to the community."

Coelho stressed a commitment to core city services.

"Just look at the other day on Kalanianaole Highway, the sewer breakup again," he said. "Look at the millions of dollars lost in time because of that."