POSTED: 12:05 a.m. HST, Jun 7, 2010
With popular programs such as Summer Fun and the Royal Hawaiian Band saved, the City Council now turns its attention to property taxes, the main source of income for city operations.
The Council meets Wednesday, the deadline to pass the final version of the city's $1.82 billion operating budget balanced in part on a new real property tax rate for nonoccupant home-owners.
This year's budget process has an unusual wrinkle with the appointment of a new Council member who will then face the prospect of voting on the measure just hours later.
The appointment fills the vacancy created by the election of Charles Djou to Congress last month. Council Chairman Todd Apo has said he would not fault the new member for recusing himself or herself from the vote, but he felt the district deserved to be represented during the budget proceedings.
This year's budget process has been marked by close votes and contentious debate about the new real property tax rate and the amount of money set aside for vacant positions in the administration, among other issues.
Even Apo has acknowledged that a 4-4 tie on the budget is a possibility, but he hopes the new member will be up to speed, adding that some of Djou's staff has remained in Honolulu to help.
"I think the pieces can be put together," Apo said. "It's just going to be a matter of how that plays out."
This year's budget includes for the first time two separate property tax rates for homeowners.
If approved, the property tax rate for homeowners who do not live in their property would increase 16 cents to $3.58 per $1,000 of property value. The owner-occupant rate of $3.42 and all other tax rates would remain unchanged.
Although it was below the $3.72 rate Mayor Mufi Hannemann proposed, administration officials have supported the Council's proposal. Because of lower property value assessments, the administration contends those in the nonoccupant-owner class would see no change or even a drop in their tax bills.
To bring down the rate, Council members cut slightly deeper into the budgets of departments that already are facing a new fiscal year that includes two furlough days a month for employees.
Most departments would have expense budgets trimmed by 1.5 percent, while funding for vacant, funded positions would be reduced 10 percent. Exceptions were made for areas such as public safety.
"The budget process has once again this year been a collaborative and deliberative one," administration spokesman Bill Brennan said. "Mayor Hannemann and members of the administration have appreciated the discussions with the Council chair, the Budget Committee chair and other members, and we can live with the appropriations recommended in the (current) version of Bill 15, the operating budget bill."
But the separate tax rate still has its critics, even among Council members, who say it might unfairly place some property owners in this new class.
Hannemann lobbied for the new tax rate classification to help balance the budget and to go after speculators and investors who do not live in Hawaii but own property here.
Opponents, including many residents who testified at the various committee hearings, believe higher rates will lead to higher taxes that will simply be passed on to renters, a class that can least afford it.
"This sounds like a politically popular way because renters don't get the property tax bill -- it's the landlords," said Lowell Kalapa, executive director of the Tax Foundation of Hawaii, a nonprofit research organization.
Because of the tight rental market, he said landlords would have no choice but to raise rents.
"The landlord is between a rock and a hard place because costs have now gone up in his apartment building, and he's raised the rental rate," he said.
Apo said he hopes a majority of the Council agrees with the budget plan, acknowledging it is not perfect, but it reflects a compromise between the Council and the administration.
He said he does not believe the nonoccupant homeowner class is needed, and he plans to work on abolishing it next year.
"For good or bad, we went through this process -- we took a look at how this tool worked," Apo said at the budget committee hearing last month. "The more I hear the testimony, our discussions and looking at what it's done to our budget, I'm just more and more convinced we don't need separation of classes.
"We ought to go back to how it was. I'll continue to support the exemptions and the credits to the extent the budget will allow us to do so. I think it's a system that works."