Mayor tells Council to shrink spending or raise taxes, fares

Mayor Kirk Caldwell has warned the City Council that it will need to cut spending or raise either property taxes or bus fares to balance the city’s $2.09 billion operating budget.

But Council Budget Chairwoman Ann Kobayashi said Council staffers have the situation in hand and that a balanced budget can be passed when the Council meets on June 5.

A contentious week at City Hall began with a letter from Managing Director Ember Shinn, Caldwell’s second-in-command, identifying what adds up to $67.5 million needed to balance the operating budget.

Shinn told Kobayashi that given recent developments, "the legislative branch now has the responsibility to offer an alternative to balance the budget." Further, she said, "at this late date, an increase in the real property tax and/or bus fare increases may be the only options."

As the week wore on, Caldwell was making similar comments to reporters.

"At some point, the Council, and I’m willing to have this discussion with them, is going to have to have revenue enhancements going forward," Caldwell told the Star-Advertiser Thursday.

He reiterated a warning from Budget Director Nelson Koyanagi last week that cuts could result in eliminating recruiting and training funds for the police and fire departments.

Caldwell said that he has tried to meet with all Council members individually to discuss the situation.

The administration listed key developments that led to concern:

» The estimated cost of pay raises for the city’s unionized employees is now expected to reach $37.5 million in fiscal 2014. Only three weeks ago, the administration was estimating the raises would cost $26 million.

» The Council rejected Caldwell’s plan to raise $15 million by increasing the city’s fuel tax by 5 cents a gallon.

» The Council added, according to the administration’s figures, $10 million in so-called "grants-in-aid" money for Oahu nonprofit groups.

Shinn, in her May 13 letter, said that in addition to the estimated $37.5 million needed for pay increases, the city will need $5 million to pay for the vacation buyouts of people leaving the city’s employment.

Kobayashi, however, said members of her staff and the Office of Counsel Services are working to make adjustments to balance the budget.

"We’ll have it all ready on Monday," Kobayashi said Friday afternoon. "We’re certainly not going to hurt anyone. We’re not cutting services, and we’re not going to raise property taxes or bus fares at this late stage. We wouldn’t be able to do that without holding hearings."

She hinted that there is "still money left in some of the salary accounts" from the current year.

"It’s not like they’re going to hire a whole lot of people before June 30 (the last day of the current fiscal year)," Kobayashi said. There is also $10 million in an electricity account and the Council could also tap between $10 million to $20 million in cash set aside for capital improvements and instead have those projects paid for with bond money in the capital improvement project budget.

Kobayashi said the Council had rejected a penny-a-gallon increase in the fuel tax proposed by former Mayor Peter Carlisle two years ago, and Caldwell’s proposal was a nickel-per-gallon.

"And yet that money ($15 million in anticipated revenues from the increase) was added to the budget before they sent it down to us," she said. "We were already like $15 million in the hole."

As for the Budget Committee’s decision to increase grants-in-aid to nonprofit agencies, Kobayashi said roughly $10 million more was added to make up for anticipated losses in grants for rental assistance and other programs that are typically funded through federal sources that are being hit this year due to sequestration.

The $10 million in grants-in-aid proposed includes $1.5 million being added to replenish the Leeward Community Benefits Package (money to ease the effects of the expansion of the Waimanalo Gulch Landfill) that has not been funded in recent years, Kobayashi said.

Council Chairman Ernie Martin, who led the fight to include the additional grants-in-aid funding, defended the additions. Nonprofit groups that provide vital services face reductions in federal funding and "lack of commitment" from the mayor.

"It is difficult to accept the mayor’s rationale against such funding when contrasted against his support for increased salaries for staff in the managing director’s office and his … acceptance of pay raises for his Cabinet when many of our private sector employees continue to struggle from day to day."

Meanwhile, there seems to be some dissension among Council members about the grants-in-aid.

Councilman Breene Harimoto has repeatedly questioned the city’s ability to provide such funding when it is pressed to find dollars for its core services. Harimoto’s complaints drew backing from Council Vice Chairman Ikaika Anderson, who said he would introduce a floor amendment to the budget bill at its final vote on June 5 that will eliminate the addition.

Anderson noted that the Caldwell budget already contains $5.5 million in grants mandated under an amendment approved in 2012 by Oahu voters, requiring that 0.5 percent of all general fund revenues go toward a grants-in-aid fund dedicated to nonprofits.

Council members reduced the number of vacant funded positions for the coming year, freeing cash in the budget.

"If need be, we should have that money available to fund arbitrated pay raises, which I must point out the city has no choice but to pay," he said.

"With a bleak economic outlook and with the federal government severely restricting funds that will be made available to the city for every purpose up to and including rail, I feel the need to be more fiscally conservative."

Kobayashi said there may be support to cut $1 million to $2 million from the grants-in-aid additions, but no more.

Martin also criticized Shinn’s letter to the Council, pointing out that it suggested money was available from funded-but-vacant positions after the administration fought to keep the bulk of those positions for next year. The letter "confirms the concerns expressed by the Council that this funding was to be used as a ‘slush’ fund by the administration."