The honeymoon is over at Honolulu Hale — if there ever really was one.

Mayor Kirk Caldwell and the leadership of the Honolulu City Council have drawn swords over the correct approach to the city’s operating and capital budgets.

The mayor ran into a brick wall when Council members balked at his idea of adding taxes to keep Honolulu in the black.

But what they are now proposing is not much better. The Council’s budget balances without raising taxes — and that’s good — but it employs some sleight-of-hand, moving about $20 million in capital improvement project money to the operating budget and then floating bonds.

Caldwell has voiced reasonable concern about the borrowing putting the city’s bond rating at risk. Given that interest rates appear to be on the rise at last, it may indeed be an unwise fiscal strategy. Ironically, though, the same could be said about Caldwell’s earlier proposal to float bonds for an overly ambitious, multi-year road-repair project.

But what’s even more irksome about the Council spending plan is its unexamined expansion of grants to nonprofits serving Oahu, particularly as it entirely lacks a review process. This goes even above and beyond the 0.5 percent of annual general revenues that now must be set aside for nonprofit grantmaking, now that voters approved adding that amendment to the City Charter in last November’s election.

The set-aside is a well-intentioned gesture meant to help nonprofits that have suffered in the recession. However, this was never fiscally a wise move, given that it was a commitment likely to put a budgetary squeeze on other city services.

To go even beyond that level in the first budget cycle after the amendment’s passage is imprudent, to say the least. But to do so without vetting the selections, which now total some $14 million, is irresponsible.

Earlier this year, the Council enacted an ordinance establishing a selection panel of seven mayoral appointments to do the vetting. No grants should be issued until the panel is in place.

The Council’s rationale is that the grants will be reviewed through the public hearing process and checked before any money is released, But the idea was to open the process and leave the selection to the panel, not politicians.

Caldwell has cautioned nonprofits against counting on this money, given his inclination against releasing it. That would be wise on the nonprofits’ part.

Things shouldn’t be allowed to get to that point, though. When the Council next meets on the budget Wednesday, the additional $8.3 million above what the charter requires should be excised from the budget. The Council needs to establish a transparent and formal application procedure for all grants funded through the budgetary earmark.

As it is, the appropriations simply appeared as line items in the latest posted version of the budget (Bill 11, Council Draft 1). Just a sampling:

» $200,000 for Adult Friends for Youth for a program serving at-risk youth at Farrington, Campbell, Kapolei and Leilehua high schools.

» $125,000 for the Wahiawa Community Based Development Organization "for the planning and/or development of economic development and community revitalization programs in Wahiawa."

» $100,000 for the "maintenance and security of public restrooms in Chinatown."

The list goes on and on. There are simply too many questions left unanswered here, questions that should be answered in an open, public vetting process.

The Council might take a page from the state Capitol annals and learn from it. In 2008, state Rep. Michael Magaoay was under fire for the way he managed grantmaking at the Legislature, with the final result that a more formal process was set up to review applications.

Beyond the grants issue, there’s still a lot of work to do to arrive at a reasonable spending plan to guide the city’s operations. While Honolulu is definitely on firmer financial footing than it’s been in recent years, it’s still too soon to depart a conservative budgeting approach.

Setting aside the political bickering that has arisen, what the city needs is a budget that keeps up with core services within the current tax levels, with as little borrowing as possible. Whichever plan comes closest to that goal — the mayor’s or the Council’s — could be declared the winner of this contest, though it’s far more likely the only deal possible will lie somewhere in between.

Let the negotiating begin.