Higher tax rates are in store for owners of Oahu resort/hotel and higher-end resident “investment” properties, but the tax rate would stay the same for those who live in their own home, according to the budget plan for the coming fiscal year unveiled Friday by Honolulu Mayor Kirk Caldwell.
Caldwell’s $2.83 billion operating budget proposal also includes a $5 monthly refuse fee for residences and nonprofit organizations, an idea the administration has proposed twice before being rejected by the City Council in the past.
The operating budget is about $223 million, or 8.6 percent, higher than the current year’s budget, Caldwell told reporters. The new budget year begins July 1.
Uncontrollable expenses such as employee fringe benefits and collective bargaining costs, as well as debt service, were cited by Caldwell as key reasons for the budget increase.
But additionally, the city needs to prepare for the coming of the city’s East Kapolei-to-Ala Moana rail project, the mayor said. The first segment, from East Kapolei to Aloha Stadium, is slated to open in December 2020. Caldwell is proposing that the Department of Transportation Services, which will be tasked with the project’s operations and maintenance, be bolstered by 14 new employees. An additional $6.77 million is needed for consultant services to advise the city on operations.
BIGGER REQUESTSThe annual operating budgets proposed by Honolulu mayors have grown steadily over the years.
>> 2020 | $2.83B (proposed)
>> 2019 | $2.61B
>> 2018 | $2.45B
>> 2017 | $2.33B
>> 2016 | $2.27B
>> 2015 |$2.14B
>> 2014 | $2.16B
>> 2013 | $1.96B
>> 2012 | $1.92B
>> 2011 | $1.81B
>> 2010 | $1.81B
A proposal now before the Honolulu Authority for Rapid Transportation would have operations and maintenance covered by a private third party under a public-private partnership, or P3 arrangement. “Even if it’s done through a private entity … we’re going to need people to make sure that how it’s being managed is being done properly,” he said.
The mayor’s budget package also includes an $871 million capital improvements program, comprised largely of sewer system improvements and other essential infrastructure.
Under the proposed tax increase, owners of hotel and resort land would pay $13.90 for every $1,000 of assessed value, $1 more than the $12.90 per $1,000 they now pay. The increase would raise about $17 million more annually.
The rate was last increased in 2014, when it was raised 50 cents from $12.40 per $1,000. Caldwell tried to increase the hotel/resort rate two years ago, to $13.40, but that was shot down by the Council after heavy lobbying from the visitor industry.
It’s a different story now, Caldwell said. “The visitor industry is going gangbusters, extremely healthy,” Caldwell said. “There’s not a hotel in Waikiki or on this island that’s owned by a local entity. They’re all owned by hedge funds or investment banks in other parts of the country or around the world, and they are doing well.”
Many have raised resort fees recently, he said. “We believe there is give to help the residents of the City and County of Honolulu.”
The plan drew a sharp rebuke from Hawaii Lodging and Tourism Association CEO and Executive Director Mufi Hannemann, Honolulu mayor from 2005 to 2010 and Caldwell’s onetime boss. Caldwell served as Hannemann’s managing director, or second in command, for the last 18 months of his tenure and then succeeded him as acting mayor for about three months.
Hannemann said the proposal was “unfair and unreasonable,” and pointed out that no taxes are being proposed for the commercial, industrial and agricultural tax classes.
“We provide the largest number of jobs in the county as well as the state,” Hannemann said. “Every tax increase just puts additional pressure on us maintaining those jobs and creating new jobs.”
Doing some quick calculations, Hannemann said the average-size hotel with 250-275 rooms, hit with an additional $1 per $1,000 of valuation, would need to pay $246,000 more annually. “That means a 33 percent jump.”
Owners in Tier 2 of the so-called Residential A tax classification would pay $10.50 per $1,000 of assessed value on any value higher than $1 million, up $1.50 from the current $9 per $1,000 they pay on that portion of their tax. Residential A owners would continue to pay $4.50 per $1,000 of value on the first $1 million of value. It would raise about $14 million more for city coffers.
The Residential A category is comprised of residential properties valued at more than $1 million, excluding those whose owners live on their properties and claim a homeowner exemption. It was conceived by the Caldwell administration and passed by the Council in 2013 and has been in effect since the 2014 fiscal year. That year, Residential A owners paid $6 per $1,000 of value.
The formula changed in 2017 when the Council approved the two-tier rate system in place of Caldwell’s proposal that year to raise the rate to $6.30 per $1,000.
Residential A has been a highly charged topic. Opponents argue that property owners attempt to recoup the higher taxes by charging higher rents. In December 2015 a state court ruled that the category could remain when a judge ruled against about 20 property owners who sued the city, arguing that the additional tax was unconstitutional because it was based on value rather than use.
“We’re talking about folks who own at the high, high end, and we’re talking about folks who don’t have a homeowner’s exemption,” Caldwell said. “I don’t know how many people can afford a $2 (million), $5 (million) or $10 million home.”
The tax rate for the standard residential classification, made up of those properties valued at up to $1 million and those valued at more than $1 million but receiving homeowner exemptions, would stay at $3.50 per $1,000 of value.
Caldwell said it’s time for Oahu’s residential homeowners to begin paying a fee for curbside pickup. “We’re the only county (in Hawaii) that doesn’t do that,” he said.
The fee would generate about $5.6 million annually. Caldwell, like other proponents of the fee, pointed out that most condominium and apartment owners pay for their trash removal service.
Council Budget Chairman Joey Manahan said that he and his colleagues will carefully consider the tax and fee increases.
On the expenditures side, Caldwell’s budget plan proposes 29 new positions in the Honolulu Emergency Services Department, 15 additional positions in the Department of Transportation Service as it ramps up for rail operations, 31 new positions in the Department of Parks and Recreation, and reactivating 50 positions in the Honolulu Police Department, 37 of them patrol officer jobs.
Other highlights include enhanced service for TheBus and TheHandi-Van, development of an Ala Moana transit plaza and maintaining and improving city parks facilities. Additional funding is proposed also for Caldwell’s street repaving project, combating homelessness and addressing issues tied to climate change.
The Council Budget Committee is expected to begin reviewing Caldwell’s plan next week. Final decisions are usually made in June.