Editorial: City must impose spending controls

Honolulu has enjoyed a long period of good economic health, owing in part to a robust tourism industry. It can be tempting for elected officials, surveying the landscape for revenue, to wager that there’s a richer tax yield to tap in that direction.

That could be a bad bet for Hawaii’s mid- to long-range prospects. Some experts have projected a slowdown with growth easing off nationally, and signs of a possible recession, even globally, in the offing. And those trends directly affect the likelihood that travel to Hawaii is in the cards for very many people.

The Honolulu City Council surely knows this, as does Mayor Kirk Caldwell. So the fact that officials seem poised to dip into the tourism revenue well again — one facet of the city budget facing a final vote today — should be concerning.

And it should give the Council and administration the imperative to curb spending rather than raising the property tax on hotels.

Under the final budget draft, which includes a full set of cuts and restorations across the city departments, the tax increases would include a $1 increase per $1,000 of assessed value on hotel and resort land, boosting the rate to $13.90 per $1,000 value. Additionally, nonowner-occupants of residential properties worth $1 million and up would get a rate hike of $1.50 for a total of $10.50 per $1,000 of assessed value.

It’s the hotel tax that is most worrisome because that sector already saw a boost to the state transient accommodation tax to help fund Honolulu’s rail project. These costs are passed through to the tourists, who may deem the pricetag too rich to pay at some point, meaning the visitor count could fall.

And now time has almost run out to make needed adjustments to this plan. The reality is that the next fiscal year starts July 1, and there are several key players leaving town ahead of that deadline. Still, there are good reasons for the public’s concern about the city’s current budgetary approach.

One is that the fiscal weight of the rail project will be felt increasingly in the coming months and years, and there’s no clear sign that the city has adopted the correct, disciplined stance about taxation and spending. Discipline is what will be essential to paying the bills, once the rail project is accruing regular operations and maintenance expenses.

At a Council committee meeting in May, Caldwell put rail’s estimated operations-and-maintenance cost at about $37 million for when the first segment, from East Kapolei to Aloha Stadium, starts running in December 2020. That’s just for its first six to seven months of operation, the mayor said. And then there’s debt service for a $44 million bond federal authorities want in the city budget, too.

Has the city trimmed its sails enough to float this project? It doesn’t seem apparent.

The city administration has grown in size, adding new, fully staffed land-management and resiliency agencies in recent years, on top of other increases.

Among the proposal’s most outspoken critics is the former mayor, Mufi Hannemann, who now heads the Hawaii Lodging and Tourism Association. He has cited those increases in testimony and in a published letter to the editor. He also pointed to reducing the city reserve fund as one solution — though that, too, seems a less-than-optimal strategy in the face of anticipated economic slowdown.

For its part, the City Council has preferred pandering to constituents as well, waving off a reasonably modest fee for trash pickup and passing a $70 annual tax break for homeowners.

Nobody seems to be watching the big picture — which, unless the city starts to show more budgetary restraint, will not be a pretty sight.