Budget won’t be affected short term by virus, city official says

City budget officials Thursday told a Honolulu City Council committee that they don’t expect the worldwide coronavirus pandemic to have a significant effect on the upcoming $2.9 billion operating budget.

But the long-term situation could be troublesome, and much of that uncertainty has to do with the city’s $9.2 billion rail line, city Budget Director Nelson Koyanagi told the Budget Committee.

“Real property (taxes), which are our major source of revenue, should not be affected by the coronavirus in the short term because (the assessments) are already set,” Koyanagi said.

But Koyanagi warned that his prognosis does not factor in the potential impacts that could be caused if the coronavirus crisis ends up affecting the financing of the 20-mile, East Kapolei-to-Ala Moana rail line, which depends largely on the state’s collection of general excise and hotel room taxes. If those revenues don’t come in as projected, city taxpayers may be forced to foot the bill as a last resort.

“It can affect us that way,” Koyanagi said.

HART spokesman Bill Brennan told the Honolulu Star-Advertiser on Thursday afternoon that Executive Director Andrew Robbins was unavailable for comment but that he will address publicly the coronavirus issue sometime today.

While Robbins wasn’t available Thursday, Koya­nagi said he anticipates HART will borrow more to pay for its most current bills.

That won’t be a problem if tax collections return to normal fairly quickly. “But when it comes time to pay the bonds, if they don’t have enough money from the GET and the TAT, then it will be up to the city … to make the payments. Because we can’t default on the bonds. These are bonds backed by the full faith and credit of the city.”

Council Budget Chairman Joey Manahan said he wants to see quarterly reports tracking TAT revenue.

Koyanagi made his comments at Honolulu Hale at about the same time that, across Punchbowl Street, state economists were telling members of the Legislature at the state Capitol that they needed to revise their economic forecast sharply downward from just a few days earlier based on their latest information.

Because both the GET and TAT, two of the largest revenue sources for the state’s general fund, are fed by the tourism industry, top economists warned lawmakers they expect a steep downturn in the state’s tax base.

Koyanagi said the pandemic’s short-term impacts on city coffers likely won’t be severe because the city’s main source of revenue is property taxes.

A property owner’s bill is derived from multiplying the property’s assessed value with a rate set each June by the City Council. Property assessments were issued in December.

Mayor Kirk Caldwell’s budget does not propose any property rate increases, and it appears unlikely the Council would consider raising the rates for the fiscal year that begins July 1.

“The state’s revenues fluctuate a lot. If times are really good, then the revenues go up, and in times like this the revenues go down,” Koyanagi told the Budget Committee. “As soon as the tourists don’t come, it goes down right away. Real property (revenue) is different; real property’s a lot more stable.”

The city does receive about $45 million from the state’s transient accommodations tax, also known as the hotel room tax. But city officials said they don’t expect that amount to change because the $103 million the four counties receive collectively is among five priority categories funded by the TAT.

The overall TAT collection last year was about $600 million, and the five categories accounted for about $260 million with the rest going into state coffers. So visitor taxes would need to drop by $340 million, or more than half, for the situation to affect the city’s TAT take, the city said.

The administration budget released last week is based on December assessments showing only a 1.7% increase in overall tax revenues.

Koyanagi said the city has formed a committee to discuss the coronavirus and what steps can be taken on the expenditures end if the pandemic’s impacts are long-term and severe.

Meanwhile, the Caldwell administration is seeking the authority to tap into the city’s fiscal stability fund, which contains about $120.6 million. But the fund can be used only when certain clearly defined economic or revenue conditions are triggered, or if the governor or president declares a state of emergency due to a natural disaster.

Bill 35, allowing the administration to use the money to help counteract the impacts of a fast-moving virus, is being fast-tracked by the Council. A special meeting is scheduled for 10:15 a.m. at City Hall.

Administration officials insist that they will take money from the fund only if other revenue sources are unavailable.