Mayor Kirk Caldwell’s administration is wrestling with what officials estimate will be a $400 million-plus shortfall in the upcoming city operating budget, acting Budget and Fiscal Services Director Manny Valbuena told a Honolulu City Council committee Wednesday.
“We’re trying to fix the budget so that we don’t have to have layoffs, furloughs or cuts in services,” Valbuena told the Council’s Budget Committee. “I’m chasing a lot of shortfall.”
Property taxes, the city’s main source of revenues, are declining, as are other income streams including fuel taxes since people aren’t driving as much, he said.
Councilman Tommy Waters, who pressed Valbuena for details when he alluded to a large shortfall, appeared stunned by the answer he received. “Four hundred million? Oh my god,” he said.
“That’s an initial (estimate),” Valbuena said. “Hopefully, once all these numbers come in, we can lower it more, but that’s what we’re looking at.”
City budget officials have been warning of an anticipated decline in property taxes and other revenue sources since the pandemic took hold in March. In May, they estimated the shortfall to be about $130 million.
As things stand, Budget and Fiscal Services is projecting for the new fiscal year approximately $2.6 billion in operating expenditures and $2.2 billion in revenues, administration officials told the Honolulu Star-Advertiser after the meeting.
The current year’s operating budget is $2.9 billion.
The budget hit from the anticipated reduction in property tax revenues due to pandemic-induced economic impacts will be compounded by the need for the city to budget, for the first time, an estimated $140 million to $160 million for operations and maintenance of the rail line that was expected to open for limited service sometime next year, Valbuena said.
“We’ve never had to budget that before,” Valbuena said.
Those budgeted rail expenditures for the coming year are believed to be higher than will actually be needed. That’s because city officials are basing the $140 million to $160 million estimate on the assumption that interim service from East Kapolei to Aloha Stadium will begin in March.
The latest projections by the Honolulu Authority for Rapid Transportation, which is tasked with building rail, are that the finished first leg will be delivered to the city about six months later than initially anticipated due to delays in the trial running of the system, a procedure that’s required by federal law, HART spokesman Bill Brennan said.
The city did take steps to reduce about $34 million in expenditures for the current year and is trying to find other ways to limit spending, but the coming year “will be very challenging,” Valbuena said.
The budget for fiscal 2022 won’t be submitted until March, meaning it will be the responsibility of Mayor-elect Rick Blangiardi’s administration. But the outgoing Caldwell administration is gathering a draft plan that it will hand off to the new mayor when he takes office Jan. 2.
Valbuena said municipalities across the country are suffering and are hoping for some relief in the form of new federal stimulus measures in the coming months. “If they don’t, it’s going to be hard,” he said.
The Caldwell administration is still hoping to present a balanced budget plan to the new team. “But, um,” he said, letting out a heavy sigh, “it’s going to be hard.”
Valbuena’s comments came during a discussion of Bill 31, which would require the city to cap any increases in property tax valuations in any given year for owners of “certain industrial zoned properties” at no more than 5%, thus limiting any potential increases in taxes.
The bill was introduced by Council Chairwoman Ann Kobayashi, who said owners of industrial-zoned property who don’t receive standard city services such as trash pickup, road or sidewalk repairs or bus service, should not be required to pay property taxes based on excessive valuation increases.
“This has been a difficult time for all these small businesses,” Kobayashi said, noting that many are on the brink of closing as a result of the pandemic.
Without some kind of tax relief, she said, “we’re going to be left with a city with just big-box, mainland-owned companies and our small, locally owned guys, they can’t afford it, they can’t keep up.”
Testifying in support of the bill was Milton Holt, executive director of the Sand Island Business Association and a former state senator and one-time Council aide to Kobayashi.
Valbuena objected strenuously to the bill, arguing that the annual assessment process already factors in the considerations mentioned in the bill.
Bill 31 would “cause inequity within the industrial classification and disrupt uniformity of all other valuation classifications,” Valbuena said.
Budget and Fiscal Services has identified about 900 parcels that may be eligible for the break, totaling $1.9 billion in assessed value and which accounted for $23.5 million in property taxes during the current year. If a 5% cap in valuation increases were in place, that could have cost the city approximately $8.1 million in tax revenues, Valbuena said.
Given the city’s dire fiscal outlook, “this is really not the time to be giving up any revenues,” he said.
The bill was given preliminary approval by the committee. But Council Budget Chairman Joey Manahan said he is suggesting the city’s Real Property Tax Advisory Commission look into the matter further before it gets a final vote.
In related news, the committee voted unanimously to pass out Resolution 20-311, supporting the Caldwell administration’s decision to allow half-year property tax payments due Feb. 20 to be paid in four increments.
In May, the Caldwell administration granted a similar break that allowed property owners with tax bills due Aug. 20 to pay in up to four installments.
Wednesday was the deadline for the fourth installments to be paid without penalty, Valbuena said. As of Tuesday, the city had received $742,378,408, or about 101.83% of what was billed for the six-month period, he said, noting that a number of property owners pay for the entire year and not just six months.
“I think we’ll be OK until the end of the year,” he said. “We’ll see what happens Feb. 20.”