Honolulu City Council legislation to defray costs associated with the city’s planned 10-year, 115% sewer fee rate hike slated to start this summer has advanced on the first of three readings.
The Council voted unanimously Wednesday to pass Bill 43, meant to redirect a portion of the 3% visitor-generated Oahu transient accommodations tax, which in part is earmarked for Honolulu’s rail project, to the city’s sewer fund.
The Council’s passage of the bill — sponsored by Chair Tommy Waters — comes as the city plans for new fee increases to address rising operational costs and fund critical sewer-related projects within the city Department of Environmental Services’ $10.1 billion capital improvement program, scheduled for 2025 to 2040.
That includes work to upgrade the Sand Island Wastewater Treatment Plant to full secondary treatment at an estimated cost of
$2.5 billion.
Bill 43, as drafted, temporarily would amend the disposition of the city’s OTAT revenues so that 50% would be deposited into the transit fund, while 41.66% would go into the sewer fund.
The legislation also allocates 8.34% to create a special fund, one to be named by the city Department of Budget and Fiscal Services, to mitigate impacts of visitors on public facilities and natural resources and “supplement any funds regularly appropriated for that purpose.”
If approved, Bill 43 would take effect July 1, 2027, and be repealed June 30, 2037.
But in a letter sent Monday to the Council, BFS Director Andy Kawano stated Bill 43 was not a feasible option for the city to pursue.
“This measure will negatively impact the city’s general fund and deviate from the intended purpose of the TAT, which is to provide general fund capacity to fund city services; mitigate the strain visitors place on public facilities, emergency services, and natural resources; and provide additional funding for rail (i.e., ‘Skyline’)
construction,” Kawano wrote.
He added “enterprise funds, such as the sewer fund, are structured to be
financially self-sustaining through user fees.”
“Redirecting public tax revenues to subsidize an enterprise fund introduces long-term financial risks, including potential violations of bond covenants, possible downgrades to the city’s bond rating, and increased borrowing costs,” the budget director asserted. “Furthermore, such a diversion may lead to service reductions or tax increases to balance the budget in future years as more dollars will need to be allocated to fund collective bargaining increases, rail operation and maintenance and increased public safety and health needs, et cetera.”
“We respectfully oppose the bill as it compromises sound financial principles, risks long-term fiscal sustainability, and unfairly shifts the burden of enterprise operations onto taxpayers who may not benefit from those services,” Kawano stated.
At Wednesday’s meeting, ENV Director Roger
Babcock also spoke in opposition to Bill 43.
“It is, of course, your purview and kuleana to use revenues however you want from the tourists’ transient accommodation tax,” he told the Council. “The problem though is this was previously slated to go into the general fund, to be used for various other purposes. If it’s not used for those other purposes, then it either cannot happen, or funding from those would have to come from other places.”
“So it is no different than taking real property tax and putting it from the general fund into the sewer fund, which we have been very clear from testimony that that is very problematic,” Babcock said.
Waters generally disagreed with the city’s perspective, questioning the ENV director on the efforts the city had taken to lower costs to ratepayers. “Because I believe that a 100% increase is going to be devastating to local families,”
he added.
In response, Babcock replied, “The program is very efficiently run.”
“We have operations and maintenance costs which we basically hold steady at current rates, except for inflation,” he added. “The other component is our capital program and our debt service … so we don’t have any control over that, we have issued a lot of debt already over the past 20 or 30 years, and so we do have very large outstanding obligations, and that’s about 50% of the annual operating costs.”
To that, Waters asserted the city’s proposed executive operating budget for fiscal year 2026 — Bill 22 — includes a provision allowing the BFS director “to transfer money from other departments, if there is excess, into the sewer fund, which, as far as I can tell, has never been done, but it’s in the budget bill.”
Others from the community also do not support
Bill 43.
In submitted written testimony, Honolulu resident Milton Kotsubo said he opposed “this bill and all bills that move funds designated for specific purposes to other purposes.”
“This muddies the water so that it becomes difficult to observe what money is allocated for what purpose,” he wrote, in part. “All budget allocations should be clearly specified what the funds are for and the source of the funds.”
Meanwhile, Waters’ new measure likely will not stop the city’s sewer fee hike
as presented under city-
initiated Bill 60.
In October, ENV initially proposed to increase sewer fees annually for the next
10 years — by 9% annually over the first six years, followed by four smaller annual increases of 8%, 7%, 6% and 5%. The city says, an
average single-family residential sewer bill totals approximately $110.89 a month.
By July 1 that bill could rise to $122.04 a month.
But since that time other versions of Bill 60 materialized, including a revision by ENV itself that supposedly lessens the initial blow of higher fees to its customers.
During an April 29 Council Budget Committee meeting, Babcock presented a so-called 6% option that would see sewer rates rise by 6% on July 1.
Those rates would increase by 7.5% in 2027, 8.5% in 2028, 9% in the following four years, then rise by 8%, 7.5% and 7% in the final three years, ending in the year 2035.
Under this 6% option, the city said the same average single-family residential sewer bill in the first year would go to $119.18 a month instead of $122.04, a 2.3% difference.
At that meeting, Waters said the city’s new 6% option is “putting the big rate increases at the end of the 10-year cycle, rather than at the beginning.”
With regard to Bill 60, Waters’ tentative proposal to increase sewer fees annually for the next decade includes a 6.75% increase for the first five years, starting July 1.
The initial increases
would be followed by an 8.75% increase for the next two years, then a decrease
to 7.75%, 6.75% and 5.5% over the remaining years, “thereby creating savings,” he said.
Waters said instead of a 100% increase over the decade, “it would amount to approximately about a 70% increase over 10 years.”
The Council’s Budget Committee is expected to review various versions of Bill 60 at its May 27 meeting.
