Commentary: Councilman Pete Hoffman on Impact Fee Urban Legends

Councilman Pete Hoffman comments on the Impact Fees

Bill 304, draft 3, establishing a County-wide Impact Fee, received a favorable recommendation from the County’s Planning Committee on 8 Sep.  It will appear on the Council agenda on 21 Sep. and I anticipate the bill will stir considerable discussion.  I welcome comments from constituents and interest groups alike, but in my seven years on the Council, I have not seen the creation of as many “urban legends” surrounding any bill as the Impact Fee ordinance generated.  I don’t deny the bill is a complex document and demands close reading to understand its intent and structure.  Hopefully, those commenting on the bill will have read it carefully before expressing support/opposition.  With this in mind, the following summarizes some of the ‘myths’ that plague reasonable debate on this issue in the expectation that all will arrive at a better understanding of this critical piece of legislation.

IMPACT FEES WILL STOP DEVELOPMENT:   Clearly such a statement can’t be supported in light of the rampant development that has occurred in so many communities that already have adopted impact fees as a vehicle for infrastructure funding.  In fact, the creation of effective planning, which such an ordinance generates, has increased/enhanced development rather than stopped it.

IMPACT FEES ARE HARMFUL TO CONSTRUCTION JOBS:  On the contrary, impact fees paid up front and used as a funding resource for County infrastructure would permit more projects, especially in difficult economic times.  Unions in particular have welcomed impact fees in mainland communities.  Job creation is increased if impact fee monies are available for County use to promote projects.

ADOPTION OF BILL 304 WILL CAUSE INDIVIDUAL LOT OWNERS TO STOP BUILDING THEIR HOMES:   Adoption of the bill could add a cost for all construction.  But each home does cause some impact.  However, Section 36-10 of the bill specifically allows a qualified lot owner the option to have the County pre-pay the impact fee.  The prepayment, interest free, becomes a lien on the property and is repaid only at time of sale of the property or when the home ceases to be the principal residence of the lot owner.  For most individual lot owners, no impact fees would be paid at time of construction.

THE IMPACT FEE ON A SINGLE FAMILY RESIDENCE IS TOO LARGE:    Bill 304 establishes five categories for impact fee assessment based on the square footage of the home.  This is not a ‘one size fits all’ program.  Further, the proposed bill sets the fee at approximately 50% of the amount currently charged in the so-called ‘fair share program’.  That figure can also be adjusted by Council at regular intervals, as is done in all mainland communities with an impact fee ordinance.  Finally, the collection of fees is based on infrastructure projects that are approved on the County’s Capital Improvement Project list.  If a project is not on the list, impact fees for that category of infrastructure cannot be collected (per State law).

THE IMPACT FEE ORDINANCE ONLY COLLECTS 50% OF THE CURRENT “FAIR SHARE SYSTEM”   The current ‘fair share system’ is certainly not fair.  The County collects only a fraction of what is assessed, leaving little to complete any project.  Further, ‘fair share’ does not assess commercial or industrial construction, only residential units are assessed.  Bill 304 would correct this obvious unfair situation and, without doubt, would increase the County infrastructure funds almost immediately.  Finally, if the percentage assessed is considered too low or too high, change it in Council.  Nothing prohibits such flexibility.

I’VE PAID PROPERTY TAXES FOR YEARS ON MY VACANT LOT. WHY MUST I NOW PAY AN IMPACT FEE?   The impact fee is assessed because the construction of a residence/business has a direct influence on the County’s infrastructure.  A vacant lot has no such influence.  However, State law (HRS 46-143(d)(5) does allow that property taxes collected over the previous five years can be credited against the impact fee assessment.  For example: if an individual lot owner paid $2,500 in property taxes in the previous five years ($500 per year), the impact fee assessment could be reduced by that amount.

WHAT ABOUT PAYING FOR ROADS OR OTHER FACILITIES IN PRIVATE SUBDIVISIONS?  No.  Impact fees can only be assessed if the facility is listed on the Capital Improvement Project (CIP) list.  No project – no fee!!  The County does not approve private roads or other private facilities for funding.  These projects cannot appear on the CIP.

IF ADOPTED, DOES BILL 304 MEAN I HAVE TO PAY AN IMPACT FEE IF I WANT TO ADD A LANAI?   No.  Impact fees are assessed only when new construction to an existing home results in an additional dwelling unit, i.e. bedroom and cooking facility.  The addition of a garage, dining area, lanai, dog house, etc. does not trigger impact fees.

ADOPTING AN IMPACT FEE WILL CAUSE A SIGNIFICANT ADDITION IN COUNTY STAFFING: Simply not true. That hasn’t been the case in other municipalities that have impact fees.  Computers do most of the work, and while one or two individuals will likely be charged with periodic work on the implementation of the program, experience shows that no community has had to dramatically expand resources to operate the system.  The additional funds obtained more than adequately pays for any increase or software expenditures.

Pete Hoffman

“The Budget Tap Dance” by Hawaii Councilman Pete Hoffman

Media Release:

The most recent phase of the County’s annual budget skirmish concluded on May 18th with some interesting outcomes. Regardless how one views the Council actions this year, I feel we’ve done a little better than our normal “rearranging the deck chairs on the Titanic” routine. Hours of discussion and testimony did recommend some amendments to the Mayor’s second budget, although I’m not certain the Council did enough to warrant unanimous applause.

Councilman Pete Hoffman

Council members have criticized the Mayor’s budget submissions this year as deferring expenses rather than saving anything. I agree. The Mayor deferred some $29M in expenses to other budget cycles. If those deferments were added to his proposed budget of $367M, that would mean the budget would total approximately $396M. Not much of a ‘savings’ in my opinion, in fact somewhat higher than our current fiscal year budget of $374M. But I don’t disagree with all of the Mayor’s proposed deferments, particularly those associated with debt service payments and the payroll delay. Those are reasonable one-time deferments and are common budget mechanisms employed by almost all other government entities.

The complete elimination of the GASB45 payment is another issue, however. As indicated previously, I called for at least a partial use of the GASB45 expense as a ‘bill-payer’ in prior-year budget skirmishes. I was sharply criticized, told it would cost the County in penalties, that it violated some rules, and otherwise I was dismissed completely. This year, GASB45 becomes the Mayor’s ‘salvation’ and source of the largest deferment that balances his budget. What a difference a year makes!!

The Council in its deliberations focused on the GASB45 elimination. I maintain a partial deferment is OK, but not the entire amount. Towards that end, the Council amended the budget to take $2.7M from the Budget Stabilization Fund, approx. $1M from the Open Space Fund, $200K from overtime accounts, and $5.6M from OCE accounts, the latter amount being referred back to the administration to determine where those cuts would be made. In addition, $500K from the West Hawaii Golf program could also be used as an offset to the GASB45 deferment. In total, the Council decided that the $29M deferment proposed by the Mayor be divided into thirds: we left approx. one third or $9M alone (the payroll delay and the debt service payment). We added back approx. one third or $10M to the GASB45 account. And we agreed to defer one third or $10M of the GASB payment.

Are we happy? Maybe not, but as I mentioned previously, we did a little better than rearrange deck chairs, even though we did kick a sizeable ‘can’ down the road a little. I’ll admit I wasn’t overly excited about referring $5.6M back to the Mayor, requesting that he tell us where the cuts be made. I would have been more pleased if the Council determined the location of these decreases. But in previous budget discussions we did suggest some compromise on a variety of budget issues (Hamakua land sale, GASB45 last year, hiring freeze, and a more aggressive elimination of most vacant funded positions, to name a few), none of which met with favorable consideration. Whether or not we can consider this ‘throwback’ normal budget procedure is arguable, but there seemed to be little recourse to insure that some reduction in the $29M deferred expenses is made.

And exactly what is the result of this “budget tap dance?” Since no one chose to address the “800 pound gorilla” in the room (personnel costs), the $10M in Council amendments adds up to a little less than a 3% adjustment to the Mayor’s budget (that totals $367M). Unless some significant change occurs at the next Council meeting on 1 June, we amended a few items and agreed to most of the administration proposals. The question now: if the budget passes second reading on 1 June, will the Mayor accept the less than 3% in changes made by the Council or will the deck chairs be returned to their original positions?

PETE HOFFMANN

Councilman Pete Hoffman on Budget Amendment

Councilman Pete Hoffman

Councilman Pete Hoffman

Media Release:

On 19 April, the Council’s Agricultural, Water and Energy Sustainability Committee recommended approval of the long-awaited Agricultural Development Plan (ADP).  Prepared by the Kohala Center, the ADP is really not a plan – as Mr. Pilago correctly reminded us.  The document the Council considered contains no specifics regarding implementation but is rather a collection of ideas and concepts that address a number of varied aspects related to the County’s agricultural capabilities.  Regardless what we want to call it, the ADP is very well done in my opinion and should prove a useful guide and reference for many years.

So what’s the problem, you might ask?  The problem raised by the administration’s support for this ADP is similar to countless other instances that the current and previous administrations have presented to the residents of this County:  it is remarkably long on words and ideas but discouragingly short on resources.  The plan details exactly the issues and the possible solutions.  Anyone reading the ADP cannot help but appreciate the great potential this County possesses in our agricultural sector.  Page after page of the ADP clearly explains the situation and the reasonable suggestions that must be implemented if our agricultural potential is to be fully realized.

No one disputes these possibilities, therefore, I think it is reasonable to ask where are the resources to activate the ADP?  Where in the Mayor’s budget submission do we see some recognition of the importance that should be accorded to the ADP?  The plan as supported by the administration states without equivocation that the “County of Hawai’i Department of Research and Development should increase or reallocate existing resources to undertake the following County functions deemed essential for the growth of the agricultural industry on Hawai’i Island.”  What resources are envisioned for these purposes?  What resources have been reallocated?

Forgive me for my obvious skepticism, but County residents have witnessed this scenario too many times in the past.  Good plans/recommendations, big publicity upon final approval, little in the way of funds/personnel to do the job!!  Despite the ADP’s suggestions and the importance placed on the need to dramatically expand agricultural efforts in every phase of the industry, the County still employs only one individual to accomplish these tasks.  No matter how competent that individual might be, this is absolutely ridiculous. We have all the potential to achieve food sustainability and an economically viable agricultural industry but we refuse to provide even a hint of investment to get the plan initiated.  Of course, I haven’t forgotten that we face steep economic/resource challenges in the coming months, but as the ADP reinforces again and again throughout, resources can and should be reallocated.  If we are fearful of providing new funds for investment, why not at least move forward by reallocating existing funds and personnel to do the job?

We’ve been over this ground many times in the past.  The ADP says little that is new or was unknown to those knowledgeable of these issues.  The suggestions are clear and the administration supposedly advocates for the recommendations contained in the ADP.  Therefore, I call upon the Mayor to put some “teeth” into this support.  Let’s at least see some reallocations of resources in the next budget submission in order to begin this process.  I realize not everything can be done at one time, particularly under current conditions, but our economic difficulties should not be used as an excuse to do nothing.  On the contrary, the administration must recognize the potential and seize the moment to prioritize resources for the benefit of all residents, golf subsidies not withstanding.  Good leadership demands this kind of decision-making.  Is the administration up to the challenge?

The County’s track-record is staggering for producing good planning documents that gather proverbial dust on the shelf.  I remain cautiously optimistic that the Mayor will not allow the traditional County approach to stymie this well-prepared ADP.  I’m hopeful we will see some reflection of the need to initiate at least some of the ADP’s priority actions in the budget submission on 5 May.  Otherwise, we will retain another great example of “deju vu” to the disadvantage of all.

Councilman Pete Hoffman – “Reflections on a Budget”

Commentary by Councilman Pete Hoffman:

The Mayor revealed his budget proposals for the coming fiscal year (2011-2012) this past week at a press conference with a delightful dash of fanfare and self-congratulatory remarks.  For the third year in a row, the overall County budget slid lower; from a high of $403M in 2008-2009, to the current proposal for the next FY of $366M, a decline of $37M over that three year period.  I view this new proposal from different perspectives.  The main themes could be stated as follows:  (1) “let’s kick the can further down the road”, (2) let’s remember there’s an election in 2012 and we shouldn’t disturb any voter, and (3) let’s not address the real issues as far as revenues/expenses are concerned.  Explanations follow.

For those who might remember, I had pleaded with the administration to delay a portion of the GASB-45 payments for the past three years in order to stretch our scarce budget resources.  This suggestion was met with less than enthusiastic fervor by the Mayor, his Finance staff, and my Council colleagues and was subject to some intense criticism.  I assume the Mayor has forgotten all those ‘nasty’ things he had to say about this previously, but now considers it to be a worthwhile concept.  Let’s be clear: what is proposed is a delay in making payments for future health benefit purposes.  It doesn’t damage any existing accounts, we won’t pay any penalties, and we can confidently look forward to repaying this amount when ‘good times’ return.  The County can do this once without suffering.  We’ve ‘kicked the can down the road’ a bit, finding a ‘bill-payer’ and achieving short-term objectives, knowing we’ll probably have to pay some, if not all, of the $20M later.   I don’t disagree, but wonder why the Mayor didn’t accept my recommendation last year instead of raising property tax rates?

And we also ‘kicked the can a little further’ by incorporating a bit of bookkeeping mayhem for the FY 11-12 budget.  At the moment, County employees get paid twice monthly, usually on the 15th and the last day of the month.  The new budget proposal simply alters the dates to the first and middle of the month.  This ‘lag’ pushes one payroll to the next FY in 2012-2013, and “saves” the upcoming budget approximately $6M.  This is a one-time adjustment.  It doesn’t ‘save’ anything, the County still pays everyone what is due them.  We simply throw one payroll into the next FY.  Most government entities have done already.  The Federal Government did it years ago.  It is a bookkeeping/accounting procedure, not an effective budgetary device.  I personally would have kept this option for more difficult budgetary times.  And finally, we’ve also decided to defer some debt service (interest payments) to the next FY as well, in order to shift $3M from the next budget.  Again we ‘save’ nothing.  We simply delay the inevitable.

In summary, the math is clear.  The Mayor has deferred about $29.1M in expenses in the coming FY, while reducing the overall budget total by only $9.78M.  The deferments still must be paid. Therefore, no matter how you slice it, County expenses actually will increase in FY 2011-2012 if you include those deferments in comparison to the current fiscal year.

Lest anyone forget, we have an election in 2012, and in reviewing the proposed budget, the Mayor has been careful not to alienate any large voter groups.  There are no property tax increases.  The budget restores 2% for Open Space Preservation, when the two previous budgets had nothing at all.  We still have subsidies for playing golf, so I assume this “important constituency” will be maintained at taxpayer expense.  In addition, no one has lost a County job and we have cut all furloughs (except for the Mayor’s staff), thereby eliminating possible adverse reactions from employees.   Of course, some are left to wonder whether we really have reduced County government to a practical and efficient size.

There are also few vacant funded positions remaining.  This most flagrant budget practice is almost completely eliminated, thereby channeling much needed resources into necessary services, instead of retaining funds in personnel accounts throughout the County administration.  Some may remember that the County budget once had as many as 480 vacant funded positions.  While progress has been made, I believe the tough economic conditions forced this change rather than the realization that good budgeting practices should prevail.

Finally, the really tough budget decisions remain for future resolution.  As noted many times previously, this County will never be able to properly address its revenue difficulties until we decide that a complete reform of the County’s property tax system be undertaken.  We will ‘never get well’ until we alter the practice of providing large corporate subsidies in the form of reduced property assessments and tax rates for businesses, not to mention our continued failure to impose any form of fair share costs on these enterprises.  While we can debate the extent of such changes, the need for some review should be of the highest priority for this administration.  Yes, it is a tough decision.  It probably won’t win universal approval, but again that’s what real leadership is all about.  We must begin to address a number of tough questions, and ‘kicking the can down road’ resolves nothing.

Pete Hoffman

Councilman Hoffman on Budgetary Puzzlement… “So the plot thickens”

From Councilman Pete Hoffman:

In a former “lifetime” working for the Department of Defense in the Pentagon, I was assigned to an office  responsible for the preparation of the annual Army Intelligence budget and the accompanying Congressional justification process.  After several months, I was able to wade reasonably well through the various ‘dark rooms’ and obscure passageways of a very voluminous series of documents and complicated accounts, made even more opaque due to any number of security classifications that limited individual access and public disclosure.  When I ended my ‘two year penance’ in this environment, I vowed I would never again tread these  mysterious budgetary corridors and that clarity would remain a guiding principal in whatever budget venture I found myself.  But then I came to the County of Hawaii, where clarity sometimes is a daily occurrence and politics adds another measure of vagueness.

Last week,  the County Council struggled valiantly, spent considerable time, and managed to reach a low point on the road to fiscal awareness and responsibility.  Three separate resolutions were on the agenda calling for some measure of fiscal/budgetary restraint.  You will remember, as the Mayor has told us, we are in a time of severe economic downturn. The Mayor also has mentioned the State will likely withhold our $17M Transit Accommodation Tax in the coming year. And you will remember the Finance Department has indicated we are some 10% lower in property tax collections, and we have heard County-wide unemployment is in, or near, double digits, furloughs are a real prospect for all County employees this year, and a significant economic shortfall of over $70M for the period 2009-2011 is conceivable.  I could be wrong, but I interpret this to mean “times are tough”, belt-tightening is recommended, and the County could find itself in deep economic ‘do-do.’

Why then should I be surprised to learn that the administration argued against each of the three resolutions on the table?  The first proposal presented by Ms. Ford encouraged the administration to develop a retirement incentive plan for certain County employees as a method to possibly reduce future costs; emphasis please on the word ‘encourage’.  This apparently was too strong a suggestion for the County, as Finance Director, Nancy Crawford ‘discouraged’ any pro-active measures in this direction.

We moved on to a proposal by Mr. Yagong to immediately implement a zero-hiring policy for the reminder of this fiscal year, i.e. until 30 June 2010.  Once again, this was considered too tough, even though I think the Mayor has stated several times  that he isn’t filling those vacant positions, and the administration knows full well that if a sudden emergency occurred, the Council could quickly take action to make whatever exception might be required.

Finally, Mr Yagong suggested that the Mayor transfer the allocations in the vacant funded positions to the Budget Stabilization Fund, thereby insuring that some funds would be set aside to cover 2010-2011 shortfalls.  That also apparently was too much for our administration, as our Finance Director told us that the administration has yet to issue a statement of Fiscal Emergency.  Say what?? Didn’t we just list above the specific funding difficulties articulated by the Mayor and the administration?  Didn’t he indicate that the budget might well be reduced by some $70M?  Isn’t the threat of furloughs/lay-offs a ‘real’ emergency for many families?  Unless there’s something here I can’t interpret, this all seems pretty severe.  If this isn’t a fiscal emergency, I wonder what is?

To add to the mystery, we have the deepening puzzle of the fund balance for June 2009.  That figure has been delayed, lost, or otherwise unknown for public consumption.  (Dare I mention that ‘evil’ concept of transparency at this point!!)  Normally we know the fund balance for the previous fiscal year by 1 November.  This year it remains a mystery.  Indeed, the Finance Director has told me the administration can’t even estimate what that figure is at the moment.  Remember, we must have that figure to tell us what our shortfall is for this fiscal year and to properly estimate the budget for 2010-2011.

So the plot thickens.  We think we are in a budget crisis. However, the administration argues against even limited suggestions for fiscal constraint from the Council.  The Mayor, I thought, very correctly, voiced serious concerns for the economic health of the County in the coming fiscal year.  However, no financial emergency has yet been declared by the finance folks.  Tax collections are down we were recently informed in Council and an ad-hoc Committee formed to assist in discovering reasonable solutions to a full range of budget issues.  But this administration doesn’t yet know (or  won’t tell) what the previous year’s figures might be and won’t even venture an estimate of our situation.

While I may disagree with some of the issues advocated by the administration, I have never felt that our finance department is incapable of providing basic information.  These are smart people and we are fortunate to have them working for the County.  So I ask what could possibly be the reason for being unable to calculate a critical element in the previous year’s budget, six months after the close of that fiscal year?  Are we in a budget crisis or not?

The Pentagon was somewhat murky, but  Hilo is fast approaching intense darkness.  I am reminded of the line the King of Siam intones in the Broadway play the “King and I”; sometimes life is a ‘puzzlement’.

Pete Hoffmann