Mayor Kenoi Delivers Fiscal Year 2014-15 Budget Proposal

As required by the Hawai‘i County Charter, submitted with this message is the proposed operating budget for the County of Hawai‘i for the fiscal year ending June 30, 2015. This balanced budget includes estimated revenues and appropriations of $412,608,475, and includes the operations of eleven of the county’s special funds as well as the general fund.

This FY 2014-2015 budget is $9,403,477 or 2.3 percent larger than the budget in effect when this administration took office in 2008. During the past five years of budget challenges caused by the national and international recession, we have continued to invest in county infrastructure while restricting spending and coping with increased health care and other costs. This budget reflects those efforts to control the cost of government while always maintaining essential police, fire and other core county government services.

After five years of declining revenues, we are finally witnessing a modest, measured recovery in property values.  This will gradually translate into a stronger economy and a brighter budget picture. However, we also face a new challenge in the form of $18.4 million in additional employee expenses in the year ahead. Most of these costs were the result of public worker arbitration decisions and negotiated agreements that significantly increase salaries, wages, social security contributions and retirement obligations.  These new employee and retiree costs reflect the difference between last year’s budget and this year’s budget.

Despite those additional costs, this proposed balanced budget does not require any increase in property taxes.

Population vs. Budget


Investing In Our Communities

From the beginning of this administration, we have crafted budgets that limit spending, but also allow for targeted investment in our communities and our future. Through carefully selected initiatives we created or improved parks and playgrounds, built or rebuilt roads and other public infrastructure, and improved public services. Our primary objective has always been to make the County of Hawai‘i a better place for our families to live and work.

We have used the county’s borrowing power and excellent credit rating to help stimulate the economy and create jobs during a period of low interest rates and favorable bid prices. In Kona, we answered residents’ calls for relief from traffic congestion by advancing projects such as the La‘aloa Avenue Extension, the Ka‘iminani Drive Reconstruction and the Ane Keohokālole Highway, and we will soon begin work on the Māmalahoa Bypass.  In Hilo, we are repairing downtown streets starting with the Kīlauea Avenue Reconstruction, followed by the Kamehameha Avenue Reconstruction project. We will continue in the months ahead with repairs and improvements to Ponahawai and Komohana Streets.
We have partnered with the University of Hawai‘i at Hilo, which has emerged as a critical component of our economy. Our university allows our young people to achieve better lives for themselves while providing a skilled workforce to help our island economy to grow and innovate. To help the university expand, we are advancing the Kapi‘olani Street Extension to open up lands for new student housing, additional classroom space, and to alleviate traffic congestion.

We are investing in parks, gyms, and playgrounds across the island where our families can engage in positive activities, and where our coaches can teach our youth respect, discipline, and teamwork. We opened covered play courts at Pana‘ewa Park in Hilo, and built the Kamakoa Nui Park in Waikoloa. We have added seven playgrounds islandwide, and will soon be opening the new Ka‘ū District Gym & Shelter. We renovated popular recreational facilities such as the Waiākea Recreation Center, Edith Kanaka‘ole Stadium, Laupāhoehoe Pool, Kēōkea Beach Park, and Pāhoa Pool. We will soon make the largest investment in recreation in the history of the county by constructing district parks in Pāhoa, Waimea and Kona.

Despite the budget challenges of recent years, we continue to invest in alternative energy and agriculture because we understand those sectors are essential for a sustainable economy. We installed solar arrays on county buildings to reduce oil consumption and utility costs, and will use wind power at Lālāmilo to provide clean energy to supply water to our communities. We are encouraging growth in agriculture by investing in training and support for farmers, and provided 1,739 acres of county-owned lands for ranching and community-based agriculture at the Kapulena Agricultural Park. We joined in a public-private partnership to upgrade the Pa‘auilo Slaughterhouse and provide a new rendering facility to support our grass-fed beef industry.
At the same time, we have preserved funding for public safety and essential core services. We funded additional police officers for the Puna and Ka‘ū communities, and opened the new Makalei Fire Station. We protected funding for nutrition, recreation and other services for seniors, and preserved and expanded programs for our children and youth. We maintained county funding to non-profit organizations serving the people most in need in our communities.

Employee Count

Fewer Employees, Growing Costs

We want to thank our county workers for their efforts during the Great Recession, which was a time when people across our island made sacrifices. Many of our employees accepted furloughs even as overtime was cut and staffing levels in county agencies were reduced because of hiring restrictions. County employees’ workloads increased, but their hard work and dedication allowed us to continue to deliver essential county services and protect public safety.

During these many challenging budget years, the size of the county workforce declined from 2,787 in November 2008, to a total of 2,628 five years later.
Even with that smaller workforce, the new negotiated collective bargaining agreements will significantly increase our employee costs in the year ahead. Wages, salaries and fringe benefits including health care and retirement for all of our employees will increase in all departments by a total of $18.4 million in Fiscal Year 2014-2015, with almost all of that increase attributable to these new agreements.

County of Hawai‘i tax collections in the year ahead will be $6.5 million or 2.9 percent more than the amount of property taxes collected when this administration began in 2008. However, the combined cost of employee wages, fringe benefits and health care expenses has grown by $30.44 million or 16.95 percent during the same period.

OPERATING BUDGET BY FUND

The following table describes the budgeted expenditures for FY 2013-14 and the proposed budget for FY 2014-15 for each fund:

OPERATING BUDGET BY FUND
(Amounts in thousands)
FY13-14 FY14-15 Increase Percent
        FUND Budget Proposed (Decrease) Change
General Fund $300,565 $314,514 $13,949 4.6%
Highway Fund 34,524 35,597 1,073 3.1%
Sewer Fund 9,757 10,743 986 10.1%
Cemetery Fund 10 10 0 0.0%
Bikeway Fund 171 171 0 0.0%
Beautification Fund 183 452 269 147.0%
Vehicle Disposal Fund 2,475 3,655 1,180 47.7%
Solid Waste Fund 25,368 26,515 1,147 4.5%
Golf Course Fund 1,206 1,232 26 2.2%
Geothermal Royalty Fund 1,700 1,700 0 0.0%
Housing Fund 18,060 17,969 (91) -0.5%
Geothermal Asset Fund 300 50 (250) -83.3%
$394,319 $412,608 $18,289 4.6%

REVENUES BY SOURCE

The following table presents a summary of projected FY 2014-15 revenues from various sources and the changes from the current budget:

REVENUES BY SOURCE
(Amounts in thousands)
Increase
(Decrease)
Percent From Percent
FY14-15 of FY13-14 Increase
        Source Amount Total Amount (Decrease)
Real Property Tax $232,400 56.3% $13,000 5.9%
Public Service Company Tax 10,340 2.5% 195 1.9%
Fuel Tax 7,330 1.8% 80 1.1%
Public Utilities Franchise Tax 11,047 2.7% (520) -4.5%
Licenses and Permits 21,968 5.3% 2,227 11.3%
Revenue from Use of Money & Property 1,121 0.3% 215 23.7%
Intergovernmental Revenue 60,082 14.5% (1,067) -1.7%
Charges for Service 22,789 5.5% 34 0.1%
Other Revenues 8,491 2.1% 771 10.4%
Fund Balance Carryover 37,040 9.0% 3,354 9.9%
$412,608 100.0% $18,289 4.6%

REVENUE CHANGES

The major changes in projected revenues are as follows:

Real Property Tax. Real property tax revenues are expected to increase by 5.9%, or $13 million, due to new construction and an increase in taxable values.

Public Utilities Franchise Tax. Decreased public utility revenues are expected to result in a decrease of $520,000, a reduction of 4.5% in franchise tax revenue.

Licenses and Permits. Increases in vehicle registration revenue and vehicle weight tax revenue have contributed to an increase of $2.2 million, or 11.3% in this revenue source.

Intergovernmental Revenue.  Reductions in grant revenues of about $1 million reflect those grants we are aware of at this time.

Fund Balance Carryover. This budget reflects a higher projection of carryover savings ($3.3 million) from the current year operations.

EXPENDITURES BY FUNCTION

The following table presents a summary of projected FY 2014-15 expenditures from various sources and the changes from the current budget:

EXPENDITURES BY FUNCTION
(Amounts in thousands)
Increase
(Decrease)
Percent From Percent
FY14-15 Of FY13-14 Increase
        Function Amount Total Amount (Decrease)
General Government $49,149 11.9% $1,082 2.3%
Public Safety 120,382 29.2% 3,631 3.1%
Highways & Streets 25,550 6.2% 2,088 8.9%
Health, Education & Welfare 25,592 6.2% 88 0.3%
Culture & Recreation 20,756 5.0% 1,144 5.8%
Sanitation & Waste Removal 37,330 9.0% 3,741 11.1%
Debt Service 38,338 9.3% (1,561) -3.9%
Pension & Retirement 39,381 9.5% 4,287 12.2%
Health Fund 35,305 8.6% 1,939 5.8%
Miscellaneous 20,825 5.1% 1,850 9.8%
$412,608 100.0% $18,289 4.6%

EXPENDITURE CHANGES

Increases in salary and wages are reflected in all functional areas of county government.  After several years of furloughs or no wage increases, new wages were negotiated for all bargaining units represented in the county. All salary and wages are reported in each department with the exception of the Unit 11 Fire agreement, which has not yet been approved by the legislature and is estimated in the provision for compensation adjustment account.
Major changes in projected expenditures are as follows:

General Government

  • Planning. Appropriations are increased by $495,000 for work on the General Plan update.

Public Safety

  • Prosecuting Attorney.  Three temporary, grant funded positions have been added for victim services.
  • The majority of other changes in public safety are attributable to salary and wage increases explained above.

Highways & Streets

  • Public Works Road Maintenance.  Approximately $350,000 is appropriated for additional maintenance equipment.
  • Mass Transit Agency. Increased appropriations of approximately $1.3 million are attributable to an increase in the cost of insurance and bus driver contracts.

Culture & Recreation

  • Parks and Recreation Department.  Eight positions to provide maintenance and recreation are being added for new locations that will be serving the public, including Ka‘ū District Gym & Shelter and ‘O‘oma shoreline.
  • The majority of other changes in culture and recreation are attributable to salary and wage increases explained above.

Sanitation & Waste Removal

  • Vehicle Disposal Fund. An increased appropriation of approximately $1 million will provide additional funding for environmental cleanup.
  • Solid Waste Fund. The appropriation for landfill tonnage costs has increased by about $1.7 million because of increased operations costs.

Debt Service

  • Transfer to Debt Service. As the result of refinancing old bond issues, there is a reduction of debt service cost of $1.5 million for the upcoming year.

Pension & Retirement

  • Retirement Benefits. Contributions to the employee retirement system will increase by approximately $4.3 million, or 12.2%, as the result of new salary and wage costs and rate increases established by the state legislature.

Health Fund

  • Health Benefits. Contributions to the state employee health system will increase by
    $1.9 million, which includes an increase of $1 million for future post-employment health benefits.

Miscellaneous

  • Provision for Compensation Adjustment. This provision contains the estimated cost of salary and wages pursuant to contract negotiations that have not been fully approved, and increased by about $2 million.  The $5.8 million appropriation is related to pending increases for Unit 11 Fire employees.

Conclusion

This proposed budget represents a collaborative effort by our departments to address the growing needs of our growing population in a way that is both responsive and fiscally responsible. Our years of careful planning and conservative budgeting have positioned us to invest in our communities while maintaining core services and meeting our obligations to our employees.

The recent, modest gains in property values point to a gradual economic recovery, and we remain cautiously optimistic that the economic and budget outlook will continue to improve. We believe our efforts to promote renewable energy, agriculture and higher education are an investment in the future of our island. We will continue to invest in recreational projects to support our youth and families and to protect public safety, and we ask for your support in these efforts.

We look forward to working closely with the County Council in the months ahead to address our community’s new and continuing demands for public services while also maintaining a balanced and responsible budget.

Aloha,

William P. Kenoi

Mayor Kenoi Submits Budget To Council

In accordance with the Hawai’i County Charter, Mayor Billy Kenoi today submitted a proposed Fiscal Year 2013-2014 budget to the Hawai’i County Council.

Click to see the full report

Click to see the full report

This FY 2013-2014 budget is $32,426,525 or 8.0 percent less than the budget in effect when this administration took office in 2008. It marks the fifth consecutive year of our efforts to control the cost of government in a strategic and responsible manner that maintains critical infrastructure and public services. This proposed balanced budget does not require any increase in property taxes.

Printed copies of the full budget are available by request from the Mayor’s Office in Hilo (808-961-8211). A PDF of the budget message is available for download at this link: Hawaii County 2013-2014 Budget Message.

 

Tight County Budget Controls Result in $10.7 Million Savings

From the Mayors Office:

Mayor Billy Kenoi announced today that tight restrictions on hiring, overtime, purchases and other expenses have allowed the County of Hawai`i to realize a fund balance of $24.682 million at the end of the 2011 fiscal year on June 30.

That is $10.74 million more than the county expected to have on hand at the close of the fiscal year, and represents a determined effort by every department to cut costs, conserve resources, and increase the efficiency of county government, Mayor Kenoi said.

“This is the culmination of years of hard work to reduce the size and cost of county government, and I am extremely proud of our employees for pulling together to cut spending and prepare for the future,” Mayor Kenoi said. “We know we face some difficult times ahead, and these reserves will be critical to providing the police, fire and other essential services our communities need.”

The higher-than-expected fund balance at the end of the fiscal year comes during the third consecutive year of budget cuts. The county budget for this year is $35.9 million or 8.9 percent less than the budget in effect when this administration took office in 2008.

The administration reduced spending even below budgeted levels by establishing the Personnel Review Committee to scrutinize hiring requests; and the Expenditure Review Committee to scrutinize departments’ requests to buy equipment or enter into contracts for professional services. Those committees successfully restricted spending by departments, and played an important role in accumulating the June 30 carryover balance, Mayor Kenoi said.

The county has also unfunded 222 positions over the past three budget cycles, and reduced the total number of county employees. As of October 1, there were 166 fewer employees on the county payroll than there were at the beginning of this administration.

“All of the hard work that went into cutting spending and building up the county’s reserves will pay off,” said Nancy Crawford, director of the county Department of Finance. After years of declining revenue, the additional carryover balance will be an essential tool for balancing the county budget in fiscal year 2013, Crawford said.

Crawford also noted that in difficult economic times, credit rating agencies look very closely at all reserves to assess the credit worthiness of state and local governments.

Factors that helped boost the carryover balance include the following:

  • The county received some revenue in addition to what had been budgeted, including about $800,000 in unanticipated transient accommodation tax (TAT) collections. That income is a one-time windfall because the state Legislature this year capped the counties’ share of TAT revenue.
  • The county also received about $1 million in unbudgeted income through the county Department of Public Works. DPW collected that revenue by closing out a number of earthquake recovery and other federally funded projects, and billing the federal government for engineering work done by county employees on those projects.
  • Most of the carryover balance was realized by restricting hiring. The county delayed filling a variety of positions for as long as possible, meaning budgeted funding for wages and benefits for those jobs remained unspent. Budgeted but unspent funding for salaries and wages totaled about $6 million, and budgeted but unspent money on fringe benefits totaled $4 million. Those savings in personnel costs are attributed in large part to the work of the Personnel Review Committee.

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

Budget Observations by Councilman Hoffman… “We are currently in that ‘Never-Never-Land’ “

Commentary By Councilman Pete Hoffman:

We are currently in that ‘never-never-land’ that prevails immediately prior to the publication of the first draft of the County budget.  When good years reigned, few people bothered with the specifics.  A sense of optimism surrounded the process, and while budget discipline might not have been completely ignored, neither was it a subject of importance.  After all why worry excessively over any number of vacant funded positions?

Now in our third year of significant economic difficulty, budget preparations take on a whole different meaning, particularly when further wage reductions and even layoffs are real possibilities.  Let’s be certain we don’t misstate this situation: the Mayor and the administration did not cause this recession.  It isn’t their fault.  At the same time, it’s hard not to overlook the obvious.  A few Council members have continuously argued for pro-active measures to address the County’s economy over the past two years.  While these proposals would not have solved the economic downturn completely, implementation of some of these suggestions would have greatly improved our current situation.  Instead, the decisions that will be made for the next fiscal year may prove more onerous for us all.

Regardless of the short-term ‘fixes’ the administration and Council will debate in connection with the 2011-2012 budget, there are a couple of longer-range proposals that should be adopted immediately.  I’ve mentioned these previously, on several occasions, and they have been met with ‘thunderous silence’.  In my opinion, there should be a top-to-bottom review of our property tax system.  The disparities of the current tax structure need fundamental reform.  I recognize this may not be an overly popular topic, but to continue the maze of tax rates, exemptions, and other aspects that inflict our current tax structure is to continue to promote a system that does not adequately address present day or future budgetary requirements.

Second, this County must institute a complete reassessment of property values, particularly for industrial, commercial and resort properties.  This review should be made by professional consultants outside the

County administration. We aren’t receiving anywhere near the tax revenues we should from these properties.  I can hear the cries already, “you will hurt business!!” Nonsense.  It’s time we understood that County taxpayers cannot continue this form of ‘corporate subsidy’.  The least we should do is to assess other property categories at approximately the same rate as residential properties.  When some resort and commercial interests are assessed at 50% of market value and residential homes are assessed at 80/90%, something needs adjustment.

Once again, it is a matter of fairness, but more importantly, these are potential revenue sources into which the County should expand.  If these recommendations were adopted two years ago, we would be in less economic ‘doo-doo’ then we are today.  Don’t misinterpret.  To enact measures like these demand the ability and commitment to make tough decisions.  Not everyone will be pleased.  However, I assure you not all will be pleased with the measures needed to handle next fiscal year’s budget either.  The question is when do we start to make the changes needed to correct this situation?  The longer we wait, the harder the decisions will be in the coming years.  I strongly suggest that as part of any budget ordinance for 2011-2012, property tax reform and a property assessment review be part and parcel of that document.  If the Council and administration are committed to correcting years of neglect in these areas, the time to do so is now.

Councilmember Greenwell’s 2010-2011 Budget Comments

From Councilmember Greenwells Office:

To understand the solution to fixing our budget woes, we must first accept that we can no longer think of government as a business. Government process is not based on the typical business model. In fact, government draws on an entirely different reason for being. Beyond the assurance of justice, public safety, and welfare, the responsibility of government is to ensure an economic setting wherein private business can succeed. While responsible accounting is certainly necessary, balancing the county budget, which has dominated our efforts for 6 months, is merely a part of the accounting process and cannot be considered as a required goal. Therefore, before we concern ourselves any further with what is really the Mayor’s budget, we need to focus on reviving our county’s business climate. In our present situation the only realistic way to do this is to enhance our financial situation. Since the level of government that creates money is federal, and since they have largely recognized that more cash is needed in the overall economy, and are providing it through the ARRA, we at county need to make the effort to obtain our share.

Our County’s share of the ARRA has presently been determined to exceed $500 million on a per capita basis but so far we have received only about 20% of that. To illustrate our reluctance to seek ARRA funding, had I not insisted that U.S. Representative Mazie Hirono research our eligibility to receive federal assistance in building the Ane Keohokalole Highway in Kona ($35 million) we might not have gotten it at all. Certainly it was secured by the Mayor and his staff who in a timely fashion met the requirements needed to qualify for the grant, but we as a county were content with Ms. Hirono’s rationale for why we couldn’t qualify until I challenged her thinking – and our thinking as well…

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Mayor Kenoi Urges Council to Reveal Budget Proposals

From the Mayors Office:

Mayor Billy Kenoi today urged the Hawaii County Council to tell the public immediately where it intends to cut $23 million from the administration’s proposed budget.

“The public deserves a fair hearing,” said Mayor Kenoi. “If Council members intend to cut $23 million from the budget, I think we all deserve to know where they intend to do that. Which programs and services are going to take the hit? The Council must present its budget cuts in an open, transparent manner to give the public a fair and reasonable opportunity to comment.

“My administration and I have studied this budget, our current economy and the critical needs of our island, and created the fairest, most balanced budget we could that maintains our core County services.

“I don’t know where the Council will find areas to cut $23 million out of the budget without hitting vital public services and affecting the welfare of our residents,” Mayor Kenoi said. “The cuts will have to be deep, and they will be devastating. A decision of this magnitude will affect almost every resident and family in our community. The public has a right to know with enough time for review and comment.”

The Council on May 19 gave preliminary approval to the County budget without detailing any of the cuts it intends to make. The Council has scheduled a final vote on the budget for June 7. Budget proposals made that day by Council members also may be adopted by the Council that day.

“The County Council has been studying my administration’s balanced budget proposal since March, but has yet to propose any substantive cuts or adjustments. Meanwhile, my administration and I have been on the road to explain it to residents at community meetings held around the island.

“I respectfully urge the Hawaii county Council to immediately provide full disclosure of its alternate plans to cut $23 million from the proposed budget. The Council owes it to the community to provide ample opportunity for the public to fully understand the dramatic impacts these cuts would have on our island.”

How big is $23 million in the context of the County’s $376 million budget?

To give you an example, cutting the County’s budget by $23 million covers all of the following programs and services provided by the County of Hawai`i (FY 2010-2011 estimated):

  • All election operations in the County of Hawai`i ($1,097,695)
  • The entire County Civil Defense Agency ($1,678,137)
  • The entire Hele-On County bus system ($5,667,336)
  • All County grants to non-profit agencies ($1,500,000)
  • All programs within the Department of Parks & Recreation’s recreation division ($2,295,147)
  • All summer fun programs ($525,017)
  • The entire county Aquatics Division for County pools ($2,240,118)
  • All school-based DARE police anti-drug programs ($34,125)
  • The entire volunteer firefighter training program ($427,126)
  • All Fire Department building inspections to ensure compliance with County Fire Code ($2,025,087)
  • All lifeguard services at County beach parks ($1,845,340)
  • All Elderly Activities services including RSVP, Coordinated Services for seniors and senior nutrition programs ($3,425,258)

Total: $22,760,386

From Mayor Kenoi to Hawaii County Council… “The Budget”

From the Mayors Office:

Dear Chairman Yoshimoto and Council Members:

As required by the Hawai‘i County Charter, the amended operating budget proposal for the County of Hawai‘i for the fiscal year ending June 30, 2011 is hereby submitted.

OVERVIEW

This balanced budget includes estimated revenues and appropriations of $376,001,627 and includes the operations of eleven of the County’s special funds as well as the General Fund. It is $11,044,576 lower than this year’s budget, and is $27,203,371 or 6.74 percent lower than the budget in effect when I took office.

I present you with this balanced budget proposal during a very difficult time for all of the citizens of this island. The construction, tourism and agricultural sectors all face an extremely challenging economic environment. While we see signs of a potential recovery on the national and local scenes, we must continue to reduce spending, focus on core County services and budget conservatively to provide for stability until our local economy rebounds. This budget accomplishes those objectives.

County government is now entering its second consecutive year of budget cuts and spending reductions, and we must prepare for the challenges that lie ahead. My administration confronted a budget shortfall of $38.1 million in the current fiscal year. We have proposed unprecedented budget cuts, employee furloughs and other painful adjustments in this budget to cope with another budget shortfall of $44.8 million next year. Looking further into the future, preliminary projections of declining revenues and increasing costs suggest we can anticipate yet another budget shortfall of more than $31 million in fiscal year 2011-2012.

It is absolutely clear we must roll back government, reverse its growth and make it more affordable. We have led the way in the Office of Management, where we cut overall spending by 4 percent in my first seven months in office, cut spending by another 29 percent this year, and proposed yet another 9.3 percent spending reduction in the year ahead. We reduced salaries and wages in the Mayor’s office by 17 percent this year when my staff accepted the first furloughs of any County government employees. We will cut spending on salaries in the Mayor’s Office by another 5.9 percent in the year ahead. These changes represent a total savings of $863,392 since we took office.

To further reduce County spending, this revised budget proposal incorporates an additional $1,852,137 in savings achieved through the furloughs of United Public Workers union members who are employed by the County. When combined with the Hawai‘i Government Employees Association furloughs outlined in our previous budget submittal on March 1, we expect to save a total of about $7 million in the coming year through the twice-a-month furloughs of County workers. Imposing furloughs was a difficult step to take, but it allows the County to avoid the layoffs that have affected some state workers. The furlough plan includes elected officials, appointees and excluded managerial employees, and represents a 9.23 percent pay reduction for all affected employees.

These furloughs will touch every County department, and we recognize the furloughs will cause hardship for some employees and their families. We are asking our public employees to share in the kinds of sacrifices that have been imposed on so many in the private sector during these difficult times. At the same time, we ask our public workers to renew their commitment to public service. We owe that to the community we serve.

We have imposed cuts across the entire spectrum of County government. All County departments were instructed to reduce their budgets by 5 percent last fiscal year, and then to cut another 10 percent in the current budget year. Now, for the new budget year that begins July 1, departments were asked to reduce expenditures even more, by up to 20 percent. We also froze step increases in pay for all managerial and appointed employees.

This year we unfunded 55 vacant positions, which was the largest number of positions ever to be unfunded in a single County budget. In our new FY 2010-11 budget, we propose unfunding even more — an additional 70 positions. That’s an unprecedented total of 125 positions unfunded in the first two years of  this administration.

Apart from unfunding vacant positions, we also had 95 fewer “warm bodies” working for the County this spring than at the beginning of my administration because of our firm adherence to hiring restrictions and attrition to shrink the County workforce. Our restrictions in hiring and elimination of vacant funded positions over the past 17 months have allowed us to shrink the number of funded County positions nearly to the fiscal year 2005-2006 level.

Our proposed tax rates would also take us back to fiscal year 2005-2006.  We propose in this budget submittal to return to the property tax rates of fiscal year 2005-2006 for most categories, which will result in the County collecting slightly less in total property tax revenue next year as compared with this year. To protect our homeowners, we are proposing no increase in the homeowner tax rate. We also plan to keep the affordable rental tax rate the same to help maintain the stock of affordable housing for our residents.

We are also extending targeted tax relief and additional resources to the agricultural industries in our community. The hard truth is that if we stand by while our diversified agriculture sector struggles through this recession, we may lose our small farmers forever. We must support agricultural initiatives including the Kapulena agricultural park on 1,739 acres of County-owned land, which will become the largest agricultural park in the state when it is complete. It will help our residents to launch new initiatives in diversified agriculture and foster development of the grass-finished beef industry. The proposed agricultural tax plan will result in a reduction of more than 4 percent in the average per-parcel property tax on agricultural lands, which will benefit our farmers.

At the same time, we must develop and launch a series of initiatives to help restore our local economy to robust good health, and to lay the groundwork for future successes in the County of Hawai‘i. To that end, this budget incorporates financial incentives to encourage the airlines to fill the void left by the suspension of Japan Air Lines’ direct service from Narita to Kona. Airlift is essential to our small businesses, our hotels and our working families, and we intend to pursue restoration of direct flights with all of our partners in the visitor, tour and hotel industries. Our proposed tax plan for hotels and resorts will result in a reduction in the average tax per parcel, providing relief to the largest employers of our working families.

This budget was crafted to preserve public safety and other essential core services today, while positioning the County to navigate the new difficulties we know will confront us tomorrow. We have cut overtime, travel, police cadet scholarships and more.  We have eliminated most equipment purchases. We have also implemented furlough days for HGEA, UPW, exempt and appointed employees, and unfunded many positions. This budget represents a decrease in County spending on activities such as General Government, and increases the share of County resources devoted to core functions such as Public Safety, Highways and Streets, and Health, Education and Welfare.

We have honored our commitment to maintaining nutrition and other services for seniors, and have preserved programs for our children and youth. This budget continues the County’s free, island-wide bus service, and maintains County spending of $1.5 million per year in support of non-profit organizations that deliver social services. This continuing realignment in County spending is gradually shifting County resources to the essential services that are most important to our residents.

REAL PROPERTY TAX

Real property tax assessments have been certified at $25.5 billion. The values are 9.35 percent less, or $2.63 billion, than fiscal year 2009-2010 assessments and 13.51 percent or $3.99 billion less than FY 2008-09 assessments.  As stated in our March 1, 2010 submittal, the County is unable to maintain essential, core services with a $23 million reduction in revenues that would result from maintaining current real property tax rates.

We are proposing a modified version of the fiscal year 2005-2006 real property tax rates that would leave the homeowner and affordable rental tax rates intact. The average per parcel tax collection for agriculture, commercial, and hotel and resort classifications will be reduced to keep our small businesses strong. The proposed rates identified (Attachment 1) would result in real property tax revenue of $215,154,049, slightly below the collections budgeted for the current year.

VACANT POSITIONS

After unfunding 55 positions in the fiscal year 2009-2010 budget, we have continued to review funded vacant positions to determine those that can be safely unfunded or partially funded for the upcoming budget year without adversely impacting County operations and services to the public beyond an acceptable level.  This budget reflects the unfunding of 70 additional positions and partial funding of 43 more positions in fiscal year 2010-2011. Partial funding represents a reduction in the salary budget for a position that may be vacant for a portion of the year. The total value of the unfunded positions, adjusted for furloughs, amounts to $2,770,356.

The review process involved identifying funded vacant positions that were public safety, grant funded, and special revenue fund positions, as well as positions in the legislative branch.  In addition to the importance of retaining funding for public safety purposes, it was recognized that most vacant positions in the Police and Fire departments are offset by new recruits, which are not separately funded.  Positions that are funded by grants or special revenue funds do not impact the general fund budget.  The remaining funded vacant positions were carefully reviewed individually.

Normally, funds not expended because a position is temporarily vacant are used to cover the cost of vacation payouts for retirees and for the temporary assignment or overtime pay that may result from covering the vacant position until it can be filled.  The savings resulting from unfunding additional general fund positions after the March 1, 2010 budget submittal have been placed in the general fund provision for cash-in-lieu of vacation account.

OPERATIONAL CHANGES

Organizational changes to be implemented July 1, 2010, will place the Automotive division under the Mass Transit Agency. This will consolidate similar activities in one department, particularly the vehicle repair activities, allowing for increased efficiency in processing equipment for repairs and fuel and vehicle usage countywide. No new positions have been added as a result of this re-organization, although one previously unfunded position will be budgeted for the coming year.

The amended budget also restores funding for the Hawai`i County Band and West Hawai`i band for fiscal year 2010-2011. Our community demonstrated its strong support for this venerable institution, and we offer the band an opportunity to make the transition from a solely County-funded program to an institution that will benefit both from public and private support in the years ahead. To that end, this administration will pursue an initiative to convert the band to private non-profit status so that it may harness its widespread community support in a way that also eases the burden on County taxpayers.

The County recognizes the importance of maintaining our island as a safe, clean, beautiful place to live and to visit. In response to requests from the public, this budget also provides funding to increase the hours of our solid waste transfer stations so that each station will be open for a minimum of three days per week for 12 hours per day. My administration is focused on a more comprehensive response to solid waste disposal and illegal dumping issues that includes education, tough anti-littering legislation and increased enforcement of litter laws.

FUND BALANCE

The fund balance submitted with this budget is estimated at $14,313,937.  Fund balance carry-forward for any given year is not known until all adjustments are posted and funds are closed several months after the fiscal year ends.  Projection of upcoming receipts and expenditures is very difficult and actual transactions can vary by large amounts.  This can be difficult in the best of years, but when all expenses have already been cut extensively there are no further equipment purchases to defer, no further travel or training to postpone, no further projects to cancel.  The impact of entering a new budget cycle with an over-estimated fund balance carry-forward would be a disruption of planned operations.  That is why we believe this estimate cannot be increased.

DETAILS

In arriving at this amended budget, the Administration identified several areas where expenditures could be further reduced, or where increases were appropriate. Specific changes are identified below.

Significant Changes to March 1, 2010 Revenue Estimates

  • Fund Balance Carryover – Carryover projections have increased by $1,655,937, which represents an increase in current year expenditure savings as a result of restrictions on filling vacant positions, reducing travel and virtually eliminating equipment purchases.

Significant Changes to March 1, 2010 Expenditure Estimates

General Fund

  • Salary & Wages – Budgets in various departments were reduced by a total of $737,392 due to the implementation of furlough days for UPW employees.
  • Research & Development – Budgets for agriculture and tourism development have been increased by $300,000 each to provide additional funding for stimulating these important local resources and economic engines.
  • Public Works – The department’s budget decrease includes $4,469,049 as a result of transferring the Automotive division to the Transportation agency.
  • Mass Transit – The agency budget increase includes $4,461,126 as a result of the transfer of the Automotive division from Public Works.
  • Transfer to Solid Waste — The subsidy to the solid waste fund has been increased by a net amount of $100,559 and will provide funding for extended hours at transfer stations island-wide. This subsidy is $5,694,189 lower than the subsidy provided in the current fiscal year.
  • Employee Benefits – A net increase of $1,646,000 reflects a projected 26% increase in premiums for active employee health insurance from the Employer Union Trust Fund, which is partially offset by reductions in retirement benefits and FICA costs.
  • Vacant Positions – We originally proposed in March to unfund 62 vacant positions, excluding the bands. This amended budget proposal includes a total of 70 positions that have been unfunded. All remaining funded positions are considered to be essential to County operations, or they have an existing incumbent temporarily assigned to a worker compensation position or in some other temporary appointment.

Position Changes from March 1, 2010 Budget Proposal

There have been no positions added or deleted in this amended budget proposal.

CONCLUSION

The County of Hawai‘i continues to face great economic challenges, and no one can say with any certainty when we will enjoy a full recovery from this national and global recession. We are all witness to the effects of the weak economy around us, but we also recognize the assets and advantages that we are blessed with. We know that our community is resilient and resourceful, and we are committed to helping one another through this difficult time.

This budget represents difficult choices, cautious optimism, and realistic expectations for a recovery we know will come. We know our island economy will rebound, but we must conserve our resources and carefully target our economic development initiatives to benefit those sectors where our assistance will yield the greatest results.

At the same time, we must increase government efficiency to meet the growing demand for public safety, transportation services, and programs for seniors and children. We need to stretch our resources to protect the most vulnerable among us while preparing our community for a better, more prosperous future.

With your help, we can do all of this and still reduce spending to live within our means. This budget proposal would spend less next year than we are budgeted to spend this year, but it will provide public services at current levels.  Employees and vendors will continue to be paid on a timely basis. We will continue to meet all of our financial obligations, maintain our strong financial ratings and increase our borrowing power, providing the County with a strong foundation to confront the challenges we  collectively face.

My staff and I welcome the opportunity to discuss this budget in further detail with you and to answer any concerns that you may have.  Thank you for you consideration.

Aloha,

William P. Kenoi

MAYOR

Attachment 1 – County of Hawaii Proposed Tax Rates FY 2010-2011

Property

Classes

Proposed Rates Rates Inc (Dec) Revenue

From Class

Per Parcel

Percent       Inc (Dec)

Buildings Land Buildings Land
Affordable Rental 5.55 5.55 0.00 0.00 $        921,919 -7.18%
Residential 9.10 9.10 2.00 1.00 62,136,273 29.19%
Apartment 9.85 9.85 1.75 1.75 37,483,908 -10.70%
Commercial 9.10 9.10 0.10 0.10 14,759,306 -0.82%
Industrial 9.10 9.10 0.10 0.10 9,550,062 0.89%
Agriculture 8.35 8.35 2.00 0.00 42,528,712 -4.43%
Conservation 9.85 9.85 1.30 1.30 3,844,083 15.53%
Hotel & Resort 9.85 9.85 0.85 0.85 14,885,835 -15.78%
Homeowners 5.55 5.55 0.00 0.00 28,043,951 -1.72%
Subtotal $ 214,154,049 -0.20%
Estimated Minimum Tax Adjustment $     1,000,000
Total $ 215,154,049
Gain/(Loss): ($45,951)