A lot has been written recently about Honolulu’s budget. On the one hand, we’re told the only way to make ends meet is by increasing taxes. On the other, we’re told the budget can be balanced via other methods, e.g., transferring approximately $20 million in construction costs from the operating budget to the capital improvements program budget. While both of these options would result in a zero bottom line, the discussion must be broadened to include other options, including consideration of long-term funding.

Last January, the Real Property Tax Advisory Commission released its report of recommendations on ways to make the real property tax system fairer and more transparent. While a comprehensive review of real property tax exemptions was made, to date only one recommendation has been implemented, and that recommendation had no financial impact to the city.

Exemptions on otherwise taxable land cost taxpayers more than $100 million per year. Tax credits are on top of that. It may not be easy from a political standpoint to reduce or remove these exemptions, but it is time to take a serious look at them. A good place to start is with credit unions.

Credit unions initially started out providing services to unserved and underserved sectors of the population, such as low-income people. Today, however, they compete directly with banks, and according to a 2006 study from the U.S. Government Accountability Office, only about 14 percent of credit union customers were low-income and 17 percent were of moderate income. That compares with 24 percent and 16 percent, respectively, for banks.

Why should taxpayers continue to subsidize credit unions when banks are serving more low- to moderate-income people, which was one of the main public services touted as a reason for exemption? Implementation of any change in exemptions requires a long lead time, so discussions should start now.

Getting back to the current budget, one of the most controversial items has been the insertion of approximately $10 million in grants-in-aid funding, which is in addition to the required .5 percent funding mandated under the recent charter amendment. Some of this funding is directed at certain districts represented by the councilmembers who recommended the funding. The most troubling aspect of the line-item grants-in-aid, however, is the inclusion of specific nonprofits that have not gone through a vetting process. In some cases, directors of these organizations reads like a who’s who list of influential people on Oahu. At least one organization is not in compliance with the DCCA. One has spent most of its funding on costs other than programs.

In addition, provisos, i.e., restrictions, have been placed on these line items. If the funds are not spent exactly as indicated, they cannot be spent at all. This creates its own set of problems, as it not only reduces flexibility for the administration, but it also ties up funds that might otherwise be circulating in the economy.

On top of these concerns, the city is still waiting for HUD’s response regarding the ORI Anuenue Hale noncompliance issue and whether it will have to return approximately $7.8 million to the federal government. This in itself should be enough to cause councilmembers to pause and gain an understanding of how the administration is handling compliance and monitoring programs run by nonprofits. (Due to the many questions raised about the monitoring and lack of timely payment to nonprofits, this should be a public discussion.) Instead, however, council is moving staffing from one department to another and taking more power into their hands.

Nonprofit organizations are complex entities with many regulations they are required to follow. The entire grant-funding issue should be reviewed and reorganized. The administration should consider using educated and experienced staff in one department to pre-qualify all nonprofits that are applying for city grants. This would create efficiencies within the administration and ensure that the process for all nonprofits is consistent. It will also relieve specific departments who have had limited experience with grants from trying to figure out how to handle grant requests.

The final budget will be voted on June 5, but these items deserve much more discussion. Until these discussions are held, I urge councilmembers to support one of the two reported floor drafts to remove the $10 million in grants-in-aid funding.


About the author: Natalie Iwasa lives in Honolulu. She is a certified public accountant, president of Cycle On Hawaii, League Cycling Instructor and member of the Hawaii Bicycling League.


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