During Mufi Hannemann‘s half-decade as mayor, annual spending on operating expenses has gone up 39 percent to $1.2 billion, despite the nation going through the worst economic crisis since the Great Depression. Defying a national trend, the number of city employees has also grown every year, even amid occasional hiring freezes.

When he took office in January 2005, Hannemann inherited 9,993 full-time city workers and an $869 million departmental operating budget from his predecessor, Jeremy Harris. Since then, the city added 508 new employees, at an average rate of 85 per year, for a 5 percent increase to Honolulu’s workforce under Hannemann’s leadership.

The city’s growth, which slowed but still continued after the financial meltdown in 2008, is in stark contrast to the drastic cuts many municipalities across the country have taken to compensate for dire financial straits.

This year, in Phoenix, Mayor Phil Gordon considered cutting 3,000 jobs, eventually reducing that number to at least 761, or almost 6 percent of the workforce. Mayors in Baltimore, Boston and Philadelphia are all cutting hundreds of city jobs, including police and fire jobs in Philadelphia. In San Jose, the budget that passed June 17 includes a 10 percent pay cut for 1,600 unionized city workers.

In contrast, Honolulu added 127 workers since the recession began in 2008. While Hannemann and his executive staff took voluntary 5 percent pay cuts at the start of the 2009 fiscal year, the city kept adding employees, and continues to do so. The budget approved by the City Council that takes effect on July 1 adds 53 full-time jobs, the majority dedicated to rail. But on July 2, about 5,000 Honolulu workers will take the first of their twice-monthly furlough days over the next year and public safety workers will take a 5 percent pay cut. The city says savings from the furloughs and pay cuts will pay for the new positions.

Honolulu City Government Spending and Personnel

Fiscal Year Operating budget Full-time positions
2005 $869 million 9,993
2006 $942 million 10,082
2007 $1.02 billion 10,182
2008 $1.13 billion 10,318
2009 $1.16 billion 10,374
2010 $1.21 billion 10,448
2011 $1.21 billion 10,501

Fiscal year begins July 1 of the previous calendar year. The 2005 budget was inherited from Mayor Jeremy Harris by Mufi Hannemann, whose first budget was for the 2006 fiscal year. The operating budget is the amount appropriated by the City Council at the request of the mayor for annual departmental expenditures. The total does not include pensions, debt service, health benefits and other non-departmental expenses.

“This is all about shared sacrifice,” Hannemann said last week in a press conference detailing the furlough plan. “It’s all about maintaining the same level of services. You never hear anyone in the community saying, ‘I can do without services,’ or ‘I can do with less services.’ They always want the same level, or they want more.”

Hannemann is celebrating the furlough plan as a forward-thinking maneuver, and one that he says serves the taxpayers by keeping services they demand intact. But a leading municipal budget researcher says it’s “odd” that a city facing a more than $80 million spending gap continues to grow its workforce during a recession, while imposing pay cuts and furloughs on current employees.

“Every city we looked at over the last two years has reduced their FTE, that’s full-time equivalent, workforce over the last two years,” said Thomas Ginsberg, project manager for the Pew Charitable Trust’s Philadelphia Research Initiative. “None of them is growing.”

Pew Study Found Other Cities Reducing Workforce

In May, Pew published Ginsberg’s second annual study assessing 13 municipal budgets across the United States, a project that began as a way to better understand how cities were reacting to, and coping with, the recession.

“Almost every city in the group has been reducing its full-time workforce through layoffs, attrition and eliminating vacant positions,” wrote Ginsberg in Not Out of the Woods: The Recession’s Continuing Impact on Big City Taxes, Services and Pensions. “From fiscal year 2009 to fiscal year 2010, the median reduction was 3 percent.”

About half the cities Ginsberg assessed dramatically reduced spending since last year’s study. Detroit slashed spending 18 percent. New York had to close an 11 percent budget gap last year, and is again cutting spending in fiscal year 2011. Even those cities with increased projected spending are passing along the related costs to taxpayers and institutions. Phoenix, for example, imposed a 2 percent tax on groceries. In Baltimore, Mayor Stephanie Rawlings-Blake proposed charging universities and hospitals — both of which are exempt from property taxes — $350 for each occupied bed. That idea was tabled when 16 nonprofit universities came forward with a combined $20 million to help the city over a six-year period. While Honolulu is not one of the 13 cities the Pew initiative assesses each year, Ginsberg said the finding of the studies could be applied to Honolulu.

“We really just looked at the fiscal year budget conditions that each city is going into,” said Ginsberg. “It’s very top-line stuff: the total size of the general fund, the projected shortfall and some of the major actions.”

For the purposes of any city’s budgeting, the “major actions” Ginsberg refers to are a city’s most significant expenditures and greatest sources of revenue — broad-based taxes, various fees, permitting and leasing costs — that must be balanced against one another to close a spending gap. In Honolulu, the projected spending gap of $80 million — down from $140 million originally projected for fiscal year 2011 and again projected for fiscal year 2012 — represents about 8.2 percent of the $974 million general fund.

Honolulu Shortfall Compared To Other Cities

City Projected 2011 shortfall Shortfall as percentage of general fund
Chicago $520 million 16.3 percent
Phoenix $140 million 12.5 percent
Kansas City $65 million 12.5 percent
Los Angeles $492 million 11.2 percent
Atlanta $49 million 9.0 percent
Baltimore $121 million 9.0 percent
Honolulu $80 million 8.2 percent
New York $4,900 million 8.2 percent
Detroit $126 million 7.9 percent
Seattle $56 million 6.2 percent
Philadelphia $179 million 4.8 percent

Figures come from Honolulu City and County operating budgetand The Pew Charitable Trust’s Philadelphia Research Initiative’s Not Out of the Woods: The Recessions’s Continuing Impact on Big City Taxes, Services and Pensions (May 26, 2010). Shortfall is the gap between what a city spends and its annual revenues. The general fund is the biggest pool of revenue for a city, funded by taxes. Other funds are based on specific revenue sources, such as fees.

One clear explanation for Honolulu’s increased spending and growing workforce is the city’s planned rail project. While much of the cost of the project is detailed in the separate, longterm capital budget, payments to move the project forward are operating costs. For fiscal year 2011, the City Council approved increased financing for the Rapid Transit Division’s budget, most of which Hannemann explained would be spent on rent for office space and computer equipment.

The city also plans to add 31 staffers in the Rapid Transit Division in the coming year, compared to 44 added last year. Hannemann wrote in his budget proposal that the cost of funding those new positions would be offset by salary cuts and furloughs. Essentially, pay cuts and furloughs are a means by which the city can add more employees: the most costly aspect of running any city.

“Manpower costs are 70 percent of the budget,” said Honolulu City Council Chairman Todd Apo. “At a time like this, we shouldn’t be looking to hire large numbers of new people.”

In Honolulu, the $1.2 billion necessary to keep city government running for the next year doesn’t include an additional $600 million it will have to spend on health benefits, retirement contributions, pensions and debt service. All in all, taking care of city workers accounts for more than two-thirds of the city’s expenses.

Mayor’s Take: Budget Actually Lower

Requests to the mayor’s office for an interview were directed to Honolulu Managing Director and 2011 mayoral candidate Kirk Caldwell. Even with three days notice, Caldwell — who will become acting mayor if Hannemann resigns to run for governor, as is expected, in July — said he wasn’t certain whether the workforce had grown in the past two years.

“Part of it may be police is growing,” says Caldwell. “I don’t know if we’re growing more in the public safety sector or if we’re growing workers like bureaucratic clerks. I don’t want to speculate but I’m willing to check it out.”

Hannemann, in his budget letter to the City Council, argued that the operating budget for 2011 is actually lower than last year’s.

“While some may point to this as an increase over the current fiscal year, if you discount cost items that were already a given, such as arbitrated pay raises and increases in fringe benefit costs, coupled with APEC (Asia-Pacific Economic Cooperation) expenses, the operating budget would be a $28 million reduction.”

Hannemann is the only gubernatorial candidate with executive budget experience. He’s made a point that his experience running the city prepares him to run the state, so his management of the budget could be part of the debate leading up to the Sept. 18 primary. The mayor proposes the budget, but the final document must be approved by the City Council before he signs it into law.

More Workers, Fewer Work Days

The mayor had planned to sign the 2011 budget last week, but instead held a news conference to detail his furlough plan, one of the major initiatives to help close the spending gap. About half the city’s employees will take off two days a month without pay for the next year, while the other half have agreed to a pay cut of about 5 percent.

While the mayor emphasizes furloughs as a “shared sacrifice,” city officials admit it’s not an equal share. Honolulu police officers will work the same amount for less pay, whereas furloughed city workers have mandated days off for which they lose pay. In contrast, Atlanta — a city that’s also growing its police force — has opted to allocate $5.5 million for hiring more officers, but is also giving all of its officers a 3.5 percent pay raise.

“It’s rough justice,” said Caldwell of the discrepancy. “We’re doing what the private sector is doing, what people around the state are doing. They’re cutting back, they’re living on less, and we’re asking the same. Some may pay a little more than others. There’s not total fairness here.”

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