UPDATED 5:30 p.m. March 1, 2012
Mayor Peter Carlisle‘s operating and capital budgets for next year are nearly flat, together up just 2.3 percent from this year’s budgets.
Carlisle today unveiled a $1.953 billion operating budget and a $577 million capital budget for fiscal year 2013. Each is up about $30 million from fiscal year 2012 — increases that Carlisle characterized as “responsible budgeting” because the funds will be used to address “essential needs and core services.”
“We’re going to have to execute a plan that repairs our neglected infrastructure, provides decent housing, helps people move around, keeps people safe and secure, and maintains Oahu’s unique natural strengths,” Carlisle said in an editorial board meeting with Civil Beat Wednesday. “This requires the fiscal discipline to bend the debt curve downward, keep the CIP budget focused on investing in core infrastructure that is mandated, required or essential to maintaining existing facilities for the delivery of city services.”
But Carlisle struggled to identify a project — other than rail — that will improve people’s lives here in Honolulu. He said his desire to put the city’s financial house in order “takes away the fun that all the previous mayors have had to enjoy.”
“There always is the desire to do some sort of signature project, and it would be nice to have parks all over the place and baseball diamonds everywhere. You just can’t do it,” he said. “All those future sort of legacy projects that people like to put their name on … We just can’t do that.”
The operations budget is up from $1.925 billion to $1.953 billion, about 1.5 percent. Two of the largest pieces of the increase to the operating budget are for HPOWER’s third boiler — though that $35 million increase is covered by $35 million in new HPOWER revenues — and increases to the cost of electricity and fuel in the range of $25 million.
Carlisle said real property tax rates remain flat in his budget proposal, though collections will increase by $12 million due primarily to new inventory like Disney’s Aulani resort at Ko Olina. He also clarified Thursday that his budget includes no new user fee increases beyond those approved in prior years.
Departments were instructed to submit budgets with zero growth in general/highway fund expenditures, and told increases would be rejected except in special circumstances.
“That’s where our real constraint is. As you noticed, real property tax is the big number. That’s not going anywhere,” Budget Director Mike Hansen said. “We don’t have more revenue, so the pie is very much constrained. The pie is not growing.”
Carlisle said the edict was met with some resistance by some members of his administration, but not for long.
“The first few times you do that, which happens early, everybody screams like a stuck pig for a while,” he said. “The answer is that after a while, they get it, and then they want to be part of it because they can see the bigger picture. … That becomes in itself a sort of culture that’s exciting.
“That becomes, in and of itself, extremely gratifying for everybody. And if there’s people who don’t like that, they’re only gratified by spending money, then they’re not going to be working in the City and County while I’m here for very long.”
Carlisle is proposing a $577 million capital improvements budget for next year. That’s up 5.5 percent from this year’s $547 million budget. The mayor noted that the portion of the CIP budget that’s funded by property and highway taxes is down to $153 million from $185 million this year. The balance is covered by sewage fees, solid waste fees and federal funds.
That decrease is significant, he said, because it means Honolulu will take on less debt and will soon have less interest to pay on that debt.
“Once you do this, then you don’t have to finance it, so it’s like getting rid of credit card debt,” Carlisle said.
In all, 82 percent of the capital money will be spent on the sewer system, road rehabilitation and public safety. Of $295 million budgeted for sewage, Hansen said nearly all of it can be tied directly to the agreement with the Environmental Protection Agency and environmental groups calling for massive upgrades to the sewer system over the next 25 years.
“One of our real key goals is not to screw up the consent decree,” Carlisle said. “It took years and years to get that. We were paying all sorts of penalties, and if you mess up with the consent decree, then you don’t have the advantage of all that work that allowed you to expand it all the way until 2030.
“It took a lot of very good, legal, pragmatic, engineering efforts to get it so that it would be expanded over that long period of time,” he said. “The consent decree is a really big successful deal that’s ultimately going to be to everybody’s advantage.”
For the second year, the mayor wants to maintain 5 percent pay cuts across the city’s non-unionized workforce.
The city is spending more than $500 million on salaries and approximately $250 million on benefits and other payroll costs, according to Hansen.
City employees represented by the Hawaii Government Employees Association and United Public Workers unions, totaling about 6,000 workers, are covered under existing labor contracts that include 5 percent pay reductions.
Those contracts also reduced the city’s portion of health benefits for active employees to an even 50-50 split from a previous 60-40 share, where the city had been covering the higher portion. That has created a $14 million savings for fiscal 2013.
Carlisle’s budget proposes setting aside $40 million next year for retiree health benefits, known as OPEB, or “other post employment benefits.”
Public retirees are eligible for health coverage for themselves, and, depending on their hire date, dependents.
The city’s portion of that liability amounts to $2.6 billion, or 19 percent of the total liability, according to the latest valuation.
The mayor said he wants to pre-fund these costs over a decade to build a $500 million reserve.
Carlisle’s plan includes a commitment to pad the city’s Rainy Day Fund, which currently sits at $30 million.
He has budgeted $20 million for the fund next year, with an ultimate goal for the fund of $120 million.
“It’s only a start,” Carlisle said. He said building a reserve would help the city maintain its favorable bond ratings and lock in low interest rates when borrowing.
To further reduce the city’s long-term debt, Carlisle is proposing using cash financing — instead of bonds — to pay for such expenses as equipment, vehicles and bus rehabilitation. He has budgeted $13 million in cash financing instead of $22.1 million in bond financing, for a savings of $9 million.1
Honolulu City Council Budget Chair Ann Kobayashi said Thursday the recent episode when Managing Director Doug Chin waived debt guidelines for rail without consulting or notifying the Council would play a role in how she evaluates the mayor’s budget.
“There isn’t that same level of trust that there was before, so I told my staff that next week, we’re going to spend every day going through that budget, line by line,” she said. “I just thought maybe we had to do this now, go through it line by line, to make sure there’s no surprises.
“I’m not angry or anything, it’s just that that level of trust is not there, because after all this time you’d think the relationship gets better, so that there’s greater communication,” she said. “You want to share things, even if you’re not required to, if you have a good relationship with someone, you want to tell them stuff.”
Kobayashi’s committee will begin its department-by-department budget reviews starting Monday March 12.