Oahu residents could see substantial tax hikes and fee increases if the Honolulu City Council approves proposals requested by Honolulu Mayor Kirk Caldwell.
Council members are considering nine proposals that would, among other things, increase property taxes for hotels and high-end property owners as well as cost people more at the gas pump.
“We’re going to need as much of those if not all of them to balance our budget,” said Councilman Joey Manahan, chair of the Budget Committee.
If the proposals pass, Honolulu residents will pay more to ride the TheBus and TheHandi-Van, to park in city stalls and to dispose of their trash. Visitors to the island will have to dish out more cash to visit the Honolulu Zoo and play a round at the city’s golf courses.
The council is expected to rework the bills in committee and full council meetings until June, when a final version of the budget goes to the mayor. Most of the bills are slated for discussion at next week’s Budget Committee meeting Wednesday at 9 a.m.
After four years without tax or fee increases, Manahan said they’re now overdue.
But some of the increases, like the gas tax, haven’t gone up in decades.
“We can’t create any new taxes,” Manahan said. “We have to look at our existing fees and taxes, so we’re looking at everything except for increases in real property taxes on our residents.”
A number of council members don’t share Manahan’s sentiment, saying the mayor’s proposed fee increases will hurt Honolulu’s poorest and most vulnerable populations.
“His proposals will be a tough sell, and will face an uphill battle,” said Council Chair Ron Menor.
City officials say they need the money to cover the growing cost of salaries, pensions and other benefits for employees — 21 percent of Caldwell’s $2.45 billion operating budget for fiscal year 2018, which begins July 1. That includes increases in salaries and benefits that city officials expect to pay because most of the city’s employee union contracts are up for negotiation, Manahan said.
And voters created two new city agencies in 2016 — one to manage city land and the other to oversee issues related to climate change — expected to cost about $1.2 million.
But looming over the city budget is the biggest expense of all — the Honolulu rail project, which is expected to cost as much as $9.5 billion to build and millions more per year to operate.
Lawmakers have expressed concern that if the city wants the Legislature to extend a general excise tax surcharge, the city needs to come up with more money on its end.
Caldwell has said he can’t use the tax increases now before the City Council to pay for rail, but he also warned state legislators last week that if Honolulu didn’t get more money from the state, all city residents might face substantial property taxes after all.
The mayor did not respond this week to requests for comment.
The city is paying for rail through an Oahu-only half-percent surcharge on the state general excise tax and with federal grants.
The property tax hikes Caldwell has already proposed have drawn opposition from hoteliers and other resort owners.
Bill 31 would raise property tax rates for hotels and resorts from $12.90 per $1,000 of assessed value to $13.40 — a 3.9 percent increase. The city last increased property taxes on hotels and resorts in 2013, when the rate when from $12.40 to $12.90.
Manahan expects the industry will fight hard against any more increases.
“They have a strong lobby,” Manahan said. “They’re quite a force to reckon with.”
In testimony against the bill, representatives from some of Oahu’s biggest hotels and resorts argue that the tax increases will force them to lay off employees.
“The addition of increased taxes would produce an extra burden on our hotels and resorts, forcing them to go down a path they have done a good job at avoiding: cutting operational costs and ultimately workforce,” said Jerry Gibson, Hilton’s area vice president.
The increases from hotels and resorts would generate $6.53 million annually, according to the mayor’s spokesman, Andrew Pereira.
Some council members are joining the industry in opposition.
“We are a tourist-dependent state,” Councilman Ernie Martin said. “You cannot bite the hand that feeds you”
The tax rate for most Honolulu homeowners would remain $3.50 per $1,000 of assessed value under the bill. But some homes valued over $1 million would have a higher tax rate.
The Caldwell administration aims to generate $5.24 million annually from increases in tax rates for Residential A properties — non-owner occupied homes worth $1 million or more — Pereira said. The council created the Residential A class at Caldwell’s suggestion in 2014.
The council unanimously passed a second bill last week to relieve owners of homes worth just over $1 million of some tax burden. If Caldwell signs it, Bill 7 would create two tiers within the Residential A class.
It would do so by lowering the current rate for Residential A property owners from $6 to $4.50 per $1,000 of assessed value for the first $1 million of valuation. Above $1 million, the rate would increase to $9 per $1,000 value. The mayor has until April 10 to sign the bill.
The city estimates it will bring in $1.08 billion in property taxes during fiscal year 2017, which runs from July 1, 2016 to June 30, 2017. More than $506 million of that total – about 47 percent – came from resident homeowners and $94 million came from non-occupant homeowners.
Residents of Honolulu, already one of the most expensive cities in the country, might find themselves paying a little more to get around every day.
Caldwell again is proposing a fuel tax increase, something that hasn’t happened since 1989. In 2013 Caldwell wanted to increase the fuel tax by 5 cents, but the council killed the bill to raise the tax after its first reading.
Resolution 17-61 would raise the county fuel tax from 16.5 cents to 20 cents per gallon to generate $10.85 million a year, Pereira said.
Combined with federal and state fuel taxes, Honolulu residents pay a total of 53 cents per gallon in fuel tax, according to the U.S. Energy Information Administration. Hawaii residents currently pay the third highest tax on gas in the nation.
Council members Trevor Ozawa, Carol Fukunaga, Kobayashi and Martin voted against the fuel tax bill last week.
“The fuel tax is especially onerous on low-income people,” Kobayashi said. “They usually live farther out from the city so they have to drive into town to work.”
Two other bills affecting Honolulu drivers would increase parking meter fees and the vehicle weight tax.
Bill 10 would raise the vehicle weight tax from 5 to 6 cents per pound by 2018, then to 7 cents by 2019. The rate hasn’t gone up since 2011.
Bill 12 would double parking fees in parts of the city to $3 per hour, up from $1.50 per hour.
Hawaii residents currently pay the third highest tax on gas in the nation.
Combined, the increases in fuel tax, vehicle weight tax and parking fees would raise $65 million for Honolulu’s Highway Fund. Money from the Highway Fund is used to maintains roads and support public transportation, which for now is the bus system.
Manahan said he wants to fatten up the Highway Fund now so that funds to operate and maintain rail are available when when the trains start running.
The 20-mile rail system is expected to be complete by December 2025, but Manahan said he expects portions of the track to start operating as early as 2020.
The cost of riding TheBus may go up as well, for the first time since 2010.
Monthly passes, used by about 70 percent of riders, would increase from $60 to $70 in January, then to $80 in July 2019 if the council passes Bill 28. The cost of a single bus ride would increase from $2.50 to $3.25 by July 2019.
The $2-per-trip fee for TheHandi-Van would also increase by 50 cents per year until it reaches $4.
Under city law, revenue generated from riders must cover at least 27 percent but less than 33 percent of the bus system’s operating costs, Pereira said. This year those revenues cover just under 27 percent of operating costs, he said.
“We should have tried to do this last year or the year before,” Manahan said of bus fare increases. “Now we’re really falling below.”
Honolulu residents would face a trash pickup fee for the first time ever if the council passes Bill 29. Maui and Kauai counties already charge for garbage pickup, and Hawaii County doesn’t offer the service.
Martin, Ozawa, Fukunaga and Kobayashi challenged many of the fee and tax increases during a meeting last week.
They argued the proposals put an undue burden on taxpayers, and the city should cut spending before turning to taxpayers for more money.
“Government has to do a better job living within our means,” Martin told Civil Beat. “There’s still fat within the budget.”
Ozawa and Kobayashi both recommended eliminating vacant positions that the city continues to fund.
“That’s the No. 1 issue,” Ozawa said.
He said money given to each department for vacant positions creates a “slush fund.”
Ozawa also criticized the administration for what he sees as pushing for the new city agencies, which were put on the November ballot without price tags.
The Department of Land Management will include 22 new full-time employees and cost $730,612 next fiscal year. The Office of Climate Change, Sustainability and Resilience will have seven new employees and cost $467,388 next fiscal year.
Kobayashi said that the city should work to increase energy efficiency as a cost-saving measure, and partner with organizations including the Rotary Club of Honolulu and the District 50 Hawaii Lions for city projects.
Fukunaga did not respond to requests for comment.
Martin said some services, including trash pickup, should be guaranteed by the city without an extra fee.
“The whole budget,” he said, “is just a veiled attempt to avoid raising real property taxes.”