Whatever your thoughts are on mandated lockdowns, 14-day quarantines and business closings, one thing is for sure — the economic impact of COVID-19 will require our legislators and elected officials to take a critical look at our county and state budgets.

At the city level, the Honolulu City Council has a strict timeline to meet for next fiscal year’s budgets. An April 1 special budget committee meeting has been cancelled, compressing much-needed work into a shorter timeframe.

The deadline for passing amended budget bills is early June. By that time, we should have a better idea of how much city and state revenues have decreased. Revised projections for the rail surcharge and transient accommodations tax will likely also be available.

In the meantime, however, Council members should look at all aspects of city finances to determine the best way to fiscally prepare for the aftermath of COVID-19.

Council members introduced their first go-round of proposed amendments on March 20. Budget Chair Joey Manahan has proposed over $107 million in budget cuts, including $1.5 million in travel and $88.5 million for mass transit.

Honolulu Mayor Kirk Caldwell, alongside Honolulu Emergency Management Director Hirokazu Toiya and City Council Budge Chair Joey Manahan, at a COVID-19 press conference March 16. The crisis will have a dramatic affect on local budgets. Christina Jedra/Civil Beat/2020

He’s also proposed a reduction of $1.5 million in HART salaries and current expenses for government relations and public information.

That’s a good start. Other Council members have also proposed cuts. Additions for pet projects should be deferred.

In addition to looking at particular departments and line items that may be reduced, Council members should look at recent mandates that have not yet been fully implemented and may be postponed.

Suggestions Encouraged

For example, Bill 68 (2018) regarding annual inspection of all city streams, Bill 70 (2018) regarding restricted parking zones and Bill 39 (2019) regarding lifeguard services may offer opportunities to defer related costs.

Each year certain groups of taxpayers pay reduced real property taxes due to exemptions or deductions. For this fiscal year, the total tax benefits these taxpayers received was $151 million.

While changes to exemptions and deductions would impact fiscal years 2022 and after, discussions should continue on bills that have already been introduced. The council should also consider reduction or elimination of other exemptions as has been discussed and recommended by Real Property Tax Advisory Commissions over the past several years.

No reasonable suggestion should be turned down.

The city’s debt service (including rail) for next fiscal year is budgeted to be about 19.6% of the operating budget and is projected to be about 23% by 2030. Since capital improvement projects feed into the operating budget via debt service, Council members should carefully consider whether new projects can be postponed.

Last but certainly not least, is consideration of rail construction and the potential impact it is likely to have on the city’s operating budget. Act 1 from 2017 disallowed the Honolulu Authority for Rapid Transportation from using the rail general excise tax surcharge and TAT for its operating or personnel costs.

HART is also not allowed to use bond proceeds to pay for operating costs.

In 2018 HART revised its method of capitalizing certain costs. Since then, it has been using “leftover” federal funds to pay for its operating expenses. In January, those funds were down to about $6 million.

Since operating costs are about $1.3 million per month, there will be no remaining federal funds to pay for HART’s operating costs unless part of the federal grant comes in prior to the end of this fiscal year. At this point, that seems unlikely.

The city subsidy portion of rail construction is budgeted at $26 million and is currently included in the city’s capital improvement budget

If the public-private partnership contract for the City Center Guideway and Stations and Pearl Highlands parking garage is delayed or comes in higher than expected, it is very likely the remaining federal grant funds will also be delayed. That would mean at least part of the $26 million would need to be included in the city’s operating budget.

In addition, unless our visitor industry makes a quick and strong turn around soon, it is likely HART will have to rely on increased bond funding or other debt to carry it through next year. Additional debt sooner than planned means higher financing costs.

It is crucial that HART provide accurate, complete and timely information to the council and public about its projected revenues and expenses.

While the budget committee and council work out how they are going to continue to involve the public and administration in their meetings, I encourage everyone who has suggestions about city finances and ways to reduce waste to contact their Council member and Budget Chair Manahan.

No reasonable suggestion should be turned down.

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