As Honolulu faces revenue losses amid COVID-19, City Council members on Tuesday axed over $130 million from the proposed budget, including vacant positions, planned raises and transportation costs such as an $18 million cut from the rail project.

For now, the city expects to be able to manage the pain. Honolulu has not laid off or furloughed city workers, and officials are not proposing tax hikes. Budget Director Nelson Koyanagi said $72 million in TheBus and HandiVan cuts should be reimbursed by federal aid funds, and he doesn’t anticipate a reduction of transportation services.

“I don’t think we’re in a situation where we would run out of cash during the year,” he said.

Dept of Budget and Fiscal Services Director Nelson Koyanagi Jr. questioned by Honolulu City Council members.

Department of Budget and Fiscal Services Director Nelson Koyanagi is expecting that some folks won’t pay their property tax bills this year.

Cory Lum/Civil Beat

Mayor Kirk Caldwell’s original $2.98 billion budget proposal was submitted on March 2 when Hawaii had one of the lowest unemployment rates in the country – and the budget reflected that, said Managing Director Roy Amemiya.

“Today we have one of the highest unemployment rates in the country,” Amemiya said. “It’s a very tough budget.”

Major sources of revenue for the city have dried up. Koyanagi said the administration is expecting the following losses totaling about $133 million:

  • $78.1 million in real property taxes.
  • $22.7 million in transient accommodations tax.
  • $9.2 million in motor vehicle weight taxes.
  • $7.8 million in fuel taxes.
  • $4.3 million in special events (e.g. Blaisdell Center, Waikiki Shell).
  • $3.1 million in golf revenue.
  • $2.7 million in zoo revenue.
  • $2.2 million in building permits.
  • $1.4 million in TheBus and HandiVan fares.
  • $750,000 in parking fees.
  • $740,000 in motor vehicle annual fees.
  • $480,000 in refuse pickup.

Honolulu usually gets about $45 million per year in transient accommodations tax, Koyanagi said. The current budget assumes the city will get half of that, but Koyanagi said there’s a “good chance” the state will give the city nothing at all.

Even if that were the case and the city’s losses totaled $177 million, it would only amount to roughly 6% of Mayor Kirk Caldwell’s original proposal. Hawaii lawmakers, on the other hand, are faced with filling a $1 billion hole in an $8 billion state budget.

Among the cuts approved Tuesday by the City Council’s budget committee are:

  • $72 million from TheBus and HandiVan.
  • $26 million in vacant positions (not including public safety jobs).
  • $18 million in rail operations funding in the Department of Transportation Services.
  • $2.7 million for legal judgments, settlements and losses.
  • $479,000 in community grants.

The committee also cut about 12% across the board from the Honolulu Authority for Rapid Transportation’s operating budget, according to Budget Chair Joey Manahan.

The project was running behind schedule before COVID-19 struck, HART Director Andrew Robbins said.

Now it isn’t expected to begin interim operations any earlier than March 2021, according to DTS Director Wes Frysztacki.

The first Honolulu property tax bills since the public health emergency started are due on Aug. 20. The city is allowing taxpayers to spread their payments into four installments through Nov. 18.

Still, the city is anticipating that some people who are struggling will skip payments entirely. Councilwoman Kymberly Pine said the city needs to prepare for the possibility that many of the island’s hotels will not pay their property taxes. Real property taxes are Honolulu’s main source of revenue.

Honolulu City Council member Joey Manahan listens to testimony on Bill 85 and 89 at Honolulu Hale.

Council Budget Chair Joey Manahan, second from left, pictured here before the pandemic, said the city is feeling a financial strain.

Cory Lum/Civil Beat

“The August installment will be very telling for what we’re looking at going forward,” Koyanagi said.

According to Koyanagi, the city is looking into whether it’s legal to issue bonds to cover operating costs. Typically, bonds are only issued for capital projects like new construction.

The city’s budget for salaries depends on whether the Hawaii Legislature approves collective bargaining agreements for city employees. If lawmakers don’t approve them, the parties will return to arbitration. If the agreements are approved, the city will have to pay about $10 million, Koyanagi said.

Manahan, who terms out at the end of the year, said while furloughs and layoffs may not be happening this year, it’s not out of the question down the line. The long term impacts of tourism losses will be felt for years, he said.

“We’re going to have to tighten our belts,” he said. “The economy is not going to come back in the next year or two.”

To raise new revenue, several fees at the Department of Planning and Permitting are also set to increase despite opposition from the building industry.

Through Bill 26, introduced before the full force of the pandemic hit, the application fee for zoning variances is set to double from $1,200 to $2,400. Nonconforming use certificate renewals would increase from $400 to $600. The bill also creates several new charges, such as a $50 short-term rental application fee and a $200 filing fee for applicants seeking a public utility easement.

The costs for processing environmental assessments, environmental impact statements and major special area management permits are also set to double. Minor special management area permit fees are increasing from $300 to $1,200.

Dwight Mitsunaga, president of the Building Industry Association of Hawaii, called the fees “irresponsible and unfair.”

“DPP does not issue building permits on a reasonable or timely basis,” he said in written testimony. “Imposing punitive fines or fees on developers who proceed with projects due to frustration with the unnecessary delays in obtaining the proper permits from DPP is not appropriate at this time.”

The city is also moving to raise fees at municipal golf courses.

All the budget bills have passed second reading and were voted out of the budget committee on Tuesday. A final vote is scheduled for the council’s next full meeting on June 3.

Honolulu’s financial woes will be partially relieved by $387 million in federal funds through the CARES Act. So far, Caldwell has allocated up to $100 million to assist individuals and small businesses. Another 30% is set to benefit first responders.

Council members are scheduled to discuss the funding at a meeting on Wednesday at 10:30 a.m. in Council Chambers at Honolulu Hale.

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