Honolulu Mayor Kirk Caldwell banked on his proposed gas tax to help bail him out when union contracts came due and salary increases were expected to strain city resources.

His administration also stored pockets of money in the budget that were initially set aside to fill vacant positions, but in reality were saved to help pay for new collective bargaining costs.

But now the mayor is in a bind.

The Honolulu City Council killed Caldwell’s gas tax in before it even got a hearing, which quickly lopped $15 million in revenue from his previously balanced budget.

And by lifting a hiring freeze and allowing city departments to start fill their vacancies, the administration has trimmed some of the cash pocketed to help pay for the increased salaries.

Now the administration is forced to look elsewhere for money to help cover the estimated $26 million it must pay out next year in union pay raises.

To put that figure in perspective, that’s the same amount of money Councilman Stanley Chang asked for to build a refuge for Oahu’s homeless population.

Chang’s plan included buying land, building new restrooms and even providing services such as job placement and drug and alcohol treatment.

Honolulu City Councilwoman Ann Kobayashi pushed Caldwell’s administration during the Budget Committee meeting Thursday to provide her with details on where it would find the money to pay for increased salaries. The council is expected to vote on a final version next month.

Kobayashi is the chair of the Budget Committee, and often uses her position to needle the executive branch over its policies. On Thursday, she directed her attention to Managing Director Ember Shinn and Budget Director Nelson Koyanagi.

“First we have to make sure the union agreements are honored,” Kobayashi said. “Once we do that we’ll know where to place the other monies. But our concern is honoring those union agreements that have been made.”

She said it was incumbent upon Caldwell’s administration to provide a solution to pay for the increased salaries.

On several occasions she asked Shinn and Koyanagi for their “Plan B,” saying that for the administration to rely on a 5-cents fuel tax increase was overly optimistic, especially since it required approval of the council.

After all, the council had shot down a prior proposal just two years earlier to increase the gas tax by a penny.

Shinn admitted that the administration might have been overly confident when it came to the gas tax, and that it is “desperately” looking for the money to cover the pay increases. She also said the administration considered using money from the $142 million sale of the city’s 12 affordable housing complexes to help pay for collective bargaining costs.

“That was Plan A,” Shinn said, “And now that we’re looking at Plan B we are looking at some of the other provisional accounts which will create risk to the city.”

In particular, Shinn said the administration is eyeing the city’s surplus and whether it should raid the money it initially budgeted to pay for post-employment retirement benefits, otherwise known as OPEB. Governments across the country are scrambling to pay down this future debt in order to maintain good financial standing so they can borrow at lower interest rates.

“We’re looking at surplus, we’re looking at OPEB, we’re looking at all these other pots of money that give us financial stability for bond ratings, for fiscal prudence and other kinds of things,” Shinn said. “In the absence of enhanced revenue we have to look at things that put us more at risk.”

In many ways, this back-and-forth can be looked at as a game of political chicken between the Honolulu City Council and a new administration over budget priorities.

Koyanagi, for instance, painted a similarly bleak picture of ransacking OPEB and other accounts to the detriment of the city’s overall fiscal health.

He also told Budget Committee members that they could free up cash by cutting some of the millions of dollars worth of pet projects and other earmarks they inserted into the mayor’s spending plan.

Perhaps more importantly, he echoed Shinn’s call for more revenues.

“Unfortunately, collective bargaining is not a one-time cost and most of these agreements are multi-year agreements where there will be increases next year also, so it will be compounded,” Koyanagi said.

“This year will be a 4 percent increase, next year will be another 4 percent increase. If we’re chasing 4 percent this year, next year we’ll be chasing twice as much. Therefore going forward we need to be enhancing our revenues because if we cut expenses we’re cutting services.”

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