Some city councilors say the way the city is handling its budget is unfair. Yes, the same ones who unanimously approved it.

While the city estimates it will save $26 million by slashing the pay of police and firefighters and imposing furloughs on most all other workers, at the same time it’s setting aside nearly $40 million to fund more than 1,000 unfilled positions.

Funding vacant positions is a common budgetary strategy — and a perennial controversy in Honolulu. But this year those concerned about the tactic have some extra ammunition. Honolulu is setting aside $38.8 million for vacant full- and part-time positions while at the same time requiring pay cuts and furloughs. This while other cities have either eliminated or drastically reduced money for vacant jobs.

City officials say they don’t see a disconnect in their approach.

“It’s not like you’re flushing the money down the toilet,” said Honolulu Managing Director Kirk Caldwell. “It’s not spent.”

Ghost Hale

“The city’s employees count should not grow beyond what it is today,” said Council member Ikaika Anderson, who has long railed against what he describes as excessively funded vacant positions. “I definitely say that growing government during a time of recession is a concern. I fail to understand why we’d grow our workforce when we’re furloughing existing employees. Hiring additional employees doesn’t make much sense.”

City Council Chair Todd Apo said that in addition to the cost, what concerns him about the approach is the lack of transparency that comes with the practice.

If Honolulu isn’t going to spend the money allocated for vacant positions, why do officials keep it in the budget? City officials explain it’s a way to give themselves hiring flexibility, and to keep the municipality in good financial standing. The flexibility comes because with vacant positions in the budget, the administration can hire without going through a process with the City Council.

“It’s like having that money in a savings account,” said Caldwell. “That affects our bond rating, which allows us to borrow money to do infrastructure projects for less than what it would otherwise cost.”

Thomas Ginsberg, project manager for the Pew Charitable Trust’s analysis of the budgets of 13 major U.S. cities, says none of the cities he studied took that approach.

“I’ve never heard that argument as a reason to keep the vacant positions open, to leave them there unfilled,” said Ginsberg. “Every government level has funded vacant positions. One of the things the cities do when things get tough is they can eliminate the funded vacant positions … and the common thing the cities are doing is closing vacant positions.”

But a bond rater familiar with Honolulu’s budget called it a standard — even prudent — approach.

“It’s a good way for a city to manage the budget because it has a way of overstating expenditures,” said Ian Carroll, director of Standard & Poor’s state and local government division. “It makes them look better, and they actually are better from the standpoint of having spent less money on salaries than included in the budget.

At S&P, Carroll is tasked with assessing many cities around the country, and ranks Honolulu as financially strong among them.

“We’ve seen a commitment to fiscal discipline from this administration that’s supported what we consider to be high-investment grade credit,” he said. “For our purposes, we only care about the stability of the finances. It doesn’t matter if the workforce is growing, as long as revenues are growing.”

Anderson said he understands the city’s strategy with regard to bond rating, but argues that the $38.8 million allocated for funding vacant positions ought to have been cut in half, so that some property taxes could be lowered. Bond raters won’t speak to specific dollar amounts — that is, they won’t say whether $20 million dollars less for vacant funded positions in a $1.8 billion city budget might negatively affect that city’s bond rating. City administrators say they don’t want to risk it.

“I don’t know where the magic number is but at some point the bond raters are going to look at it and say, ‘man, that is way too thin,’” said Caldwell. “You have one hiccup, and it’s gone. We get a very good bond rating for a couple of reasons: a healthy carryover compared to other municipalities, we’re a city not afraid to raise fees and taxes — and they like that, by the way — we’re also willing to cut certain things. I think they see it as a mix-and-match kind of approach that other municipalities don’t want to do.”

At the crux of the issue, Anderson says, is that the city is relying on a method to maintain its bond rating at the expense of currents workers and taxpayers.

“In essence, it’s a no interest loan in favor of the city,” said Anderson. “The city is saying, ‘We took your money this year, no we didn’t use it, thanks a lot for letting us borrow it, and no you can’t have it back.”

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