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Fiscal Crunch Faced by All Counties

posted in: Weekly Commentary 0
By Lowell L. Kalapa

Not only is the state faced with a fiscal crisis this year, but the counties in some way or another are all faced with a financial dilemma of some sort.
In Honolulu, the city administration is attempting to balance the budget with smoke and mirrors by stealing funds from dedicated special funds like the sewer fund and deferring the payment of debt by taking out short term commercial paper and refinancing the bonds that would have been due.
Over on the Big Island, reality has set in and calls for raising the real property tax are now on record. Likewise, the budget debate rages on in Maui and Kauai counties, each with its own financial dilemma. While the reasons differ for each of the county’s financial dilemmas, the root of the problem is the same. Spending just got away from elected officials at a time when the property tax base was shrinking.
After an economic boom that saw property values soar in the late 1980’s and early 1990’s, the downturn in the state’s economy and therefore the demand for real estate tarnished the shine on the economic crystal ball. Although it was apparent that the economic slump was going to last for sometime and that property values would not continue to grow, county officials continued on their merry way in expanding programs and undertaking new projects that would, in the long-term, mean higher operating costs.
While the real estate market has turned around in a sense, sales are being made, prices have not soared as they did in the early 1990’s. In a sense the real estate market has made a correction for the overinflated values of the earlier go-go days of the 1990’s. The result is that the tax base has made only modest gains while the operating expenditures of the counties have expanded on what was already an overly inflated base fed by the earlier real estate boom.
Thus, the challenge to county lawmakers is how to deal with what will be a lack of sufficient revenues and a spending program that has gone well beyond the means of the county to raise the funds to pay the bills. The contrast between the leadership in Honolulu and Hawaii County is painfully obvious.
Because it is not “PC” or politically correct, the Honolulu city administration would rather raid special funds much like state lawmakers than raise taxes or cut spending. On the other hand, the elected officials on the Big Island have already put up the red flags and are calling for an increase in the real property tax.
Indeed, the real question here is not so much whether or not it is politically correct to raise real property taxes as much as it is whether or not the voters in either county are willing to pay more for the services they would receive under the proposed budgets of the respective counties.
Indeed, there is nothing wrong (such heresy!!!) in raising real property taxes as long as taxpayers believe that the services they are receiving are worth the tax dollars that they are to pay for those services. And that is the crucial point to understand. Are taxpayers willing to pay for the services that will require an increase in their property taxes?
And perhaps that is the weakness in the counties’ budgeting and tax-rate setting process. In most cases, the hearings on the budget are held prior to the time when council members must take a vote on whether to raise the property tax rate. If voters/taxpayers were presented with the choice of cutting spending or raising property taxes, the decision to be made might be a whole lot easier.
For example, if taxpayers knew that the lighting at the park down the street would cause their property tax bill to rise by ten cents or fifty cents per thousand dollars of value, they might have second thoughts. Or if taxpayers were given a choice between repairing a sewer line or planting trees down the middle of a boulevard, they might think twice about that choice.
With the budget decisions now in the laps of the respective county councils, the hard decisions need to be made. Will it be raiding the sewer fund in Honolulu or raising the property tax rate by 15.6%? Is an increase in the Hawaii county property tax rate justifiable given the various services the administration wants to preserve?
More importantly, are real property taxpayers willing to pay more or are they willing to forego a variety of county services? As noted earlier, there is nothing wrong with raising real property taxes, the question is whether or not taxpayers consider the services provided worth their hard-earned tax dollars.

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