Honolulu freezes hiring, trims travel as tax revenues dwindle
A hiring freeze is one of a series of cost-saving measures the city is implementing in light of declining tax revenues.
"These are tough economic times, and the city needs to take steps to ensure that essential city services are maintained and that the needs of our residents are met. This is the time to focus only on what we need to have," said Bill Brennan, press secretary for Mayor Mufi Hannemann. "Despite declining revenues, we will not tighten our belt to the extent that public safety is jeopardized. Our city will remain the safest major city in the country."
In addition to the hiring freeze, the city has said there will be:
The restrictions were outlined in a memo sent to all city departments Nov. 6 and are the latest belt-tightening moves by the city. In July, the city asked department heads to trim up to 3 percent of their operating budgets for fiscal year 2009. That would amount to $54 million of the $1.8 billion operating budget.
No additional restrictions are anticipated and no city workers will be laid off, according to Mary P. Waterhouse, director of the city department of Budget and Fiscal Services. Capital projects are not affected, with the ongoing emphasis on sewer infrastructure and transit still intact.
"In the current fiscal year 2009 budget, real property valuations are based on the assessments made as of Oct. 1, 2007. The fiscal year 2010 budget will encompass some of the impact of declining home prices, but the full impact of declining home sale prices will not be realized until the fiscal year 2011 budget," Waterhouse said. "The city is anticipating a severe downturn in fiscal year 2011 and is trying to cut expenses now to avoid drastic cuts to programs and services in the future."
REVENUES DECLINING
The projections are based on declining revenues because of an array of factors, from plummeting visitor arrivals to a decline in property values.
For example, the city's gas tax revenues for the first six months of 2008 are down $3.63 million from the same period last year, according to the state Department of Taxation. Honolulu collects 16.5 cents on every gallon of gas sold on O'ahu.
How each department will adjust to the spending restrictions is still being debated, with the Budget and Fiscal Services Department leaving the window open for appeals.
"Typically what happens in times of sagging economies, government looks at the capital program to provide some relief but that's all in discussion right now," said Eugene C. Lee, director of the city Department of Design and Construction. "It's definitely not pretty, but its something that has happened before and we'll have to figure out how to deal with it."
If property values are down when next year's assessments come out in December and spending remains the same, an increase in tax rates may follow.
Last year, the total assessed value of residential property on O'ahu decreased for the first time in six years, falling 2.7 percent.
A UNIQUE CRISIS
Downturns in the economy are nothing new, and the city has faced economic troubles in past market cycles.
The state felt the economic pinch in the early 1990s and again after Sept. 11, 2001, but rebounded after the global economy strengthened and consumer habits improved, said Jack P. Suyderhoud, a professor of business economics at the University of Hawai'i's Shidler College of Business.
The current crisis however, is unique, Suyderhoud said, because companies, individuals and municipal governments will be less able to rely on debt to support their spending. That means the growth in consumer and business spending will not be as robust as it was in previous economic expansions.
"The revenue shortfall is very real. For city government, the coffers are not going to fill up as fast as they did in the past in the current low-growth environment. The visitor arrival numbers look dismal through 2009. It's going to be 2010 before the economy gets better, and its going to be the fiscal year 2011 before the city budget gets much better. This is a different animal we're dealing with."
DIFFERENT OUTLOOKS
There are differing views among Honolulu City Council members about how the Hannemann administration is dealing with the budget issues.
The council will help with city finances to the extent that it can, said council chairman Todd K. Apo. It may be time to return to discussions about relaxing the rules to gain access to a fund that supports vacant, funded positions, he said.
"If there are places that the council believes can be dealt with from a policy position that can help the city with the economic situation, then we will be looking at that," Apo said. "Hopefully, there is room and discussion for those types of situations."
City Councilman Charles K. Djou said the need to make drastic budget adjustments would not be necessary if the size of government had not grown as much as it has.
"I think the initial steps are good. The hiring freeze and the stops on travel, no promotions, I'm supportive of it," Djou said. "We might even have to go deeper if the fiscal outlook continues to worsen. I have long held that our government is too big and we're spending too much."
The economic downturn is being felt by municipalities from New York to Los Angeles, as well as the federal government.
New York City is facing a $2.8 billion budget shortfall, and Mayor Michael R. Bloomberg is asking city departments to cut spending by 5.6 percent. In January, Phoenix reported the need to trim more than $70 million from its budget by June 2009 to compensate for shortfalls.
