With a lot of unknowns and costs outside the county’s control, officials are casting about for budget solutions closer to home — solutions that could include hikes in taxes and fees.
As Mayor Harry Kim kicked off three days of department-by-department budget reviews Tuesday, he and members of the County Council Finance Committee agreed some tax or fee hikes are probably inevitable.
There are unknowns on the revenue and expenditure sides.
“The frustrating thing for us, is we don’t have a lot of control over these things,” said Deputy Finance Director Deanna Sako.
On the revenue side is the still unknown status of the transient accommodations tax. The tax on short-term rentals, popularly called the “hotel tax,” has accounted for about $18 million annually and is the second-largest revenue source behind property taxes. Its status remains mired in the state Legislature.
On the expenses side, the union negotiations at the state level remain to be completed. Each 1 percent increase for all of the unions currently under negotiation would add $2.5 million to $3 million annually to the county’s $474 million budget.
“This isn’t about whether people deserve or don’t deserve anything,” Kim said. “This is about what we can afford.”
Among the tax and fee options are property taxes, gas taxes, permit fees and a one-half cent general excise tax surcharge.
Kim said he is most amenable to raising the gas tax, currently at 8.8 cents per gallon, which can be used for road repair and mass transit projects. Hawaii County’s gas tax is the lowest in the state and it hasn’t been raised in a long time, he said. The gas tax brings in just more than $8 million and was last raised in 1988.
“We can’t play any kind of catch up,” Kim said. “Personally, I feel this has to be done.”
Hilo Councilman Aaron Chung questioned whether Kim would support a half-cent surcharge to the general excise tax, if the choice is again enacted by the state Legislature. The previous County Council voted this measure down, but Chung said something needs to be done in a tight budget year.
“The Legislature makes the rules. You can’t escape that already,” Chung said. “That’s the reality. …. We’re going to be grumbling for the next 20 years. They’re not giving (the transient accommodations tax) to us because they don’t want to raise taxes. … It’s something we really have to look at if we want to be responsive to our districts. We’ve really got to start thinking about this if we want to service the public.”
That’s Kim’s last choice.
“It is the most regressive tax there is,” Kim said. “We would tax most heavily those who could least afford to pay it.”
Officials should know next week how much the county property tax value is, which will give number crunchers an idea of how much extra the county will have in its coffers from increases in valuations alone without raising property taxes. Kim on May 5 will present his final proposed budget taking those numbers into account.
Property taxes were raised three times in the past five years.
“I’ve heard when property values are going up, this is not the time to raise rates,” said North Kona Councilwoman Karen Eoff.
But there might be ways to get more money from property taxes without across-the-board increases. Council members suggested tapping into the lucrative vacation rental market by creating a property classification and charging appropriate taxes.
“Too much of a good thing can be a bad thing,” Eoff said about the proliferation of the rentals, adding that taxing them “is a growing opportunity that may not be a bad thing.”
The county also is looking at property owners who pay only the minimum tax rate. Some 35,689 property owners paid the $100 minimum property tax last year, with some paying as little as $25 annually. That’s out of 140,858 taxable properties.
“Whenever you’re talking about an increase in taxes, it’s going to be unpopular,” Eoff said.
Email Nancy Cook Lauer at ncook-lauer@westhawaiitoday.com.
