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Honorable Members of the Hawai`i County Council May 5, 2011 Page 5 TRANSIENT ACCOMODATIONS TAX The state Legislature has passed legislation effective July 1, 2011 which caps the amount of Transient Accommodations Tax (TAT) that is transferred to the counties at the lesser of $93,000,000 or 44.8% of tax revenues for the next four years. Hawai`i County's 18.6% share of the capped amount is $17,298,000. The impact of this action is that the County's revenue, already reduced significantly due to lower real property tax values, has now dropped another $1,370,401. In spite of this additional loss in revenue, the amended budget was balanced without increasing real property tax rates. COLLECTIVE BARGAINING AGREEMENTS All unions representing state and county employees have contracts ending June 30, 2011, and have been in negotiations with management. The first union to reach an agreement with management was Hawaii Government Employees Association (HGEA), which represents about 875 Hawai`i County employees. Terms of the agreement allow for a 5% wage decrease and a shift in the employee share of health insurance cost from 40% to 50 %. The value of the cost savings to the County based on the new agreement is approximately $3 million, of which $2.8 million impacts the general fund budget. This budget uses the estimated savings generated by employee compensation cuts to increase County reserves in the Budget Stabilization Fund. There are a number of uncertainties associated with the contractual wage and benefit savings from the recent negotiations. At the same time, we are faced with uncertain revenues and increasing expenses for fuel, utilities and other non - controllable costs. Therefore, the estimated savings were posted as a reserve and were not used to balance the budget. We know that we face new economic challenges ahead, and bolstering the County's budget reserves will strengthen our financial position and help to maintain our favorable bond ratings. GENERAL FUND BALANCE We are projecting an increase in the estimated fund balance of $3,736,000 from the estimate we provided in March. This was made possible by the ongoing efforts of the administration and all County employees to reduce costs and forego purchases and hiring whenever possible. The fund balance submitted with this budget is estimated at $13,936,000.