2017-05-05 Message to Council Chair and Members of the Hawaii County Council re the Hawaii County Budget

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Honorable Members of the Hawai`i County Council May 5, 2017 Page 2 REVENUE The Transient Accommodations Tax (TAT) was reduced by the state legislature. This put an additional strain on our budget. In addition, our projection for fund balance is lower than our estimate for the March submittal. This also created a need for additional revenue. During April, the real property tax values were certified. This provided us with final numbers to aid in balancing and making decisions about the budget. While the real property tax values did indeed increase, this did not provide enough real property tax revenue to balance the budget. IMPACT After all of the above expenditure and revenue changes, an additional $21.5 million in revenues was needed to balance the general fund budget. We looked at many forms of revenue increases, including looking at our real property tax rates and other related options. After careful consideration, it is our proposal to increase the real property tax rates by approximately 6.5% on all classes except affordable rental, to protect those most at risk. See Exhibit A for our proposed real property tax rates. In addition, the minimum tax rates will also be changed to ensure that everyone is paying their fair share of real property taxes. To help offset these increases and to help protect those on fixed incomes, we are proposing to add two additional levels to our homeowner age exemptions. This would create an additional exemption at 75 and another one at age 80. More information on these proposals can be found on Exhibit A. Bills for both of these changes are being submitted with the budget. We have also added a Real Property Tax Valuation Analyst to the budget to act as a compliance officer. The first project assigned to this person, will be to create a new classification for vacation rentals. While this will not generate additional revenue for this coming year,it will have an impact on the following year in fiscal year 2019. In addition,we have reviewed the fuel taxes that go to help with road paving and our transit system in our Highway Fund. These taxes have not been increased since 1988. The condition of our roads continue to deteriorate at a rapid rate. It is time to take action to improve our roads and transit system. The Highway Fund has experienced two years of significant declines in the franchise tax revenue. Along with rising costs for roads, traffic and transit, the fund can no longer operate effectively without an increase in revenue. We are proposing an increase in fuel tax rates to be staggered in over a three year period. The proposed fuel tax rate increases are attached as Exhibit B. We are submitting legislation with the budget to effect these rate changes. Significant Changes to March 1, 2017 Revenue Estimates General Fund • Real Property Tax revenue projections have increased by approximately $21.5 million primarily due to the proposed real property tax rate increases in almost all classes. In addition, the estimated revenue includes increases to the minimum real property taxes, as well as, the County of is an Equal Opportunity Provider and Employer.