Loading...
HomeMy WebLinkAboutCOM 1039.079 2006-2008 JNtY.OP fy Harry Kim Dixie Kaetsu Mayor Managing Director ^ ••P`' Barbara Kossow *6; 1N P~ Deputy Managing Director (County of 7"aivat`t 891 Ululani Street . Hilo, Hawaii 96720 • (808) 961-8211 • Fax (808) 961-6553 KONA: 75-5706 Kuakini Highway, Suite 103 • Kailua-Kona, Hawaii 96740 (808) 329-5226 9 Fax (808) 326-5663 ru ca cs June 13, 2008'y ..7„ r..,..-, The Honorable Pete Hoffmann, Chairperson,' and Members w Hawaii County Council 333 Kilauea Avenue Hilo, Hawaii 96720 co Casey Jarman, County Clerk County of Hawaii 333 Kilauea Avenue Hilo, Hawaii 96720 Re: Veto Message - Bill 252 Draft 4, Operating Budget, Fiscal year 2008-09 Dear Chairperson Hoffmann, Council Members, and Ms. Jarman: Pursuant to Section 3-12 of the Hawaii County Charter, I am disapproving Bill 252 Draft 4 and returning it to you. The major points of concern which led to the veto of the budget bill follow. Revenue Projections are Unrealistic Given the status of the current year's budget and the state of the economy, the estimated revenue amounts in the budget passed by the Council exceed expectations. A major reason for this is: • The increase in the General Fund's estimated revenue from prior year's fund balance. The $16.1 million fund balance that was included in the administration's General Fund budget was based on an analysis of each account in the current year's budget. This projection is reasonable based on the most recent revenue and expenditure information, and is as accurate as such projections can be. It is not felt to be conservative. We do not believe that the fund balance will be higher than this. The $21.36 million estimate in the budget passed by the Council exceeds the revenue the Finance Department projects by $5.25 million. Gomtln. 3 4.7 q Ref. Tot 1aM Jun 14 1.06V Ref. Date Hawaii County is an equal opportunity provider and employer. June 13, 2008 The Honorable Pete Hoffmann, Council Members, and Casey Jarman Page 2 Other Factors Affecting Revenues • The projected revenue from the Transient Accommodations Tax. Quarterly TAT projections by the Council on Revenues have dropped every quarter since May 21, 2007. It is noted that the projected revenue from the TAT, representing 5% of the operating budget, is the amount included by the administration in its May budget submittal and was not changed by the Council. However, given the current state of the national economy and the loss in passenger seats to Hawaii because of the closure of Aloha and ATA airlines, there is reason to be concerned about the County's share of the transient accommodations tax revenue for the upcoming fiscal year. While the estimate in the budget is based on the latest revenue projections by the Council on Revenues, there is a very real potential for a significant shortfall of up to 5% based on what is projected for the tourism industry in the near future. Note that a single percentage shortfall would result in lower revenues of $200,000. • Lower tax revenues due to tax rate decreases. The administration's budget was based on lower tax rates on buildings for agricultural and improved residential classes of property. However, the County Council adopted tax cuts larger than what was proposed and included in the budget, which led to a $2.3 million decrease in property tax revenues. This revenue decrease was one of the reasons that the estimated fund balance was increased by the Council to offset the lower property tax revenues. Changes in Authorized Expenditures The Council made several significant changes in expenditure accounts that are very strongly disagreed with given the concerns of projected revenue shortfalls. These include: • Elimination of any amount for the Budget Stabilization ("Rainy Day") Fund. Both the March and May budget submittals included $1 million for this fund. The entire amount of this transfer was eliminated. The elimination of this entire amount in the Council's budget leaves no amounts to be set aside this year for unanticipated expenditures or shortfalls of revenue. As you know, it was strongly recommended to the County of Hawaii by bond rating agencies that such a fund be established, and this was done by the Council several years ago. This is prudent fiscal management and can help ensure favorable ratings and interest rates for future County general obligation bond issues. If funded adequately, it can provide a welcome and needed cushion against unanticipated economic downturns. Unfortunately, since the fund was created, only $1 million in total has been set aside in prior years. With uncertain economic times ahead and possible revenue shortfalls, it is of utmost importance that the Budget Stabilization Fund be regularly funded. June 13, 2008 The Honorable Pete Hoffmann, Council Members, and Casey Jarman Page 3 • Reduction in the amount for the Public Safety Disaster/Emergency Fund. The amount of $1 million from the General Fund was proposed for this fund. Draft 4 of Bill 252 reduced this to $154,000. Taking $846,000 away from funding response to natural disasters, as well as the required County matching funds for FEMA assistance, will place the County in a very difficult fiscal position when disasters occur. The present balance of $2.1 million in the Disaster/Emergency Fund, augmented with only an additional $154,000, can be very inadequate in the event of a natural disaster such as the earthquake of 2006 when County matching funds were required for FEMA assistance. • The appropriation for Workers' Compensation was reduced. The appropriation for workers' compensation payments was reduced by $400,000. This is of concern because the County cannot predict in advance when employees will be hurt on the job. The funds must be there when needed to pay the amounts we are legally mandated to pay. The proposed $2.5 million is believed to be an adequate amount to set aside; the reduction in this amount to $2.1 million is not felt to be prudent. Conclusion For the reasons outlined above, Bill 252 Draft 4 has been vetoed. It is fully recognized that the County Council has the power to amend the budget as presented by the administration. The seriousness of the economic situation mandates that the County's balanced budget stay within what we project to be realistic revenues. The status of the economy also emphasizes the importance of setting aside funds in the Disaster/Emergency and Rainy Day Funds. This veto is based on the firm belief that the Council's proposed budget is not considered to be fiscally prudent due to unrealistic revenue projections and the lack of funds set aside for emergencies and revenue shortfalls. It is not felt that this bill is in the best interests of the County and its people. Should the County Council override this veto, the possible shortage of revenues requires prudence in implementing this budget. This will mean that none of the additional appropriations authorized by the Council (with the exception of the Council pay increases mandated by the Salary Commission) will be available to be spent until the County is assured that revenues will be sufficient to cover the cost. If the fund balance does not reach the budgeted level, or any other revenue shortfalls occur such as in TAT revenues, an amendment to the operating budget will be transmitted to you to adjust the operating budget to reflect the lower revenue amounts and cut appropriations to keep the budget in balance as required by law. This situation last occurred in FY 2001-02, when revenue shortfalls resulted in mid-year amendments to ensure a balanced budget. Certain programs, positions, and equipment had to be eliminated due to this shortfall. June 13, 2008 The Honorable Pete Hoffmann, Council Members, and Casey Jarman Page 4 Thank you for your understanding. If you have any questions, please feel free to contact the Department of Finance. a, arry Kim MAYOR cc: William Takaba, Finance Director Gary Takamura, Budget Administrator