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This commentary was originally published May 30, 2019, in Honolulu Civil Beat.

If Honolulu County ever needed a cap on annual spending growth, that time is now.

Mayor Kirk Caldwell’s recently approved budget for fiscal year 2020 called for a $220 million increase in county expenditures over the previous year, and the plan is to pay for it through increased property taxes and fees.[1]

This type of budgeting is unsustainable. Honolulu County’s fiscal 2020 operating budget is 6.15% greater than it was in fiscal 2019,[2] which by contrast was only 3.84%[3] more than in fiscal 2018. Between 2016 and 2020, the county’s average annual increase was 2.65%.[4] In contrast, Honolulu’s private-sector gross domestic product increased during that same period at an average of 2.8%.[5]

Ideally, the county would cap its spending at or below the local GDP. This is known as a smart spending cap,[6] which a report by the International Monetary Fund[7] correctly points out can help governments keep their expenditures under control during healthy economic times and be better prepared for potential economic downturns.

If Honolulu lawmakers had capped the county’s annual spending growth at 2% beginning with the fiscal year 2020 budget, they could have saved nearly $300 million by 2025, assuming previous revenue trends continue.

To their credit, the mayor and councilmembers have made efforts to increase Honolulu’s reserves over the last five years, though they could be doing more. Currently, the county has emergency savings — or a “fiscal stability fund” — of $142 million. That is only 5% of the county’s $2.8 billion operating budget,[8] but it’s a larger proportion than in 2015, when the fund totaled $72 million, or 2.5%.[9]

To cover the increased spending of their latest budget, the mayor and Council targeted hotels and investment properties.[10] On the surface these taxes would appear to go easy on most Oahu residents, but it’s not that simple.

Added costs could endanger the already-declining hotel industry, resulting in fewer hotel jobs.[11]

In addition, said Suzanne Young, CEO of the Honolulu Board of Realtors, “any increase in the Residential A property tax will be absorbed by owners or passed on to renters. If those costs are too prohibitive, then property owners will sell. And that means a loss of rental units on the island.”[12]

Residents already are struggling to make ends meet, leading to at least 27,000 Oahu residents leaving the state since 2010.[13] The latest GoBankingRates annual report found that Hawaii residents are once again the most likely in the entire nation to be living paycheck to paycheck.[14] Raising taxes and fees to accommodate the county’s spending binge will only make it harder for Oahu’s remaining residents. For those who leave, they take their earning power with them, meaning the county will have fewer taxpayers to help pay its bills.

In order to balance the budget and promote a healthy economy, Honolulu County should prioritize its spending and eliminate waste, fraud and abuse, so as to incentivize efficiency and ensure stable taxes and fees for Oahu’s already beleaguered taxpayers.

Implementing a smart spending cap would be a smart way to help make that happen.

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[1] Ordinance 19-13, City and County of Honolulu, June 2019, //www4.honolulu.gov/docushare/dsweb/Get/Document-238467/DOC%20(32).pdf.

[2] Ordinance 19-13, City and County of Honolulu, June 2019, //www4.honolulu.gov/docushare/dsweb/Get/Document-238467/DOC%20(32).pdf. and Ordinance 18-23, City and County of Honolulu, June 2018, //www4.honolulu.gov/docushare/dsweb/Get/Document-206392/ORD23.PDF.

[3] Ordinance 18-23, City and County of Honolulu, June 2018, //www4.honolulu.gov/docushare/dsweb/Get/Document-206392/ORD23.PDF. and Ordinance 17-32, City and County of Honolulu, June 2017, //www4.honolulu.gov/docushare/dsweb/Get/Document-195496/DOC009%20(17).PDF.

[4] Ordinance 19-13, Ordinance 18-23, Ordinance 17-32, Ordinance 16-14 and Ordinance 15-25, City and County of Honolulu, //www.honolulu.gov/cms-bfs-menu/site-bfs-sitearticles/6412-fiscal-year-2016-executive-program-and-budget.html.

[5] “MAGDP9 Real GDP by metropolitan area,” U.S. Bureau of Economic Analysis, Sept. 18, 2018, www.grassrootinstitute.org/wp-content/uploads/2019/05/download.pdf.

[6] Austin Berg, “Fixing Illinois’ busted budgets: Spending cap amendments filed in House and Senate,” Illinois Policy, Feb. 8, 2018, //www.illinoispolicy.org/fixing-illinois-busted-budgets-spending-cap-amendments-filed-in-house-and-senate/.

[7] Till Cordes, et al., “Expenditure Rules: Effective Tools for Sound Fiscal Policy?” International Monetary Fund, February 2015, p. 3, //www.imf.org/external/pubs/ft/wp/2015/wp1529.pdf.

[8] “The Executive Program and Budget Fiscal Year 2020,” City and County of Honolulu, //www4.honolulu.gov/docushare/dsweb/Get/Document-235412/FINAL_BBook_Operating_FY20_2019-03_01_v1_OPTIMIZED.pdf.

[9] “The Executive Program and Budget Fiscal Year 2015,” City and County of Honolulu, //www.honolulu.gov/rep/site/bfs/fy2015oper.pdf.

[10] Wayne Yoshioka, “Honolulu mayor rolls out proposed 2020 spending plan,” Hawaii Public Radio, March 1, 2019, //www.hawaiipublicradio.org/post/honolulu-mayor-rolls-out-proposed-2020-spending-plan. “[Mayor Caldwell] said real property and motor vehicle taxes are expected to bring in $120 million more but other taxes must go up to fund his spending plan.”

[11] Allison Schaefers, “Hawaii’s hotels record second straight month of declining business in 2019,” Honolulu Star-Advertiser, March 25, 2019, //www.staradvertiser.com/2019/03/25/breaking-news/hawaiis-hotel-industry-records-second-straight-month-of-declining-business-in-2019. “Statewide february revenue also decreased nearly 6 percent from the year-ago month to $360 million.” See also, “Hawaii Tourism Authority: Visitor spending down 2.4 percent in Q1 2019,” hawaiinews.online, April, 2019, //hawaiinews.online/hawaii-tourism-authority-visitor-spending-down-2-4-percent-in-q1-2019.

[12] Testimony by Suzanne Young, CEO of the Honolulu Board of Realtors, April 17, 2019, page 34, //www4.honolulu.gov/docushare/dsweb/Get/Document-236460/m181.pdf.

[13] Associated Press, “Census: Oahu Population Decline 62,000 From 2010 to 2018.” April 26, 2019, //www.usnews.com/news/best-states/hawaii/articles/2019-04-26/census-population-on-hawaiis-oahu-has-fallen-by-62-000.

[14] Cameron Huddleston, “States where you’re most and least likely to live paycheck to paycheck,” April 5, 2019, //www.gobankingrates.com/making-money/economy/states-most-likely-to-live-paycheck-to-paycheck/#2.