A dysfunctional budget process

The Kaua‘i County Charter offers a very tidy summation for the operation of the county government. It states (in Article III) that the legislative power of the county is vested in and to be exercised by the Kaua‘i County Council and (in Article VI) that the executive power of the county is vested in and to be exercised by the mayor.

It goes on to provide that annually the mayor is to submit operating and capital budgets to the Kaua‘i County Council for its consideration and adoption and that the council shall enact annually a balanced operating budget.

Despite the guidance from these clear words, our county is severely dysfunctional in its budgetary process and in its operation of the legislative function for its property tax.

Each year the mayor submits to the council his proposals for the content of the County’s operating and capital budgets. And then the council spends considerable time educating itself on the content of the proposed budgets, following which it makes some modest changes and then adopts substantially what the mayor has given them.

In neither the mayor’s presentation nor the council’s deliberation do our officials get to the heart of the extent of the expenditures to be made. Last year the operating budget adopted was over $160 million, but the actual expenditures will be less than $100 million, creating what is euphemistically called an operating surplus.

The principal cause of this large differential is that the mayor seeks funding for employee positions that are not filled.

In this process, a considerable amount of taxpayer funds which are obtained as revenue by the county are stashed in county coffers but will not be currently required by the county.

To say that this budget is balanced may perhaps be accurate in an accounting sense but not in the real world. While the county may legitimately budget for contingent expenses, the present surplus is indefensible. A $60 million dollar surplus is nearly $1,000 for each man, woman and child on our island.

Shouldn’t our taxpayers be able to keep and use for their needs funds the County doesn’t actually require?

Some council members have declared that they will scrutinize the 2012 budget more carefully and seek to eliminate most of the padding that has characterized recent mayoral submissions. Let us hope that their efforts will be productive.

The largest part of county revenues is obtained from the property tax.

This tax remains essentially in the archaic form it had when the county acquired its administration from the Home Rule terms of the 1978 state constitutional convention. It needs a comprehensive overhaul.

Several proposals for broad change have been made over the years but such reform has not occurred. The Department of Finance administers the tax.

Perhaps because of this role the administration has developed a proprietary attitude about what the terms of the tax law should be. Last fall the mayor offered a series of bills intended to change the law in both administrative and policy respects.

This activity is inconsistent with the basic structural concepts of the charter which visualized that the council would have responsibility for policy and the mayor would have responsibility for execution of the operational functions of the county. While it is reasonable that the mayor and the administration should have some voice in policy issues aggressive prosecution of its policy views is inappropriate.

 The path for the administration to control tax policy is made easier because most members of the council are not sophisticated about tax matters and they defer to the supposed expertise of the finance department people.

The knowledge of the administration is not always superior. Let’s look at a couple of examples. Expanding exemptions for resident homeowners and giving benefits for low income taxpayers are always popular to some. One recent proposal from the administration would provide a $120,000 additional exemption for a taxpayer with income less than 80 percent of Kaua‘i Household Income. Eligible taxpayers would save about $400 annually. The measure sounds good, but it is not adequately considered.

The provision does not distinguish between taxpayers, it abandoned the income criteria of “adjusted gross income” which appears on your tax return, and instead is based on “federal total income” which is said to be defined in the Internal Revenue Code, but is not.

And it unwisely provides the full benefit if the income is at 79 percent of the designated level and zero if it is at 81 percent.

The law is already archaic in having eight taxpayer categories as most other jurisdictions use only a single category for all taxpayers and then apply exemptions as appropriate.

 A second  administration proposal adds a new category for vacation rental properties, making the new total for taxpayer classifications nine.

The council meekly adopted these dubious proposals without demurrer, thereby encouraging the administration to usurp even more of the legislative domain of the council.

Recently, because the recession induced lower property values, taxes for other classes of taxpayers have gone down over $20 million, but due to the 2 percent cap, taxes for resident homeowners have risen about $5 million.

Presently, Bill 2425 is pending in the council. It would raise exemptions for homeowners significantly, and it states it will provide relief to homeowners.

It raises a number of interesting points but contains flaws which I plan to discuss in a subsequent article.

The people should have a voice in how they are to be taxed. Instead, on our island it appears that the essential elements of the principal county tax are being determined by those on the mayor’s staff and more or less routinely acquiesced in by our docile council.

• Walter Lewis is a resident of Princeville and pens a biweekly column for The Garden Island.

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