Overextended

LIHUE — County of Kauai officials said they have to tighten their belts if they want to find the money to pay for increased costs in the upcoming budget.

Department heads are being tasked with finding a collective $8.2 million in cuts or reductions as they prepare for the fiscal year 2016 financial plan.

It’s a move that, county officials say, will help them offset about $11.8 million in increased costs next year, including $8.9 million in anticipated collective bargaining raises for all unionized county employees.

But doing so, they acknowledge, won’t be easy.

“If we’re going to have to do a substantial budget cut, there will be an impact on services — we don’t know where, but there will be,” said Assistant Chief Procurement Officer Ernest Barreira.

Although the creation of a new real property tax class for non-occupied homes valued at more than $2 million and a new valuation method for timeshare properties is expected to generate about $3.6 million in additional revenue, county officials say it will not be enough to offset expected employee pay increases for the next fiscal year, which begins on July 1.

This year, the county’s budget is about $180 million.

Breaking down the raises

Employees represented by the State of Hawaii Organization of Police Officers, Hawaii Fire Fighters Association and one Hawaii Government Employees Association collective bargaining unit will receive about $4.9 million in pay hikes next year.

Negotiations with four HGEA collective bargaining units are still ongoing, but union officials are asking for nearly $4 million in pay increases for county employees represented by them, County Tax Manager Steve Hunt said.

If approved, it would put pay increases at $8.9 million for Kauai County employees. And it’s not as simple as saying no to the request for county officials. That’s because several other agencies have votes on the matter. When negotiating collective bargaining contracts for police officers and firefighters, the governor has four votes, while each of the four county mayors has one vote. So, if Kauai representatives turned down the offer, they could still be outvoted in the affirmative.

For all other bargaining units, except education, the governor has six votes while the four mayors, the chief justice and the Hawaii Health Systems Corporation Board have one vote each.

“We went into the initial budget, saying, basically, ‘Freeze everything, but what is our additional cost,’ and primarily, it’s collective bargaining that’s driving this,” Hunt said. “Even without hiring new employees, there’s still another set of raises that are coming.”

But the previous agreements are what’s driving up the local budget.

Kauai Fire Department personnel alone, for example, have received 2 percent across-the-board pay increases every January and July since July 1, 2013, according to the Hawaii Fire Fighters Association collective bargaining contract approved that year by the Kauai County Council.

That contract includes a final 5 percent across-the-board pay increase when it terminates on July 1, 2016.

Non-supervisory employees in blue-collar positions represented by United Public Workers, meanwhile, have received 2 percent per month across-the-board pay increases since Oct. 1, 2013. Their contract ends on April 1, 2017.

Renegotiating collective bargaining?

When asked if there have been, or will be, efforts to re-negotiate collective bargaining terms with unions representing county employees to reduce the financial hit to the county, officials say that task is easier said than done.

“Collective bargaining agreements are periodically renegotiated with the various unions representing certain employee groups,” Deputy County Attorney Ian Jung wrote in an email. “Once the agreement is forged, renegotiating the terms midstream of the agreement would require consent of the unions, state and counties.”

Hawaii Government Employees Association Executive Director Randy Parreira said union officials “are aware that Kauai is facing some challenges, budget-wise” but could not recall a time when state and county officials re-negotiated collective bargaining contact terms.

“For us, we have not seen a day in our past where any county has sought to renegotiate terms of a contract,” Parreira said. “A lot of what is arising shouldn’t come as a surprise because the agreements were forged solidly in good faith, so it should have been factored into the county’s financial planning.”

County spokeswoman Mary Daubert said the Department of Human Resources director and an attorney from the Office of the County Attorney sit at the table during collective bargaining discussions.

The maximum salary limits for either county representative, according to the Kauai County Charter, are set by the Salary Commission and reviewed by the Kauai County Council and the mayor each year — meaning their compensation isn’t subject to collective bargaining.

What has primarily placed the county in a financial predicament, Hunt said, are two key factors: declining revenues and increasing costs, driven in part by raises.

Between 2010 and 2014, the county’s operating expenses increased by 13.6 percent from $127.4 to $144.8 million, respectively.

About 83 percent, or $14 million, of the jumps in operating expenses is attributed to five county departments: $4.9 million for the Kauai Police Department; $4.4 million for the Kauai Fire Department; $1.8 million for the Department of Public Works; $1.8 million for the Kauai Transportation Agency; and $1.6 million for the Office of the Prosecuting Attorney.

During that same time, two main revenue sources, real property taxes and the county’s proportional share of the state’s transient accommodations tax, took some hits.

Starting in 2010, real property tax revenues steadily declined from $91.5 million to $80.7 million by 2012. But those same revenues increased to $82.1 million in 2013 and 93.8 million in 2014.

“Part of that was the recovery of the market but also changes in tax rates becoming more centric with state averages,” Hunt said.

Compounding the problem, he added, was a $93 million cap approved in 2011 by state lawmakers on the proportional share of revenues that counties can receive from taxes levied on the gross rental income of short-term accommodation operators.

Since then, the County of Kauai’s annual share of those tax revenues amounted to $13.5 million, until state lawmakers increased the shared amount to $103 million during the last legislative session.

The county is expected to receive $14.9 million until 2016.

But, had state lawmakers not capped the revenues at all, the county could have received up to $30 million in additional taxpayer money between 2012 to 2014 and created a sustainable budget, Hunt said.

“Beginning in 2011, operational expenditures have exceeded general revenue coming in, so we’ve been in an imbalance ever since then,” Hunt said. “The only thing that has provided us with a balanced budget are our fund balances.”

In all, county officials withdrew $32.2 million from reserve funds to help balance the county’s budget, according to county finance documents. The fund used to sit at $68 million in 2010 but is $33 million now.

“Had we received our TAT revenue, we would have come real close to being structurally sound from our budget perspective where our revenues and expenditures were in check,” Hunt said.

In addition to asking county departments to identify about $8.2 million in collective budget cuts, county officials are pursuing a variety of options that could stave off further reduction measures and bring in more revenue.

Instituting a hiring freeze and not filling 83 fully and partially funded vacant positions, Hunt said, could save about $4.7 million in salary and fringe benefits. The county has about 1,200 employees.

County employee salaries and benefits constitute about 80 percent of the county’s budget obligations.

“If a department head comes in and says, ‘I want to cut 20 percent in office supplies,’ that’s not going to address our problems,” said Barreira. “It’s re-engineering and finding ways to work more effectively with less people when the opportunity arises and without bringing harm to people who are currently employed.”