LIHUE — Kauai County officials say they have done their fair share of listening over the past year.
During that time, one key theme arose consistently when the county’s finances were discussed.
“As you know, much of our discussion last year focused on the urgent need to create a ‘sustainable’ budget for the county,” Mayor Bernard Carvalho Jr. wrote in his budget message to the Kauai County Council, which he will present Monday. “I believe we all agree that it is imperative that we bring expenditures in line with revenues, that we identify alternative revenue sources wherever possible while maintaining a fair and equitable balance system of taxation, and that we begin budgeting not just on a year-to-year basis but with a longer-term focus.”
Though county budget officials say they are facing about $8.2 million in new expenses — largely attributed to approved or pending collective bargaining raises — reductions in operational expenses, workforce adjustments and projected hikes in real property tax revenues helped them offset much of it.
All told, about $1 million separates the $180.7 million budget for the current fiscal year, which ends on June 30, and the proposed $181.7 million budget proposed by Carvalho and his administration for fiscal year 2016.
Among the key changes incorporated in this year’s budget is the elimination of seven vacant positions — lost either through attrition or retirement — and a reduction in funding for 13 more.
“A lot of it is really re-engineering how the departments function, and part of our task is understanding how their departments operate, suggesting changes to them, and asking them, ‘Can it be done a different way, and if so, will this work?'” said County Tax Manager Steve Hunt.
These reductions, he said, amount to $1.9 million in savings at a time when county officials are also asking that no additional positions be added.
“The mayor has been extremely clear: we’re not going to seek any warm-body reductions for as long as we can to achieve balance,” County Purchasing Director Ernest Barreira Jr. said. “We’ll do it through attrition and that is the way to go.”
Salaries and related expenses, according to county budget documents, are projected to increase by 2.3 percent from $115.5 to $118.3 million.
Still, Barreira said, one of the more significant and ongoing challenges facing Carvalho and his administration is balancing out the collective bargaining increases that could amount to $9 million for the next fiscal year.
“As we look into next year, we’re already feeling the pinch and we’re going to have to start thinking, analyzing and strategizing about that as well,” Barreira said.
But rising property values dovetailed with real property tax measures approved by the County Council last year, including the addition of two new tax classes, is projected to bring in about $5 million in additional revenue, according to current budget projections.
The creation for a residential investor tax class alone, Hunt said, is expected to generate about $899,168 from 237 properties that are worth just over $1 billion combined, if the tax rate is set at $7.05 per $1,000 in assessed valuation.
That tax class is reserved for properties that have an assessed value of at least $2 million, do not have primary home use exemptions and are not being used as affordable rentals.
Although 1,739 properties were moved into a new commercialized home use tax class reserved for those used as primary residences with additional uses — such as a home business or long-term rental — the move resulted in a $705,686 loss in revenue.
That’s because a bulk of those newly classified properties, taxed at a rate of $5.05 per $1,000 in assessed valuation, were residential ones that had a rented second home on it.
“Those are the ones who are getting a break from $6.05 to $5.05, so it’s not as dramatic as someone coming from the vacation rental class to this new category, which is why we actually had a 3 percent growth in assessed values for that group but had a reduction in taxes by about 14 percent,” Hunt explained.
Approved changes in how timeshare units are assessed, he added, prompted a $161.8 bump in assessed values — a windfall that will amount to $1.75 million in property tax revenues for this year alone.
Perhaps one of the biggest accomplishments this year, Barreira said, is removing the need for Carvalho’s administration to tap into the county’s reserve fund for the first time in five years.
“We have to achieve a sustainable budget,” Barreira said. “Are we sustainable? Not completely because there are still some challenges.”
There is one tax increase that Carvalho is proposing to help offset the estimated $100 million in repair work that needs to be done on county-maintained roads.
A $0.005 per pound increase in the vehicle weight tax is proposed for passenger vehicles beginning on Jan. 1, 2016, Hunt said. No tax increases, meanwhile, are proposed for freight vehicles for that same time.
A $0.005 per pound tax increase for passenger and freight vehicles is being proposed for the 2016-17 fiscal year, beginning on Jan. 1, 2017.
These changes, county budget officials say, will provide more than $800,000 in additional revenues for road infrastructure repairs for the current fiscal year and $2.27 million for the following year.
“When you look at every informal survey we’ve conducted this year as a part of our interaction with the public on the budget, the island’s roads have come up as the No. 1 priority everywhere we’ve gone — it’s not law enforcement or protection issues, it’s, ‘Our roads are in horrible shape, so please fix them,’ so it’s a big issue,” Barreira said.
The State of the County address will be at 9 a.m. at the Lihue Civic Center, Moikeha Courtyard.