LIHUE — The mayor has submitted his proposed budget supplemental for the 2016 fiscal year to the County Council.
In it, Mayor Bernard Carvalho Jr. asks for $182.2 million, which is a slight increase over the $181.7 million he originally requested in March. That new number does not, however, take into account the recent ratification of Hawaii Government Employees Association union contracts, which will cost the county an additional $1.3 million in wages and other associated benefits.
Under this plan, total expenses outweigh total revenue by approximately $1.7 million. If it is approved, the county will need to continue the multi-year trend of using unassigned reserve funds to balance the budget.
However, the mayor’s administration noted that this is a dramatically lower amount than in the past and is a responsible step toward a sustainable budget. For comparison, the county dipped into the General Fund to the tune of $18.5 million, $11.7 million and $3.1 million in the past three fiscal years.
In a written message delivered to the council Thursday, the mayor said that changes from his original proposal reflect “recent events and new developments over the preceding two months.”
One of those changes in the operational budget is providing funds so that the county does not drop below the minimum number of 136 firefighters on staff, which is required as a condition of a public-safety grant already received from the federal government. If the county drops below the minimum number, then it would have to repay the $944,700 grant.
The largest change in the recommended Capital Improvements Project budget is $5 million to capture biogas from the Kekaha Landfill. That project is funded by the Solid Waste restricted fund, and the expenditure is necessary due to federal Environmental Protection Agency requirements.
In his message to the council, the mayor also provided an updated discussion of the county’s financial outlook, which he says has been positively impacted by the projected increase in real property tax revenues due to prior rate adjustments and an increase in valuations.
But the mayor urged caution, noting that there are many fiscal challenges ahead, and warned the council to not be lulled into thinking that the nearly $12 million in remaining unassigned funds will provide a reliable cushion.
The mayor’s message included guidance from the Government Finance Officers Association, which recommends that the county build a reserve large enough to last two months, and noted that a larger fund balance would help the county achieve higher credit ratings.
In 2014, the county’s credit rating was downgraded from AA to AA- by Fitch Ratings, and Standard and Poor’s revised the financial outlook from stable to negative. The downgrades were attributed in part to the county’s continued use of the reserve fund to balance the annual budget. The county’s debt service, which includes principle payments and interest, currently costs $9 million a year.
Looking ahead to FY 2017, the mayor warned that conservative projections show an $8 million hole due to additional public employees collective bargaining wage increases that have already been approved.
The council will now decide if it wants to make changes before the budget is finalized. The 2016 fiscal year begins on July 1, 2015.
The mayor’s proposed supplemental budget recommendation is available online at www.kauai.gov.