LIHU‘E — When Mayor Bernard Carvalho Jr. gives the Kaua‘i County Council on March 15 the budget for Fiscal Year 2014, he may not have to include a reserve fund in his proposal.
The council’s Finance Committee Wednesday voted to receive Bill 2457, shelving it without action. The bill would require in the budget a reserve fund of 25 percent of the county’s operational budget from the previous year.
But the council can still add a reserve fund to FY 2014 budget as a line item.
“I am torn between having a discussion about why we need to receive this bill or saving that discussion for later,” said Committee Chair Tim Bynum, adding the county is in a “very unusual circumstance historically” because some of the budget practices in the last couple years were “extraordinary.”
The county’s current reserve fund policy was established by resolution, which lost effect when the new council body took over. A permanent fund can only be established by ordinance.
Bynum has fought with the administration to have a permanent reserve fund in the budget, but on Wednesday he voted to receive the bill.
In the last few years, the administration has assigned a “very large portion” of the general fund balance, or surplus, for particular purposes and “above and beyond” what was necessary, Bynum said. Auditors said such practice put constraints on the council’s ability to budget for FY 2014, according to Bynum.
“Given all of these unknowns, and pending and waiting for some dialogue with our auditors about what our options are in terms of assigned and unassigned funds, it is prudent, unfortunately in my opinion, to receive this bill at this time,” Bynum said. “But I think we should be back at it shortly after budget.”
Out of the $44.69 million that the county had in its reserve fund on July 1, there is a little more than $15 million left as unassigned funds.
Councilwoman JoAnn Yukimura wanted a reserve ordinance now, before Carvalho presents the budget for council deliberation. To her, a reserve policy in place is a discipline to a “really good” budgeting process.
“From what I understand of what has been presented to me by the Finance Department and the administration, we have a very troubling trend, where expenditures are exceeding revenues,” she said. “I believe part of the reason that we are in that trend is because we haven’t had the discipline of a reserve.”
Councilman Ross Kagawa said the burden of the current financial situation lies with the last council body, which voted last year to add 20 positions to the county.
“Now that we’re in this situation, we’re saying that we need a reserve policy,” said Kagawa, adding that he thinks a reserve policy is a good idea, but 25 percent is “much too high” to set aside.
Councilman Mel Rapozo said the red flag should have been raised in 2009, when the county’s budget first reflected more expenditures than revenues. The reality, he said, is that the county has to make some drastic cuts, or else taxes may go up.
“I believe we have some departments that are oversized and nobody wants to give anyone a pink slip, Rapozo said.
Councilwoman Nadine Nakamura had prepared an amendment to reduce the proposal to 5 or 10 percent, but in the end, she voted to receive the bill.
She said the county did not have a reserve policy for more than 100 years, and a three or four month delay in the discussion wouldn’t hurt the process.
Furfaro was the original introducer of the bill. Though supporting a reserve fund, he said and the administration agreed to compare “actuals with actuals,” which would push the discussion to after the end of the current fiscal year, June 30.
Impacts to federal programs and funds will not be known until June, he said, regarding the federal “sequester,” and there have been several cuts in projects that the state would fund.
Furfaro said the purpose of the reserve bill will help the council to understand how it can remove a cap on real property taxes, which was put in place to protect resident homeowners from an inflating real estate market.
“The cap was temporary,” said Furfaro, adding that it is now part of the problem, because “the economy is going the other way.”
Furfaro and Yukimura are committee members, and couldn’t vote for the bill. The fifth committee member, Gary Hooser, was absent Wednesday on council business.
When the seven members of the full council take up the committee’s recommendation next week, they will likely kill the bill, but there is still a chance to include a reserve policy in the budget for FY 2014.
Deputy County Attorney Amy Esaki said that by Kaua‘i County Charter, the council can add or reduce line items on Carvalho’s proposed budget. And that includes adding an item with a reserve fund that he council feels appropriate.
• Léo Azambuja, staff writer, can be reached at 245-0452 or lazambuja@ thegardenisland.com.