LIHU‘E — In the face of a gloomy economy and uncertain impacts from the disaster in Japan, Mayor Bernard Carvalho Jr.’s administration has put forward an operating budget for next fiscal year that would almost entirely clean up the county’s
LIHU‘E — In the face of a gloomy economy and uncertain impacts from the disaster in Japan, Mayor Bernard Carvalho Jr.’s administration has put forward an operating budget for next fiscal year that would almost entirely clean up the county’s reserve fund.
The mayor on Tuesday submitted to the Kaua‘i County Council his proposed $164.98 million operating budget for Fiscal Year 2012, which starts July 1. This represents an 11.7 percent increase, or $17.3 million, over the current fiscal year’s budget proposal of $147.03 million.
Real property taxes — the county’s main revenue source — are projected to decrease 6 percent. Increasing the rate to help make up for the shortfall has not been taken off the table, but the mayor said in his budget message that “our revenue picture overall has stabilized and we are actually projecting a slight increase in revenues next year.”
To make up for the increases in expenses due to higher payroll costs, expanded bus service and helicopter operations, the administration proposes utilizing $31.9 million from the county’s reserve fund to balance the budget.
The county started FY11 with a $43 million surplus. The council has approved some $9 million in appropriations so far this year to plug shortfalls in various departments, Council Chair Jay Furfaro said.
If Carvalho’s proposed budget is approved, roughly $2 million will be left from the current year’s fund balance, Finance Director Wally Rezentes said.
“Ideally we would like to achieve a fund balance of about 15 percent of the operating budget funds,” Rezentes said Wednesday. “We are using a greater amount of our reserve balance this year for the simple fact that we are experiencing increasing demand for public services … at a time when revenues have not kept pace.”
Furfaro said in May that general accounting practices recommend keeping roughly 15 percent of the county’s revenue in reserves for a rainy day. He had some reservations Wednesday regarding the low reserves the county coffers would potentially be left with if the county has to dig that deep into its surplus to balance the budget.
“At first blush, I do have some concerns about operating within our belt line,” Furfaro said. “This probably opens up the discussion for a future year on our revenue cycle. I’ve never seen the surplus this low.”
Councilman Tim Bynum said that at the end of the current fiscal year the reserve may end up substantially higher because of actual expenditures being lower.
“Our surplus will go down, but it will still be substantial,” he said.
Rezentes seemed to agree. He said the projected $2 million left in the reserve could increase, as it does not include the money that different county agencies will not spend by the close of FY11, which ends June 30.
“These unspent funds will then lapse at the end of this fiscal year and will be available for appropriation in FY12,” he said.
At the end of each fiscal year, county agencies are usually under budget, Rezentes said.
Carvalho said that although the county’s fiscal situation has improved over last year, the administration is not out of danger of experiencing a significant gap between revenues and expenses.
The administration has taken measures to close this gap and will continue to do so by a combination of cost reductions and revenue increases, Rezentes said.
“This budget represents a continued commitment to holding the line on expenses to the greatest degree possible, with a focus on restoring higher levels of service in some areas that can no longer be allowed to be hampered by lack of staffing, funding or other resources,” Carvalho said.
Key assumptions
Payroll alone accounts for more than 82 percent of the increase the administration is proposing for FY12 over FY11.
“… (I)n these calculations we are assuming there will be no pay increases for any bargaining units or other employees for FY12,” the mayor says in his budget message.
If the projections are right, in FY12 the county will receive $4.9 million less in real property taxes, making the total from this revenue stream roughly $76.5 million. In FY11 the county received $81.46 million, which was 10.2 percent less than FY10.
Carvalho said the administration is “very concerned” by the level at which the fund balance would be utilized.
“Should state legislation be enacted that would detrimentally impact county revenues, or if the certified real property tax roll … results in reduced revenues, we will be forced to consider adjustments in real property tax rates in the May submittal,” said Carvalho, adding that the goal is not to exceed FY11 real property revenue projections.
Last year the state Legislature threatened to take the counties’ share of the Transient Accommodation Tax, planning to use the money to partially fill the state budget shortfall.
Carvalho said the administration is projecting a $1.5 million increase in TAT revenue next year. The county projected receiving roughly $12 million for the current fiscal year.
Bills capping the counties’ portion of the TAT are still moving through the Legislature, with notable variances in the amount counties would receive based on which version is approved.
“We are assuming that we will be receiving an equal amount of TAT revenues next year as we project to receive this year,” Rezentes said. “This number will be adjusted as necessary in our revised budget due May 6th based on updated economic information and data projections from the state Council on Revenues.”
The Council on Revenues last week lowered its growth projection for FY11 to 0.5 percent. However, due to recent global events including the recent earthquake and tsunami in Japan, Gov. Neil Abercrombie said in a news release Wednesday that he is requesting the COR to reconvene to consider revising their projections so that lawmakers have the best and most current estimates.
The budget for next fiscal year comes with a substantial decrease in capital improvement projects.
Carvalho proposed $84.69 million for the FY12 CIP budget, representing a $15 million decrease from FY11.
The mayor will present his State of the County address at 10 a.m. today at the Lihu‘e Civic Center in the Pi‘ikoi Building.
Go to www.kauai.gov for more information.
