Mayor delivers 3rd State of the County address

LIHU‘E — A moment of silence for Japan’s disaster victims marked the beginning of Mayor Bernard Carvalho Jr.’s third State of the County address, Thursday at the Pi‘ikoi Building in Lihu‘e.

But despite an unknown future for the Japanese — whose business on Kaua‘i has grown 42 percent since 2008 — Carvalho has proposed the highest-ever operation budget for Kaua‘i, topping the chart at $164.98 million.

“The responsible actions we’ve taken to conserve our finances over the past two years have brought us to a place today where we are relatively stable,” Carvalho told a crowd of approximately 150 attendees, plus Ho‘ike TV spectators.

Despite that nearly 25 percent of the proposed budget comes from the county’s reserve funds — leaving about $2 million in the fund — Carvalho said the county “must still be conservative.”

Carvalho said that on the positive side, February home sales were up 24 percent from the previous year, and median home prices were up 27 percent.

Visitor arrivals increased 3.8 percent, total visitor days increased five percent, and expenditures were up 12.4 percent over 2009, according to Carvalho.

Carvalho said the “exceptional” film activity in 2010 will continue strongly this year with several smaller-scale production.

“While there are still many hopeful signs of recovery, some indicators are more troubling,” said Carvalho, adding that the island’s economy is on a downward trend, housing continues to decline, and there was a 28 percent increase in bankruptcies in Hawai‘i in 2010 from 2009 — the largest in the nation.

“Taken as a whole, these indicators tell us that we must continue to be conservative,” Carvalho said, adding that at the same time the county should lead efforts to normalize county operations, stimulate the economy, and put the unemployed to work.

Unemployment

“Kaua‘i’s unemployment rate dropped throughout 2010,” said Carvalho, without citing numbers.

The state Department of Labor states on its website that in January 2010 there were 1,436 people on Kaua‘i who filed for unemployment. By December 2010, the number of Kaua‘i unemployment claimants dropped to 1,120.

But while the overall number of unemployment claimants dropped, those numbers may not be telling the truth.

“Some people are still jobless when their benefits run out, and many more are not eligible at all or delay or never apply for benefits. So, quite clearly, unemployment insurance information cannot be used as a source for complete information on the number of unemployed,” states the federal Department of Labor, Bureau of Labor Statistics, on its website.

Furthermore, some sectors of the island’s economy between January 2010 and December 2010 saw little or no decrease at all in unemployment numbers, including construction workers (288-270), manufacturing (13-11), and public administration (4-4).

Other sectors experienced an increase in unemployment claimants, such as arts and entertainment professionals (33-47), technical and professional services (27-37), real estate professionals (33-34), information sector (18-24), and a group without listing skill information (63-77).

The largest decreases in unemployment claimants were from state workers (64-34), agriculture/forestry/fishing (90-20), administrative/waste services (191-125), and accommodation/food services (327-240).

The county may have contributed to reduce unemployment on the island. On Dec. 1, two weeks before asking the council to lift the furloughs, the county hired 26 employees.

On Thursday, Carvalho said there will be more hires. The administration has 28 dollar-funded positions, and plans to fill nine of them.

“This leaves 19 dollar-funded positions,” he said. “Depending on our updated revenue projections for the May (supplemental budget) submittal, we may request to fill additional positions.”

For those who may have been expecting a pay raise next year, Carvalho’s address might have been a bucket of cold water.

“In order to balance our budget … we’ve had to assume that there will be no collective bargaining raises, or salary increases, for any county employees in fiscal year 2012,” Carvalho said.

Fixed costs

Carvalho’s proposed budget for Fiscal Year 2012, beginning July 1, represents a $17.3 million increase from the current fiscal year.

“I know it’s a big number,” said Carvalho, adding that 95 percent comes from increases in fixed costs. “These are increases we cannot avoid.”

In order to balance revenues and expenditures, the proposed budget for FY12, submitted to council on Tuesday, plans to appropriate $31.9 million from the county’s reserve fund.

The appropriation, nearly 25 percent of the budget, would deplete the county’s reserve fund.

“We estimate in excess of $2 million will be left from the current year’s fund balance,” county Finance Director Wally Rezentes said.

However, Rezentes said that at the end of the current fiscal year there will probably be a surplus, which will be rolled over to FY12.

By the beginning of FY11, on July 1, 2010, the county had $43 million in its reserve fund, way beyond the 15 percent of revenues that Council Chair Jay Furfaro says general accounting practices recommend.

The operating budget for FY11 was $147 million. The council has appropriated an extra $9 million so far during the current fiscal year to plug shortfalls, according to Furfaro.

The county implemented a two-day per month furlough beginning July 1. The furlough was lifted on Jan. 1.

Rezentes said on Wednesday that the county saved $2.3 million with the six-month furlough. But some council members have raised skepticism over the savings, alleging increased overtime to keep services running.

Increased budget

“Yes, we are proposing to spend more next year,” said Carvalho, noting that between FY09 and FY12 proposals, the budget increased only 4.4 percent.

“Over that same period, payroll and related costs alone skyrocketed by 22 percent,” he said.

In past years, many Capital Improvement Projects have had millions of dollars in funds set aside, regardless if the project was ready to go, according to Carvalho.

“We simply cannot afford to pay debt service on projects that may not see a dollar spent for two or more years,” he said.

Carvalho said the administration will examine each project and re-allocate funds only to those for which the money will be spent in the following 18 months.

The FY12 CIP budget is at $84.6 million, roughly 15 percent less than the current fiscal year.

Carvalho said that since his inaugural address on Dec. 1, many in the community have approached him to say they share the same vision for Kaua‘i.

“Holo Holo 2020 includes 38 projects which, when realized, will bring us to this vision for our island,” said Carvalho, adding that some of the projects include installing photovoltaic systems, pedestrian safety improvements, bus expansion, a teen drug center, affordable housing, electric cars and charging stations, and other energy efficiency and renewable sources projects.

The state Legislature is currently working on bills threatening to cap the share of the Transient Accommodation Tax that Kaua‘i receives.

“Such cap will deprive the county of additional revenues,” Carvalho said, adding that he will be working with legislators to minimize fiscal impacts to Kaua‘i.

Carvalho finished his State of County address by pledging help to Japanese survivors of last week’s earthquake and tsunami.

Furfaro said these will be some very challenging times for the people of Japan, who have a large cultural contribution to Hawai‘i. Furfaro also said Japan’s business on Kaua‘i has grown 42 percent in the last three years.

Go to www.kauai.gov for more information.