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County Budgets Stable For Now, But Face Uncertain Future

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Kapa'a is one of the commerical centers on Kaua'i. County Finance Director Reiko Matsuyama says the county is seeing an uptick in vacant commerical property, which could have a long term impact on tax revenue.

Local governments in Hawaii have not yet faced the acute budget woes being felt at the state level. That may change if more local businesses are forced to close.

While there is mostly bad news around the state Capitol when it comes to the budget, the picture is mixed at county offices across the state.


Hawaii’s four county governments generate most of their revenue from property taxes, which so far are holding steady. However, there have been reductions from other important funding sources.


In an phone interview, Hawaii County Director of Finance Deanna Sako said the Big Island’s municipal government saw a sharp decline in revenue from the state hotel tax.


“We had to trim about $40 million out of our budget and move stuff around,” she said.


The hotel room tax, officially known as the Transient Accommodation Tax, is levied and collected by the state government, but each county gets a predetermined share of the revenue.


With passenger arrivals sitting at less than 10% of normal levels, revenue generated by the hotel tax has effectively dropped to zero. Sako told HPR that Hawaii County has been advised by Gov. David Ige not to expect any TAT funds.


While other revenue streams, like the county’s cut of general excise and gasoline taxes, have also declined, lost revenue from hotel stays accounts for most of the $40 million shortfall.


Sako says Hawaii County has covered the deficit by delaying the purchase of new equipment, leaving unfilled staff positions empty, and limiting overtime.


Maui County declined to make any officials available to provide comment, with spokesperson Brian Perry saying only that the county was too busy addressing the COVID-19 pandemic to participate.


On Oahu, where virus cases are surging, the City and County of Honolulu did not respond to multiple requests for an interview with the city’s budget director.  


Across the channel on the Garden Isle, Kauai County Finance Director Reiko Matsuyama says the administration there has not yet been forced to make significant cuts, mostly trimming around the edges by reducing spending on office supplies and travel and training for staff. She credits that to real property tax receipts, which have so far remained stable.


But there are clouds on the horizon and the county may yet be forced to cut spending.  While residential property values are holding and may even increase slightly, Matsuyama expects the value of commercial and resort property to fall in the coming years.


“We have way more vacancies in commercial buildings, so we expect that values for everything other than residential will probably reduce,” she explained.


A surplus of empty commercial space could drive down the price of business real estate. On the resort side, experts now say tourism is likely to remain depressed for months or even years. Kauai County Mayor Derrick Kawakami recently said that he is exploring the concept of a “resort bubble” as a way to safely bring visitors back to Garden Isle hotels.


If the pandemic recession does drive down the value of certain property types, that means lower tax bills, which means less money for road work and local first responders.


Shrinking county budgets will also mean less money for essential social services. Michelle Kauhane, vice president of community grants with the Hawaii Community Foundation, said in a phone interview that nonprofit organizations across Hawaii get financial support from local governments.


“Some of the critical safety net, the social services, are dependent on contracts from city government to provide their core services,” Kauhane noted.


County funds help pay for programs that serve the most vulnerable members of the community like the homeless, elderly, at-risk youth, and the hungry.


Bevanne Bowers directs Maui Mediation Services and currently serves as president of the Maui Non-Profit Directors Association.  She says that fewer dollars coming from local government will mean belt tightening for service providers.


“It could mean everything from shortening our hours, to losing staff, to cutting back on programs, any of which would be devastating to those who depend on the services,” Bowers warned.


Just like for-profit businesses, it is possible that some nonprofits will not survive this recession. Kauhane said she expects that at least some of Hawaii’s not-for-profit operations will be forced to close their doors as a result of the downturn. But Bowers remains optimistic that she and her colleagues can weather the storm.


“We are a resilient bunch and we will find a way,” she said emphatically.

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