Kim releases revised $585M budget; service cuts, tax on wealthy property owners proposed

Facing an uncertain economy amid the coronavirus pandemic, Mayor Harry Kim has lopped $40.8 million off the preliminary budget he presented earlier this year.

Kim’s revised budget, released late Tuesday, includes estimated revenues and spending of $585.1 million, 6.5% less than his original proposal and 0.1% lower than the current year. The budget is balanced by cutting some services and by taxing the wealthiest property owners.

The budget includes no property tax hikes except for an additional tax on residential property — generally second or third homes — valued at $2 million or more. Those property owners will pay a rate of $14.60 per thousand in value on all value over $2 million, compared to the current tax rate of $11.10 per thousand. The homeowner rate is $6.15.

“When our economic recovery begins, it is expected to be gradual. The entire world has been affected by this pandemic,” Kim said in his budget message. “We need to work together to improve our local economy by infusing much-needed dollars and getting people back to work as quickly as possible.”

The budget includes no money from the counties’ share of the state transient accommodations tax — a loss of $19 million — after the administration conferred with the Legislature about its plans. That tax is collected on hotels and short-term rentals.

In addition, the county’s surcharge on the general excise tax is expected to drop by 25% to $37.5 million rather than the anticipated $50 million. And the highway fund, paid by fuel taxes, is expected to take a $5.3 million hit, while the solid waste fund is projected to be $2 million less.

The new tax on $2 million residences is expected to raise $14 million. The budget also relies on an average 3.9% increase, or $12.8 million, in overall property values, meaning property owners are likely to see a bigger tax bite even without an increase in rates.

There are no additional positions in the budget. Kim is not proposing furloughs or employment cutbacks, but he hopes ongoing statewide collective bargaining on pay modifications could bring some relief. Employee costs account for 65% of the general fund budget.

“We have not considered reductions in force, as these do not end up saving money, as higher paid employees push newer or lower-paid employees out of their jobs. Our county workforce is one way to stimulate our struggling economy,” Kim said. “Our employees support many businesses on our island. … County payroll alone infuses over $200 million into our local economy each year.”

Some projects will be deferred as the county goes out for grants or borrows more money to pay for them. This includes some mass transit projects. Scrap metal and two-bin recycling programs are also expected to be reduced.

The budget now goes to the County Council for further amendments before going into effect July 1. The council has until June 19 to adopt property tax rates.

South Kona/Ka‘u Councilwoman Maile David, chairwoman of the council Finance Committee, empathized with the administration’s efforts to balance a budget in the current economic climate.

“I imagine that this particular budget process the unexpected issues facing the administration, and the diligence required to get Draft 2 of the budget completed by deadline consumed a majority of their time and energy,” David said of the scramble to get the budget to the council by the Tuesday deadline set out in the county charter. “The unprecedented issues in dealing with COVID-19 and the impact to county revenues and services probably makes this fiscal budget process quite a challenge. I look forward to seeing Draft 2.”