BY KAUAI MAYOR BERNARD CARVALHO – Pursuant to requirements of the Kaua‘i County Charter, I present to you the proposed operating budget for the County of Kaua‘i for fiscal year 2013 (FY13). The operating budget totals $161,214,064 and represents a $24,632,501 or 14% reduction from the current fiscal year. It should be noted however, that the current fiscal year budget of $185,846,565 includes the $25,387,077 reserve fund which is no longer a component of the operating budget for FY13, thus explaining the large variance.
The County’s actual proposed FY13 operating expenses (which include debt service and contributions to the Open Space fund) total $172,713,892. This compares to $162,459,488 for the current fiscal year.
Later in this message, we will outline a variety of cost saving and budget-balancing measures that were used to close this gap.
FY12: Year to Date Progress
In the months since we came to you last year and determined our shared priorities for the current fiscal year, much has been accomplished. We would like to thank you for your partnership and support, for nothing could move forward as quickly as it has without that team effort.
I would like to take this opportunity to highlight some of those accomplishments:
- Energy efficiency/sustainability
- Photovoltaic retrofits have been completed at the Līhu‘e Civic Center and the Kaiakea Fire Station. We are starting procurement for our next project which will be the Police/Civil Defense/Prosecuting Attorney complex.
- Our five electric vehicles have been purchased and are in operation, and charging stations are being installed as we speak.
- The Performance Contract for the Wastewater Division is well underway. A plan of action, which will save significant amounts of dollars and energy, is due within the next few months.
- An invitation for bids for the second Performance Contract for other County facilities is in development.
- Our Sustainability Team has been assembled and is working cooperatively to “green” our County operation to the greatest extent possible. The team consists of Sustainability Manager Glenn Sato, Energy Coordinator Ben Sullivan, and Building Division’s Brian Inouye, who serves as our energy facilities manager. Our ongoing contract with sustainability consultant Ken Stokes enhances these efforts.
- A staff level “Green Team” has been created and is already working on policies to be implemented in the next few months that will “green” many aspects of our operation.
- An internal task force has been working throughout the year to research and develop a plan for the formation of a true human resources operation within the Department of Personnel Services. This transformation will take place without the need to create additional positions. We are proposing to move personnel who are performing human resource related functions within various departments into Personnel Services. Specifically this will involve the transfer of 9 positions from other departments; added to the 9 individuals currently in Personnel Services. The new restructured department would have 18 employees. We are looking at a transition phase during the first quarter of next fiscal year, with the restructured department fully operational by October 2012. This was a painstaking and time consuming process which involved many discussions with department heads, Personnel Services staff, the County Attorney’s office, affected departmental employees, the Civil Service Commission, the Cost Control Commission, members of the County Council, and other key stakeholders. We believe the plan for transition is solid, and intend to implement it, with your support, as of July 1.
- Our effort to comply with the terms of the probation agreement forged with the Department of Justice for the protection of endangered sea birds was successful in that there were no reported takes on County property during the fledgling season of September 15 – December 15, 2011. This was a concerted effort of many agencies, under the direction of the County Attorney’s Office, and we are proud to have made such strides in just one year. Contributing to the success of this effort was the training provided to every County employee on the importance of complying with the agreement, our partnership with the State Department of Education on the Kaua‘i Interscholastic Federation football schedule for 2011, and the cooperation of the general public in understanding and complying with facility lighting adjustments during the fledgling season.
- In the Planning Department, procurement for consultants to conduct general plan technical studies, the Kōloa-Po’ipū-Kalāheo development plan and the Līhu‘e development plan are underway. A long-range planning supervisor has been hired and the department is in the process of hiring the transportation planner that was created in the current budget.
- In a continuing effort to go “paperless,” the Purchasing Agency this year has made huge strides. A county-designed electronic procurement system now allows for the following on-line functionalities: solicitations for goods, services and construction; advertisements for professional services; addenda for all bid types; informal and formal bid tabulations; awards, notices and other procurement notices; and auctions notices and information. We have also created an electronic contract execution and distribution process, eliminating the need for multiple copies of voluminous documents, and recently completed the on-line posting of all Division of Purchasing forms via the County’s SharePoint portal.
- Last year we “scrubbed” our capital improvement projects (CIP) list to include funding only for those projects that we felt could be underway within 18 months. Our personnel, particularly in Public Works and Parks and Recreation, have worked extremely hard to keep the funded projects moving and on track. I am proud to report that, of the more than 100 projects on our approved CIP list for FY12, more than 80% are either complete, in progress, or will be in procurement by September of 2012. This is a tremendous accomplishment and not only insures that we will complete necessary infrastructure upgrades in a timely manner, but that these CIP dollars are flowing into our economy as quickly as possible.
Our Holo Holo 2020 plan received much focus this year. Some of our Holo Holo progress has been detailed above. In addition, the following Holo Holo 2020 initiatives are among those that were advanced during the past year:
- The master plan for the Lima Ola 75-acre affordable housing development in ‘Ele’ele is complete.
- The environmental impact statement for a new landfill/resource recovery park is underway.
- Architecture & construction management, environmental assessment and feasibility studies are in the final stages of procurement for the proposed residential adolescent drug treatment facility.
- Rules governing commercial activities in Kaua‘i’s parks have been adopted and are now being implemented.
- Condemnation proceedings have been initiated on acreage adjacent to Hanalei/Black Pot Beach Park.
- Two bus shelters have been constructed and designs are being created for the remainder of Kaua‘i’s shelters.
- The Sunshine Market Ordinance governing value-added products has been adopted by Council, and administrative rules are currently out for public comment.
- Upgrades to Po’ipū and Lydgate Beach Park bathroom facilities are underway, in an effort to set the standard for “world class” beach parks on Kaua‘i. This effort will also include more frequent cleaning of these facilities.
- Groundbreaking has occurred on the Lihi – Lydgate portion of Ke Ala Hele Makalae. Construction of the Kawaihau spur is currently underway.
Overall Approach to FY13
To begin a discussion on the attached budget proposal, it might be helpful to identify for you some of the basic premises upon which we approached this exercise:
- Kaua‘i is in a slow, prolonged economic recovery. According to the latest report provided by economic analyst Ken Stokes to the Office of Economic Development (OED), Kaua‘i ’s economy continues to show recovery, even though jobless numbers are not rebounding as we would like to see. That being said, Stokes notes that jobless rate, income, spending and electricity purchases have all settled into levels seen in 2003, a relatively stable period just before the “boom” years of 2006-2007. Spending and income are expected to increase this year over 2011 levels, and the outstanding visitor arrival increases we experienced in 2011 are expected to continue an upward trend.
- In order to manage our budget planning and execution more effectively during this critical period and throughout the year, we have created a budget team within the Department of Finance, consisting of a Budget Director and two Budget Analysts. This new approach to budgeting is already seeing positive results in the level of analysis and development of new strategies to make the most of every dollar – which you will see throughout this submittal. We have a strengthened and firm commitment to making budget management a top priority throughout the year, and the new budget team will lead us in that effort. I am confident you will see these improvements in the coming weeks as we finalize our FY13 budget.
- Dollar-funding positions and deferring equipment purchases were necessary strategies to deal with fiscal challenges of the past three years. However, the public and the Council have repeatedly called for an improvement in service levels, and we agree that now is the time to make that commitment.
- Budgeting more conservatively and managing resources more effectively must become a priority if we are going to continue to provide an acceptable level of service in a climate of declining revenues. Reducing overtime, adjusting departmental budgets based on past years’ actual expenditures and lapses, and minimizing travel costs area all strategies we are embracing for FY13.
- We are spending down special funds to the greatest extent possible so as to lessen the need for subsidies from the general fund.
- Our successful strategy of CIP budgeting utilizing a threshold of requiring a project to be, at the very least, in procurement within 18 months in order to be funded, will be continued.
- Operating costs and projected debt service increases required that the County propose a reduction in the reserve fund in order to achieve a balanced budget submittal.
- Due to the accelerated real property tax deadlines, we will have accurate revenue projections much earlier this year. This will allow us to further refine this submittal prior to the May 8 supplemental deadline.
- Property Tax Revenues: This continues to be by far our greatest revenue stream. As has been the case for the past three consecutive years, any downward movement can have devastating impacts. We are projecting a decrease of 3% or $1.9 million – in real property revenues, continuing to reflect the downward trend in the real estate market which began in 2008.
- Interest: Interest income is projected to decrease by $128,946 because of the current market interest rate environment and the continued requirement to place interest generated by bonds into the bond fund versus the general fund.
- Golf Course Special Fund: Based on current activity, we have increased revenue projections for the Wailua Golf Course by $10,997.
- Highway Fund: These revenues are expected to remain unchanged at $11,765,000 for FY13.
- Solid Waste Special Fund: Revenues are expected to remain unchanged from the previous year’s totals. The total general fund support for the solid waste fund for FY13 will decrease by $5,199,679. This is a result of the County’s strategy to spend down the special fund to the greatest extent possible as a means to alleviate the need to supplement the fund with general funds.
- Sewer Fund: We are projecting an increase in the sewer fund revenue of $706,500. The sewer fund will be self-sufficient in fiscal year 2013.
- Public Service Company Tax (PSC): Revenues from this source are expected to decrease by approximately $100,000.
- Transient Accommodations Tax (TAT): The TAT cap remains in effect and as such, our expected revenue from this source will remain unchanged at $13,485,000.
- Fund Balance: We are utilizing $10.7 million from our current reserve in order to balance the FY13 budget.
- Expenses – Payroll: Please note below the cost areas and corresponding increases over FY12:
*Other Post Employment Benefit costs
The below chart summarizes the major components of the operating budget proposed for FY13:
An increase in fixed costs, without a corresponding projection of an increase in real property revenues, once again presents itself as the biggest challenge we face in balancing the budget. Payroll and related costs (even without collective bargaining increases), debt service, utilities and fuel costs account for the increase in operating expenses for the FY13 budget.
Cost-saving and Balancing Measures
The “Lapse Factor”: Over the past two fiscal years, departments have lapsed millions of budgeted but unspent dollars. A calculation of dollars lapsed per department, averaged for fiscal years 2010 and 2011, reveals a “lapse factor” ranging from a low of 1% (Office of Economic Development) to a high of 32% (Elections Division) of total budgeted funds. Because of this exercise, we have asked departments to reduce their overall budgets by roughly 25% of the average amount of funds lapsed for the past two fiscal years. For example, the Planning Department lapsed 13.1% of its annual budget (or $368,612) in fiscal year 2010, and 16.5% of its budget (or $430,303) in fiscal year 2011. Using a factor of 25% of the average of funds lapsed for the two years, results in a figure of $99,862 that Planning has been asked to absorb for FY13. These reductions have been absorbed by most agencies in this budget submittal.
If applied to all departments and divisions of the County, this initiative could save up to $2.7 million overall, and $1.8 million in general fund dollars.
Overtime: Discussions with collective bargaining units continue which would enable us to better utilize manpower across divisions of various agencies and reduce overtime costs. Our goal in FY13 is to reduce overtime by roughly $500,000. In this submittal, the overtime budget is reduced by $367,777 compared to last year.
Reserve Fund Reduction: Last year we created a reserve fund to provide a buffer and protection from unexpected events (such as a natural or man-made disaster) and create a more stable and favorable financial position for the County.
Although we had proposed a reserve fund in the 20-25% range of the previous year’s operating budget, we are proposing this year to reduce the range to 10-15%. This percentage, although substantially lower than previously proposed, reflects feedback we’ve received from the Council, and still falls within generally accepted practices among the Government Financial Officers Association (GFOA).
Due to operating cost and projected debt service increases, we are proposing a $10,758,505 reduction in the reserve fund in order to achieve a balanced budget submittal.
Discretionary Cost Increases
While we continue to take a conservative approach to the budget, there are several important initiatives that should be funded this year, which will be critical to improving service levels, insuring that we can complete the capital projects we are proposing and/or to stimulate our economy in an effort to retain and create jobs in our community. Several are outlined below:
Dollar-funded positions – We are proposing to fill 18 of the positions that have been dollar-funded during one or more of the past three fiscal years. It is apparent that service levels must return to “normalcy” and that continued vacancies are unhealthy for the County organization as a whole. Instead of just filling the positions as they were left, we have re-evaluated each one and determined if the operational need still fits the position description. In some cases positions are being redefined or moved to a different department or both. Some positions are also being downward allocated. We will provide eight months of funding for each, to account for recruitment and hiring timelines. Other than a Deputy County Attorney, these positions are primarily line level employees. Here is a sampling of some of the positions being filled:
- A dollar-funded Police Records Clerk is being renamed an ID Technician, to better meet the needs of the Kaua‘i Police Department.
- A Senior Clerk position in the Kaua‘i Fire Department is being moved to Personnel Services and will be part of the human resources reorganization effort.
- A dollar funded Special Projects Officer position from the Finance Administration budget will be re-described to an entry level Procurement and Specifications Specialist and transferred to the Division of Purchasing.
- A dollar-funded Grants Specialist position in Parks and Recreation is being reallocated to a Permit Clerk for that department to account for additional work that will result from new park rules, the opening of Lydgate campgrounds, and other operational changes in Parks and Recreation.
- A dollar funded Law Clerk will be converted to a Deputy County Attorney, which will be funded 50% from the County Attorney’s Office and 50% from the Department of Liquor Control.
- An exempt management position in the Roads Division will be moved to Solid Waste and converted to a lower-paying Diversion Program Advisor position.
- A dollar-funded Working Labor Supervisor in Public Works is being transferred to the Transportation Agency as a Mechanic Helper, in order to facilitate reorganization where small equipment repairs will be handled primarily out of the Transportation Baseyard, with the Līhu‘e auto shop focusing on vehicle maintenance for our aging fleet.
Equipment purchases: This budget includes a heavy investment in new equipment in many departments, including: Public Works, Parks and Recreation, Fire, Police, and Transportation. The proposed purchases range from new police and fire vehicles, to a new forklift and aerial lift truck in Parks and Recreation, to excavators, bush whackers and wood chipping machines in Public Works. This equipment is essential in our ability to provide timely services and maintain facilities, and will allow us to reduce overtime by adequately equipping our workforce. For the Transportation Agency, we are proposing the purchase of a GPS system to be utilized on buses to improve efficiency and mobilization of resources as needed. The total equipment investment proposed is more than $5 million. However, because we will be utilizing lease agreements to acquire most of the items, the impact to the FY13 budget will be just over $1 million in debt service.
Comprehensive Economic Development Strategy (CEDS) implementation: OED is currently managing contracts with the Kaua‘i Economic Development Board (KEDB) and the Kaua‘i Planning and Action Alliance (KPAA) for studies on the industry clusters that have been identified for growth through our CEDS. Among them are the re-opening of the papaya disinfestation facility, the development of a commercial kitchen, identifying infrastructure needed to create a locally-raised beef market, and the development of facilities to support the expansion of economic opportunities in arts, culture and health-care related fields. In the FY13 budget, OED is proposing to fund the next step in implementing these projects through an additional appropriation of $90,000 each for KEDB and KPAA.
Host Community Benefits (HCB) program: The Kekaha HCB Citizens Advisory Committee (CAC) continues to meet and seek community input on how to spend its current allocation of roughly $890,000. A request for proposals process was conducted by the CAC last fall, and has resulted in two grant proposals being recommended and funded: $5,000 to the Kekaha Pop Warner Association for a youth awareness program to focus on drugs, bullying and other issues; and $5,000 to Kekaha Elementary School to establish a community garden. More recommendations are expected from the CAC in a month or so.
- Fund Allocation: We are proposing to continue to provide an annual allocation of $80,000 to enhance the Kekaha HCB fund.
- Facilitation: This year, the HCB program was enhanced by utilizing the services of KPAA to facilitate the meetings of the CAC. In previous discussions, the CAC indicated it would spend $20,000 annually from the HCB fund to provide administrative support. The current facilitation arrangement, which comes at a cost of roughly $85,000 for a ten-month contract, has been very successful and we would like to see such an arrangement continue. It’s clear that $20,000 would not be enough to cover that expense. Therefore, at the request of the CAC, we are also including $80,000 in funding that can be used to procure the services of a facilitator, with the understanding that the first $20,000 will come from the HCB fund.
Capital Improvement Projects (CIP)
The County’s proposed capital budget for FY12 totals $61,518,713, which is broken down as follows:
|General Fund (CIP)||
|Highway Fund (CIP)||
|Sewer Trust Fund||
|Special Trust Fund for Parks & Playgrounds||
|TOTAL ALL FUNDS||
Our strategy in approaching CIP again this year has been to examine each project to determine the extent to which it is likely that funds would be encumbered for the project over the next 18 months – either for planning, design or construction. As I mentioned earlier, we set the bar high last year, and our departments delivered. More than 80% of the projects on our current CIP list meet this threshold.
We propose to continue with this approach, by “unfunding” projects that are not ready-to-go. As we stated last year, it is not to our advantage to continue to pay debt service on funding set aside for projects that are not in motion. We feel strongly that a focused emphasis on getting “ready” projects out will stimulate the economy and job growth.
Holo Holo 2020
Included in this budget is funding for the following projects for which there is a tie to the Holo Holo 2020 vision:
- Continuation of Complete Streets/Safe Routes to School initiatives
- Complete additional bus stop retrofits with shelters
- Planning, design and construction of additional phases of Ke Ala Hele Makalae
- An environmental impact statement for the Lima Ola “green” affordable housing project
- Additional PV retrofits at the Police/Civil Defense/Prosecuting Attorney building and two neighborhood centers
There are a number of bills we are tracking closely this year. Here is a brief recap on several of the most critical measures:
HB1753 Relating to Liability – The County supports this bill, which extends the repeal date for liability protections for state and county governments regarding the duty to warn of dangers on improved public lands and the actions of county lifeguards to June 30, 2016. We would have preferred to have seen the sunset date lifted completely, but this extension of the sunset date appears to be the best compromise at the moment. The bill crossed over to the Senate and it is currently before the Judiciary Committee.
SB2967 Relating to Collective Bargaining – We have supported this bill, which creates a new bargaining unit (14) for ocean safety officers and water safety officers employed by the state or counties. The bill has crossed over to the House and is soon to be heard in the Labor and Public Employment, and the Public Safety and Military Affairs Committees.
HB2626 Relating to Safe Routes to School – This bill would permanently establish the Safe Routes to School Program within the Department of Transportation and creates a Safe Routes to School Program Special Fund. The fund would be enriched with a surcharge of $25 for violations of speeding in a school zone, and a $10 surcharge on various other traffic violations. The bill has crossed over to the Senate and will be heard in the near future by the committees on Education and Transportation and International Affairs.
HB2265 Relating to the State Procurement Code – We support this measure, which advances the benefits of electronic procurement and makes permanent the amendments made to section 103D-305, Hawaii Revised Statutes which, among other things, increases the limits on procurements qualifying for certain small purchase procedures to $100,000 for goods or services and $250,000 for construction. The bill has crossed over to the Senate where it will be heard by the Committee on Public Safety, Government Operations, and Military Affairs.
Looking forward to May 8
Revenue adjustments: We expect real property tax collections to again decrease in FY13, perhaps by as much as $1.9 million. Due to a combination of increasing fixed costs, a commitment to our reserve fund policy, increased self-sufficiency of most of our special funds for this year, and making the appropriate adjustments in personnel and equipment to meet the demand in service levels, a “revenue neutral” approach may be necessary. If so, it will be outlined in the May 8 submittal, once we are in receipt of the certified tax assessments, which will provide us with an accurate revenue projection.
Critical project resources: There are a number of projects and initiatives that we all feel are critically important to the people of Kaua‘i, such as providing safe, affordable and comfortable recreational facilities; improving ocean safety; providing appropriate enforcement for County rules and regulations; effectively reducing crime – especially substance abuse – in our community; and providing safe roadways for all modes of transportation. Delivering tangible results in these areas requires additional resources beyond what we currently have. Once our revenue picture becomes clear, we may be proposing additional funding to impact these areas in the supplemental submittal.
While I feel confident that the financial decisions we’ve made over the past two years have been sound and prudent, there are still significant challenges ahead. We look forward to productive dialogue between now and May 8, and to submitting a final proposal that will carry us through to financial stability and maintain the critical importance of service to our people, not only for next year, but for many years to come.
Bernard P. Carvalho, Jr.