Video by David Corrigan | Voice of Stephanie Salazar

Hawaii County Mayor Billy Kenoi has chosen to veto the Hawaii County Council’s approved budget for the fiscal year 2011-2012.

The mayor’s decision should come as no surprise to anyone who saw his reaction to the budget on the day it was approved, here in his office.

In his official message to the Hawaii County Council, Mayor Kenoi said the amendments were “apparently illegal”

The message says that a review by Corporation Counsel concludes the amendments violate the separation of powers requirements of the Hawaii County Charter… In particular, the idea of a “Council Adjusted Expense Account” that would slash $5.6 million from the operating expenses, putting it towards the deffered gasB payment.

The message added that a council amendment cutting $1 million from the Public Access, Open Space and Natural Resources Preservation Fund is a “violation of county code.”

The mayor also called the decision to divert funding away from the county’s Budget Stabilization Fund a “critical flaw”.

The administration accused the bill of “unequal treatment” towards the Kona side of the Big Island. The council decided to cut the West Hawaii Golf Subsidy while maintaining the funding for Hilo’s Municipal Golf Course. The mayor said the council has offered no justification for this budget amendment, although this video shows councilmembers discussing the reasoning for the choice during the bill’s first reading.

Bill 29 – Draft 4 – will now go back to the council, which will need to find 6 votes to override.

From the Office of the Mayor:

June 15, 2011

Members of the Hawai‘i County Council
Hawai‘i County Building
25 Aupuni Street
Hilo, Hawai‘i 96720

RE: VETO MESSAGE – BILL 29 (DRAFT 4)
FISCAL YEAR 2011 – 2012 OPERATING BUDGET

Pursuant to Section 3-12 of the Hawai‘i County Charter, I am disapproving Bill 29 (Draft 4), the 2011-2012 Operating Budget, and returning it to you.

Key Council Budget Amendments Are Apparently Illegal

While I appreciate the time and effort the County Council has invested in proposing amendments to the operating budget, these amendments do not meet the requirements of the County of Hawai‘i Charter or the County Code. I have no choice but to veto Bill 29 (Draft 4) as amended by the Hawai‘i County Council.

Corporation Counsel has issued a legal analysis to County Director of Finance Nancy Crawford that found “numerous legal infirmities…that compromise the integrity of this bill.” This review concluded some of the most important Council budget amendments are apparently illegal because they violate the separation of powers requirements of the Hawai‘i County Charter. The Corporation Counsel analysis also found that a separate Council amendment violates the ordinance that governs the Public Access, Open Space and Natural Resources Preservation Fund (PONC). Yet another Council amendment involves unacceptable financial risks because it proposes to immediately spend millions of dollars in county funds that should be held in reserve to prepare for uncertainties this year and in the years ahead.

These legal and other defects in the council’s budget amendments could have been avoided. It is my sincere hope that my administration and the Hawai‘i County Council will be able to work together on the budget in a more collaborative partnership in the future.

Council Actions Violate Separation of Powers

The council’s amendments to Bill 29 would increase overall county spending beyond what our administration proposed, and would shift some spending within the budget. To accomplish this, the council amended the budget to include a fabricated “Council Adjusted Expense Account” that appears to be unprecedented in Hawai‘i government history, and represents the most serious of the defects in the council budget amendments.

The Hawai‘i County Council has the power to reduce specific appropriations, which is the proper way for the council to cut spending. However, this Council declined to do so. Instead, the Council attempted to use this fabricated “Council Adjusted Expense Account” to press our administration to make cuts that the council was apparently unwilling or unable to make. Corporation Counsel on June 14, 2011 issued a legal analysis advising County Director of Finance Nancy Crawford that this Council use of the “Council Adjusted Expense Account” is in effect a violation of the separation of powers mandated in Article III of the Hawai‘i County Charter.

Council Action on PONC Apparently Violates County Code

An additional council amendment to Bill 29 proposes to cut funding for the Public Access, Open Space and Natural Resources Preservation Fund (PONC) by $1 million. This Council amendment would reduce funding for the PONC from 2 percent of county tax collections to about 1.5 percent of projected property tax collections for fiscal year 2012. However, Hawai‘i County Code Chapter 2, Article 42, clearly requires that 2 percent of county tax collections must be deposited into the PONC fund annually. Corporation Counsel therefore advises Finance Director Crawford that this council budget amendment appears to violate the County Code.

Council Refuses to Increase Budget Reserves

A third critical flaw involves the council budget amendment to divert funding away from the county’s Budget Stabilization Fund. We recently witnessed dire events overseas with impacts that rippled out to affect our local economy, ranging from the Great Recession of 2007-2009 to the tragic March 11, 2011 tsunami that devastated parts of Japan. Those events dramatized the need for a budget reserve fund to stabilize county finances during challenging economic periods. With those risks in mind, our administration’s budget set aside $2.8 million in anticipated labor savings from collective bargaining to build up the county’s budget reserves.

The council disregarded that proposal, and instead amended the budget to spend the entire $2.8 million immediately, saving none of those funds for later. This is unwise because it fails to set aside additional reserves for what may be challenging times ahead. It is also risky, because this $2.8 million the council proposes to spend may not materialize. Depending on the outcome of statewide collective bargaining later this year, the labor savings could be smaller than we have projected. That is one important reason we urged the council to be cautious, and to place these funds in a reserve fund for the future. Unfortunately, the council refused.

Unequal Treatment

The council also adopted an amendment that inexplicably favors some county residents over others by offering subsidized golf play in East Hawai‘i, but not in West Hawai‘i. We are one community, and I insisted from the very beginning of my administration that all residents of our island be treated equitably. The council has offered no justification for this budget amendment.

Conclusion

Most of the council’s budget amendments this year were designed to redirect funds to make a partial payment against future health care obligations for retirees known as the General Accounting Standards Board Statement No. 45 payment. Also known as GASB 45, this is a voluntary payment against a future obligation, and has been compared to pre-paying a mortgage. The State of Hawai‘i has made no GASB payments, and the City & County of Honolulu is deferring its GASB payment for this year. The County of Hawai‘i, meanwhile, has made these payments for four straight years.

Representatives of Bank of America Merrill Lynch, which has served as an underwriter for Hawai‘i County bonds, confirm that many Mainland municipalities are forgoing the GASB 45 payments because of the difficult economic times. Those representatives stress that maintaining adequate financial reserves should be the county’s focus at this time. We can and should defer the GASB payment until county finances improve. Our priority today is to build up the county’s cash reserves, protect the county’s bond rating, and prepare for the uncertain times ahead.

Our administration submitted a balanced budget that is $35.9 million less than the budget in effect when I took office. Our goal was to reduce county spending for a third consecutive year while maintaining essential police, fire and civil defense protection, and also preserving programs and services for our children and elderly. We met our goal while also protecting funding for non-profit service organizations.

I am proud of the careful, difficult work done by our administration, and by our departments. They have done an excellent job of completing projects and delivering services in a very challenging economic period, and did so while reducing the size and cost of county government. Our administration budget is a reflection of their hard work and careful planning for the future.

I thank the County Council for its proposals and amendments, and I regret that those amendments do not meet the requirements of the County of Hawai‘i Charter or the County Code. Those shortcomings leave me no choice but to disapprove Bill 29 (Draft 4) and return it to council. Mahalo for your efforts, and for your understanding.

Aloha,

William P. Kenoi
MAYOR