"Maui’s government is getting bigger while its economy is getting smaller, and that’s not a good sign.
For the sake of the county’s long-range fiscal sustainability, its elected officials should keep in mind the “golden rule” of budgeting: The government should not grow faster than the economy.
Currently the Maui County Council is considering its fiscal 2023 budget, as represented in Bill 69, and what we’re seeing is a 38 percent increase in spending over fiscal 2019 — before the Great COVID Recession — to a record high $1 billion.
In addition to increasing the spending by 38 percent, the proposed budget also would add 309 new employees to the county’s payroll, for an increase of 12 percent over fiscal 2019.
The majority of the new employees — 63 — would be for the county’s Department of Public Works. The Department of Parks and Recreation would add 47, the Fire and Public Safety Department 47, the Police Department 35 and the Department of Finance 27.
County officials apparently expect to pay for all this expansion by using $37 million in transient accommodations tax revenues and $99 million in increased property tax revenues, the latter derived mostly from higher tax rates on high-end real estate, hotels and short-term rentals, according to statistics from the Maui County Department of Finance’s Real Property Assessment Division.
The county also has a $26 million cash windfall because of projects that weren’t completed due to workforce shortages during the last two years.
But county lawmakers should be cautious about using the current bonanza to permanently grow the size of its government, especially since Maui County’s economy is still lagging.
Maui’s private sector has 2.6 percent fewer employed workers compared to fiscal 2019, and the jobless rate is still relatively high — 4.3 percent, compared to 2.6 percent in 2019, data from the state Department of Business, Economic Development and Tourism show. That means Maui’s economy is still lagging, while the proposed budget proposes to grow the county government by leaps and bounds.
The good news is that council members this month lowered property tax rates for fiscal 2023 across nearly all categories, to account for increased property values. The cuts applied to owner-occupied homes, apartments, and commercial and industrial properties. Unfortunately, they also hiked property tax rates substantially on short-term rentals and non-owner-occupied homes.
It’s not clear how the reshuffled tax rates will affect future tax revenues, especially if the economy should experience another downturn. But such a scenario might see council members once again increasing tax rates to support the increased level of county workers.
Just last year, Sheila Weinberg, founder and CEO of Truth in Accounting, noted that “Maui’s elected officials have repeatedly made financial decisions that (have) left the county with a debt burden.” As of 2021, that total was $867 million, “with most of the debt a result of unfunded retirement obligations that accumulated over the years.”
If county lawmakers want to follow best practices for budgeting, they should keep government spending below the growth rate of Maui’s economy and use its windfall funds to pay down debt and unfunded liabilities; fix up the county’s roads, bridges and parks; save for a rainy day; and lower taxes even further.
It is truly wonderful that county lawmakers actually lowered most property tax rates recently. Now they should avoid adding bloat, and instead create a budget more in line with the economy."
Read the full article on: The Maui News