Proposed Budget. Fiscal Year Revenue Overview

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1 Fiscal Year 1 Revenue Overview

2 Major Revenue Sources T FISCAL YEAR 1 REVENUE OVERVIEW he total estimated revenues from County funds for Fiscal Year 1 is $57 million, a.% increase from Fiscal Year. Total estimated revenues from county funds are used to provide the funds for government operations and capital improvement projects. The major sources of operating revenue for the County of Maui are: Taxes, which include Real Property Tax, Transient Accommodation Tax, Public Service Tax, Fuel Tax, Franchise Tax and Weight Tax, and charges for services for sewer and cesspool rates, landfill disposal, refuse collection and water service fees. The estimated revenues from these sources are collected by the General Fund, Highway Fund, Wastewater Fund, Solid Waste Fund and Water Supply Fund. The charts presented in this section reflect actual and budgeted revenue for the last ten years. The budgeted revenue and mid-year revised estimate are as of December 31,, and are reflected as the estimated revenue for Fiscal Year. General Economic Overview The current status and future prospects of the economy within the County of Maui, the State of Hawaii, and for the US in general are considered for its projected impact on the Fiscal Year 1 budget of the County of Maui. The variety of conditions in economic markets, industries, and other issues all affect the projection for revenue in Fiscal Year 1. For example, the status of the visitor industry within the State as well as the prospects for tourist travel from the US mainland will undoubtedly affect the amount of revenue from transient accommodations tax the County may receive. Similarly, the global impact of oil prices may affect demand and consumption of gasoline which would impact revenue generated by the fuel tax. Beginning in early- to mid-, the US economy showed obvious signs of trouble beginning with rising gasoline and crude oil prices, notable failures of a number of prominent investment banks, the rapid onset of a bear stock market where stock equities loss more than % on average during the year, large scale lay-offs, rising unemployment and other clear signs of overall slowing within the economy. The real estate market on the US mainland declined significantly under the stress of severely constrained credit lending, falling housing prices, the implosion of sub-prime mortgage market, falling housing prices, and a dramatic rise to historical levels of bank foreclosures. In early, the US was hopeful that the election of a new president and an imminent $7-plus billion federal stimulus/recovery program will result in government spending for capital projects and cash infusion to prop up troubled business industries like the auto industry, banking, education, construction, etc. For Hawaii, the state economy has been severely affected by the same forces that are more prevalent on the US mainland. State tax revenues are projected to be down so significantly that the State government is projecting a $1.8 billion shortfall for its next bi-annual budget. For the first six months of Fiscal Year, the State has reported that general excise tax revenue is off by 3.7% over the prior year. The number one industry in the state tourism has declined from past several years of steady, constant and high occupancy numbers. Through the first half of Fiscal Year, transient accommodations tax collection statewide is off by.7% compared to the same period in Fiscal Year. Solid tourism numbers over the past five years helped fuel good employment, spurred growth in ancillary industries like the food & beverage industry, recreational activities, and fostered positive general economic activity. Beginning in, the tourism numbers and visitor counts have waned and the prospect is that trend will continue or, at best, stabilize in Fiscal Year 1. County of Maui Fiscal Year 1-3

3 Major Revenue Sources FISCAL YEAR 1 REVENUE OVERVIEW The economic condition within the State of Hawaii is probably still evolving to the level of troubles that the mainland is exhibiting. Hawaii has historically always lagged economic trends of the US mainland and therefore the economic problems and challenges we are currently experiencing should be anticipated to continually progress in Hawaii for the next Fiscal Year. For the County of Maui, the local economy is mirroring that which is experienced in the overall state. There are house foreclosures within the Maui market and real property values are declining. The rate of decline varies by neighborhood, but there are pockets of high value neighborhoods where sales were active more recently and therefore value has held up slightly better to the end of. Generally, residential property has been declining in market value since early- to mid-. Value declines in commercial and industrial properties are not as pronounced. The tourism market for Maui is projected to be more negative than for statewide activity and will be trail the performance of the major hotel market on Oahu Waikiki. This is a change from the past several years where Maui occupancy rates were superior to those on Oahu and within other counties in the State. The revenue components for the County of Maui into Fiscal Year 1 are anticipated to be generally off from levels experienced in Fiscal Year. With few exceptions, each revenue component has shown reductions or signs of weakness in sustaining levels of Fiscal Year. The revenues for Fiscal Year were generally flat compared to Fiscal Year, so a decline in Fiscal Year 1 would illustrate that County revenues have peaked and are declining in accordance with the economic down cycle. Given this declining condition, rate adjustments may be required to increase the amount of revenue to meet operational needs. GENERAL FUND The estimated Fiscal Year 1 revenues for the General Fund are $37.8 million, which comprise approximately.8% of total County funds estimated revenues. The General Fund estimated revenues consist of the following major revenue sources: Real Property Tax, Transient Accommodation Tax, and Public Service Tax. Real Property Tax Real property tax revenue is the most significant revenue source for the county and is the largest revenue component of the General Fund. The real property tax is based on projected valuations of real property with different tax rates for various classifications of property. The estimated real property tax for Fiscal Year 1 was based on the projected valuation of real property at $51. billion. The Administration has proposed to leave all real property tax rates unchanged for Fiscal Year 1. The property tax rates have been unchanged since Fiscal Year. Property assessments in Fiscal Year 1 have begun to reflect declining values for residential properties after the last 5 to years of significant property value increases. Properties in the residential tax classifications generally are reflecting decreased values and therefore are contributing less real property tax revenue. Conversely, assessed values for hotel and timeshare properties have largely sustained prior year values. The timeshare classification also benefited from a number of new properties opening in. The overall net effect for real property tax revenue in the timeshare and hotel classification is an increase in real property tax revenue from those two classifications. The tax rates for Fiscal Year 1 are proposed to remain the same as in Fiscal Year in reflection of the challenging economic environment for residents and since overall net real property tax revenues have increased slightly due to increases in timeshare and hotel property classifications. County of Maui Fiscal Year 1 -

4 Major Revenue Sources FISCAL YEAR 1 REVENUE OVERVIEW The estimated gross revenue from real property taxes is $37.1 million, which represents 8.% of all General Fund revenues, and 1.% of all county revenues. The Fiscal Year 1 estimated real property tax revenues reflect an increase of $15. million over Fiscal Year budget of $1.8 million. The increase in overall real property tax revenue is largely the result of modest assessed value increases in the hotel classification properties and a number of new timeshare properties coming online in. However, assessed valuations in all other categories range from general decline (for residential properties) to near flat (for commercial and industrial properties). The revenue estimate is also adjusted for the Circuit Breaker Tax Credit Program. This program, provides qualified homeowners a credit to their real property tax bill equal to the amount their bill exceeds.% of their adjusted gross income. For Fiscal Year 1, the circuit breaker program is anticipated to reduce real property tax revenue by approximately $1. million. Real Property Tax FY : $ 1,78,9 FY : $ 1,8, FY 1 : $ 37,11,319 Transient Accommodations Tax Effective January 1, 1999, the 7.5% Transient Accommodations Tax (TAT/hotel room tax) collected by the State of Hawaii, is distributed as follows: 1) 55.% of the revenue is deposited into the state s convention center capital and operations special fund; ) of the remaining revenues,.8% is distributed to the counties, of which the County of Maui receives.8%. Given the current economic challenges faced by the State of Hawaii, the State legislature is deliberating on measures that would suspend or eliminate TAT contributions to the counties or change the calculation method for county TAT. At this writing, we are unable to determine if such proposals will be effectuated, but their attention at the capitol warrants mention here. Barring any changes to the TAT formula for counties, the County of Maui estimates revenues for Fiscal Year 1 of $18. million which represents 5.% of all General Fund revenues, and 3.1% of the entire county s revenue. This amount is a sharp decline from the amount of TAT revenue budgeted for Fiscal Year. A down tourism market within the state will likely result in missing the projected Fiscal Year forecasted TAT revenue of $1.98 million. The anticipated actual collection for Fiscal Year is expected to be approximately $.9 million. The sharp decline in Fiscal Year 1 budget projection represents the effect of anticipated and continued slowing in the overall visitor industry throughout the State of Hawaii. County of Maui Fiscal Year 1 -

5 FISCAL YEAR 1 REVENUE OVERVIEW The tourism industry in the County of Maui is anticipated to mirror the overall statewide industry trends. The overall statewide industry is projected to be off 5% to 1% from Fiscal Year results. However, since the tourism industry is a volatile industry, and the collection of TAT is largely dependant upon the overall activity throughout the State, caution is exercised in estimating future revenues. Transient Accommodations Tax FY : $ 1,98, FY : $,9, FY 1 : $ 18,, Public Service Company Tax Included in the taxes category for the General Fund is the Public Service Company tax. This tax, which is levied against public utilities provides for a tax of 1.885% of the gross income in lieu of real property tax. Collections of the Public Service Company tax started in the Fiscal Year. The estimated revenue for Fiscal Year 1 of $.7 million is level to the amount budgeted in Fiscal Year. collections for Fiscal Year are projected to be slightly higher at $7. million. Public Service Company Tax PSC 1 FY : $,7, FY : $ 7,, FY 1 : $,7, County of Maui Fiscal Year 1-5

6 FISCAL YEAR 1 REVENUE OVERVIEW HIGHWAY FUND The estimated revenue for the Highway Fund for Fiscal Year 1 is $.5 million, which represents.% of the total county estimated revenues. The fuel, franchise and weight taxes are the major revenue sources for this fund. Fuel Tax Fuel tax collection in Fiscal Year 1 is estimated to contribute $1.5 million in revenue to the Highway Fund and would represent 39.5% of all Highway Fund revenue. The fuel tax is based on the number of gallons of fuel purchased. As the cost of gasoline increases, potentially the volume of gasoline purchases may decline and that may result in less fuel tax collections. In Fiscal Year 1, the amount budgeted as fuel tax revenue anticipates collection level to the amount of actual revenue anticipated to be collected in Fiscal Year. Given the recent increases in the cost of gasoline and price of oil, consumption has shown signs of potential lessening and this will ultimately be reflected in collection of fuel tax revenue. Fuel Tax FY : $ 11,5, FY : $ 1,5, FY 1 : $ 1,5, County of Maui Fiscal Year 1 -

7 FISCAL YEAR 1 REVENUE OVERVIEW Franchise Tax The Franchise Tax is collected from a tax on.5% of annual gross receipts from electric light and power companies operating as public utilities in the County of Maui. Fluctuations of Franchise Tax collections may be due to the increased cost of fuel. The estimated revenue from the franchise tax for Fiscal Year 1 is $8.5 million which is effectively level to the amount budgeted in Fiscal Year. Franchise Tax FY : $ 8,5, FY : $ 9,, FY 1 : $ 8,5, Weight Tax The weight tax is collected at a rate of $.15 (one and one-fourth cents) per pound of net weight for passenger vehicles, trucks and non-commercial vehicles not exceeding,5 pounds, and $. (two cents) per pound of net weight for all other motor vehicles, with a minimum tax for any motor vehicle of $1. The estimated revenue for weight tax for Fiscal Year 1 of $7.55 million is level to the amount budgeted in Fiscal Year. At this level the weight tax will contribute to approximately 8.% of the projected Fiscal Year Highway Fund revenue. Weight Tax FY : $ 7,55, FY : $ 8,, FY 1 : $ 7,55, County of Maui Fiscal Year 1-7

8 FISCAL YEAR 1 REVENUE OVERVIEW WASTEWATER FUND The estimated revenue of the Wastewater Fund from the collection of sewer and cesspool fees for Fiscal Year 1 is $1.8 million. This fund s main revenue source is from sewer and cesspool fees which are proposed to be increased by approximately 1.% in Fiscal Year 1. Sewer and Cesspool The sewer and cesspool fees are collected as charges for current services and used to fund the operations and capital improvement projects of the Wastewater Fund. Residential users are charged a monthly base charge and a water usage charge per dwelling unit in accordance with amounts set in the annual budget. Non-residential wastewater system service charges are also charged a monthly base charge plus a variable charge based on the total amount of water used each billing period. To meet the needs of rising electricity costs and infrastructure repair and improvements, a 1. % increase in sewer user fees is proposed in this budget. The rate increase is proposed to promote selfsufficiency for its operations and capital improvement projects. Sewer and Cesspool Fees FY : $ 37,9, FY : $ 37,9, FY 1 : $ 1,8, County of Maui Fiscal Year 1-8

9 SOLID WASTE FUND FISCAL YEAR 1 REVENUE OVERVIEW The estimated revenue for the Solid Waste Fund for Fiscal Year 1 is $13.5 million (includes $1.9 million transfer from the Wastewater Fund for services). Fees associated with landfill disposal and refuse collection are the major source of revenue for this fund. Landfill Disposal Fees The landfill disposal fee (landfill tipping and permit fees) is collected as charges for current services. In Fiscal Year there were a number of rate increases associated with landfill fees. In order to further establish a more equitable cost recovery for the Solid Waste Fund, for Fiscal Year 1, there are again proposed rate increases for various components of landfill disposal. The refuse disposal tipping fee is proposed to increase from $53 to $58 per ton (from $.5 to $.9 per pound). The fee associated with disposing fats, oils and grease (FOG) is proposed to be increased from $9 to $95 per ton (from $.5 to $.75 per pound). The fee for disposing of clean cooking oils (bio-solids) is proposed to increase from $9 to $83 per ton (from $.95 to $.15 per pound). Landfill Tipping and Permit Fees FY : $,395, FY : $,5, FY 1 : $,, County of Maui Fiscal Year 1-9

10 FISCAL YEAR 1 REVENUE OVERVIEW Refuse Collection Fees The refuse collection fees are collected as charges for current services. The rate for this service in Fiscal Year was $1 per refuse collection unit per month where once or twice-a-week- service is provided. This rate is proposed to be increased in Fiscal Year 1 to $18 per month which is projected to result in a revenue increase of approximately $. million in Fiscal Year 1 over the amount budgeted in Fiscal Year of $.5 million. Refuse Collection Fees FY : $,55, FY : $,55, FY 1 : $ 5,, County of Maui Fiscal Year 1-3

11 WATER SUPPLY FUND FISCAL YEAR 1 REVENUE OVERVIEW The estimated revenue for the Water Supply Fund from charges for water service fees for Fiscal Year 1 is $5.9 million. Water Service Fees The water service fees are the primary source of revenue for the Department of Water Supply. This fee is charged to customers on a bi-monthly basis for water usage, and an accrual for unbilled water revenue is made based on the estimated usage from the meter reading date nearest June 3 th to the end of the fiscal period. The estimated revenues for the Water Supply Fund includes a proposed 9.% rate increase by the Department of Water Supply to promote self-sufficiency based on their operating and capital improvement project needs. The rate increase is anticipated to result in additional revenue of $3.9 million above Fiscal Year estimates. Water Service Fees FY : $ 5,87, FY : $ 7,, FY 1 : $ 5,98, County of Maui Fiscal Year 1-31