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HomeMy WebLinkAbout03/28/2012 Regular Council MeetingCOUNCIL MEETING MARCH 28, 2012 The Council Meeting of the Council of the County of Kaua`i was called to order by the Council Chair at the Council Chambers, 4396 Rice Street, Room 201, Lihu`e, Kauai, on Wednesday, March 28, 2012 at 9:28 a.m., after which the following members answered the call of the roll: Honorable Honorable Honorable Honorable Honorable Honorable Honorable Tim Bynum Dickie Chang KipuKai Kuali`i Nadine K. Nakamura Mel Rapozo JoAnn A. Yukimura Jay Furfaro APPROVAL OF AGENDA. Mr. Chang moved for approval of the agenda as circulated, seconded by Ms. Yukimura, and unanimously carried. MINUTES of the following meetings of the Council: Council Meeting of February 15, 2012 Special Council Meeting of March 7, 2012 Public Hearing of March 14, 2012 re: Bills Nos. 2422, 2429, and 2430 Mr. Chang moved to approve the Minutes as circulated, seconded by Ms. Yukimura, and unanimously carried. There being no objections, the rules were suspended to take public testimony. GLENN MICKENS: Thank you, Jay. Since I do have a ballgame this afternoon, this might not come up until then, I thought I would read it. It's Walter Lewis's letter and all you guys are familiar with Walter Lewis. He is probably one of the best consumer advocates we have on this island. He is a retired lawyer and does nothing but write that column every two (2) weeks in the paper and I cannot say enough good things about Walter but this is his letter and I thought I read it for the viewing public. This is on C 2012 -98, that is the Police Commission item. I support the view that the Police Commission should have the exclusive authority to supervise and discipline the police chief. However, I have questions about the proposed request of the Police Commission to seek a declaratory judgment from the Fifth Circuit Court. Section 11.04 of the Kaua`i Charter, while it confers on the Police Commission the authority to hire the Police Chief, fails to expressly provide for his supervision or discipline. Although the hiring power usually connotes the power of supervision and discipline, it is doubtful whether the Circuit Court can legislate what is not in the Charter. The request doubtless originates out of the recent suspension of the Police Chief. The precise circumstances of the suspension have not been made public. However, it seems that the suspension has now ended. Thus at this time there is no COUNCIL MEETING 2 MARCH 28, 2012 actual case or controversy. It may well be that the Court will decline to accept jurisdiction on a theoretical issue. The request for authority to spend is silent as to whether the Police Commission is seeking its authority to supervise and discipline or whether the Commission is seeking whether it has exclusive authority to supervise or discipline. This question should be clarified. The request does not cover what the Police Commission intends if any determination of the Circuit Court is appealed. It is most unlikely that the requested sum for counsel fees would be adequate if an appeal occurs. From a taxpayer's viewpoint, it would be preferable if the issues involved could be resolved without resort to legal proceedings and their cost. Has the Police Commission sought from the Police Chief and the Mayor commitments that would satisfy its requirements? Basically, Walter is saying it is kind of a waste to take our ten thousand dollars and spend at this particular time, the Court is going to have jurisdiction on this matter. Thank you for the time, I appreciate it Jay. Chair Furfaro: Thank you, Mr. Mickens. Is there anyone else in the audience that wants to testify on any item on the agenda during this consent time? There being no objections, the meeting was called back to order, and proceeded as follows: CONSENT CALENDAR: C 2012 -82 Communication (03/07/2012) from the Planning Director, transmitting for Council consideration, the Planning Commission's recommendation to amend Chapter 8, Comprehensive Zoning Ordinance, of the Kaua`i County Code 1987, as amended, in its entirety and to adopt a new Chapter 8: Mr. Rapozo moved to receive C 2012 -82 for the record, seconded by Mr. Kuali`i, and unanimously carried. C 2012 -83 Communication (03/08/2012) from the Mayor, transmitting for Council consideration and confirmation, the following Mayoral appointees to various Boards and Commissions for the County of Kaua`i: • Board of Review Cayetano Gerardo — term ending 12/31/2014 • Salary Commission Randy Finlay — term ending 12/31/2014 Mr. Rapozo moved to receive C 2012 -83 for the record, seconded by Mr. Kuali`i, and unanimously carried. C 2012 -84 Communication (03/15/2012) from the Council Chair, transmitting for Council consideration, the reappointment of Council appointee Patricia W. Sheehan to the Kaua`i Historic Preservation Review Commission (Architecture — term ending 12/31/2014). Mr. Rapozo moved to receive C 2012 -84 for the record, seconded by Mr. Kuali`i, and unanimously carried. COUNCIL MEETING 3 MARCH 28, 2012 C 2012 -85 Communication (03/15/2012) from the Mayor, transmitting his Fiscal Year (FY) 2012 -2013 Budget Message, along with his proposed Operating Budget and Capital Improvements Projects (CIP) Budget. (Detailed Line Item Budget on file in the County Clerk's Office.) Mr. Rapozo moved to receive C 2012 -85 for the record, seconded by Mr. Kuali`i, and unanimously carried. COMMUNICATIONS: C 2012 -86 Communication (03/02/2012) from the Council Chair, requesting the presence of Mr. Ron Shiigi N &K CPAs, Inc., to participate in a follow -up discussion relating to the Comprehensive Annual Financial Review (CAFR) for the fiscal year ending June 30, 2011: Ms. Nakamura moved to receive C 2012 -86 for the record, seconded by Ms. Yukimura. Chair Furfaro: Gentlemen, thank you for being here. We had set up the presentation that we had gotten from your last visit that was demonstrated. It also reflects certain page numbers of your report and I don't think other than the page numbers that are referencing here, I could take this down real quick showing that the beginning fund balance on page 34 reflected at that time, 68 million. There was an excess in revenues related to General Fund all revenue accounts on page 34 that reflected sixteen million, one, twenty -nine. In the year, for the year there were other financial usage also listed on page 34 of 27 million, leaving us a fund ending balance of 57 from that page you can reflect on page 92, we deducted four hundred and ninety thousand (490,000) in particular for landfill contributions, and we had committed encumbrances of five million four. It is very important that I might reflect on this question because the County is on a cash accounting system, the County is not on a accrual system, so we have bills that carryover until the actual invoice as they arrive that brought us to fifty- four... five billion four, one, one (1) as carryover purchase orders and contracts that were issued but not paid as outstanding exposure. We then deducted self - insurance on page 92, which reflect a cumulative amount set aside for self - insurance of three million seven. We then had a Fund Balance of 47, and we had operating projections expenses related to various Budget Ordinances of nine million seven, leaving us a line of thirty -seven million, six, twenty -five. From that line and not reflected in your report, we had earmarked approximately twenty -three million in anticipation of setting up a reserve, emergency fund for the County. A new process that we are doing, only at this point by Resolution but because we do not have an attached ordinance for it, it is only a Resolution stating a policy requirement. We had set aside three point three (3.3) hundred and ninety -six (96) thousand for Public Space Funds. We had debt service related to the County of four million, four, seven. We also had General Funds, others whether it was the Golf account, Solid Waste, Sewer and Highway of 12 million of which Mr. Rezentes will be able to address more and he is on his way over. And then we had another CIP contribution of 126,000. If that in fact is reality after your line, the fact of the matter is we had a negative number to start the year. Let us focus on issues above the subtotal of thirty -seven million, five, twenty -five, and see if there is further clarity on the summary that is on this report. And again, I would like to welcome you. Do you want to give us any open commentary on your visit today? There being no objections, the rules were suspended. RON SHIIGI: No, I guess we are here to answer any questions that Council may have. COUNCIL MEETING 4 MARCH 28, 2012 Chair Furfaro: So in and about this summarize up to thirty seven (37) million, do you have any particulars that we might have strayed from on that number? Mr. Shiigi: No. Chair Furfaro: You concur with that as reflected in your report and on the page numbers. Mr. Shiigi: I am Ron Shiigi and this is Blake Isobe, we are from firm of N &K CPA's. Chair Furfaro: Okay, again any queries directed at thirty - seven (36) million six (6) twenty -five (25) above the line we should focus on for those are pieces that came out of your report, which I referenced in the page numbers that are there. Any comments? BLAKE ISOBE: No. Chair Furfaro: Members any questions? Mr. Bynum. Mr. Bynum: Good morning and thank you for being here again, I appreciate it. The last time you were here you made it clear that you did the audit for one (1) year and so you were reluctant to comment on audits from previous years and you were reluctant to comment on things that have occurred this year, correct? Mr. Isobe: Correct. Mr. Bynum: Last year we had a similar — in the audit you did, we had similar assignments and in this year's audits, all of our funds were assigned, correct? Mr. Isobe: Yes. Mr. Bynum: When we did our first money bill of the year and it is labeled like many of our money bills over the years, we are going to revise the unappropriated surplus is the term we have used here for many years. Where did those funds — how did we do that money bill if all of the funds were assigned? Where was the surplus that we were expending additional funds from? Mr. Isobe: We would not know. When you look at this budget ordinance, there is nothing. Mr. Bynum: That is not assigned? Mr. Isobe: That is not assigned. Mr. Bynum: Maybe that is a question for Finance. At the end of this Fiscal Year that we are currently in, my concern is that the public looked at this and says, we are going to end the Fiscal Year with no Fund Balance in the General Fund because there is the word shortfall on there. But these are budgetary numbers correct? That does not mean that that will be our actual performance over the year, correct? COUNCIL MEETING 5 MARCH 28, 2012 Mr. Isobe: Correct. Mr. Bynum- And then the audit you did, the previous year we had assigned funds and not all of which were used, correct? Mr. Shiigi: What did you ask? Mr. Bynum. correct? Mr. Isobe: I am sorry, not all of it was used did you say? There was no budget shortfall last year, Correct. Mr. Bynum: We started the year with a — we actually ended the year with a fifty -seven (57) million dollar fund balance, correct? Mr. Isobe: Correct. Mr. Bynum: In your audit? Mr. Isobe: Yes. Mr. Bynum: So last year we had similar — we did have a similar chart but this is what we budgeted but at the end of the year, we did not actually do that and there was still substantial fund balance at the end of the year, correct? Mr. Isobe: Correct. Fifty -seven (57) million. Mr. Bynum: That is substantial. So I would anticipate that we are not going to end this Fiscal Year with a substantial reduction of the fund balance? Mr. Isobe: Well it did go down eleven point five (11.5) in Fiscal Year 11. Mr. Bynum: Right and some of the Solid Waste Fund for instance went up several million, correct? Mr. Isobe: Correct. Mr. Bynum: My concern has always been in its dialog that the general public and Councilmembers not get the impression that because we fund these budgets that we are actually going to expend all of the General Fund Balance. We have never done that and since 1995 when I have looked, we have never had or we cannot, we have to have enough revenue to run the government, we are not allowed to run deficits. Is that correct? Mr. Isobe: Correct. Mr. Bynum: For instance this year, we estimated revenue and I know from looking at the financial reports within the first six (6) months, we have 4.5 million more in revenue than we projected. And maybe you would not COUNCIL MEETING 6 MARCH 28, 2012 know that but you will know that when you do the audit this year right? So 4.5 million in additional of revenue other than we projected and in through the first six (6) months of the year, we have expended I think it is 5 million less than we budgeted. So if that trend continues, there will be 20 million that we budgeted that we did not spend. Does that make sense what I am saying? Mr. Isobe: Yes. Mr. Bynum: So I just do not want anyone to have the impression that because we assigned these funds for budgeting that we actually expending those at the end of the Fiscal Year. At the end of the Fiscal Year, you do an audit and then we know exactly what we did as opposed to what we said we might do. Is that correct? Mr. Isobe: Yes. Mr. Bynum: That is the only concern I have had is that for the last couple years, I have seen the public look at this analysis and say according to your budget, you are going to run out of money. But we do not ever follow that budget, we always have more revenue than we predicted, we always spend less than we predicted. I think that is a fair statement at least since 1995. Last year we actually dipped into the General Fund balance for the first time in nine (9) years, we actually reduced the fund balance rather than grow it which I was actually happy to see because I don't think we should be collecting revenue that increases our fund balance year over year to an amount that's not justified for the government. Last time you were here you pretty much answered my questions and I appreciate you answered these questions again today. Thank you. Mr. Rapozo: You guys do not control the numbers. You do not tell the Administration how much to budget, I just want to make sure the public understands. You guys produced a report based on the actual that were actually done. Is that correct? Mr. Isobe: That is correct. Mr. Rapozo: So it is not your fault that we get the worst budgeting style or process, probably in the State, it is not your fault that we end up with 68 million dollars extra. It is the County's fault, it is the Administration and the Council for approving the budgets knowing that it is more than we will spend. I just want to make sure the people understand, you getting asked all the questions here, you just reconcile the numbers and I appreciate what you folks have done. If anything, this is the red flag for this Council to even scrutinize further when the Administration comes up to ask for money. I think we got to be wiser when we approve the budget. That in fact we need to control the spending, we need to be able to say you do not need that much, you did not spend it last year, so we are not going to give it to you this year. I just want the public to understand, you are here to help us to be better at passing budgets and that you have no control over what the Administration puts in the budget and what the Administration decides to submit and to purchase and spend. You are there just to help us do a better job, so I appreciate that. It started to look like you guys were the targets and I want the public to understand that you folks are there to do a service for us to be better at budgeting. I appreciate what you guys do. Mr. Isobe: Thank you. COUNCIL MEETING 7 MARCH 28, 2012 Chair Furfaro: I want to get some clarifications, 2010 -2011 we had the sixty -eight (68), can you voice that is correct. Mr. Isobe: That is correct. Chair Furfaro: How we ended was the thirty -seven (37), six (6) two (2) five (5). Mr. Isobe: Well that nine (9) nine (9) that you took out above, that is the shortfall for eleven (11), twelve (12) right. Chair Furfaro: Yes. I understand, you have not ordered it, that audit yet, you have a three (3) year contract. Mr. Isobe: Yes. Chair Furfaro: But the reality is before we start this budget, the number is thirty -seven (37), the number is not sixty -eight (68). Mr. Isobe: The number is not sixty -eight (68), that is correct. Chair Furfaro: I want to get clear that in the projection of a twenty -three (23) million dollar reserve for the public, I want to make sure we understand, that is a twenty -three (23) million dollar reserve that at the time we set up in a Resolution, that was actually money in the bank? Mr. Isobe: Yes. Chair Furfaro: To misunderstand a projected reserve and projected expenses did not start at sixty -eight (68) million. Then for the year 2011 -2012, Mr. Bynum is correct we have about 4.5 million dollars more of revenue. We have 1.5 million dollars worth of reduced cost associated with payroll and I will be getting into that on the tax bill and of that depending your payroll taxes and benefits are at sixty -seven percent (67 %) or ninety percent (90 %) at sixty seven percent (67 %), it is another million five. We will get confirmation for that six (6) month period but those savings are running about six point five (6.5) based on increase revenues as well as reductions and payroll and payroll taxes and benefits. The interesting thing when we get into the budget section which does not reflect on you folks, the Administration is saying, for the start of 2012 -2013 we are going to be carrying over twelve million dollar surplus in addition to using ten million of the reserve in addition to reducing the CIP by three million, they are reconciling 27 million dollars to start the new budget. You are not aware of that but I just want to confirm that will come up in the next session and hopefully you will hear as well as confirming Mr. Bynum's assumption that revenues in general and I will take the key five (5) departments are up about four point five million. Payroll is down about a million five and benefits are down about a million dollars, which gives us into six (6) months, gives us half of the money they say they are starting the budget with. That is not in your jurisdiction but that is in Mr. Rezentes jurisdiction when we get to there. But then I just want to recap the 37 million and we used 23 million of that to set up a reserve, which is only in a Resolution. It is not in an ordinance which would have prevented the Administration from using COUNCIL MEETING 8 MARCH 28, 2012 that money. That is all I wanted to recap to get to that 37. The other parts will come up in the next section with Finance. Mr. Bynum, you have the floor. Mr. Bynum: I want to follow up on what the Chair just said because if you look at these numbers, the 68 million was the beginning fund balance, right? And that is a CAFR number, that is from your CAFR. Mr. Isobe: Yes. Mr. Bynum: And then a portion of those funds as the Chair said, were already designated, committed, restricted and that is a CAFR number, and that is five million nine hundred and one thousand, correct? That is not on his chart but that is how you end up with the fifty -one million, three, sixty - two, right? Mr. Isobe: Mr. Bynum: right? Mr. Isobe: Yes. Mr. Isobe: Correct. And that fifty -one million is a CAFR number, Correct. Mr. Bynum: What is that label? What is the label for that fifty -one million? What is the proper term? Mr. Isobe: Assigned. That is on page 92. Mr. Bynum: Well we assigned it but it is a CAFR number that says, these things are already committed or restricted. Mr. Isobe: Committed is five, four, one, one. Mr. Bynum: I am sorry? Mr. Isobe: Committed is five point four million, restricted is the four hundred ninety thousand. Mr. Bynum: Right. That is where I came up with the five million nine hundred thousand. I think the Chair and I are agreeing, I just want to make sure that we have the terms correct. Because that fifty -one million was assigned, it did not have to be but it was, we made that decision. This is where I am struggling, I think that is what we traditionally have called the unappropriated surplus because it is not appropriated, it is not restricted or committed through any act of this body other than assigned to the budget, right? Mr. Isobe: To balance the budget. Mr. Bynum: Right. So that term fifty -one million, that is a CAFR number, it is the General Fund balance minus what is committed and restricted, correct? COUNCIL MEETING 9 MARCH 28, 2012 Mr. Bynum: But the numbers below that are not CAFR numbers, they are assigned like the self - insurance fund of three point seven million. We said we are going to assign this for self - insurance, but at the end of the year, we are unlikely to have spent any of that unless we have some big unexpected settlement or claim against the County, correct? Mr. Isobe: Correct. Mr. Bynum: And at the end of the Fiscal Year, you guys will audit that. Did we actually dip in to use, expend any of those assigned funds. That thirty -seven million at the bottom, that is really not a CAFR number is it? Mr. Isobe: No. Mr. Bynum: And so Chair and I are saying the same thing, my only concern is that people not misunderstand that fifty -one million is what I believe we traditionally have called unappropriated surplus and I want us to agree as a body on a term for that number. You are saying it was assigned but it did not have to be assigned, it just happens this year that all of it was assigned, right? Mr. Bynum: But that is a CAFR number, so I am still struggling for what is the proper term for that number. I personally like uncommitted surplus or unappropriated surplus. Do those terms work? Mr. Isobe: In our reporting terms and I think that is to avoid any confusion, is that we use that word assigned because that is what GASB restricts us to. We would not be able to use that in the CAFR; therefore, we should not defer to that as anything other than assigned. It falls into that category for GASB reporting purposes and that is what we use. I know where you are getting it, the unappropriated surplus is coming from the Charter and that is what they refer to but I would not... for our term, we use assigned. terms. Mr. Isobe: Yes. Mr. Bynum: Right, because GASB said use different Mr. Isobe: Yes. Mr. Bynum: But it did not say run your government differently Mr. Isobe: No, it did not. Mr. Bynum: It just said make these terms clear. Mr. Shiigi: It is just for financial reporting purposes. Mr. Bynum: And that is the point I am making that to really know what the County fiscal condition is and how we performed, we did not need to not look at the budget but look at our actual performance which you audit every year and tell us right? I mean I understand the Chair's chart and I think it is COUNCIL MEETING 10 MARCH 28, 2012 totally accurate. These are the budget commitments we made in the year, assignments, but at the end of the year, we may not do those things, correct? Mr. Isobe: You mean the end of June 30, 2012? Mr. Bynum: Yes. Mr. Isobe: Yes. Mr. Bynum: And we already know because the Chair and I both looked at these financial statements as we go along. How are we doing, are we expending all of the funds we committed? And the answer is no. Are we getting less revenue than we projected? The answer is no, we are getting more. So it is unlikely that at the end of the year that we are going to have a negative fund balance. Correct? Mr. Isobe: It is unlikely... Mr. Bynum: And you are so precise, you say — I have not seen those financial reports but you will see them at the end of the fiscal year, correct? Mr. Isobe: Yes. Mr. Bynum: When you do our next audit? Mr. Shiigi: Yes. Mr. Bynum: And then we will have a clear idea of our actual performance? Mr. Isobe: Yes. Mr. Bynum Thank you. Chair Furfaro: Gentlemen, I think we caught all of your report up to date up to that point, maybe if you can remain in the audience. Did you have any questions, JoAnn? Ms. Yukimura: Good morning. What I am understanding and I am still in a learning mode is that your actual performance numbers are above this gray line in the — there is two (2) sets of number, kind of upper and lower. Mr. Isobe: Yes. Ms. Yukimura: Divided by this — there is a subtotal as the bottom of this first set of numbers and a shortfall post reserve policy at the bottom, the second. Mr. Isobe: Yes. Ms. Yukimura: So divides the page, and the numbers above are more related to that CAFR, the numbers below are more budgetary projections? COUNCIL MEETING 11 MARCH 28, 2012 Mr. Shiigi: Yes, correct. Except for that. Mr. Isobe: Except for the nine, nine, nine, three is the budgetary shortfall in the General Fund. three? Ms. Yukimura: I am sorry, where is the nine, nine, nine, Mr. Isobe: Slightly above. Ms. Yukimura: Oh okay. So that is not a CAFR? Mr. Isobe: No, it is not a CAFR number. Ms. Yukimura: It is a projected shortfall, is what it is? Mr. Isobe: Yes. Chair Furfaro: And if I can just clarify that, would you yield the floor for a moment? Ms. Yukimura: Yes. Chair Furfaro: That number represents a hundred and two million of revenue during that period but the reality about a hundred and twelve million of expenses and I just rounded it out but it is actually nine million nine, ninety -nine but it is approximately ten million difference. Mr. Isobe: Yes. Chair Furfaro: If that would help, Vice Chair Yukimura. Ms. Yukimura: Okay thank you. But the mid -year reporting is already showing that our projections — the actual is going to be different than the projections, right? Mr. Isobe: Okay. Ms. Yukimura: So thank you for pointing that out. That figure is not a documented figure because the year is not over yet and so it is an estimate or projection. Mr. Isobe: It was based off of the budget. Ms. Yukimura: Based on the budget? Mr. Isobe: Yes. Ms. Yukimura: And then all the numbers below are basically — well let us see, the budget reserve provision is a fiscal year, that is this year's reserve but it is a decision that we make year to year shown by the Mayor's budget because he did not even put that in the budget for this upcoming year. If we are assuming that the budget reserve provision of this year is going to be next year COUNCIL MEETING 12 MARCH 28, 2012 then we have a projected shortfall but that is a number that can change based on decision of the Council for the fiscal year 2013 budget? Mr. Isobe: Correct. I think for the 2011 -2012 budget ordinance, it was to establish the reserve. Ms. Yukimura: Right. Mr. Isobe: It is not where every year you are going to put twenty -three million in there. It was to establish this reserve. That number comes from the budget ordinance to establish that reserve fund with that beginning balance of twenty -three point three, eight million and I do not think it was going to be where you put money, twenty -three million or whatnot. It was where you established that and have that set aside. Ms. Yukimura: So the existence of reserve was established in the last budget, how much we put in there in each year's budget is a decision we make at budget time. Is that correct? Mr. Isobe: Yes. Ms. Yukimura: Okay. Chair Furfaro: I just want to clarify that. It was put in there as a proviso in the budget. The narrative specifies it as such and just for everybody's clarity that proviso was put in but if you look at the new budget that came, the Administration is going to use ten point seven million of that to balance the 2013 budget. Ms. Yukimura: Okay. But we are going to consider the budget and those things could change by our actions and decisions. So the first line in the bottom half, budget reserve provision is a arguably changeable figure until we set the budget for the next year? Chair Furfaro: only a proviso. Ms. Yukimura: Access Fund is also a projection until Mr. Isobe: percentage rate, yes. Ms. Yukimura: Mr. Isobe: Ms. Yukimura: Mr. Isobe: Ms. Yukimura: policy which is the last line of the year 2013, this coming year right? Until you set an ordinance, right now it is Okay. If we choose to. And then the Public we get a certified revenue for next year? For next year's budget because it is a So that is also an estimate at this point? Yes. For the upcoming year? Yes. Because when we talk shortfall, post reserve chart, that is actually a projection for fiscal COUNCIL MEETING 13 MARCH 28, 2012 Mr. Isobe: It is the projection for the end of this current year you are in, 2011 -2012. Ms. Yukimura: Oh okay. But it is still a projection? Mr. Isobe: Yes. Ms. Yukimura: Okay. And then the debt service, that is not a firm figure either is it? The debt services here in the bottom half. Mr. Isobe: It is an estimated amount that would need to be transferred to the debt service to cover debt service, so yes it is an estimate. Ms. Yukimura: Okay, alright. So that is a projected shortfall in this year CIP budget, the one hundred twenty - six thousand? Mr. Isobe: Yes. Ms. Yukimura: Okay. In terms of the firm figures, CAFR gives us firm figures and they are all from last year's budget basically because you are assessing performance and you are giving us the actual performance figures through CAFR? Mr. Isobe: Yes, it is up to the fifty -one million, that's actual and the budget that was established was the projections and estimates of this current year. Ms. Yukimura: Okay, that is very helpful. Just one last clarification for me, if you go to the upper part of the budget, you see total other financial uses as the third line, it is on page 34 of the CAFR and then the next line is restricted landfill closures, page 92, why are they separate items? Why is restricted landfill closure is not included in total other financial uses? I think it is an accounting principle of it and I am just not familiar. Mr. Isobe: It is the terminology that is used for those funds that need to be — it is a little bit more restrictive than the committed terminology. I think we had gone over the different terminologies and because those amounts need to be transferred, that's (inaudible) restricted. Ms. Yukimura: I am not following. Restricted landfill closure is not included in total other financial uses up above? Mr. Isobe: So those funds in the General Fund are restricted to be used and transferred for landfill closure. Ms. Yukimura: Okay so it is by some kind of contractual agreement or commitment? Mr. Isobe: I think it is a Court order. Chair Furfaro: It is a Court through EPA. COUNCIL MEETING 14 MARCH 28, 2012 Ms. Yukimura: Okay and that is why it is separate and below the ending fund balance. You take it out after you get the end fund? Mr. Isobe: So what the chart up there is showing — there is fifty -seven in total and it is broken out into different categories whether it be restricted which is the landfill closure or committed which is encumbrances. Items that's going to be paid for in this current fiscal year and that remaining fifty - one million is assign...well what's coming up to be assigned. Chair Furfaro: And just so we are all clear, that is my sheet and I am not a CPA. sheet. Mr. Isobe: Yes. Chair Furfaro: I went to Business School but that is my Ms. Yukimura: Okay, that helps and it helps me understand your sheet. Thank you very much. Mr. Bynum: Just to further clarify because you said it, to the fifty -one million is what we know we actually have to do, right? Mr. Isobe: Yes. Mr. Bynum: And that is a CAFR number, that is our actual performance? Mr. Isobe: Yes. Mr. Bynum: Below that are things we are planning that may or may not do? Mr. Bynum: Okay. To me that fifty -one million is the true surplus. It is the true uncommitted, we may use some of it — that is a statement from me, you do not have to answer it. That fifty -one million is what we know we are going to do, right? have. Mr. Isobe: Yes. Mr. Isobe: Mr. Bynum: That fifty -one million is what you know you Right. Chair Furfaro: Let us clarify that, that is what we had in the end of June 30, 2011. Mr. Isobe: Yes. Mr. Bynum: The rest of it is something we may or may not use? Mr. Isobe: Yes. COUNCIL MEETING 15 MARCH 28, 2012 Mr. Bynum: Thank you. Chair Furfaro: Councilwoman Nakamura. Ms. Nakamura: I have some questions since you made that clarification I think we need to find out going into the budget how much of the self - insurance that has been assigned have actually been used. How much of the fund balance — were the operating projections and maybe this is a question for the Chair, how the nine point nine million came out. Chair Furfaro: Sure. First of all the self - insurance question is a question for budget time, so we can reconcile that account. That does not fall under these gentlemen. As we get to this particular piece of nine million, is that what you are asking? Ms. Nakamura: Yes. Chair Furfaro: What I should say is as we look forward to this, the reality is as we spent money and so forth, we actually came up contrary to Mr. Bynum's comment, we actually had a revenue shortfall of a hundred and two million from projections and expenditures of a hundred and twelve. The nine, nine, nine is where that number comes from. Ms. Nakamura: Okay. So the one hundred and two million was the projected revenue and one hundred twelve million was the... Chair Furfaro: Is where we kind of ended up in expenses, all cycles. Whether it we put money bills in or not. Ms. Nakamura: And this is a projecting out to the end of this fiscal year? Chair Furfaro: This is projecting out as to where we stand now and thus the problem, I am used to accounting practices that include accruals, the government here does cash accounting. In fact we can incur expenses in May of this year in a contract but we have to tie that money because we might be paying it in August of this year on a cash accounting basis. We also have a period of time where we are only looking at a six month glimpse of the year but we got to project out for anticipating all the way to June 30 of this year. Some of these are best estimates but we have to have a reasonable estimate on how we are going to end the year. More specifically these questions like you pointed out can come up during budget. Ms. Nakamura: From the thirty -seven million, you subtract out the budget reserve which is in the proviso. Chair Furfaro: In the budget proviso. Ms. Nakamura: That is what we have to work with for this upcoming budget? That is the actual carryover? COUNCIL MEETING 16 MARCH 28, 2012 Chair Furfaro: Right but as I pointed out, if you look at the Administration's first snapshot of the budget, to balance the 2012 -2013 budget, they're going to use ten million of that twenty -three reserve. Ms. Nakamura: Right and maybe this is another finance question — what is the carryover that we are starting off with in the upcoming budget? Chair Furfaro: Yes and if you ask me that carryover is twenty -six million negative. If you look at your budget sheet. It is two point six that was my forecast. If you look at your budget sheet, they're taking ten million seven from the reserve that we set up, they're reducing the capital by three point six million and they're basically projecting on what Mr. Bynum has said of the moneys we always under spend, they're indicating that they're going to under spend twelve point five million. That is how they are balancing the next budget by using twenty - seven million. Ms. Nakamura: The public access fund balance that is in here, is this for audited period or the projected forward? Mr. Isobe: This is the projected forward. Ms. Nakamura: The debt service and the general fund to other fund transfer, all those three (3) numbers are for this upcoming budget period. Is that correct? Mr. Isobe: Yes. Ms. Nakamura: Okay. So really... Mr. Isobe: Well this current. Chair Furfaro: This current year. Mr. Isobe: This current year you are in right now. Ms. Nakamura: Why is that not deducted from the fund balance? Mr. Isobe: We're showing it as assigned because those moneys were needed to balance the budget you're in right now, current fiscal year, those moneys were needed fund any short... let's say the public access fund, those moneys needed to go to those different funds, Finance assigned it. Ms. Nakamura: So it is the current fiscal year. Mr. Isobe: Yes. Chair Furfaro: In the year, for the year. Mr. Chang, you have the floor. Mr. Chang: Half way down, fund balance available July 1, 2011, page 92, forty -seven point six, one, nine million three hundred eleven, are those moneys available for appropriations? COUNCIL MEETING 17 MARCH 28, 2012 Mr. Isobe: Those moneys are accounted for in your budget, I would say it had been appropriated as part of your budget, 2012 budget. Mr. Chang: So they are not available? Mr. Isobe: No. Mr. Chang: Thank you. Chair Furfaro: Do you have any more questions before I ask Mr. Rezentes to come up? Gentlemen, thank you if I can say it another time, thank you very much for coming over. Mr. Isobe: Thank you. Chair Furfaro: Mr. Rezentes would you please help on the questions that pertain to the forty -seven million projection and how it was carried over from the 2010 -2011 budget earmarked in the 2011 -2012 budget getting us to a new budget of 2012 -2013. Thank you for being here Wally. WALLACE REZENTES, JR., FINANCE DIRECTOR: Good morning. Wally Rezentes Jr., Director of Finance. Chair Furfaro: Wally, at the beginning, I want to qualify that for six years I was the Finance Chairman of the County but these are my projected numbers, these are not numbers that I had gotten from the Administration. In fact, just from having a good practice of knowing what expenses will be going forward and what we have to earmark, this is my worksheet. I just want to make that disclosure as a public school student, I am not a CPA or any kind of auditor. Questions for Wally, members? Mr. Rapozo. Mr. Rapozo: Wally, are those number relatively correct? Mr. Rezentes: Yes, they seem to be, yes. Mr. Rapozo: More specifically the ones on the bottom because obviously the CAFR numbers, they are what they are. The Chair's estimates as he has listed it down, I tend to agree with the Chair's estimates, I think those are accurate estimates. If I read this chart correctly and a lot has to do with some of the amounts that are listed but as I think the Chair has stated, using this form July 1, 2012, the carryover is about two point six negative? Mr. Rezentes: As of June 30. Mr. Rapozo: So when we start off July 1 — so obviously as we move forward, we got to make some adjustments in the budget and I understand the Chair talked about reducing the reserve and so forth. I think there is a huge swing on the numbers. Mr. Bynum said we have about a fifty -one point three million dollar unappropriated surplus and then the Chair is saying we basically have two point six million shortfall, so the people are confused. Some people are out there thinking we have this abundance of cash, I think this chart clarifies that we don't and that's why I think it's important you as the Finance Director, if these COUNCIL MEETING 18 MARCH 28, 2012 numbers are accurate, then I think it's easier for me personally to move forward on this. Mr. Rezentes: Yes. That number appears to be correct as of June 30, 2011. As of July 1 with the new budget taking effect, there were puts and takes in that budget and ultimately effective July 1, I believe with moneys that would come from the General Fund CIP it brought us to a slight positive Fund Balance effective July 1. Mr. Rapozo: Is that what the Chair talked about eight million or so? Chair Furfaro: I said six point five. Mr. Rapozo: With the reduction of the transfer of the surplus and the increases in revenue and decreases in expenditures, you are talking about less than — about ten million? Mr. Rezentes: No. I think the number was closer to somewhere in the one point one, one point two range as of July 1 as a result of the General Fund. I believe CIP changes that we made in the current fiscal year budget so everything that you see here on that bottom section was a result of the fiscal 2012, the enactment of the fiscal 2012 budget and everything I believe the auditors mentioned are now in compliance with GASB 54 where we have to laid it forth that way. We have to show the amounts like on page 92 of the CAFR what is assigned and what is restricted, etc. What I think the relevance here is what we are estimating to be our fund balance for next fiscal year, that is where we are at. That's the relevance that we're talking about here and what we're estimating, we the Administration is estimating that number to be in the front two (2) pages of the — what we presented to this Council in the two (2) page budget ordinance proviso twelve million, five, fifty- three, two, seventy -two. That number is the relevant number on what we estimating right now to be what our General Fund unassigned fund balance would be as of — in a few months June 30. Mr. Rapozo: July 1. Mr. Rezentes: Yes effective July 1, correct. The other important thing to recognize here and I believe that the Chair had mentioned it earlier is that in order to balance our proposed fiscal year 2013 budget, we needed to tap into the reserve by nearly ten point eight million as well as reduce the General Fund CIP budget by another three point seven million for a total of nearly fourteen in a half million dollars. Again what should be in all honesty concerning is that these two (2) sources are non - recurring sources of revenue. There is only so much that you can tap from the reserve and some people feel that we have already in our budget proposal went too far. The General Fund CIP — there is a limited amount of money in the General Fund CIP, we should not be dipping more into that, again is not something that is entirely sustainable because there is only so much of that available. I can tell you that other counties I know of, they really do not have a General Fund CIP or it is very marginal and we are getting to that point already. What they've done is refinancing of General Fund CIP and amortized that over twenty years but again now you're adding debt services and interest to moneys that you already have available at no interest. We are hoping not to dip into that any further than we have already done so. COUNCIL MEETING 19 MARCH 28, 2012 Mr. Rapozo: I think some of the other counties have also lowered homeowner exemption because of this same plight that they are having. Mr. Rezentes: Correct. Mr. Rapozo: That in fact revenues are diminishing and it is of concern. The ten million reserve money and... Mr. Rezentes: Ten point eight. Mr. Rapozo: Ten point eight of reserve and then the reduction of CIP moneys, you call it the put and takes, so we are looking at rolling into July 1 with about a twelve point five million fund balance? Mr. Rezentes: Correct. Mr. Rapozo: Okay, thank you. Mr. Rezentes: Just for clarification had we not done that and we came in with a budget this size, the twelve point five, five, three million would have had to be fourteen in a half million higher in order to balance the budget. That would have basically depleted for the most part the entire reserve. Chair Furfaro: Before I recognize Mr. Kuali`i, your comment was well taken that that number is not sustainable. Mr. Kuali`i. Mr. Kuali`i: Aloha and mahalo Wally. Just to confirm some of the comments you made to Councilmember Rapozo, these numbers on the bottom part of this table is tied to the 2011 -2012 budget that is in place that was approved by this Council? Mr. Rezentes: Yes. Mr. Kuali`i: And that figure you came up with on the projections, it is utilizing half of the reserve? Mr. Rezentes: Nearly. Ten point eight of a twenty -five million dollar reserve. Mr. Kuali`i: So when you say that we're going to start the next fiscal year July 1, 2012 with that twelve million, that is only because you tapped into the reserve? Mr. Rezentes: Yes. Mr. Kuali`i: So if we want and determine we need a reserve for the following, going forward, we actually would have to find money for the reserve? Mr. Rezentes: The question is what level of a reserve does the policy make... Mr. Kuali`i: If it was between twenty and twenty -five million. COUNCIL MEETING 20 MARCH 28, 2012 Mr. Rezentes: Right it was and we are no longer at the current revenue level and expenditure levels, we are unable at this time to sustain or maintain a twenty to twenty -five percent reserve. Mr. Kuali`i: Unless we make some substitute changes regarding expenditure and revenues. Mr. Rezentes: Exactly. Mr. Kuali`i: But in the end like Councilmember Rapozo, I look at these numbers and I agree with the Chair in the sense of our fiscal responsibility, I cannot imagine not taking the advice from the auditors. During the budget process obviously this Council can make different decisions that ask the Administration to make certain changes in the next year's budget but in dealing with this current budget, I would have to respect the projection. I can only get updated figures from you in a sense of six months of this fiscal year is already behind us and that could tell us more or less what track we're on and that's what we'll be looking at, obviously as a part of the next project. That is what we are already starting to look at. Mr. Rezentes: And what happened is when we are complete with the audit, we will have to likely come back and true up our projections. If the twelve point five million unassigned projection was high, then we would have available funds for appropriation. If it was low, then we would have to come back and balance the budget by making reductions or adding other fees or revenue sources to rebalance our budget. Chair Furfaro: Let me caution out and I will give you your last question... but members the agenda item is about the audit, we are going to go into the budget discussions a little bit later this morning but I just want to be faithful to the time we have with the auditors here. Mr. Kuali`i, you still have the floor. Mr. Kuali`i: Just the last part on the spreadsheet on the bottom section, so things like the self - insurance dollar amount, the debt service fund dollar amount, those are actual obligations that we have and the projections are pretty much based on what those obligations are? that... Mr. Rezentes: Correct. Mr. Kuali`i: We know what we have to pay on the loans Mr. Rezentes: The self - insurance fund, you can look at that as a rainy day fund. It has moneys that would be available should something happen and I believe Councilmember Bynum mentioned something along those line. If there were an event that was not covered by insurance, we would be able to tap into those funds to pay for whatever related cost. Mr. Kuali`i: I think that sort of makes it clear, yes it's available funds but earmarked for a specific purpose and should things be DIRE, we could tap into that but that is already for self - insurance which I'm glad that we have it for the sake of our staff. Thank you so much. COUNCIL MEETING 21 MARCH 28, 2012 Chair Furfaro: Councilmember Nakamura. Ms. Nakamura: Thank you for being here. Mr. Rezentes: I apologize. before we leave that point, that's another area that — if you look at the second page of the budget ordinance, we are reducing the self - insurance fund or proposing to reduce the self - insurance fund by another seven hundred forty -one thousand to balance next year's budget. Again we are for the second year tapping into the self - insurance fund, I think in the current year what we did was we tapped into the self - insurance fund to help and assist in creating the reserve fund. We moved funds self - insurance over to reserve to help build the reserve up to the twenty -five somewhat million that we have available there. Ms. Nakamura: I have a question on the self - insurance fund. So we are nine months into our fiscal year and I was wondering do we know how much we have tapped out of that fund? Mr. Rezentes: I do not think there is any significance at all. Ms. Nakamura: So very little of the three point seven million? Mr. Rezentes: Yes. Ms. Nakamura: And then of the operating projections the nine point nine million line item there, which was the difference between the revenues and the expenses in the last budget, how much of that... Mr. Rezentes: I believe that is the Council Chair's projection. Chair Furfaro: It is my projection. Ms. Nakamura: Okay. Do we have any idea nine months into the fiscal year how much we have tapped into? Mr. Rezentes: I think that is an estimate, it is not something that we are tapping in to. We have not appropriated anything other than I believe sixty thousand in the current year over the budget. There was one money bill for sixty thousand and that was it for year to date in this current fiscal year. Again the Administration's projection on where we will be June 30 is twelve point five, five, three in the General Fund. Ms. Nakamura: When you add the nine and three there, it is about twelve and a half. Mr. Rezentes: Again this is our March projection and I think I have had a chance to speak to at least some of you and said that this was our March submittal, our May submittal may look quite a bit different. Ms. Nakamura: Okay. COUNCIL MEETING 22 MARCH 28, 2012 Mr. Rezentes: I mentioned last week in the evening before we close this meeting that the Administration is already awaiting our certified tax role data so that we can study various real property tax rate increase scenarios to at least get the real property tax revenue neutral position. Again, even before this bill was decided obviously. Ms. Nakamura: Thank you Wally. Mr. Bynum: I want to start with this communication, request the presence of our auditors to participate in a follow up discussion related to comprehensive annual financial review. The discussion we've had for the last thirty minutes is about the budget, it's not about CAFR and I said last week that I believe — I'm fine with us having that discussion because it's related but this Council had this very rigid thing, you got to be on the budget that I said last week I thought — I mean on the agenda that I thought was unequally applied and so I just wanted to make that point to start this. The CAFR numbers and we have budget items later that it would be more appropriate for this discussion but Wally, we ended the fiscal year with a General Fund balance of fifty -seven million, correct? Mr. Rezentes: The General Fund unassigned fund balance if you look at... Mr. Bynum: I did not ask you that question. Mr. Rezentes: Well... Mr. Bynum: I asked you in the CAFR we ended the fiscal year with a General Fund balance of fifty -seven million. Mr. Rezentes: Fifty- seven, two, six, four, yes. Mr. Bynum: And some of that was committed or restricted? Mr. Rezentes: Yes. Mr. Bynum: It is the top line of that chart. Mr. Rezentes: Committed, restricted or assigned. Mr. Bynum: No I did not say... those are different terms. Committed or restricted. It is from the CAFR. Mr. Rezentes: I am reading from the CAFR, if you look at page 92, Councilmember Bynum... Mr. Bynum: I did not ask about assigned, I asked about committed or restricted. Mr. Rezentes: No, but the fund balance, the total fund balance of fifty -seven million includes restricted, committed and assigned fund balances. Mr. Bynum: I understand that. COUNCIL MEETING 23 MARCH 28, 2012 Mr. Rezentes: Okay. Mr. Bynum: And I am asking you to answer the question that I asked. We started with a General Fund balance of fifty -seven million correct? Mr. Rezentes: Correct. Mr. Bynum: restricted, correct. A portion of that is either committed or Mr. Rezentes: A portion of that fifty -seven million is committed, restricted or assigned. Mr. Bynum: I did not ask you about assigned. Mr. Rezentes: Well you are trying to put words in my mouth. I am trying to describe what I believe to be the total fund balance. Mr. Bynum: I am not making this up, Wally, it is in the CAFR. Mr. Rezentes: I'm not either, it's right here on page 92. We can show page 92 up on the screen. Mr. Bynum: I am not asking about assigned, I will get to there in a minute. I am asking about the portion that was committed or restricted, that is a CAFR number, right? Mr. Rezentes: Those numbers are identified, yes in the CAFR yes. Mr. Bynum: Then we assigned and in this year fifty -one million are basically every penny of our fund balance we assigned, correct? Mr. Rezentes: Correct. Mr. Bynum: And so when that money bill that came here, how did we pay for that money bill? Mr. Rezentes: I mentioned earlier that effective, as result of July 1, as the result of the fiscal year 2012 operating budget, more moneys were available based on the enactment of that budget. That two point six negative figure turned to approximate one point one positive figure effective July 1 as a result of the budget ordinance that the Council passed. From that one point one million, sixty thousand was rightfully appropriated by this County Council. Mr. Bynum: As we sit here today and July we will start another CAFR right? Mr. Rezentes: Yes. COUNCIL MEETING 24 MARCH 28, 2012 Mr. Bynum: What would your prediction be that our General Fund balance will be at the end of the fiscal year? Our General Fund balance? Mr. Rezentes: At the end of this current fiscal year? Mr. Bynum: Yes. Mr. Rezentes: Well the unassigned fund balance we believe is going to be twelve point five, five, three, that is what I am estimating. Mr. Bynum: I did not ask about the unassigned balance. Mr. Rezentes: I do not have that number. Mr. Bynum: Well you are Finance Director, you can project that. Mr. Rezentes: I only have projected what I was required to project in the upcoming County's proposed operating budget and that number right now we're estimating to be twelve point five, five, three. It will change in May. Mr. Bynum: Do you believe that we will actually expend the fifty -one million we assigned? Mr. Rezentes: Historically we have not spent all of it. Mr. Bynum: historically. Historically we have rarely spent any of it, Mr. Rezentes: Well again, if you go to this twelve point five number, we are estimating in the course of the year and the course of the year... Mr. Bynum: No, I am trying to stick with the CAFR, you are talking about the budget. I am trying to stick with the CAFR. You are the Finance Director of the County of Kauai, you must have some idea what you think we will start the next fiscal year as a General Fund balance. Mr. Rezentes: And that is twelve point five, five, three. Mr. Bynum: That is a budget number. Mr. Rezentes: And that is not a CAFR number. You are asking me to answer to budget number, not a CAFR number. Mr. Bynum: I want to put this down on the record. You are predicting that next year when we get our CAFR that the beginning General Fund balances at the end of the fiscal year, we will be around twelve million? Mr. Rezentes: The General Fund, unassigned fund balance... Mr. Bynum: I did not ask about that. COUNCIL MEETING 25 MARCH 28, 2012 Mr. Rezentes: Well I am telling you that is what my projection is and that is what I need to project to provide this County Council with a legal budget. right? Mr. Bynum: What we assigned is an objective number Mr. Rezentes: It's objective and it's based on the budget. Mr. Bynum: I mean it is subjective. Okay, I will take another tact at this. Chair Furfaro: Why don't we take a little break, Tim, and you will have the floor when we come back. Mr. Bynum: Why would we take a break? Chair Furfaro: Because I would like to take a break. There being no objections, the recessed at 10:45 a.m. The Council reconvened at 11:01 a.m., and proceeded as follows: Chair Furfaro: As I pointed out before we left, I wanted to make sure I got the auditor's back up one more time but Mr. Bynum, when we left, you had the floor. Mr. Bynum: Wally, I'm sorry for the frustration I'm feeling, you apparently won't answer the question that I'm asking you and that's your choice. I didn't ask you about assigned funds, I asked you about the fund balance, so I'll bring your attention again to this sheet. Every year we assign funds, correct? Mr. Rezentes: Correct. Mr. Bynum: And in the last eight (8) years prior to this year, this year we actually used some of those assigned funds, correct? Mr. Rezentes: Okay. Mr. Bynum: But the eight (8) years prior to that when we assigned forty -seven million, thirty -two million, twenty -four million, how much of that did we use at the end of the fiscal year. How much did we expend? Mr. Rezentes: I don't have that information. Unless it's on your sheet. Mr. Bynum: It's right there in front of you. Mr. Rezentes: Okay, I didn't prepare this but it's there, maybe you can put it up on the board. Mr. Bynum: These are CAFR numbers since 1995. Every year we start the year with a total General Fund balance. This is the General Fund COUNCIL MEETING 26 MARCH 28, 2012 balance from the CAFR from 1995, in 1995 we had six million and this year we have fifty- seven. A portion of that is committed or restricted, right? And that leaves this figure which I'm looking for a term but I think for years that is what we called the unappropriated surplus, do you agree with that? Mr. Rezentes: Yes, I assume it's correct. Mr. Bynum: Okay. So for years this is the money we had available to assign, correct? And I see the auditors nodding, this is the number we have. So here's our history of assigning those funds, so last year we assigned nineteen million for self - insurance and budget, correct? But at the end of the year, and that left the unassigned funds of forty - three million and at the end of the year, did we actually spend this nineteen million and the answer last year was no. In that year not only did we not spend nineteen million but at the end of the year the fund balance increased by fourteen million. Is this all correct? Mr. Rezentes: If that is what the CAFR says, it's correct. Mr. Bynum: That's what the CAFR says. This fiscal year that we have the CAFR for, we did things differently than we ever had before, we assigned every penny, fifty -one million, right? So there were no unassigned funds to begin the fiscal year? Mr. Rezentes: Well I think it was relative to the GASB 54 change requirements. Mr. Bynum: Okay, well we'll get to that later but this year we actually did spend, we didn't spend fifty -one million like we predicted, like we said in the budget, we spent eleven million. For the first time in eight (8) years we had a negative net change in fund balance, right? Mr. Rezentes: Going back to your statement of that fifty - one, what we — the fifty -one, three, six, two, that amount was what was needed to balance the operating budget. It doesn't necessarily say we're going to spend every dollar of what's appropriated in the budget, historically have never done so. But it's an amount that we needed to budget to balance the operating budget. If you go in each department historically moneys go unexpended. Budget to actual usually there's moneys that go unexpended. Mr. Bynum: I agree with you and you're making the point that I've been trying to make here for three (3) years, why do we communicate to the public that we're in financial straits because we've assigned all of this money? We should make decisions based on what we actually do and it's the CAFR that tells us what we actually do. This year we assigned nineteen million for the budget to balance the budget, I have no problem with that. What I have a problem with is saying well okay because we didn't actually expend any of those funds. In fact when we ended the fiscal year, because we spent less than we said, because we had additional revenue more than we said, we actually increased our fund balance. Mr. Rezentes: The concern is that the table has turned now in that our revenues are on the decline, our expenditures are not. We are needing to and I apologize we're going into budget again. Mr. Bynum: That's okay. COUNCIL MEETING 27 MARCH 28, 2012 Mr. Rezentes: I won't go anymore. Mr. Bynum: No, because you're right. Things have changed. Our revenues are down. For the last four (4) years the Mayor and in this year again the Mayor said don't change tax rates at all. So with assessed values going down and tax rates staying the same, we will collect less property tax. Now every other County has made adjustments so they didn't lose as much They bump the rates up because the assessed values were going down. Mr. Rezentes: And I believe they did not have an unassigned fund balance. When you compare their unassigned fund balance to their operating fund balance, I don't think anyone had fund balances as solid as we had. They had to make those changes earlier in the game than we did. Mr. Bynum: Right and I don't want to get too far because you're right. That's what you just said, you're making my point. We had a bigger fund balance... Mr. Rezentes: Had. Mr. Bynum: ...than other Counties. Mr. Rezentes: Had. Mr. Bynum: We still do. Mr. Rezentes: Well that's debatable sir. Mr. Bynum: By percentage, absolutely. By percentage by our actual expenditures and transfers out, we have the healthiest fund balance in the State don't we? Mr. Rezentes: I'm not sure about going into next fiscal year. In the past years yes, I don't know what the other counties look like as far as their budget. Mr. Bynum: And you're correct the seven (7) tax categories that are not resident homeowner have had decreases each year and under your proposal will have decreases again this year. Our revenues will be down if we don't make any adjustments the way the Mayor has proposed and the Mayor said keep everything the same for the eighth (8) year in a row and those seven (7) tax groups will have a further decrease and our revenues will be down. It may tap into our fund balance but it won't eliminate it, it won't even reduce it into in my view a reasonable amount. It will still be substantial. Mr. Rezentes: I think everyone has their own views about what would be an appropriate level of fund balance or reserve and I know that will be the topic of discussion in the budget. Mr. Bynum: GFOA has a recommendation of five to fifteen and we've agreed that we're going to have that be bigger but we can save that discussion for later. I just want you to acknowledge that these are real numbers, this is our actual behavior and you already acknowledged last week that COUNCIL MEETING 28 MARCH 28, 2012 with the Mayor's proposal, we will have a further reduction in property tax that will all go to non - resident homeowners. Mr. Rezentes: And I also acknowledged last week that once we received the certified tax roll, we will be looking at revenue enhancement options to get potentially back to a revenue. Again, once we receive the certified data. Mr. Bynum: data is right now? Mr. Rezentes: tax numbers will be, we're close. But you have a really good idea of what that We're really close to what the real property Mr. Bynum: And this is kind of a separate issue but because we're the only County that the Mayor get to do a second submittal, he's basically saying I'm not going to show my cards on my real property tax now, I'm going to wait until it goes to the Council, to dump it in our lap in my opinion. Mr. Rezentes: Well we have to balance the budget, so it's not dumping it on your lap. We have to present a balance... Chair Furfaro: Excuse me, everyone. We're into a lot of budget pieces and I wanted to get the auditors back up before they left. Mr. Bynum: I just want to say one more time, this is CAFR numbers. This is what we actually do. We should make our financial decisions on our actual behavior not on our budget plan that we historically have never followed. Ms. Yukimura: Mr. Chair, I have some questions of Mr. Rezentes but I think we can bring him back. Chair Furfaro: I just wanted to get the auditors back because they have a flight to catch. Gentlemen, I'm going to follow up on some discussion from your financial background and understanding of 54 and how we take money and carry it over as a starting balance and go forward. I think as we talked, I'm going to brief you, in the hotel industry that I'm used to, the biggest trend in occupancy happens in the first quarter. It also deals with things such as is Easter early or is Easter late? Is Easter with break or is it after Spring Break? So most of the hotel companies that I've worked for, we do what is a reforecast after the first quarter, after the biggest occupancy period. I know it's pretty difficult to do a crystal ball. As the question came up about the closing 2010 -2011 balance, the fifty -seven million — are there any tricks to the trade if I could say to help us forecast more accurately? You saw my document up there which half of it was actual, half of it was reforecast and at that trend, I felt that's where we're going to be. I also feel that at the trend we're at right now, they're going to start with a fund balance, at least they submitted it to us at twelve million and the trends I'm at, I think they're only going to be about halfway there for half of the year. What is the reality for these cash balances? Mr. Isobe: I would think it's pretty tough to forecast that out. A lot would have to do with what actually gets paid, what doesn't and I guess what else happens for the next six (6) months. COUNCIL MEETING 29 MARCH 28, 2012 Chair Furfaro: For example, we just went through a horrific period of weather, we had roads collapse, we had flooding, we had a lot of the emergency services that were required and called out and we don't know what that number is but it's certainly a variance from what we budgeted. Because these guys were working twelve (12), fourteen (14), some of them sixteen (16) hours shifts, that's hard to forecast. Would you be able to add anything more to what we can do different and better? Mr. Shiigi: We're like nine months into the year already, or almost nine month. Chair Furfaro: Eight but the Council is only seeing six months of actual. My presentation was based on six months actual. Mr. Shiigi: I would think you would take the actual up to the latest information that you have compared to the budget that you already have up to that point and see what the variance is and project out the remaining of the year. Again it would be just a best guess, you can't predict the weather and things like that. Chair Furfaro: But basically it's a tough piece to reforecast but you're saying just duplicate some trends, you got six months of trends... Mr. Shiigi: You got six months of actual hard numbers in compared to the budget at that point in time and see what the variances and project out what you need to finish out the year. 2011. Chair Furfaro: Councilwoman Nakamura. Ms. Nakamura: I'm looking at Councilmember Bynum's handout here and next to the unassigned column is assigned fund balance spent, is that a CAFR number? If so, where does that appear in the CAFR? Mr. Isobe: That would just be the decrease in the fund balance. Now that I'm looking at it, I think the eleven million on the 2011 line doesn't belong there because we don't know what's actually spent out of the 2011 assigned yet. That's going to occur this year. The eleven belongs to the 10 line because that amount was spent out of the assign during fiscal year 2011. We don't know how much of that fifty -one million is going to be spent. Ms. Nakamura: So you're saying that eleven point five million goes below? Mr. Isobe: Well that's the amount that was spent in 2011, that's the decrease in the budget, in the fund balance. Ms. Nakamura: And... Mr. Bynum: (inaudible). Mr. Isobe: Yes for 2011. From 2010 to 2011, throughout COUNCIL MEETING 30 MARCH 28, 2012 Chair Furfaro: The year 2010 -2011. Mr. Isobe: Yes. Ms. Nakamura: So when we were doing the budget for 2011, would that be the number that you would start off the budget with in terms of your fund balance? Is that the number you would start off with? Mr. Isobe: You would start it with fifty- seven. Ms. Nakamura: Yes. But for budget purposes projecting for the upcoming year. Mr. Isobe: 2011 -2012? Ms. Nakamura: Yes. What number would you be using? I'm just trying to see if we can spend a lot on this CAFR to get a picture and yet we get the CAFR in December of every year, that's halfway through our budget process. I think it's a chance to say did we actually use the right number to start off the budget process and we can make adjustments at that point. Mr. Isobe: The budget ordinance that was passed in May, it was close, you were off by two point six, four. That's how close it was to the CAFR's number. Ms. Nakamura: Okay. Mr. Isobe: I think that's where it was slightly over budgeted and that's why we had to — there was a decrease in the assigned balance. Ms. Nakamura: So what is the number from the CAFR that gives us the direction of what number to use for the budget purpose? Mr. Isobe: That would have been the fifty -seven million. Because that's everything you have at the end of 2011. There's purposes for them, some of them are restricted, some are committed and then the rest is assigned to this current budget year. Ms. Nakamura: Okay. Ms. Yukimura: When you say we were close just a couple sentences ago, what exactly did you mean? Mr. Isobe: The budget that you guys originally passed, budget ordinance... Ms. Yukimura: For this fiscal year? Mr. Isobe: Yes, for this fiscal year. The unappropriated funds at that point used to balance the budget was about two point six, five million off and so there was a slight adjustment that needed to be made to prepare the CAFR that reduced assigned balance. The CAFR couldn't present a deficit in the unassigned fund balance. COUNCIL MEETING 31 MARCH 28, 2012 Ms. Yukimura: seven million, we used fifty -five? Mr. Isobe: must have been sixty -two. Ms. Yukimura: Mr. Isobe: Yes. Ms. Yukimura: Estimate it? Mr. Isobe: Yes. Mr. Rezentes: set aside for that rainy day. So what you're saying is instead of fifty - Was too high so it created a deficit, so it We used sixty million? Mr. Isobe: Yes, it must have been sixty because it was about two point... Ms. Yukimura: We were off on our projections by two point five, six million is that what you are saying? Mr. Isobe: Yes. Ms. Yukimura: Okay. So what is it is we didn't know the figure was fifty -seven million until as Councilmember Nakamura said, December. So when we're in June of the year, we're having to project it, right? Ms. Yukimura: And we were off in our estimation by two point six million? Okay, I understand that now, thank you. Chair Furfaro: Members, any other questions for the auditors because they have a flight to catch and it was very good of you to be here. I would want to get off this CAFR item so we can move on to another agenda item. Going once, going twice, thank you gentlemen very much. Wally, can we ask you to come back? Vice Chair Yukimura has the floor, she has some more questions for you. Ms. Yukimura: Thank you Wally. Our self - insurance fund is a projection of what we'll need in the budget year that we're budgeting for? It's not a projection, it's how much we have Ms. Yukimura: Right. Well it's an estimate of how much you think you'll need in the coming year for a rainy day? Mr. Rezentes: It's how do you predict a disaster, it's a rainy account so it's moneys that are set aside for basically liability purposes that are outside out property liability policies that won't cover that. From time to time, the County Attorney's Office have utilized that fund to settle a claim or to as a result of a lawsuit, etc., so it's an account that's not something that's really predictable like many other types of items that are a lot more predictable. Ms. Yukimura: How does it differ than from the budget reserve? COUNCIL MEETING 32 MARCH 28, 2012 Mr. Rezentes: Similar, it's similar purposes. This one is specific to insurance that, it's specific to items that are not ultimately covered by our policies. Ms. Yukimura: But the budget reserve could cover that too? Mr. Rezentes: And that's part of the reason why in the last two (2) cycles we've reduced the self - insurance fund and we put money — well in the current fiscal year, we've moved moneys from self - insurance to help fund the reserve. I don't have my budget ordinance for the current year in front of me but I believe it was two point somewhat million that was moved from self - insurance to reserve to boost the reserve up. In this fiscal year, the March submittal anyway, we're proposing to reduce the self - insurance fund to have that money realize into the General Fund to help balance the General Fund budget to the (inaudible) somewhat thousand. Ms. Yukimura: Basically like you said, both funds are for unpredictable occurrences? Mr. Rezentes: Yes. Ms. Yukimura: So as a matter of best practice, are there municipalities or local governments that set aside a minimum amount for — well I guess I'm going into the reserve policy and just say we will not let it go below a certain amount or do they create like a endowment, where you keep it up to a certain amount and then you... Mr. Rezentes: I think it's more risk appetite, how much adverse to risk you want to be and that's I think a policy call. How much you want to have set aside for this purpose for this quote, unquote event that is unforeseen or settlement that is quote, unquote unforeseen. Ms. Yukimura: And can you create it such that it just remains in that amount year to year and it doesn't change, so I guess it's like creating a special fund where the interest accrues to that fund and it grows up to a certain level and then it stays there? Mr. Rezentes: I believe you can set that by policy, yes. Ms. Yukimura: Okay. Chair Furfaro: Can I intercede on that one? Ms. Yukimura: Sure. Chair Furfaro: Wally, and the way that works in a Resolution as we have it now, it basically says when we use that money, and that twenty -three million is the reserve cap, basically it says that the Council shall have strategies to replenish the reserve but first starting with accessing moneys that are made available each year for the surplus. If we used the twelve million or ten point seven million this year, we actually arrive twelve months later with a surplus, the Council has the authority to first move that back to replenish the surplus. That is how the Resolution that I proposed is drafted, we haven't gotten to an ordinance yet COUNCIL MEETING 33 MARCH 28, 2012 but that determination is left with the Council and should use any surpluses at the end of the year. Ms. Yukimura: But we can also structure it so it wouldn't take Council action every time and it would happen automatically, that's another way. On your operating projections, it was the nine point nine million. Mr. Rezentes: That's the Chair's projections. Ms. Yukimura: The Chair's projections. Okay but don't you make projections too? Mr. Rezentes: My projections were the twelve point five, five, three million. Ms. Yukimura: Of a deficit? Mr. Rezentes: My projection as of June 30 what the fund balance would be, it's twelve point, five, five, three, yes. Ms. Yukimura: Deficit or surplus? Mr. Rezentes: The fund balance in the General Fund, we're estimating that to be twelve point, five, five, three million — unassigned. That number will change come our May submittal. Ms. Yukimura: Your May? Mr. Rezentes: May budget submittal. Chair Furfaro: The resubmitted. Ms. Yukimura: Thank you. Chair Furfaro: Mr. Kuali`i, you have the floor. Mr. Kuali`i: Just a quick question to clarify what you were talking about with Vice Chair Yukimura. So the reason why the Chair's number and your number is so different is because the Chair did not tap into the reserves for ten million dollars but you did. That's how you're getting us to the point of starting July 1 with twelve million positive? Mr. Rezentes: No and I believe and correct me if I'm wrong, the Chair is estimating how much money will be available July 1 for appropriation. That number had nothing to do with our budget proposal. That was just purely your estimate. Chair Furfaro: Let me give some clarification, I estimated as we ended the year we'll be negative two point six, the Finance Department based on some of the trends that their doing now, their number basically says to balance the budget, they will tap ten point seven million of the reserve, three point five million of the CIP and some of the trends in controlling expenses will make up the difference. I didn't take it to the next level, I just said what's going to be available COUNCIL MEETING 34 MARCH 28, 2012 without tapping any of the reserve. I'm just saying what's available is negative two point six without tapping the reserve. Mr. Kuali`i: Right and that's what I was asking, so even though it looks so different the two point six million negative from the Chair and the twelve million from the positive from you, the reason is it is because you have taken it further with these trends and you've taken ten point eight million from the reserves? So if this Council wanted to see the reserve remain at twenty -three million, something is going to have to happen in this next budget process to get back, we're going to have to hope that there's either cuts or some small surplus to replenish the reserve because you're dipping into the reserve, our very first year of the reserve. Mr. Rezentes: If the intention of the Council was going to be maintain the reserve levels as they are present, you would have to make some dramatic changes in the revenue side as well as the expenditure side of the budget. Mr. Kuali`i: That's it, thank you Mr. Chair. Mr. Rapozo: On the operating projections revenue minus expense we're showing as nine point nine, three million shortfall and again this is for the projection for the current year on this chart. I didn't look at the six month financials and if you can't answer that that's fine, I can wait for the response but do you recall what the most recent projections or the actual are as far as revenue minus expense? Mr. Rezentes: I'm sorry I don't have it in front of me. Chair Furfaro: Would you mind if I... Mr. Rezentes: I'm not sure what you're trying to get out with that number. Mr. Rapozo: I'm just trying to figure out according to this chart operating projections and the way I'm reading this is that the Chair is saying based on the budget, as it was presented we anticipate a budget shortfall of just under ten million, you take in all the revenue and you subtract all the expenses. So you got just under ten million dollar shortfall here. I'm just curious what the actual were for the first six months. Chair Furfaro: I think Mr. Bynum explained part of it. From a revenue standpoint we have approximately four point five million more in revenues than projected, that's all sources of revenue. We have about one point five million of proposed staffing that was in the budget that is unspent and of that we have using sixty -seven percent for the PT &B (payroll, taxes and benefits), we have another million dollars. In six months we have about half of what Wally is projecting to start the budget with for the twelve million. I have something more in the next agenda item to present on that in more detail. I think Mr. Bynum was the biggest part when he said the trend shows a six months about four and a half million ahead in revenue. Mr. Rapozo: So if that trend should continue, we're looking at about twelve million versus the negative ten million, so we're looking at a COUNCIL MEETING 35 MARCH 28, 2012 two million dollar variance which would basically take us to a wash or maybe a half a million dollar shortfall. Chair Furfaro: That's the comment, doing it this way it is not sustainable. Mr. Rapozo: Right. Chair Furfaro: Vice Chair Yukimura. Ms. Yukimura: On the chart up above, Wally, the Chair's chart, the shortfall post reserve policy of two point six million, you said that was as of June 30, 2011? Mr. Rezentes: Yes. Ms. Yukimura: Okay so now that we're in... Mr. Rezentes: That's what the auditors were mentioning when they had to make that adjustment, they mentioned... Ms. Yukimura: The two point six million. Mr. Rezentes: That is what they were referring to, this number here, two point six. Ms. Yukimura: Okay but that was a projected shortfall? Mr. Rezentes: No. The number that they were mentioning and unfortunately they're not here, I think they mentioned there was a two point six million variance. Ms. Yukimura: Difference between the General and... Mr. Rezentes: And that number I believe is what they were referring to, the two point six million negative. Ms. Yukimura: Yes ,but on this chart that was the figure we used for the budget for this year's budget? Mr. Rezentes: For this year's budget, no. Ms. Yukimura: Or this is a projected shortfall post reserve policy that's coming up, fiscal year 2012? Mr. Rezentes: The CAFR identifies or considers the current year's operating budget in that because the budget was passed prior to them doing the audit. Ms. Yukimura: Got it. Mr. Rezentes: GASB 54 requires us to consider the amounts like the twenty -three point three, eight, seven million... COUNCIL MEETING Ms. Yukimura: Mr. Rezentes: in to the CAFR and identified Ms. Yukimura: a projection? Mr. Rezentes: the budget ordinance. Ms. Yukimura: Mr. Rezentes: For the current fiscal year. Ms. Yukimura: Well it's the Chair's chart so the Chair needs to tells us and excuse me for not understanding this but what you're projecting there Chair, a short post reserve policy is for this year? Chair Furfaro: It's projected there to make it real simple because I am doing a projection on my own initiative doing financials okay? At the current trend you would reduce the surplus that is earmarked for the reserve, you would reduce it by two point six million dollars. What you're looking in the next budget, Wally guys are saying you have to reduce it by ten point seven for us to balance it. Ms. Yukimura: end this fiscal year with that kind Chair Furfaro: to tap the reserve. Ms. Yukimura: Chair Furfaro: ago. I haven't changed it since. Ms. Yukimura: 36 MARCH 28, 2012 That we've assigned to the budget? Correct. And that's what was incorporated on page 92. Okay. So this post shortfall reserve policy is It's based on the audited numbers as well as Right. So you're saying, Chair, that we're going to of deficit? I'm saying we would end this year and have I understand that. This sheet was done for you folks a month But it is your projection of what we will be Ms. Yukimura: ending up with. Chair Furfaro: It's my projection that only affirms that the Administration would have to tap the reserve but what I'm saying is my forecast of what they would have to tap the reserve is, is smaller than what they're actually tapping. Okay. Chair Furfaro: I might point out that in the reserve policy, fifty percent of whatever we had for the reserve as it's laid out can be used by the Administration for operating cash flow and working capital, that's in the proviso. Yet the only way we could have restricted that is if we actually submitted an ordinance by this time. COUNCIL MEETING 37 MARCH 28, 2012 Ms. Yukimura: Okay, where do we factor in this present mid -year projected increase in revenues then? In terms of projecting what will be the end year surplus or deficit? Chair Furfaro: In the next agenda item, I have a whole chart to show you. I will reconcile six months of Solid Waste, six months of Sewer, six months of Golf. Ms. Yukimura: data from this year's budget? So this figure does not have any of the new Chair Furfaro: No because I prepared that a month ago and I got the six month actual about ten days ago and then I reconciled them. Ms. Yukimura: So we're working with un- current projections because we haven't factored in the mid -year actual? We really should wait for your analysis Chair before we do any kind of projections of whether we're going to have money or no money? Okay, thank you. Chair Furfaro: If there's no more questions of Mr. Rezentes, I'll ask the public if they would like to testify on this item. Is there anyone that would like to testify on this item at this time? There being no objections, the meeting was called back to order, and proceeded as follows: Mr. Bynum: I'll just try to be brief. Every year we get an audited financial statement that tells us what we actually did. What did this County actually spend? What is our actual fund balances? Then we do a budget, a budget is a plan, historically, and Mr. Rezentes said it, historically we don't spend all of the money we budgeted. Historically our revenues are higher than we actually projected. At the end of the year, we get another snapshot of what we actually did. That actual includes — whatever you want to call it, a fund balance, money that is not committed or restricted. That is the figure in my opinion that we should look at every year to determine our actual performance. Did that fund balance go up? If it did, we're holding more reserves or cash or whatever you want to call it. Did the fund balance go down? If it went down, we're holding less. The confusion for many people is comparing what we actually did with a budget plan that we don't follow. I think that confuses people. Our budget plan says we committed assigned, I'm using the word, we've assigned every penny of our fund balance. I'm telling you now that when we end this fiscal year, we will not spend every penny of our fund balance. We will still have a substantial fund balance, right, by percentage larger than any other County in the State, that's a prediction. That certainly was true at the end of this fiscal year that we had the largest surplus by percentage of expenditures in the State, by far. You can look at their CAFR's too and I have, the Big Island — well I won't go into that but just please everybody make our financial decisions, make the statement that we give to the public about our financial condition based on audited budget CAFR statements, not on budgets that we don't follow. To say we budgeted this money, so it's all gone, is not responsible. To look at the end of the fiscal year and say what did we actually do and here's how we're standing, that's what's responsible in my opinion. Chair Furfaro: Any further comments? Councilmember Kuali`i. COUNCIL MEETING 38 MARCH 28, 2012 Mr. Kuali`i: I just have to say that we cannot make our decisions solely on the CAFR because the CAFR is only giving us a report of what happened in the past. What happened in the past is not an automatic indicator of what's going to happen in the future. We have to consider the budget, we have to consider that the Administration may be moving in a different direction and may be reacting to a different situation. What the other Counties, Finance Director Rezentes talked about hadn't turned that corner before and now this is our time that reserves are having to be dedicated towards operations. I'm looking forward to receiving the tax roll within a week or so, so that we have more information. I'm looking forward to this next budget process. I think that it is there that this Council has to do more work than we've ever done before on the budget to help get us through and work with the Administration on what clearly is going to be a different time. I think there's a change coming and we have been fiscally conservative and prudent in the past and that's a good thing. That's why we're in the situation that we're in. The last thing I want to say is that yes it's wrong to give the public the impression that we're in fiscally dire straits and we're broke, but it's also wrong to let the public believe that we have this huge amounts of surpluses and that everybody should be getting tax breaks and whatever, that's irresponsible too. We have to be realistic on where the numbers really are and take our financial responsibility to make sure that this County is fiscally sound in moving forward and working with the Administration. Mr. Chang: I want to echo on what Councilmember Kuali`i just mentioned on the realities. I think everybody here and I also do believe in my heart that the Administration — many of the people that are born and raised on Kaua`i want to give our local people a tax break. I really feel that we want to give some relief back to our residents. Reality will say in many cases and I was hoping that members of the audience would testify because I understand there was a meeting with members of the Chamber of Commerce, I see some realtors here, and recently we had emails of concerns with the real estate community, and as of yesterday I don't know which way the realtors actually stand at this point. I know at one point... Chair Furfaro: Excuse me Mr. Chang, point of order. Although we touched on some of these things, I think some of that narrative is appropriate for the next item. leave. Mr. Chang: Okay. Chair Furfaro: I understand. Mr. Chang: So I just wanted to make sure they wouldn't Mr. Rapozo: I don't think they'll be leaving. We all have different points of view around this table and because I may disagree with Councilmember Bynum doesn't make me irresponsible. I take offense to that comment that if we don't believe his numbers, then we're irresponsible. Mr. Bynum: I didn't say that. COUNCIL MEETING 39 MARCH 28, 2012 Mr. Rapozo: Well I think that's what I heard. I think it's not just the CAFR, it's not just the budget, I think it's the totality of all the information. Do we have all the information today? No we don't. Am I inclined to believe that the numbers presented by the Chair is accurate? Well he's going some updated numbers later today but I think when I look at what I saw and I think with the clarification from the Finance Director regarding the actual, well you can already see that we're not two point eight million, now we may be just about a wash but that doesn't leave much room. I think as we go through the budget as Mr. Kuali`i said, this Council will have to use a lot of scrutiny as we dictate the future, the direction of this County as far as the budget is concerned. We are not rich but we are not broke. We got to make sure we preserve the finances of this County for everybody and that includes residents and visitors alike, everybody. I think that's the mentality I'll be using as we move forward. We're still waiting for information that we don't have at our disposal today but I believe as we move forward on this process, it'll become clearer and it'll take responsible decision makers on this table, all seven to make the right decisions as we move forward. Chair Furfaro: Discussion? Vice Chair Yukimura. Ms. Yukimura: I am just taking off from what Councilmember Rapozo had said about the things that we have to do have to be for everybody. We have to include the issue of equity and it's not just about how much money we have to give tax breaks, it's a real property system that has to be equitable and using the tools to do that. So it's not just a matter of tax rates and that's what we really need to think about in the upcoming issues today. The motion to receive C 2012 -86 for the record was then put, and unanimously carried. There being no objections, Bill No. 2425, Draft 1, was taken out of order. Bill No. 2425, Draft 1 - A BILL FOR AN ORDINANCE TO AMEND CHAPTER 5A OF THE KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO HOME EXEMPTIONS: Mr. Kuali`i moved to adopt Bill No. 2425, Draft 1, on second and final reading and that it be transmitted to the Mayor for his approval. Chair Furfaro: I do want to say to the members that I would be making a presentation and according to our rules, I will have to turn over the Chairmanship to Vice Chair Yukimura because I'm taking a period of time longer than twenty (20) minutes to make this presentation. After I make the presentation, certainly I'll come back up and answer any questions but this Council Meeting will be run by Vice Chair Yukimura according to our rules. On that note, I do believe that it is good for us to all to have as much good information as we can, as we make decisions about any potential exemptions on the homeowners piece. Chair Furfaro, the presiding officer, relinquished Chairmanship to Ms. Yukimura. There being no objections, the rules were suspended. Chair Furfaro: This particular piece is referencing a County financial analysis on the Real Property Tax Bill No. 2425 that has been introduced by Mr. Bynum through his Committee. I think it's an opportunity where I can talk COUNCIL MEETING 40 MARCH 28, 2012 about some fund balances and things that we have as it relates to the history. There's some very revealing pieces here as we talk about tax relief and the exemptions. The first PowerPoint page is dealing with the history of the homeowners cap as it referred to the PHU credits in the various years that people had when real- estate values on Kauai and in Hawai`i in fact accelerated. As you can see from the charts there, we did have potential revenues left on the table through permanent home use credits that peeked in 2008 for the permanent home use applicants entitled to about ten thousand four hundred and eighty -two particulars applicants who took advantage of the PHU to the most recent decline in property values which has impacted our ability to earn money to pay operating cost of four point eight in this last go round. In the second column there were other tax credits that were available, Vice Chair Yukimura had her six percent cap on long term rentals, Mr. Asing had his cap for the three percent of gross incomes but if I put this on paper here, you can see in the year 2011 four million eight hundred thousand came from the property tax cap and only about two hundred thousand came from the other two (2) tax credits. The effect of the cap has been very substantial over this ten (10) year period authorizing about seventy million dollars worth of relief over that period of time. Some of you may not know this but I am the author of the tax cap bill in my second term of the Council when I was Finance Chair and we can see the acceleration in property values but we wanted to protect permanent home use at two percent while we went through this challenging period. On the next page, some information on hotel complexes as it relates to the other Counties and so forth. In all of this material, the column farthest right as you're looking at the screen, I'm sorry the colors didn't come out very well but that represents Kaua`i. We have the categories of homeowners and we're pretty much at par with two of the other counties. We have hotel and resort which you can see that we are somewhat lower and then we have the portion that deals with the commercial property that we have and then agriculture. One of the things that we don't look at as we relate to the hotel category to believe that hotel resorts on Kaua`i are probably not taxed at a right potential rate is — I want to share some information with you briefly here, the Real Property Tax Office were to tell you that they tax properties according to their construction, their amenities, and that helps drive them either to be an American Automobile Association four diamond, five diamond property and /or a Mobile International Star of six stars based on their amenities. What do I mean about their amenities? Well for example, when they renovated the Saint Regis, previous to the renovation, all of the corridors were exposed to the outdoor elements. Well according to the American Hotel/Motel Association, you cannot receive a five diamond resort recognition without having enclosed corridors, that's a requirement. It is an amenity for those enjoying traversing through the hotel but more importantly it adds to the cost of the hotel as well as other amenities, jacuzzis, size of the pools, and so forth, and what we need to realize that the island of Maui has a substantial number of four and five diamond hotels, far exceeding the two (2) that we have on Kaua`i. They also, because of that if you look across the board, Kaua`i has a average daily rate or an opportunity to bring in revenue at about a hundred and eighty -four dollars and fifty -two cents per day. The Big Island has an average rate of about a hundred ninety -one, fifty and then of course the island of Maui who has a substantial number of resort /hotels with expanded facilities. They actually have a command of an average rate of two hundred twenty -six dollars and sixty -seven cents. So they almost have a forty dollar a night increase in their average rate based on the actual characteristics and facilities of the property. Honolulu which has a number of off -water hotels on the Alawai, their average rate is only a hundred and seventy -four dollars and they have COUNCIL MEETING 41 MARCH 28, 2012 the fewest four and five star properties or diamond properties. Anyway, you need to take that into consideration when you go through that. Ms. Nakamura: When will you entertain questions? Chair Furfaro: I will entertain questions at the end of the whole presentation if you don't mind. The next slide is just general information piece, the information reflected on the following slides reflect data compiled from the financial statements provided by the Administration as of 1231. As Mr. Bynum and I were talking, we had to reconcile six (6) months of financials and we had to make my own interpretations as we go forward. The resulting excess of revenue or under expenditures may not necessarily reflect the actual trend due to commitments, contract payments, terms and various scenarios. As I mentioned to you, government don't do accrual accounting, they do cash accounting so we could have contracts that are signed, bills that are still outstanding and so forth, that you can't capture in the accruals for six months. Again, certain departments could have contracts for large purchases where payments are made at the start even at the next quarter. Example two (2) I would like to say significant events such as weather, I just mentioned to you the storm we went through could skew those projections — additional overtime and so forth. I did my own internal audit on the next page which references the big five (5) and if you can see there from the General Fund, we had actual revenues for six months of fifty -five million, five hundred and eighteen dollars. We had budgeted fifty million, nine, four, zero or we had a oversupply of revenue, if I can use that term, of four million five and I think you heard from Mr. Bynum earlier that number and I concur with my evaluation. In the next particular area on accounts related to the General Fund, we had an additional savings of two million dollars because we had budgeted actual fifty - eight million and we actually did fifty -six, a variance of two million. Now before I go any further for the six month period, I want to make sure you recognize that the plus six million has to be further broken down, how much of that is payroll for unscheduled staffing and how much of that is PT &E of the benefit line that makes up that six point five? We'll get there. When you get to the Highway Fund, they had actually projected revenues at five point eight million dollars and they actually had only revenues of four million fifteen. Again these are unaudited numbers and these are numbers from me reading the financial statement that came in ten (10) days ago. We also had a reduction in the fact that their actual expenditures were five point two million and the budgeted amount was six point two. They were under in budgeted expenses by nine hundred and twenty -nine thousand but when you see this potential contribution to the line because they were so far under in revenues from the Highway Department, they were negative nine hundred thirty -six thousand. When you go to the Golf Fund you will see as far as the budgeted revenues they had six hundred sixteen thousand for six months. They actually only brought in fifty -seven that had decrease in budgeted revenues of fifty -eight thousand. At the same time on the actual expenses for Golf, they were at a million two, they had budgeted a million one, they were fifty -six thousand over in budgeted expenses. When we go over to Solid Waste, again for the first six months of the year, there was actual expenditures of revenue of three million one, eight. They had budgeted three million, one, twenty -six. They were better in revenue by fifty -four thousand. When it came to the expense cycle though, they had nine point four COUNCIL MEETING 42 MARCH 28, 2012 million in expenditures, their expenditures were over budget by one million four hundred thousand dollars, a substantial number from what they reforecast. We don't necessarily have an opportunity to understand what their variances are without further study on this point. So their potential contribution to the deficit has one million four and that sounds really strange, a contribution to the deficit. Sewer Fund, actual revenue they had three million one. They had indicated that they were going to take in incomes of three million five. They were three hundred eighty -nine thousand off from their forecasted revenue. They made up for it in their actual expenses four point five million against five point six. They were at one million better in the variances to revenue and expense line. So they made a potential contribution of six hundred and fifty -five thousand dollars. Now remember earlier before we go to the next page, I said we needed to make sure we understood that the General Fund number included savings on contracts, other work, payroll, PT &E — so here is a reconciliation, again my own numbers, you can look by department what they had for money expenditures versus what they actually had spent. We had budgeted twenty -seven million one, thirty - nine for payroll for six month. We actually spent twenty -five million six. This isn't easy to come up with because we don't get this information from the Personnel Department, there is no staffing policy, so you actually have to go department by department and subtract the actual report from the budgeted report. So they were one million five better in payroll dollars. If I summarized that, we had actual payroll of twenty -five million six, twenty -five and that is including all overtime and other wages against the budget of twenty -seven million one, thirty -nine. We were better in our savings and payroll by one million five. Now I'm using my own estimated number of the PT &E and I would say that based on the twenty -five million six hundred twenty -nine thousand dollar payroll, we had actual PT &E charges of seventeen million three, three, eight against the budget of eighteen, five, five, nine We did better on budgeted expenses related to benefit cost by a million two. So there's no confusion as I mentioned on those five (5) big accounts, on this summary sheet we pulled out the savings from the payroll lapse and the benefit lapse to get to this six point five. We got to the six point five for six months and so if you now look at the Finance Department and say where are you going to find the twelve million three hundred thousand dollars to start the budget? The reality is they're halfway there. I think it's kind of safe to say that they will get close to that surplus based on these — this quick evaluation. At the same time I want to remind us that they are asking to get settled with the start of the budget at twenty -seven million dollars. They're going to take ten point six million from the reserve policy and they're going to take another three point four out of CIP to get the first in and the first out start of the budget. Again Mr. Bynum's point is that is only a forecast, this is only a snapshot we have but does not include any purchase orders that's out, any payroll that's out, any overtime and special payroll related to storm requirements and so forth. I just wanted to summarize that for you. Here's a philosophical change and I would hope that we have Dave Spanski here because as we go forward and if we have surpluses, one of the things we haven't done is we have a substantial amount of debt on borrowed money in this County. We floated a sixty million dollar bond for the Water Department and some financial practices if you had an opportunity to have a surplus, you establish a reserve for emergency. If you have a surplus for any funds, you pay down debt. But COUNCIL MEETING 43 MARCH 28, 2012 we haven't had that discussion, so at budget time we need to identify some strategic goals, what are we doing for Economic Development, the biggest part right now is getting people back to work. Our hotels are doing better as we've seen, finally getting people back to work but at the same time, we're seeing cost and including our own, with medical and benefits which are accelerating what margins they might make. Public access, open land purchases, qualifying for some money to increase our land assets and then of course our landfill expenditures. At my earlier part, I think EPA is estimating that we need to set aside fifteen million dollars to manage the closing of the landfill. With the contributions we've been making, we're a little over seven point eight million dollars each year making a contribution but as the auditors told us, that's money that is actually ordered to us by EPA process and the Courts. The question is ,then, another option is giving some tax relief. What I wanted to point out is this is the sheet that is coming from the proposed budget that we got from the Administration. First of all the twelve million five, five, three that they're showing as a potential surplus, I was able to justify for you folks six and a half of it. The next line item that you're looking over there, they're tapping the reserve fund to the tune of ten million seven, fifty- eight, five, zero, five. Again, these are my interpretations folks, this is something that we put in the reserve policy that said the first fifty percent of the reserve that the Administration could in fact use it to carry operating cost. It looks like they're being very true to that. Our decision eventually will be how much do we want to replenish that fund with or are we going to reduce it down to less than ten percent and leave the reserve only at thirteen million? That is a budget discussion item, not for now. Recently Lenny Rapozo made a presentation to us about CIP, the ten year plan and although they haven't commit to those, I had a friend that was in the construction and engineering field said that there was at least fifty -eight million dollars on new projects outlined over the next ten years to us. For this year, they're going to tap three point seven million of that to put in the range to balance the budget, so watch for that on your budget sheet. For those of you that wanted to know about the forecasted piece for the cost of living in the index for the State of Hawai`i, there is not one for the State, there's only one for the City and County of Honolulu and we've been using that. As you can see it's three point two percent for year ending 2011 but I would think if we were going to do anything, we could evaluate the home exemptions based on how much the consumer price index grew over a ten year period. This, I don't know if you want to throw out, I'm ahead of myself but we got a payroll report coming up from the Personnel Department and in the Mayor's budget narrative that you read, they indicated that they have eighteen new positions. To the best of my ability I have summarized by Civil Service codes and so forth what that additional payroll might mean. Again, it's not clear and available to us in the budget but it is pure payroll fourteen dollar funded positions, four new positions which will come to that first bottom line five, twenty -nine, five eighty -eight and when I calculate benefits and to make very clear to Finance and to the payroll department as well as the Personnel, if you look up on the top there you'll see what I am estimating the payroll benefits to be by category. I could be in error there, somebody told me that it's higher than sixty -seven percent. My estimates show that we have roughly sixty -seven percent going across the board on the PT &E that is as low as ten percent of cost on the medical portion but it goes as high as thirty -seven percent on retirement and other health premiums and so forth. This is a yet to be determined number on payroll but that's what we have there. COUNCIL MEETING 44 MARCH 28, 2012 The other things that you should be recognizing from the year of 2003, the dollar cost per thousand dollar of land. In 2003 it was four dollars and thirty -five cents and the building rate was three dollars and sixty -four cents. Because the cap didn't go into effect soon after that, we dropped it by twenty percent and the cap went into effect but as you can see, Mr. Bynum led to this earlier that land rates have not changed in this County for eight (8) years. Building rates have not changed for eight (8) years and we average about seven million in the property tax caps for homeowners who signed up for the PHU. I also want to show this as this is a home in the mid -range and the mid -range is five hundred twenty -five thousand today of what their savings have been and I also implemented in the year 2010 what their exemptions would be jumping from forty -eight thousand to ninety -six thousand because they made the age hurdle. That is the end. But things to consider as we go into home exemption taxes. I calculated PT &E at sixty -seven percent but I got a number from payroll and Personnel that says our PT &E is now eighty point two percent which I have a very difficult time accepting. Typical business, hotel resort their PT &E runs about fifty - two to about fifty -five but again I just wanted to make a summary here for you folks that to me indicates my earlier summary that we could be using these funds to start the new budget and what we may have to do to balance this year's budget by what the Administration did. They tapped in CIP, they tapped the reserve, and their estimate of what surplus funds will be is pretty close to the six month mark that I have. I would also let you know that in the Mayor's budget, he indicated that those unappropriated funds for six months, they were going to try to reduce it by twenty - five percent of what that surplus — and I did the same consideration in my and I want to make very clear, my projected numbers. Vice Chair, I am able to answer any questions. Ms. Yukimura: Thank you, Chair, for some very valuable information and oversight. Questions for the Chair? Councilmember Chang. Mr. Chang: Chairman, thank you for your presentation. In your presentation... Chair Furfaro: Oh, I missed that page. Mr. Chang: Did you want to explain that page? Chair Furfaro: Yes, thank you. I had them out of order and in front of me. This four year scenario takes us through when property values started to drop. You can see from that where our windfall was starting in 2005- 2006 and I could be open to any feedback from Steve Hunt if my estimates are incorrect or not but this is in billions of dollars. In 2005 and 2006 the total real estate value on the island of Kaua`i was thirteen billion seven hundred and fifty - four thousand. The next year 2006 -2007, when prices started to really accelerate, we went up twenty -two percent on the values of properties and that's why I continue to support the cap. We went sixteen million eight hundred thirty -seven thousand — million dollars in value and that was twenty -two point four percent. The following year we went up again and we went up pretty substantially another twelve and a half percent to eighteen eight, nine, eight billion. After seven and eight, when the economy started to go into a nose dive and property values decreased, the total value of our island's real estate was nineteen point two billion. You can see from 2008 -2009 values went from twenty -two to twelve to two percent COUNCIL MEETING 45 MARCH 28, 2012 growth. Now for the Administration, I've been saying this before that I'd like to put up the independent slide that they can be able to forecast for us not only payroll but also what the impact of taxes would be on the value of the building permits that we sent out. So you can see here as we go through this period of seven months from the building value piece that we had discussed in Mr. Rapozo's Committee, you can actually forecast the past twelve months how much the property tax would possibly grow by the number and value of building permits that we issue. Although growth has slowed down substantially, you can see that we only have about four hundred and eighty -nine thousand of new potential revenue. I would also like to go to the payroll sheet, if I could and the tracking of payroll dollars on an ongoing. It is the biggest single expense in any business, is the payroll cost. This is broken down by department in the sheets you have and basically it reflects that prior to some of the tightening up that the Administration has done, we were budgeting payroll about eight percent, fact. But then you read any decent financial book for government, they basically tell you, you should be in the ninety -two percentile of spending what you budget and this shows that we're about in the ninety -two percentile. Ms. Yukimura: Thank you. More questions? Councilmember Nakamura and then Councilmember Rapozo. Ms. Nakamura: I'm looking at page three (3) of your presentation. Chair Furfaro: Yes. Ms. Nakamura: What's the big take away from this? Chair Furfaro: The big take away is that you can't say to our resort inventory on the island which I want to point out again, by Charter amendment is now capped, you cannot be comparing on the inventory directly with another County. For example, if you compare Honolulu with us, that we do substantially better in average rate but the reality is that they have a ton of moderate to economy hotels on the back strip therefore, they don't have the right or same mix on the tax base. Then you go over and look at a place like Maui, two hundred and twenty -one dollar average daily rate, about forty dollars ahead of us, but the reality is they have this huge inventory of the Grand Hilton... Ms. Nakamura: Right and I guess for me when I'm looking at it, I'm looking at the different classifications, land use classifications and if we're looking at what tax burden is, it's telling me that the hotel, resort and commercial properties on this island have a larger tax burden per value of property than the homeowner and Ag classes. Chair Furfaro: I would make that same evaluation as you look at this but I guess the sub - category that I want to point out is that all hotels aren't equal, all resort properties aren't equal, so it's hard to compare Maui with us. It's hard to compare us with Ala Wai, Honolulu which only has a hundred and seventy -four dollar average rate. Mr. Rapozo: On page six (6) Mr. Chair, the taxable real property values only go up to 2009; did we get the numbers for 2009 and 2010? Chair Furfaro: I can get them. I just wanted to show in the hey -day when property values were going up twenty -two percent, twelve percent COUNCIL MEETING 46 MARCH 28, 2012 that we hit this economic doldrums we're in now and boom, a fewer growth in dollar values, fewer people are building and I'd be very truthful with you, I didn't want to go any farther because if some of the bonding companies asked us for our real estate value, they could in fact imply we're not growing and that could affect our bond rate but I just wanted to show where the bottom fallout. Mr. Rapozo: I'm assuming the trend continued though? Chair Furfaro: I can get that information. It kind of leveled out and now it might be growing a little bit in the current year. Mr. Rapozo: Thank you. Ms. Yukimura: Other questions of the Chair? Councilmember Bynum. Mr. Bynum: I want to thank you for this presentation. This is the kind of analysis that I think is important for the Council to do through the course of the year and you and I discussed that fairly regularly. Chair Furfaro: But I want you to know on my campaign signs, it doesn't say Jay Furfaro, Accountant. Again, these are just projections and just studying information. Mr. Bynum: I want to look at the fund balance chart that you gave because this is really important, it is page five (5). Chair Furfaro: Yes. Mr. Bynum: I am going to make some observations about this and then ask you a couple questions. First, our Solid Waste (inaudible) our revenue and this is through half a year right? Chair Furfaro: Yes, this is six months. Mr. Bynum: At six months we had revenue of three point one million, that's actually an increase because we have trash fees coming in. Chair Furfaro: Yes, that's the hundred forty -four dollars a year for pickups. Mr. Bynum: So we've always had a deficit in this fund for years and it will continue to going forward that we have to transfer funds in from the General Fund. Chair Furfaro: I might add that it's been subsidized in the past General Fund transfers, I want to say eight million but it might be four million, I'd have to look it up, it's substantial. Mr. Bynum: It's substantial and what this chart doesn't have is the beginning balance of these funds and so Solid Waste for instance started the fiscal year with eleven million seven hundred thousand balance. Now seven point two million of that is restricted, set aside for landfill closure. COUNCIL MEETING Chair Furfaro: Chair Furfaro: put in another million dollars on that. Mr. Bynum: are paving this year. Chair Furfaro: 47 Yes. Mr. Bynum: Right. MARCH 28, 2012 Mr. Bynum: So the fund started the year with a four point five million dollar balance which I think the Administration this year is not going to transfer in that much money, as much as they did because that's kind of too big of a balance to end the year. The Fund balance for these funds should end the year at a relatively low amount because we're going to replenish it in the following fiscal year. Both the Solid Waste Fund and the Sewer Fund had a one point two million dollar beginning balance and so I think this is a really important analysis that you've done. I think this next fiscal year and it's one of the budget items that we've been discussing, what should be the beginning Fund balance in these... say Highway Fund. The Highway Fund had a balance of three point five million to begin the year and I don't think we've ever had to subsidize or we have chosen to do an additional paving. I think that was your initiative in the past. Chair Furfaro: Well we did some additional paving but I also want to say some of that fund balance is high because they haven't paved for two years. And at one time I think I authored a bill to And the expenditures this year is because we Yes. Mr. Bynum: Part of that variance is because we're spending some of that large balance. Chair Furfaro: Right but I don't know because the County is on a cash basis, I don't know how much that is. Now if it was an accrual basis, you would accrue the expense to end the year in June but we do cash accounting. The other piece that you mentioned about the landfill from everything that I read, we need to get to a escrow account or reserve account to about fifteen million. If they are at seven and they have another four, I would think going forward they will begin reducing that collection, that's an option because they have so many years to get to the fifteen million. We're at seven, seven with actually earmarking it and we have this surplus, so that's another way to approach it. Ms. Yukimura: If you have a lot more questions, we're actually at our lunch break time and we could come back. I have some questions too, we're still in a question mode. Mr. Bynum: I have one (1) more. Ms. Yukimura: One (1) more and then we'll break for lunch. Mr. Bynum: Going back to page three (3) which I haven't seen this particular chart, I guess this is from the City and County of Honolulu, but going on what Councilmember Nakamura had said, the tax burden by homeowners in all the Counties is lower than commercial tax, that is common throughout the COUNCIL MEETING 48 MARCH 28, 2012 Country. That's the norm for municipalities everywhere. Some of my takeaways from this chart and I said this repeatedly over the last couple of years, Maui some time ago made a policy decision that resident homeowners would pay a low tax burden and that's reflected in this chart, quite clearly. That little red line is Maui, it's a third percentage of tax burden paid by the other Counties. My other takeaway and I agree with everything that you said that you can't just expect the same tax rates in each commercial category but on Kaua`i in the hotel tax rate, we're the lowest in the State. I think that's appropriate, I don't suggest we would do something different but that is a choice that we made as a policy to keep our rates for hotel and resort relatively low compared to the other Counties, particularly Honolulu. Do you agree with those options? Chair Furfaro: Yes and I would also say that homeowners need to realize that we haven't raised the homeowner rate for eight years in addition to the cap but I'm not absolutely sure, I did the research on hotel. But I think in general your observations, I can agree with. Mr. Bynum: after lunch. Mr. Rapozo: come back after lunch? There being no objections, the rules were suspended. Ms. Winn: No, Chair. Right. In terms of homeowners, we'll discuss Did anybody want to testify that cannot There being no objections, the Council recessed at 12:37 p.m. The Council reconvened at 1:57 p.m., and proceeded as follows: Chair Furfaro: To the Clerk's Office, I would like to reflect on what I asked earlier. I had given two (2) Police Commissioners an opportunity for specific time to come up and testify regarding a future item, but later today on Executive Session. ES -535 Pursuant to HRS sections 92 -4, 92- 5(a)(4), and section 3.07(e) of the Kauai County Charter, the Council requests an executive session with the County Attorney to provide the Council with a briefing on the retention of special counsel to represent the Police Commission in filing a declaratory action to determine who has the authority to supervise and /or discipline the Chief of Police. The briefing and consultation involves consideration of the powers, duties, privileges, immunities, and /or liabilities of the Council and the County as they relate to this agenda item. Chair Furfaro: You can come right up. I am only here to take your testimony at a specific time as this Executive Session will be called for later today. To the County Attorney's Office, is there anything you want to share with us as a group before I take the gentlemen's testimony? COUNCIL MEETING 49 MARCH 28, 2012 Chair Furfaro: Chair Kanekoa, I want you to know that we do have your written correspondence asking for us for discussion and consideration in Executive Session for the purpose of retaining Counsel for a declaratory judgment. All of the members do have written correspondence from you but I will be able to give you this time to give us any additional testimony that you would like. ERNIE KANEKOA: For the record, Ernie Kanekoa, Chair of the Police Commission. Good afternoon, Chair Furfaro and members of the Council. Thank you for giving us this opportunity to come forward. We — Commission Iona and I, represent seven (7) Commissioners on the Police Commission and we unanimously voted to come in and ask for the funds to be expended to hire or retain an outside Counsel as read earlier and that is why we are here to answer any questions that you may have. This is basically just to see between who has the rights over the Chief of Police and who can supervise him. Can we supervise him or the Mayor and so forth and it is not only for this time, it is for the future too. We have to think about the future Commission and we will be serving on the Commission, and the other thing about the Mayor, it might be a different Mayor or different Chief of Police. So they do not have to go through what we have been going through during the last several months. I think we need that ruling to make sure that this does not happen again. Chair Furfaro: Chairman, may I just ask and I just want confirmation, you did you say that this was correspondence that came to us for this agenda item was a unanimous decision of the Police Commission? Mr. Kanekoa: Yes. Ms. Winn: Let me clarify. The correspondence was sent prior to our meeting on March 23, so the vote actually was to obtain Special Counsel and funding from the County Council to provide a Special Counsel to assist the Police Commission in obtaining a declaratory ruling with regards to the powers of the Mayor, powers of the Police Commission regarding disciplinary powers. Chair Furfaro: Thank you for that clarification. Mr. Kanekoa: The Commission knew that I was going to send out that letter prior. Chair Furfaro: But as stated by the County Attorney, the fact of the matter is that there was discussion at a recent Police Commission? Mr. Kanekoa: That is correct. COUNCIL MEETING 50 MARCH 28, 2012 Chair Furfaro: Thank you, Chair Kanekoa. Commissioner Iona, do you want to add any testimony for this piece? CHARLES IONA: Good afternoon, Chair Furfaro and members of the Council, Charles Iona, Police Commissioner. On this past Friday, the voting with the members present was five (5) members present, all of them voted unanimously to request for Special Counsel regarding this matter. This issue in and of itself has been one that has been very complex, because when it first developed, we as Commissioners did not know the full extent of how it would affect the rest of the State. As we started to look at the language involved with regards to the powers to appoint and remove the Police Chief and subsequent with the actions taken upon the Police Chief, it becomes similar to what other Commissions within the State is faced with. Because of that we had numerous calls that would set precedent one way or the other and I think there is language covered under HRS and there is language covered in each Charter of every County. We are trying as a Commission to look at, regardless of how the outcome comes, that we have a ruling body that could make that determination one way or the other, and should that determination come out in favor of what we have always felt was right, then so be it. We knew that we were on the right path, but should it come out whereby the other way, that the Mayor has the authority, then we has Commissioners have to live with that, and so the future Commissioners, as well as the future Mayors and the future Police Chief all have to understand that should something happen, the Mayor will have that power. Right now it is a blind fact because we have the knowledge of knowing that we can appoint a Police Chief. The organization consists of a Police Department, a Police Commission, and a Police Chief, along with the members. We can also remove that person with due process and holding a hearing. We are entrusted as Commissioners to give a yearly evaluation. It is very difficult for us to do that now when disciplinary action has been taken and we are not a part of that process. Given that, it becomes very difficult that, and I made mention to this before in a meeting, that should the Administration continually discipline or take that action to continually discipline in any other matters, until the cows come home and I said that before, they still have to come before this Commission to decide whether there is a removal in place or not. If the Commission does not vote on that, then you are back to square one (1) again, so that is why we always contended that as appointing authority we should be involved in the disciplinary process if discipline was to be given, and in this case, it was not. That is the reason why the first motion that was made by myself, and I was very blind to see because I am not used to this, I had ask for counsel in rendering an opinion, that was me, but then I was told that if the County Attorney renders an opinion, his opinion is final. It does not settle anything in my books, because the people out there have also spoken in what they feel is right and wrong, and so when I was made aware of a declaratory ruling because it goes to a higher body and that person makes the decision one (1) way or another, then that becomes the rule. That is why we are at this junction at this time, sir. COUNCIL MEETING 51 MARCH 28, 2012 Chair Furfaro: Commissioners, I want to thank you for coming and that is one of the reasons I gave a specific time to you. We will not be moving into the actual Executive Session until later today, but thank you for your testimony, and now I am going to ask if there are any queries made from various Councilmembers. Ms., Nakamura: Thank you for being here. Earlier we received some testimony from Glenn Mickens through Walter Lewis and I wanted to just follow up on some questions with respect to the testimony and you were not here so I am just going to summarize it. One (1) was, are you as a Police Commission seeking the authority to supervise and discipline the Police Chief through this declaratory ruling? Ms. Winn: If I may just quickly? Chair Furfaro: Yes, you may have the floor and keep us out of trouble too. Ms. Winn: The Commission did not vote on certain items, so while the Commissioners may give their individual opinions about stuff, if it was not discussed and voted on in one of the meetings, it is not the Police Commission's opinion, it is just an individual Commissioner's opinion; I just wanted to clarify that. Ms. Nakamura: Are you saying that with this question, it was not discussed and voted upon? Ms. Winn: I can tell you again exactly what the vote was, the vote was to obtain Special Counsel and funding from the County Council to provide a Special Counsel to assist the Police Commission in obtaining a declaratory ruling with regards to the powers of the Mayor, powers of the Police Commission regarding disciplinary powers. Ms. Nakamura: Okay. Do you want to say anything? Mr. Iona: Why don't you repeat the question and I will answer you. Ms. Nakamura: The question was whether the Police Commission is seeking authority to supervise and discipline the Police Chief? Mr. Iona: As an independent Commissioner, we are seeking the ruling to determine that should discipline take place that was brought COUNCIL MEETING 52 MARCH 28, 2012 before the Commission that we act upon it at that time. It is not whether we meddle in the day -to -day operations, that is not what we are asking. I think when it comes to discipline, it has to come before the Commission, that is what we are looking at. That is the understanding that we have even though the opinion says otherwise. Right now the opinion rendered is that you have the powers to appoint and remove; there is this big blind space in between them and that is what we are seeking for. Ms. Nakamura: Also the other point that was brought up in Mr. Lewis's testimony was the concern that you may not have exhausted all of your opportunities outside of this Court proceeding. The question was it would be better to try to resolve it without having to go to Court and to expend these costs. Is it your belief that you have attempted to resolve this without resorting to this measure in front of the Council? Mr. Iona: Councilmember Nakamura, for the record, I am not the Chairman but he asked me to speak. Yes, we have. I know through communication with the Chair that he has had several meetings with the Administration pertaining to this matter and even though it is the Commission's opinion or position otherwise, the Administration has held their position. Ms. Nakamura: Thank you very much for that clarification and one final question, this is for Jennifer. Do you believe that the Police Commission has standing in this case since the Police Chief is no longer suspended? Ms. Winn: I just want to clarify, you want me to answer that here in open versus in Executive? Chair Furfaro: I think we should keep that for an Executive Session question. Ms. Yukimura: Thank you both for being here today and for all the leadership challenges that you have been addressing. Mr. Lewis also says there are no case in controversy since the Chief has gone... I want to ask you whether in the performance of your duties now in this situation as it is, that the lack of clarity about division of powers and so forth, whether that is impairing or making your work as Police Commissioners, whether it is being affected? Mr. Iona: I do not think it is the matter of if it is affecting our job performance... Ms. Yukimura: Oh no, I did not... Mr. Iona: I am sorry. COUNCIL MEETING 53 MARCH 28, 2012 Ms. Yukimura: I am sorry that I am not clear... whether it is making your job more difficult to do because there is a lack of clarity about the divisions? I will speak to the Attorneys later in terms of what an actual case or controversy is, but I am trying to know from your perspective whether this is a problem for you as you go about your duties of... So it is not about your job performance or even about the Chief's job performance. It is about whether it is creating difficulties for you to do your jobs. Mr. Iona: I think it has created a difficulty only from a standpoint that a position was taken and apparently a position such as this by the Administration was not taken for some time. We as Commissioners were always under the impression based on the clarity that we see the language that we have a standing what we believe is right, that is our job and that is how we move on it, but to have something brought forth before or action taken without the Commission being involved, that is the difficulty. And because now, it is almost to the point that we can say it will never happen again, but there are no assurances that it will not unless there are some language that says either it can or it cannot happen again. That is what we are asking for. Should it happen again and should again the declaratory ruling that we are asking for shows that the Administration has the power, then we can be rest assured that we are not going to take action because it is within the purview. is? Ms. Yukimura: Because you have clarity about what the law Mr. Iona: Correct. Ms. Yukimura: But not having clarity makes it difficult because you both have different positions about what the law says. Mr. Iona: Well I think the way I could sum it up when testimony was given before the second meeting of the Charter Review Commission is that we as volunteers, I came before and I believe Chair Kanekoa that we swore to take an oath to uphold the Charter and the laws in the State of Hawai`i. In upholding those laws, we have attended all the classes, whether it is from the Office of Information or Robert's Rules and everything else — one class that was never taught to any of the volunteers that I know of was the class of the Charter and the forefathers who developed the language and what was the intent of the language, nobody gave us that class. What they did was they threw it on volunteers, and we had to look at it and said I can read and write, this is what I assume the language is saying, but yet the opinions on the County Attorney's side says otherwise. There seems to be a disconnect there. COUNCIL MEETING 54 MARCH 28, 2012 Ms. Yukimura: My last question, and thank you for your answer, is if the parties... and I am thinking that the parties are basically the Mayor, the Police Commission and the Police Chief, say agreed to the fact that... agreed to the County Attorney's position — for now — just assume, but within that agreement the Mayor, in choosing to exercise his power, says I will come to you when there are disciplinary issues and we will discuss them first, and I will seek your input, or whatever, unless it is a situation where I have to make a instantaneous decision, and I cannot call an emergency meeting, but details out the operational methods that you would follow and he would follow through a memorandum of understanding of some sorts, which means that you would have to agree to it in order to sign it, so it is not a one -sided dictation of any sort, but it would be an agreement. Is that an option for a way to operate with clarity? Mr. Iona: I would have to say... Chair Furfaro: I am going to say do not answer that. Mr. Rapozo: Yes. Chair Furfaro: And you can put your hand down Mr. Rapozo, I expect the County Attorney to caution on that. The agenda item is the rationale about funding and the position that they have taken. The agenda item is not to determine in open session or discuss modifications and solutions to a problem that may or may not exist in interpretation. So gentlemen, I am going to caution you on that. Ms. Yukimura: Chair Furfaro: Mr. Chair? Ms. Yukimura: Thank you. You still have the floor. Ms. Yukimura: Thank you. I just want to say that the reason why I am pursuing this line of questioning is if there is a way to actually find an arrangement that works for everyone then this might not be necessary if there was a way. Chair Furfaro: Understood and I would like to leave it at that, the agenda item again is not the hiring of a facilitator that can create dialog about conflict resolution and so forth. The agenda item is understanding your position and your request for the funding. I do not disagree with the Vice Chair, she has some great ideas but the reality is, that is not the agenda item. COUNCIL MEETING 55 MARCH 28, 2012 Mr. Rapozo: Thank you for being here, Commissioners. I just want to make sure that I am clear, and I think I have heard it both from you as well as the County Attorney, that it is the position of the Kaua`i Police Commission that the authority remains with the Commission and not with the Administration. From what I have read and even up on to the Mayor's press conference with you folks, he made it clear that he was still under the impression or the belief that he had that authority, so there is a definite disconnect that needs to be resolved? Mr. Iona: Mr. Rapozo: Yes. Okay, thank you. Mr. Bynum: Good afternoon and thanks for being here and I remember when we confirmed you, we said this is a serious commitment and that Commission has a history of getting controversial sometimes. So I know you guys were ready but I really appreciate your service and your patience with trying to resolve this. I am clear about what you are asking here and why it changed and when you got better clarity about what it is you wanted to accomplish. That is why this changed, is that correct? Mr. Iona: Correct. Mr. Bynum: Mr. Lewis has given us testimony. I do not know if you guys saw it, and he is a smart guy, and I often read what he says and agree and sometimes I do not, but I just want to speak for myself. This is the third Police Chief and Mayor in a row where we really have had this issue about who has authority, so I concur with you a hundred percent that our community needs clarity going forward, and opinions are just opinions. In our political subdivision, the way things work, you have the Legislative body, the Executive body, and when there is a conflict, the Judicial. I concur with your desire, but my vote on this agenda item will have to do with whether we can accomplish this goal. Mr. Lewis is saying, because the controversy is not current, the Chief is back at work, thank goodness, that the Court may not be willing to jump into this at this point, in which case we have to craft the solution amongst ourselves. Amongst ourselves meaning in our County government with Commissioners, Council, and the Administration. Do you agree with that? Mr. Iona: I think you put me on the spot. I agree with you on some of the issues, but again I think concurring with the Chair, there are some issues within this issue that are still pending that if it is not heard, then we are going to have a problem. That is the reason why we are asking for this Special Counsel, because in obtaining the Special Counsel to give a ruling one way or the other, the same way there was a domino effect that took everything down, the domino effect has to have a reverse action to get everything back up. You can take COUNCIL MEETING 56 MARCH 28, 2012 care of some matters here, but if the work of the dominos does not stand back up, you still have a problem and that is what we recognize. Mr. Bynum: I appreciate your request and your willingness to modify it to make sure it is clear what it is you are seeking, and if we can go this direction and get the Courts to give us clarity, I think that would be a very positive thing. Thank you for being here and thank you again for your service and patience. Mr. Iona: I would just like to make one (1) closing statement because it is now made to my attention that this has happened three (3) times. I would have thought that maybe after the first or second time, something would have been done that we do not have this problem. We are hoping that this time will be the final time because we are taking it to that level. I think if they would have done it either the first or second time, we would not be here in front of you right now. Chair Furfaro: I would like to move on from this. I think the Commissioners just said it, we had this situation three (3) times, and perhaps that is counter to what Mr. Lewis's statement is. If the Courts see that we have had confusion with three (3) different Administrations, three (3) different Police Chiefs, that might give grounds for us to pursue this. Ms. Yukimura: Is ten thousand dollars enough, is my question because to me this case has the potential to go to the Supreme Court? Ms. Winn: Vice Chair, for the initial ruling, yes, ten thousand is enough. If there is going to be further action, our Office has in the past come to you and requested additional funds. I do not know if we need it at this point because we have not even done step one (1) yet. Ms. Yukimura: So what you are saying to get it into Circuit Court and to get a Circuit Court decision, the anticipation is ten thousand dollars to cover that? Ms. Winn: Yes. Ms. Yukimura: That is pretty much the request? Ms. Winn: Yes. Chair Furfaro: You heard from the County Attorney, this is phase one (1), phase two (2) could be taken to a higher Court, phase three (3) could be finding people depending on what the outcome is, some conflict resolution — but COUNCIL MEETING 57 MARCH 28, 2012 we are not there yet. Gentlemen, I want to thank you. I was happy to give you a specific time to come down, but we will be meeting on this ES item a little later today. Mr. Iona: Thank you very much. Mr. Rapozo: I do not know what time we are ever going to make it into Executive Session, but will the Commissioner or the Chair be available if in fact we have a question of them in Executive? I know they both live far away but... Mr. Kanekoa: I can be. Mr. Rapozo: You can be, thank you very much. Chair Furfaro: Thank you, Commissioner Iona, Commissioner Kanekoa, thank you very much. Jennifer, did you have one other thing? Ms. Winn: I was just going to ask if it would be okay with the Council if he is available by phone versus coming in? Chair Furfaro: Sure. We have voice communication capabilities and we might dial into you, please leave contact numbers with the County Attorney. Thank you. Because I moved this forward, if there are anybody else that would like to give testimony now, if not, we will move forward. There being no objections, the meeting was called back to order, and proceeded as follows: Bill No. 2425, Draft 1 — A BILL FOR AN ORDINANCE TO AMEND CHAPTER 5A OF THE KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO HOME EXEMPTIONS Chair Furfaro: I think where we left, I had turned over the Chairmanship to the Vice Chair because I made testimony and a presentation and so you have the floor and the Chairmanship. Ms. Yukimura: Thank you, Chair. We will go back to questions from Mr. Bynum but before we do that I am sorry that we did not open it up for testimony beforehand. Because I see Ms. Kato - Klutke or maybe Ms. Morey, or Ken Taylor, who knows... if there are no objections, I would like to take testimony now on the Bill and then we will go back to questions. COUNCIL MEETING 58 MARCH 28, 2012 There being no objections, the rules were suspended. LEE MOREY: My name is Lee Morey and I am the Vice President of the Kaua`i Board of Realtors and the Chairperson for the Government Affairs Committee. I had not intended to speak today but Councilman Chang made it clear that he would like to hear from one (1) of us, so I am still in the learning process and I have to admit that from what I have heard, I found some things to be disheartening and some things to be quite good. One of the issues that I am concerned about is the budget issue and from the information that I have heard from both sides pro and against the current... Chair Furfaro: I just made a presentation... Ms. Morey: Oh, well I am just saying that I perceived, no it was not directed at you — the information that I have perceived to be for and against it that I feel that with regards to the budget, in any business it is just as onerous to budget too much money as it is too little money. That money could be used to pay down debt for instance, so I see it as a concern, a citizen's concern about the way our budget is handled. I also see that there are funds available and my perception that there are funds available to do some tax relief for instance. I believe the real issue here with the taxes has to do more with — the disparity has to do more with the cap than it does an increase and exemption. The cap is actually what has created the disparity between the properties that have sold in 2003 and now; that is why one (1) house right next door to each other that are identical could have a very low tax and because a house was sold after 2003. The assessment amount is set at current value, there are huge disparities between similar properties. One of the real goals I think that should be with this Bill or any Bill that has passed should be to try to lessen that disparity and this helps. I do not think it is perfect but it helps. I think the cap needs to be seriously looked at and I think there are other issues; for instance, the way that the division of the types of property are looked at, homestead, single family residential, apartment, there are owner occupants that are spread all across those categories when in fact the categories should be set up for use, we should be talking here about owner occupants, what percentage of people are going to be affected are owner occupants, not whether it is single family or a homestead because when you look at those charts, it is not clear as to who will be affected and where future funds could come from. Another example is the hotel industry absolutely should not be targeted for any shortfalls in budget, that is the goose that laid the golden egg, why would we want to kill the hotel industry. That is our biggest industry on this island and in the State of Hawai`i. What we should really look at is the single family and other than single family, condominium homes that are second homes, those are the people who can afford a second home. In my years of working in real estate since 1986 and many years before that elsewhere, I have to question all the time, what are your property taxes like? Well we tell them, I have never had anyone not buy a property here because our property taxes were COUNCIL MEETING 59 MARCH 28, 2012 high. Usually they gasp and go, wow, that is not a deal killer. So there are lots of other options besides going after the hotel industry which I think is already tapped out. I think that has been recognized by the benefit of the last three (3) years of reductions and the one forthcoming. I would like to you consider a couple of things, one (1) is to pass not this Bill, but the Bill as amended by Vice Chair Yukimura which I think is a compromise, and to take some steps to further identify groups that perhaps would be better to tax than our owner occupants, and to also take a look at how this disparity that has been created by the cap can be fixed. Mr. Rapozo: Thank you, Lee. Thank you for being here today. I appreciate your testimony and I am sure what you saw today was probably new to you as far as how our budget process is and how the financial statements look, and that in fact we do not have this windfall of money that some people believe we do. But I guess my question to you is, being that we have to pass a balanced budget, and you said you do not want to target resort and I agree, I do not want to target resort, whatever shortfall or whatever deficit is created by the increase in home exemption, where would you propose that come from? Ms. Morey: Well I think I mentioned that briefly. I think that in the future that homeownership, the categories are broken down a little differently and that an owner occupant category needs to be identified out of all of the categories that we were... Yesterday we were given a pie chart of all the different groups, residential, agricultural, commercial, and then I asked the question where the owner occupants fall into this? And I was told it fell across perhaps three (3) different groups, and I am going well okay, but what we really need to do is identify the people who can actually more afford these taxes, and I am saying that the people that come here to Kaua`i and buy second homes are actually the people who can more afford to pay a higher tax. They pay a minimum tax just like any other residential buyer but it is a second home, it is a vacation home, and it is my understanding that you will be looking at resort properties and different categories and sometimes change the rate according to perhaps the category. That is where I think the funds should come from. Mr. Rapozo: So, from the second homeowners? Ms. Morey: Yes. When they come here and buy. Mr. Rapozo: Right now they do pay a higher rate now. I heard that our vacation rental owners here, and they may not live here, but they have a home here and they vacation rental it, that they qualify for homeowner's exemptions, that is what I heard. Ms. Morey: I thought it was owner occupants... I mean the Bill that we are talking about, I thought it was owner occupants. COUNCIL MEETING 60 MARCH 28, 2012 Mr. Rapozo: Well I am just saying as you are saying where should we send this... somebody has got to pick up the slack and what I said at the last meeting, under Mr. Bynum's Bill, my tax goes from thirteen hundred to twenty -five dollars, somebody has got to pick that up. Where do we... who do I charge for that? And that is just one (1). Mr. Hunt talked about his personal experience, we talked about Mike Dahilig, same thing — twenty -five dollars, somebody has got to pick up that slack, and if it is not the resort, where do we go? Do we attack the vacation rental owners and just say you know what, you guys pick up the slack, but I guess the bigger concern I have is how many of these second homeowners, maybe it is their only home on Kaua`i but they do not live here, they live somewhere else and they rent out their units and they are qualifying for homeowner's exemptions, that is wrong. I am glad you came because it triggered that and I forgot about it and I will ask Mr. Hunt last but that has got to be corrected, and I will have no problem with that person picking up my twelve hundred bucks, but there has got to be an equitable way of passing out that tax burden and I just do not know where to go and so I am asking you. Ms. Morey: Let me ask you a question, if you are paying twelve hundred dollars and you have an exemption of say a hundred and seventy - five thousand dollars and that brings you down to twenty -five dollars? Mr. Rapozo: The exemption was two hundred and twenty - five thousand. Ms. Morey: Well my recommendation was... Mr. Rapozo: Well like I said, that was Mr. Bynum's original bill, but even at the one, seventy -five though, I live in a very old, beat up, small three bedroom, one (1) bathroom, seven hundred twenty foot home, like many people do here, I am not complaining. I am just saying, I do not think twenty -five dollars is sufficient for me — to pick up my trash once a week, it is not enough to cover that. Ms. Morey: Neither do I, and I think that is probably exactly what needs to be looked at, and why is it there? Is it because of the cap that it is there? Mr. Rapozo: No. It is the value of my property. Ms. Morey: So then what we are talking about is a whole entire tax revamp. COUNCIL MEETING 61 MARCH 28, 2012 Mr. Rapozo: Exactly and that is what I have been trying to let the Administration come up with, some comprehensive — a tax program that can get calculated actions that would be fair and equitable across the board. That is what I have been trying to say. Ms. Morey: And how long will that take? Mr. Rapozo: They started, they came up with some really good success in the first year. I do not know the answer to that. Ms. Morey: If I understand correctly, I think some of that was to change the categories by use and this is a step. When I see this as simply a step in the right direction, one step of many more that will be coming and I think that not only myself but the general public and other realtors, whatever... because I am not speaking for other realtors today, I am speaking for myself, I think we all need to have a better understanding of how these taxes are calculated. We know, we are faced every day with a disparity of why one (1) house right next door to each other has doubled the taxes, but there is something wrong with that. Yes, that needs to be fixed but this tax exemption helps right now with the people who need it most which are our long term residents, owner occupants, and I personally do not believe there is going to be any big tax crisis before you can figure out a way to revamp the entire system which maybe it will take two (2) years, because I think that also should be done. I am not saying that it should not be done. I am saying this is a small piece of the puzzle that will give some relief now. Mr. Rapozo: I received a ton and I assume it came from the realtors, I am assuming that because it was a template email that we got, everybody sent the same words, we watching you — vote this way... I am going to be honest with you, it is offensive when I see that, it is like — we got to vote for you or you are not voting for me, I get it. But the reality is, it is a lot more complex than just saying vote for the people that you represent because for every dollar we cut from the budget, we got to replace that because we are required, and that is my question and you answered it. I appreciate that answer, I like that answer because I believe that is where it should go, that tax burden, but it is very difficult in this Bill to do it all at once. Ms. Morey: It is not intended to do it all at once; this is intended to be a small piece of a very large puzzle. Mr. Rapozo: I understand but regardless how small it is, we need to make up that difference somewhere else and it is going to be in the budget and I am just asking where. COUNCIL MEETING 62 MARCH 28, 2012 Ms. Morey: In my humble opinion in looking at the budget and the way the budget is handled by the County, by everybody over budgeting, there is money in the budget. I do not think that you are going to... this is going to cost about two and a half million dollars, it is my understanding and please correct me if I am wrong. Two and a half million dollars out of any one of these areas that was discussed today by Chairman Furfaro is not going to really break anybody's back and it will help a lot of people that I know personally that are very strapped financially. Mr. Rapozo: I feel guilty voting on the Bill. Ms. Yukimura: Excuse me, we had a lot of leeway here on a discussion rather than a question and answer, I think there are others who wish to ask questions. Chair Furfaro: Thank you for being here. I just want to reconfirm a couple other items... does the Board of Realtors know what kind of debt the County of Kaua`i has? Ms. Morey: I am sure that there are some members of the Board that know; I am not here speaking on behalf of the Board. Chair Furfaro: Because in my presentation I pointed out that right now today, I took a snapshot, the County of Kaua`i has one hundred and twenty -one million dollars worth of debt, not inclusive — that is from bonds, not inclusive from standing behind the Water Department and their bonds, and that is reflected in page 135 of our audit — that is real debt. As we look at debt, we also have to look at issues and I am going to ask my staff to call over to David Spanksi from the Finance Department to have him come over. We also get certain kinds of ratings in the bonds credits in the event we have to borrow based on the ratio of debt and so forth. Last year we were able to improve our debt ratio ratings to AA +. One of those things they looked at is the fact that by putting the cap in, we do control our earning ratio. So did I hear you earlier say that you favor looking at removing the cap? Ms. Morey: Yes. Chair Furfaro: And you do know that on the average for taxpayers, which you also acknowledged we never lost a home sale because of the property taxes, that it would immediately respond to about seven million dollar of credits we currently give that would be back on the table for discussion. Do you see that happening during the time we do a tax bill revamp or when do you see the cap coming off? COUNCIL MEETING 63 MARCH 28, 2012 Ms. Morey: about... Chair Furfaro: reported that people never Ms. Morey: they are very reasonable struggling right now for properties that are exactly lost a sale. This is not about me losing a sale. This is I did not say you lost a sale. I said you Kaua`i's property taxes are low and I think across the board, but I also see a lot of home owners many reasons, and I see a huge disparity in two (2) the same. That, in my world, that is not right. Chair Furfaro: You answered the question, but on the other side when you verse this piece because I believe in Councilwoman Yukimura's amendment, it might actually go the other way; the disparity comes out with about 485 homeowners that would only pay twenty -five dollars a year. That means every month, they pay two dollars for police, for fire, for civil defense, and so forth, and so how does that get to be equitable with someone like myself who has family property on the North shore and I pay seventeen hundred for the same services? I mean, my point is be very careful that all we are doing is flipping the inequity, that is very possible too. When we look across the sections of our current eight (8) categories, it has always been my position that when the Planning Department has sorted out all of the vacation rentals that they create the ninth category, that is found money for us. We create a ninth category for vacation rentals, but until such time, I think Mr. Rapozo is correct - if they use their vacation rental for a period of sixty or more days a year, they are qualifying for the home exemption and we need to change that. We need to get to and say, the 495 people that in fact have that in fact need to be prepared because we should address a new category. I also want to say that there are three (3) possible categories for people who have homes. They could have a home where they have a home exemption in ag, they can have a home exemption in apartment because you cannot frame a mold of everybody has to live in a house on a residential lot and so forth, and that is only information for you, that is why they fall in these various categories and we got to collectively get them. We have not fixed that yet. It is a very good point that you brought to the table because you cannot go to one section, you have to go... a retiree living at Pono Kai, not in the rental program but permanent home address, he can qualify for home residence, so there are those types of problems as well. I want to say to you that I appreciate the involvement you have... what did you say the Chairman of the Government... Ms. Morey: The Government Affairs Committee. Chair Furfaro: I really want to thank you for your participation. COUNCIL MEETING 64 MARCH 28, 2012 Mr. Bynum: Hello Lee and thanks for being here today and during this exchange. Thanks for going back to the issue that this Bill tries to address which is the inequities that current resident homeowners are experiencing. All of these other issues are in play, but they are different. So do you know that this Bill has nothing to do with the taxes that the hotels pay? Ms. Morey: Correct. Mr. Bynum: And you know that there are no proposal to increase hotel taxes? Ms. Morey: Correct. Mr. Bynum: And you know that the Mayor's proposal will actually result in a decrease in hotel taxes for the fourth year in a row? Ms. Morey: Correct. Mr. Bynum: I just want to make that clear, because I do not know why we are talking about hotels... Ms. Morey: I was not sure myself. Mr. Bynum: You made some very smart statements here today. Are you aware that we have already changed the law in the future for taxation for use? Ms. Morey: I was not until today, and I learned that earlier today because that was one of my first... Mr. Bynum: Because you are advocating for a comprehensive look at the entire tax system? Ms. Morey: Yes. Mr. Bynum: And I could not agree with you more, and so I just wanted to let you know and everybody else know that the Mayor put forward two (2) tax proposals this year that made structural, fundamental changes to how we are going to assess property tax going forward, and this Counties passed both of those Bills with only minor amendments. I have supported those and I helped — that was in my Committee, I helped usher it through, and one of those things are taxation by use, right? The other thing is incentivizing affordable rentals for people who own homes that they rent long term to residents that we are going to incentivize keeping those and allowing those taxes to be lower, so those great COUNCIL MEETING 65 MARCH 28, 2012 landlords that we have that keep the rent low for local people are going to get acknowledged for that and get a tax incentive. What the Bills that came from the Administration did not address are things that we are trying to deal with. One of them is the inequity in the home, right... that is why this Bill is here. The other thing the Administration did not put forward is the change to the minimum tax, so a lot of people are concerned that this proposal reducing taxes for resident homeowners will create additional people receiving the minimum balance and that is true. What is not being said is some of those people's tax bill last year was twenty -eight dollars under the current system, and it is going to twenty -five, and that is one of those people. Others were at thirty or forty dollars, or eighty, but if we want to address minimum tax, and I said here last week, we should increase the minimum tax, and we can do that. The Administration initially told me that it was going to be part of their package, but when it came to us, it was not. Mr. Rapozo has said something that is on our agenda today that people who are running vacation rentals, it has come to our awareness that a number of them have a homeowner exemptions. I sent a request to the County Attorney to say was that true, and if not, what can we do about it. I hope that we vote today to release that opinion, it is on our agenda for that purpose, and Councilmember Furfaro and I are working on a Bill to address that issue because it seemed inappropriate to many of us that you would live in the mainland, have a vacation rental on Kaua`i, and also have a homeowner exemption. This Council is doing a comprehensive look, along with the Administration, at our property taxes, and so you are aware of some of these things right? Ms. Morey: Yes. Ms. Yukimura: Oh yes. Ten (10) minute caption break. There being no objections, the Council recessed at 2:52 p.m. The Council reconvened at 3:11 p.m., and proceeded as follows: Ms. Yukimura: Our Council is back in session and we were having questions with Ms. Morey. I think, Chair, you had finished your questions... I think Tim still... Chair Furfaro: I wanted to have some time with Mr. Spanski. Ms. Yukimura: Yes and I think some people want to have Mr. Hunt. I have to say, Chair, I have to leave at 3:30 on a family matter. Chair Furfaro: We will turn over the meeting to Mr. Rapozo. COUNCIL MEETING 66 MARCH 28, 2012 Ms. Yukimura: Mr. Bynum, did you have any more questions of Ms. Morey? Mr. Bynum: No. Ms. Yukimura: Does anyone else have any questions? If not, thank you very much. Ms. Kato - Klutke, please come forward and then we will go to County officials after that. SANDI KATO - KLUTKE: Good afternoon. I had to take vacation to be here in front of you; I cannot come here during my work hours. My name is Sandy Kato - Klutke, I am here as the President of the Hawai`i Lodging and Tourism Kauai Chapter. Our whole concern if this Bill goes through and I have heard you all say or Councilmember Bynum say and Yukimura say that it is not going to hit the resorts, I guess I want it in writing. I actually do. I am not here just for the hotel that I work at or for the major properties on this island, but I am also here for the timeshare, the vacation rental people, for all of the bed and breakfasts that have to pay resort property tax. So if there is a category like bed and breakfast or vacation rentals out there that are not paying the resort property tax, we suggest that you have a bill that says they should pay what we pay at our resort destinations, because I am sure that you will make sufficient amounts of money from these people who are not paying the resort property tax; they are still paying whatever they pay, wherever they are, whether it be on Ag lands or on homesteads. It was interesting today to be here with you from this morning to hear about your audit, to hear about your budget. You know audits are audit, we do not hire auditors to come in to tell us why we did not do something. They are here to make sure that you actually spent your money correctly and there were no discrepancies, so I do not believe that they could have answered all of your questions that you had and that Chairman Furfaro does mention about forecasting, we reforecast in our property, in all of our properties every month. Our reforecasting had to do with the fact that our budget was done in August, it starts in January but the budget is a budget. It is something that we work by, but it is not our bible; I mean if I had to stick to that budget, I would be at zero percent occupancy because we raised the rates. The rates that we have today that I am charging today is less than what we charged in 2008 and less than what we charged last year; it is because in order for us to be competitive and to have the occupancy so that our people that work for us can get a job. Fifty -five percent of a dollar that I pay the employee is for other payroll benefits, fifty -five percent, so for every dollar that we pay them, we have to pay an additional fifty -five cents. If we raise our rates and our occupancy goes down, let me tell you, the people that you want to give the tax breaks to will not be able to pay their mortgage and property tax, they will be in foreclosure because we will not be able to allow them to work because our occupancy will go down. I just want to know where are you going to make up the deficit because you have a really tight COUNCIL MEETING 67 MARCH 28, 2012 budget? Councilmember Bynum, I just want a reassurance from you that this Bill going through will not hit the resorts and the hotels. Ms. Yukimura: I will open it up for questions if you are done. Ms. Kato - Klutke: Sure. Mr. Bynum: I want to give you my reassurance that this Bill will not impact resorts. Ms. Kato - Klutke: I want it in writing. I do not work for reassurances or words of people, it must be in writing. Ms. Yukimura: Well this is public record, it would be in the minutes of this County Council meeting as official minutes. Mr. Bynum: So, it will be in writing. I appreciate you being here and your patience and also your testimony. Are you aware that we have already changed the tax law, so bed and breakfast and TVRs will be paying more than likely the resort rate. Ms. Kato - Klutke: Yes, but I do want to make sure they do pay their taxes. Mr. Bynum: I know those folks are competitive with the hotels and they have been paying the single family residential rate, but under the Bill that the Mayor gave us that we passed, they will be taxed by use. So whether it is on Ag or on residence, they will be paying a tax rate that (inaudible) with the use. Both you and Ms. Morey said we think that is a good idea and apparently the Mayor and this Council agreed. Are you aware that anyone who bought a home since 2003 is paying a much higher tax Bill than people that... Ms. Kato - Klutke: I know because my owners who have bought in 2004 and 2005 who bought it for 250,000 but the tax assessed value of our property have gone down because of foreclosures, the units are now selling at 85,000. Mr. Bynum: Are you aware that the hotels for the last three years have had reductions in their taxes? Ms. Kato - Klutke: Significantly, but the people still have to pay their mortgages and we have given them less money back. Mr. Bynum: I am just saying the hotels themselves. COUNCIL MEETING 68 MARCH 28, 2012 Ms. Kato - Klutke: Yes, but we do not for my property, we do not own the property, it is owned by the condotel, so I have two hundred owners to report to. Mr. Bynum: They have all had a reduction of taxes over the last three years? Ms. Kato - Klutke: Yes. Mr. Bynum: Are you aware that the Mayor's proposal that he sent to us will show a further reduction for hotel properties? Ms. Kato - Klutke: Right, but then the Bill that is coming up in front of us, the one that you are proposing, does not say that the hotels will not be raising taxes or that where you are going to make up the deficit. Mr. Bynum: The Bill that we are discussing today has absolutely no impact positive or negative on hotels. Ms. Kato - Klutke: Okay. Mr. Bynum: Are you aware that Maui and the Big Island have raised their hotel rates? Ms. Kato - Klutke: I understand, but Maui and the Big Island make a whole lot more money than our properties do on Kaua`i. Mr. Bynum: But you know they raised their rates? Ms. Kato - Klutke: They raised their rates, but they make a whole lot more money than we do. Mr. Bynum: The Big Island Hotels do? Ms. Kato - Klutke: All the hotels. Mr. Bynum: Okay, thanks Sandi. Ms. Yukimura: Other questions? Chair Furfaro: Sandi, thank you for your comments, but I want to go on the record — I cannot guarantee that you would not see a tax increase. COUNCIL MEETING 69 MARCH 28, 2012 Ms. Kato - Klutke: I know. Chair Furfaro: And that will be in writing. I think you heard from a member that basically said, he did not see that happening, but I am telling you, we cannot predict the future. The reality is that we have a lot of issues going on with our resort properties whether it is condo or hotel, but certainly we want to come up with a Bill that is fair and equitable, and I was President of the Hotel Association twice, I am a thirty -eight year hotel man, twenty -eight in senior management, and I have to tell you, I would not say that we would not have to go back and revisit the well. We will try our best not to, but I could not guarantee that. Ms. Nakamura: I do not have a question, Sandi, but I just want to thank you for being here and taking the day off, taking your vacation time to be here. That shows your commitment and your interest in this topic and your leadership in representing the different constituencies and organizations, so thank you for being here. Mr. Kuali`i: Aloha and mahalo Sandi. When you said where will you make up the difference and you have a tight budget, I think you sitting here this morning, you listened through all the information that was shared and I think that was the most important thing you shared with us today, and so the comment that was just made that the Bill would not have any impact positive or negative on hotels, it would not have a direct impact, but you can see how it would have an impact on the County's budget. Like the Chair had said, when we come to that budget time and we have to establish the rates, if we are three million in the hole, we are going to have to look at all categories fairly, it is just the fair thing to meet the County's operations. I appreciate that you see it that way as a manager yourself. Ms. Kato - Klutke: I understand that, because as we look at the State budget, if they do not balance it, it will affect us in the hotel industry because they will hit us with an increase in our TAT, and if we go there to testify against that, then it will affect the County because it will take away from your twelve or thirteen million that you are getting now. One way or the other, we have to protect our industry and our business like everybody else around the table. Mr. Rapozo: Thank you for being here on your vacation; maybe tomorrow I will take vacation and go to your property and sit by the pool. Ms. Kato - Klutke: That is good, you can come, I will give you a really good rate. COUNCIL MEETING 70 MARCH 28, 2012 Mr. Rapozo: We might still be here tomorrow, I do not know. Did you know that this is only the second item on the agenda so far... like your hotel, if you decided to do something great for people and you decided to lower your rates to make a lot of people happy and then you felt that you can do it, you would have reduced your revenue — where would you have gone next? I mean you have to pick up that revenue someplace or what would you have to do? Ms. Kato - Klutke: Well, if we want to give a guest something, I would have to increase my revenue, I would have to increase my rate because... rate. not. Mr. Rapozo: Right, but I am saying if you reduced your Ms. Kato - Klutke: Then I would have to look at reducing my staffing. Mr. Rapozo: Your expenses, correct. Ms. Kato - Klutke: My expenses have to be cut. Mr. Rapozo: We have the luxury of raising rates, you do Ms. Kato - Klutke: Right. Mr. Rapozo: If you are reducing your rates that is it, the next thing is you have to cut expenses, so same with us. We can raise rates, which would be more than likely resorts. I am with the Chair, I cannot guarantee you today that it is not going to happen because we do not know. I cannot wait to get the Treasurer up here, I have questions for him, but the other options is to cut expenditures and we got to seriously look at cutting our budget to the tune of whatever deficit the exemptions would create. We are in the similar boat, we have a little more latitude because we have the ability to raise rates in other places, because it is very difficult as you know to cut staff in the County government with Civil Service. It is not like we can lay off a bunch of guys, we will cut your hours, it is not that simple. Typically what would happen is we would have to look at rates across the board and see where we can equitably increase the tax rates for other categories. Ms. Kato - Klutke: I agree. Mr. Bynum: One quick follow -up Sandi. I do not want to play any games with you, so I want to clarify. This Bill will not impact hotels rates at all, okay? And I also cannot make a promise that rates might in other categories COUNCIL MEETING 71 MARCH 28, 2012 as well need to get increased; the Mayor said it in his budget. He said, here is the rates that I am giving you but I may have something different to say in May. I also want you to be aware that even though the other Counties raised rates for commercial and hotel, that does not mean that the tax bill went up. They raised rates because the assessed values were going down and they wanted to not lose as much. Changing the rates up or down does not always change the tax bill. Ms. Kato - Klutke: I understand that. I also understand that if the hotels do not get hit by an increase in this round but our commercial properties do, then that means that the cost to us to run the property will increases. Similarly, we would have to increase our rates in order to offset that or cut our staffing. Ms. Yukimura: I think there is much less waste in efficiencies in the private sector than in government, because you have to watch the bottom line so much, but that is also an option in our budgeting to look for areas where we have either over - budgeted and we do not actually use it during the year, or where we are paying money that we do not need to pay because of how we are doing things or — so that is also part of our budgetary process. That is also a source of income. Mr. Chang: Sandi, thank you very much for coming here. I think what was the main concern with the hoteliers way back when the original Bill was proposed was that the hotels were involved at that time, is that correct? Okay, so now it is off the table, but many of the concerns that we had with some of the general managers that were here, others that have not been able to come here, was the fact that the bottom line is if the hotels in this case gets taxed after weathering the storm, if you will, with renovations and trying to keep people employed, not laying them off but doing their best to keep them employed. If that happens, hence then the layoffs and the cut of the benefits, is that correct? Ms. Kato - Klutke: Yes. Mr. Chang: Okay and then one of the things that I know that is very concerning is that if a homeowner has some sort of an exemption or some kind of reimbursement or reduction, I think one of the biggest concerns is that there is no communication with an employee that you may get a little relief now but unfortunately we are going to not only cut your hours but cut your benefits. That hourly portion per week or per month or what have you will far supersede a loss versus a savings over that period of time over a year. Ms. Kato- Klute: That is right. Mr. Chang: I think the big concern for the hotels is that that communication, the rank and file and the people out there that may receive COUNCIL MEETING 72 MARCH 28, 2012 some sort of relief or benefit, the picture has not been painted as to where their future would stand as far as your employment. Ms. Kato- Klute: That is right, because eventually I feel that as the government for the County here or for all of you is that you have to get a budget that you will have to work with that can move this County forward. We cannot be working with the same rates and standards we had last year or the year before, we have to go forward. There will be increased cost; we just got a raise in our cost for water, the electric bill has gone up, our gas bill has gone up, so you know we look at where we are going to cut. Where are we going to cut in order to keep our rates lower to be competitive to all of our competitive destinations and competitive to each other here? One of the places is to cut staffing or to cut their benefits, and if we cut their benefits, they do not get medical, they may not get the medical, they may not get the 401k, so I am not here just saying that you not give us an increase on our property tax, but to look at the overall picture as to what this is going to do, the ramifications for the whole island. Ms. Yukimura: I really appreciate the focus on how the hotel industry and the workers will be affected. I hope that we have that same kind of thinking when we look at increasing number of resort units and how the occupancy rates and the impact of rates are too. Thanks very much. Chair, as I circulated a memo earlier, I have to leave. There being no objections, the meeting was called back to order, and proceeded as follows: Vice Chair Yukimura, the presiding officer, relinquished Chairmanship to Mr. Rapozo. vote. Mr. Rapozo: As soon as JoAnn leaves, we will take the Ms. Yukimura: I am just writing you a message asking you to please postpone the vote. Mr. Rapozo: We will not do anything until you return, you have my word, Councilmember Yukimura. Do you want it in writing? Anyone else in the public wishing to give testimony? Mr. Bynum, did I hear right, are you going to do a presentation? Mr. Bynum: Yes. Mr. Rapozo: Mr. Chair. COUNCIL MEETING 73 MARCH 28, 2012 Chair Furfaro: make sure I want to hear from Treasurer about bond issues. Mr. Rapozo: and the only reason is because w Mr. Bynum: Mr. Rapozo: Mr. Bynum: There being no objections, the rules were suspended. I have no problem with that, I just want to Mr. Steve Hunt, I want to hear from the County How long is your presentation Mr. Bynum e have the County employees that is... Ten (10) minutes. Oh, only ten minutes? I think so. Mr. Bynum: I am really sad to see the Chair leave the room every time I present something. So what we have before us is an amended Bill. You have seen these charts before, I made these at lunch, they are based on this Bill and the 3.25 rate that we talked about which would have 2.7 million dollars worth of revenue impact in the coming year. These are homes all valued at 299 and you can see the spread here, people are paying as low as $140.00 and as high as 955. The proposal that Councilmember Yukimura has put before us would kind of split the middle, and the red rates are the calculated rates, and so some people fall below that. So the folks that pay 955, their taxes would go down to 403. The person paying 379 or 261, under this Bill would stay at that rate and they would come up slowly based on the cost of living; under the cap, they would come up 3.7 percent. This scatter is what we come to refer to as inequity. I do not know how you would explain to a person paying 955 when their next door neighbor is paying 403, this is not a little bit different, it is a lot different. I said at the beginning that I had hoped that we would do 5.4 million, I heard this body say that is too much, because I said from the beginning that I wanted to deal with this inequity and I also believe like Maui, it is a good public policy for people who live and work on to pay a very low tax rate. This compromise in essence says, no we do not agree that we should pay a very low tax rate as a class, but it does allow us to deal with the worst of inequity. These are homes at 299, median value for homeowners is about 380, people and this is the scatter, these are 10 homes all valued at around 383 — 300 which is median for resident homeowners, meaning there is an equal number of homeowners that have their homes valued higher and an equal number that have homes valued lower. This is kind of like a typical home on Kaua`i, modest middle class home. The new rates under this Bill would be about $660.00 and so some people would come down because they are paying higher than the median, and these folks that are paying low, the way this Bill is crafted, it would not go up other than the 3.7 percent this year. I see this as a much more modest proposal, more modest than I would like, but I think it is critical that we deal with this inequity or COUNCIL MEETING 74 MARCH 28, 2012 at least the worst of it. These are homes valued at 503, which is a significant number of people on Kaua`i that are working middle class have these homes, and their taxes would be about $1,000.00 but not 1,700 or 1,600 — those people that are above that red line would come down to the red line. As Ms. Morey said that it is just not fair that people have this kind of discrepancies, and so for 2.7 million dollars we can deal with the worst inequity. I have shown this slide before, this is a very modest home in Kawaihau that was on the market for $199,000.00, current owner paying 371. Under the amended proposal, even with the large exemptions that impact these modest homes more, the new tax rate for this home would be 341, so really close to what the current capped person is paying even though this is one of those homes that was capped low or was capped at the moderate rate. Without this bill, if we can get a young family into this home, their taxes would be 887, that is the kind of discrepancies, that is like two and a half times of what the current owner is paying. I agree with Ms. Morey who said that when people come here from the mainland and look at our property tax rates, they say that is a lot lower than where I was, but for the people who live here trying to get into homes, in this instance and we had testimony from Mrs. Lizama who is the mortgage banker that works with our Housing Agency, that indeed people that were trying to get into homes are knocked out of the running because of this increase in taxes. This is the fiscal impact of this bill with all of the data that was put forward, financial impact 2.7, it removes 4,169 people from — they are paying much higher now and they would come to pay about the range that people have been capped from the beginning are paying. Everybody is really concerned about this minimum tax. This would increase the minimum tax — people paying minimum tax by 489 people. As I said before, some of those folks are paying $27.00 now or $30.00, and you can look at all of this data and spreadsheets I gave you for yourselves, but it would move a number of those people into minimum tax. I will support an increase in the minimum tax if that is a big concern, but I do not think the 7,000 people who are paying too much and will have a reduction based on this bill that we should not deal with this inequity because we are concerned about minimum tax. Let us put another bill forward, if that is a concern. This is a chart I showed before. The homestead taxes, the percent paid by the tax class that is all resident homeowners has gone from a high twelve, the cap is effective to protecting these homeowners and the run up of values and it went down as low as seven; it is now back up eleven percent. If we do not do anything, it will probably go higher. This is the tax decrease or increase in the last three years. We have been talking about hotels and resorts today. In three years they have had a 3.6 million dollar reduction in the taxes if then they would have been paying at the 2008 amounts. Agriculture has had a big reduction, single family residential and these are primarily the second homes that we were talking about — the vacation rentals and they are also long term rentals that people own pay in this category, but we have already passed a Bill for those landlords who are renting affordably to put them in a lower tax rate. We have dealt with the landlords here, we have given COUNCIL MEETING 75 MARCH 28, 2012 reductions, and this is also mostly visitor industry driven, these are the condos, and so they also have had a reduction. But in those three years, the homestead class has not had a reduction, they had an increase. I wanted to basically deal with this increase and do a little more. The 2.7, even if we do that, the resident homeowner still would not be paying an increase even if we pass this Bill and lower the rates, they will be paying an increase over a four year period. The Mayor's budget that came to us, these categories, single family, apartment, agriculture and conservation will have an additional reduction in taxes this year unless we change the rates. The homestead class and the resident homeowners will have little or no reduction, so to me, overall this is a very modest proposal, it gets us reasonable tax, this is about what people who had the cap are all along are paying and actually these are the people who had the cap, down here, and these are the ones who do not and it is not fair. Because 1/3 of our homes, about 1/3 have changed ownerships since 2003, now that does not mean those are new people to Kaua`i, because people who live here made changes. They move into smaller homes or larger homes, there is a lot of turnover in the resident homeowner class compared to other classes. I hope the Council will see the wisdom of passing this as a compromise and a much more modest proposal that will deal with these large inequities. We heard the budget today, over the last few years we have given a million and a half or more to stimulate the visitor industry I and supported that. We have a lot of areas where we can find savings and in spite all of the rhetoric today, the CAFR is a fact the we ended the year with 51 million dollar fund balance and we will end next year with a significant fund balance. I believe that the 2.7 easily can come from that fund balance and we should not raise taxes on anyone. Mr. Rapozo: Thank you. Mr. Chair, who did you want up first, Mr. Hunt or Mr. Spanski? Chair Furfaro: Did you want to remind that we have the Prosecuting Attorney who has a 4:00 given time, so I want to go to Mr. Hunt second because there will be more discussion; I would just like to talk with our Treasurer first. DAVID SPANSKI, COUNTY TREASURER: David Spanski, County Treasurer. Chair Furfaro: Dave, I had the pleasure of attending the last Bond Counsel in San Francisco with you, as well as with the Finance Department, and I guess one of the items I want to make sure, we worked very hard to get AA+ bond rating. Do you have any kind of indication what might happen if we find ourselves using this large portion of the surplus we have now to open up the budget? COUNCIL MEETING 76 MARCH 28, 2012 Mr. Spanski: I was here last week telling you... Chair Furfaro: I am sorry, I was at the doctor's office. Mr. Spanski: Well anyway, I was here last week and they were asking about refunding and how much we were going to make and so on and so forth. We started the process, we have a bond underwriter on contract, we are getting our bond counsel. The bond underwriter, he has a bond counsel who writes the continuing disclosure or the prospectus, so we have to say how we are doing and what we are going to do. We had two (2) conference calls and these issues have come up. One with what is going to happen in fiscal year 2013? So yes, we had been talking with the bond underwriter and the bond counsel that we may be dipping in the reserve. How much? Oh, right now it is 10 to 12 million and there is also a bill beforehand reducing property tax revenues. With this potential, if this passes, going from 48,000 exemption to 175,000, the question is how is he going to make that up? When we go to the rating agencies, they are the investors' representative and they vet us and make sure everything is good and they are going to give us a rating. Can I say if it is going to go up or down? I cannot predict that, but I would say that in discussion with the underwriters that go into this market and talk with these gentlemen probably on a daily basis, with the proposed dipping into the reserve fund and this proposed taking away a revenue stream without a possible — how do we demonstrate to the rating agencies and the bond investors, how we are going to mitigate that? So it is a concern and there is a story to be told. Chair Furfaro: Bottom line here is you are basically telling us it is very hard to predict how they will receive that? Mr. Spanski: If you are looking at, and we went there last year, for example, and the biggest seller was to create a reserve fund and we come back here later and say we are dipping in the reserve fund, our reserves have gone "through the GASB54," they are going to look at it and say was this last year and then now you are dipping into a reserve fund and you are taking away a revenue stream, how do you propose to make that difference up? It would be a hard sell. It would be a difficult thing. If you are looking at the trend, before we were going this way and now we are going this way, okay, how do you explain that? Chair Furfaro: For the combination of the effects of dipping into the reserve into like 40% of the reserve, piggyback with this larger perceived credit exemptions for homeowners, it is hard to predict? Mr. Spanski: I have seen renditions of 5 million and now today is 2.7, do we really know? That is the other thing and then how do we go there and show the potential how we are going to make that up? That would be the COUNCIL MEETING 77 MARCH 28, 2012 first question you would ask me. Okay, I see that you dipped in the reserve fund and you lowered some of your revenue stream, how are you going to make that up? Mr. Bynum: When our revenues went down 24 million over the last 3 years, are the bonding people concerned about that? Did they ask how... what we are going to do about it? Mr. Spanski: Yes. We had to present... We created this trash fee, we have not hired or funded dollar funded positions, there is a savings there, so we show them where the savings are going to happen. Mr. Bynum: This 2.7 million is not near the 24 million in lost revenue right? Mr. Spanski: It is not for me to determine. Mr. Bynum: Do you believe that if we gave homeowners 2.7 million that it would impact our bond rating? Mr. Spanski: The question to the County is going to be, how do you propose to make that up? Where is it going? Mr. Bynum: Are there ways to make that up? Mr. Spanski: I am not the budget person. All I know is that the Administration brings the budget to the Council and the Council says what the budget is going to be. Mr. Bynum: For me, Dave, you are correct we have done those things. We have not hired people, we cut our expenses, we have done the things we did, right? But we also had a big reduction in revenue over the last three years. Mr. Spanski: And it looks like there is going to be another reduction of revenue. Mr. Bynum: Well that depends on what we do here. Why should that reduction all come at the expense of homeowners? Why should reduction go to all the other tax categories while increases happen for resident homeowners? Mr. Spanski: That is not my determination, sir. Mr. Bynum: But that is the question. Thank you, Dave. COUNCIL MEETING 78 MARCH 28, 2012 Mr. Rapozo: Anymore questions for Dave? I have one question and when we discuss the setting up of the reserve policy, when we started up the discussion on creating the reserve, one of the selling points for that was it not to stabilize the bond rating? Mr. Spanski: They would like to see that and when we went in 2010 for the Build America and (inaudible) and that was mentioned there, do you have a reserve fund? Well no, we usually budget and try to maintain 10 to 15 %, so what we did was we came to them and said we are going to have a reserve fund. Mr. Rapozo: Correct and that was not too long ago. Mr. Spanski: That is correct, that was last year. Mr. Rapozo: That helped us get a bond rating to qualify us to get $120 million in bond. Mr. Spanski: That was in 2010, and then 2011 it reaffirmed those ratings they gave us in 2010. Mr. Rapozo: Correct, and this year we are going back and saying by the way, we are going to dip... Mr. Spanski: Exactly, and so there is going to be... Mr. Rapozo: We have to recover from that, I guess is what I am saying. Mr. Spanski: There are some explanations to be had and some justifications to be made. Mr. Rapozo: And I understand that is not your position because that is Finance, really, who is going to tell us where we are going to make it up from. That has been my question and several other Councilmembers' question from the beginning, how do you make that up? Because it is a lot more than just giving tax relief, there are so many moving parts in this exercise, and I am hoping the public gets to watch this, especially all the people who emailed me, because I think they need to understand that it is not just... if you tinker here, you have to make sure that we are adjusting somewhere else. I have some serious concern about the bond rating and I am glad the Chair brought it up because as we go in to refinance debt to save money, it is like when I started my business, I had a pretty decent revenue, so when the bank gave me my business loan, it was low interest. COUNCIL MEETING 79 MARCH 28, 2012 Mr. Spanski: Right. Mr. Rapozo: The last time I went, it was not so low because the revenue was not the same, debt was a little higher, so they gave me a higher interest rate. That is what I want to prevent from this County going in there and saying you can get the bond, it is just going to be a lot more... Mr. Spanski: You do not get nothing for free. There could be a negative impact and then we will not be able to refinance once you look at the rate, so we may not even do it. Mr. Rapozo: And this in and of itself may not be the killer; the 2.7 million may not be the killer, but combined with the 11 million, I think we got to consider it all. Any other questions for Mr. Spanski? Mr. Bynum: I hope not to get into this discussion today about the reserve... How do I frame this? Mr. Rapozo: Mr. Bynum: did we have in 2005? Mr. Spanski: CAFR. Mr. Bynum: Mr. Rapozo: Mr. Spanski: Mr. Bynum: Is it a question? Yes. What percentage of uncommitted funds I would have to go back and look at the Well I have it right here. If you have it, then why are you asking? If you have it... In 2005... Mr. Spanski: What you have, sir, is the GASB 54 told us to report this way and this is how it is being reported. Mr. Bynum: These are all GASB numbers... Mr. Spanski: Okay, in 2008 and 2009 we went to GASB reporting, and in 2005, we did not. If you want to go back to an old way... Mr. Rapozo: We are not going to go back there. COUNCIL MEETING 80 MARCH 28, 2012 Mr. Spanski: Thank you. Mr. Rapozo: The question pertains to this bill, and Mr. Bynum, you have the floor. Mr. Spanski: There always been a discussion about reserves; we need to talk about the debt that we have. If you look in the budget... Mr. Rapozo: Believe me, this next budget session will not be as sweet as it has been over the last decade. It is going to be interesting. Mr. Bynum: And I will just say this to the community, if you look at the CAFR, we are holding more cash, way more than we did last decade as a percentage of our expenditures. We set up a reserve policy and we said we are going to make it around 20 to 25% and we put that in a lock box, but we have an additional more than 20 million than that as well. Mr. Spanski: I think what gets missed is that we... to balance the budget, you take some appropriated surplus and that is what you have to remember. You have taken last year's surplus to balance this year's budget, so you have taken this quote... surplus is a bad word, reserve might be more proper, but you have taken that to balance your budget, so it is not there right now. It may be there at the end of the year; it is not there at the point when you create the budget. At the snapshot in time of June 30, 2012, we will see what is left. Mr. Bynum: And when we did the snapshot in June 30, 2011, our unrestricted and uncommitted fund balance was fifty -one million, that is a fact. Mr. Spanski: It does not say that though. It does not say in the CAFR. Mr. Bynum: Yes it does. Mr. Spanski: It says assigned. Mr. Bynum: I did not ask about assigned. Mr. Rapozo: Wally cleared that up earlier today, Mr. Bynum wants to open that up again, I am not going to let him. We have understood, it is (inaudible) some call it assigned, some call it unencumbered surplus, whatever it is, we understand the 51 million dollars was leftover, Finance says it was assigned for expenditures going forward, Mr. Bynum says yes but it still COUNCIL MEETING 81 MARCH 28, 2012 means that we can use from there. There are differences in opinion and it is going to stay different and we are not going to try to solve that dilemma here. Mr. Bynum: Mr. Spanski just said that with money we assigned, it may all come back. Mr. Rapozo: We will not know until June 30, I also heard him say. Chair Furfaro: Dave, again thank you for coming over, but let me ask... on some of the issues that we have operational, we have not talked about them, but I bought gas on the North Shore the other day at $5.05 a gallon. We have what looks like with my reconciliation, we have about a five hundred thousand dollar overage in the bus capacity right now for fuel variances on the expanded schedule. We also have very high historical energy costs that are climbing. We just saw the headlines today - benefit packages are going up four point nine percent and so forth, and that is all looked at by the three bond groups that we deal with. But how will they interpret the fact that we are going to start the year using 3.5 million of the CIP, 10.4 million from the reserve we set aside, and we are forecasting a 12.5 million dollar starting point from this year when we can only reconcile six and a half million. With those climb in operating cost and those drains on some of these accounts that I just... how will that be perceived by the Bond Counsel? Mr. Spanski: All depends on the story we come up with. Are we going to come there and say, yes the Council and the Administration have agreed to do these things and it has passed because we are coming up to the budget, so we are close to it, we may not be able to get... why don't you come back when you are done and we are going to come up with these outliers if you will. They may say, we are going to withhold our rating until your bond is passed, until your budget is passed, so we can take a look at it. Chair Furfaro: That is one of their options? Mr. Spanski: Correct. Because we have to disclose what is going on, we cannot just say everything is great, here is last year's CAFR, look we are okay, thank you. What legislation is out there, what is the Council proposing, what is the Administration proposing? If it is an increase, that looks great. If it is going this way, if the blue light is bigger than the red light, you guys are doing good, because what they also want to look at is our assessed values and we know it is this way, it is trending down. The question is going to be how are you going to make up with these increases in fixed cost? So you are taking part of your reserve, you are moving around your CIP, so how are you going to counter these? COUNCIL MEETING 82 MARCH 28, 2012 Chair Furfaro: You have answered my question. It is just that we did not encroach on some of the historical pieces about energy cost in the County and expanding bus services and those costs, but that will all be part of our budget review with them. Mr. Spanski: Also, as you know, they will go in and ask about our (inaudible) cost and health care costs going up. There is a big presentation on pension and things like that; we will go into that. Chair Furfaro: And if you saw my earlier piece, I indicated that the payroll pieces and so forth, I had estimated at sixty -seven percent of raw payroll; some numbers we are getting from across the street is eighty point one, so we got a discrepancy there. I am using the lower PT &E percentage, but that is probably have to look at. Mr. Rapozo: I guess what I am hearing is if we go with a two point seven million dollar credit to taxpayers, then we better have two point seven million dollars explained how we are going to cover that or how we are going to replace that? Mr. Spanski: Correct. Mr. Rapozo: Got it. Mr. Spanski: There has to be a story to tell, how you are going to mitigate that. Mr. Rapozo: Got it, thank you very much. Mr. Hunt. STEVE HUNT, REAL PROPERTY ASSESSMENT: For the record, Steve Hunt, Real Property Assessment. Mr. Rapozo: Thank you, any questions for Mr. Hunt? Chair Furfaro: I do. You saw me showing the gross value of property comparing 2007, 2008, 2009, would you concur that I was very close on those values? Mr. Hunt: Yes, the only difference I believe is probably an allowance for fifty percent of the value and appeal. Chair Furfaro: I did not put any appeal value in there and do we have now the numbers for 2010 -2011? COUNCIL MEETING 83 MARCH 28, 2012 Mr. Hunt: Yes, the gross values for 2010 were, in this is calendar year 10, so fiscal 11, the gross value was eighteen point four billion and the net value was sixteen point seven, five billion. For 2011 this is seventeen point six, four billion was the gross, and the next is fifteen point eight, four billion. Mr. Rapozo: Excuse me, Mr. Chair, I just want to repeat those numbers real quick. Let us say fiscal year 2010 was 16.8? Mr. Hunt: 2010 — net value, yes, 16.758, and I believe that is not including the appeal amounts. net? be. Mr. Rapozo: Mr. Hunt: Mr. Rapozo: Mr. Hunt: Right. Chair Furfaro: Gross and net. Chair Furfaro: Mr. Hunt: what the 2012 is going to be? Chair Furfaro: And then fiscal year 2011 was 15.84 billion Yes. Okay, thank you. Go ahead Mr. Chair. Chair Furfaro: In 2008, we trended down just a little over two percent increase of values, but the last two years we are actually trending lower than the previous year's, that is what you are saying, right? Chair Furfaro: I hate to do this to you again, Steve, but could you give me 2010 and 2011 one more time? Mr. Hunt: Sure. Do you want the gross and net or just the net? Mr. Hunt: For 2010, that would be 18.44 billion. The net for 2010 is 16.75 billion. For 2011, the gross is 17.64 billion and the net is 15.84 billion. That is a little more than I thought it would If you would like, I could give you a swag That would be nice. COUNCIL MEETING 84 MARCH 28, 2012 Mr. Hunt: Again, I am going to clarify this is an uncertified value. Chair Furfaro: Previous values were certified? Mr. Hunt: Yes, they were. We are looking at a gross value of about 17.3 billion and a net value of about 15.3 billion. Chair Furfaro: Okay, and a couple other real quick questions, was my assessment correct that currently, and I believe we just changed that, people who had TVRs had occupied their unit for more than 60 days could in fact qualify for a homeowner's exemptions? Mr. Hunt: No, that is incorrect. The qualifying for homeowner's exemption is the same definition that we are using from the IRS - it is your principle or primary residence — it is a 180 days. Chair Furfaro: One hundred and eighty, very good. Mr. Hunt: Correct, but that is only one of it, you have to meet multiple tiers and other would be filing residential Hawai`i income tax returns, filing voter registration cards, driver's license, there are a checklist of potential. Chair Furfaro: But someone could get through the checklist that occupying their vacation home at `Anini for 180 days, have a Hawai`i driver's license, filed their taxes here, and they could still... Mr. Hunt: I could name three instances where it can happen. The first one is fraud, they claim it, and they really do not live here. The second one is someone who lives here eight or nine months of the year and does not claim a primary residence anywhere else, but vacations during the summer, and while they are gone, vacation rent their home. They still qualify for the homeowner's exemption, because it is their principle residence, they still qualify for the cap on taxes, but they do not qualify for the Homestead classification, and that is why we have these differences where not everyone who is owner occupant is Homestead. Homestead must be used exclusively. Chair Furfaro: I think I explained that earlier, but let me ask you, when we get close to identifying the final qualified group with the Planning Department, how are they interacting with the tax office and does the tax office have any plans to pursue potentially issues of fraud once we have got all of this documented? COUNCIL MEETING 85 MARCH 28, 2012 Mr. Hunt: Well, as far as the fraud goes, we have been doing that a lot, of compliance, of late because exemptions in fact... the fact that exemptions, not only just the amount of the exemption but the cap and the preferred tax rate have created such a (inaudible), it is an encouragement of fraud, people want to get the lower taxes. It has been a compliance issue for us and probably will remain, could become a even bigger compliance issue if the exemptions are increased, it becomes an issue, and is not likely to go away. In terms of working with the Planning Department, we initially... the Real Property Office did the intake of the initial applications for TVR registration just to assign the number. We coded those on our Real Property system in a vacant field essentially, so that we could track those at a later date and then pass them on to Planning for screening. What we did not get back from Planning was a comprehensive list of those that were approved, those that were denied, those that were pending. We have asked for that information and get it on a piecemeal basis or get updates, but at some point, we hope to have some better integration between the two so we can track those. Also, the permit numbers changed; we assigned a specific number that maybe got altered. They put the NC for nonconforming on the Planning side or reissued a number if it was a different application, and so there are not a lot of tracking between the two Departments right now. Chair Furfaro: Okay, well thank you for reconstructing for me even though ten years I was a Planning Commissioner as well as sat on the Task Force that started this calculation. Do we have a clear understanding of what tax category that might end up being in? Mr. Hunt: What we anticipate is recycling our pit class two (2) which is currently apartment; apartments are now condominiums and condominium is a residential use. We really see that as four (4) categories revolving into four (4) categories; everything in condo now will either go to residential because it is used as residential. If it is a long -term rental, it will go to Homestead either as someone who is living there or already in the homestead because they are living there, or it goes into the LTL program which gets them into the Homestead for the rate without the exemption, or it is a vacation rental. So it will stay in the pit two (2) if it is a vacation rental because that is where all the vacation rentals will be housed, but all the properties that are in single family class, conservation, Ag district that are actually being used as vacation rentals will now come into that pit two (2) which will now re -title as vacation rental. Chair Furfaro: Have you gotten any idea of what kind of, for lack of any other term, "found tax revenue" that could be? Mr. Hunt: It is a complex answer. First is identifying them and knowing how much of the base is even going to be in those category, is it five percent of the properties are valued at five or ten percent? It could be five COUNCIL MEETING 86 MARCH 28, 2012 percent of the count but ten percent of the value. We have to first identify them. Secondly, we do not know what the rates are going to be, that is a whole separate issue. We are going to be having a single value and a single rate for 2013 because the changes we are talking about will be implemented for the 13 year, not for the current year. We are also going to see movement for other classes that are single family residences that are not being used as vacation rentals in the Ag and conservation district going into the residential, our pit one (1) class. So there are so many moving pieces, it is really hard to indentify whether that will be a revenue source or revenue lost. Some of these that are paying that are assessed as though they are single family but are paying the Ag rate at 6.90 on the land will go into a new category residential, and until the rate is set, I do not know what that is going to be. Chair Furfaro: So, you saw part of my presentation earlier where the building proposal for the Building Department on the issuing of permits has a mechanism in it that could help forecast future revenues, and the demonstration I put is based on the permits that we are doing. We are probably at $489,000 of revenue, what I am hearing from you, and again for lack of any other term, any found revenue we see from this process we will see in 2013? Mr. Hunt: There have been assessment changes, but in total the base went down, so there is some movement within classes. Hanalei for instance was a very active market, especially the oceanfront where we actually saw pockets increasing this year despite the overall market going down. So again, you are dealing with the macro and the micro markets within our base. It is really hard to predict that and what the amounts of value and what the rate would be assigned to that to generate revenue. In terms of the building permits, it is a good tool to forecast but that is under the assumption that they actually start building. We have entire condo projects that got to the point of permitting and never got off the ground. Chair Furfaro: Well if you saw my forecast, I only used seventy percent of the value of the permits saying that at least thirty percent may not build. But on this other point, this macro / micro format — well we will just have to wait and see if we get — how much cheese do they put in the macaroni of 2013, is that what you are saying? We are not going to get to a number of found revenue? Mr. Hunt: Correct, no we will not get to it and what we are doing now is I believe on April 9 we start our survey and we contracted with our vendor to send out the notices to all improved properties, so we will start getting those surveys back saying how they are using their properties; the default is they stay where they are at or what they know them to be if they do not return their survey. COUNCIL MEETING 87 MARCH 28, 2012 Chair Furfaro: I think you understand where I am going. We might find some money in 2013 and if we start doing some predictability on the building permits, we might be able very soon to start saying, here is some new revenue in the year, for the year, based on some reasonable assumptions. Ms. Nakamura: Steve, thanks for being here. I would like to circulate this memo from the Real Property Tax Division, this is an email response to three (3) questions that I sent. The first question is if we passed this bill today, are you able to certify the tax rolls by the March 30 deadline? And the response is, yes. If we pass the bill today, signed by the Mayor tomorrow, that you are able to certify the tax rolls by this Friday and you also go on to say it also assumes no new appeals occur, so I just wanted to clarify - what does that mean and what happens if there is an appeal? Mr. Hunt: In speaking with counsel, Jennifer advised us that the ordinance currently, "reads any change to the assessment notice must be re- notified," so we will have to send out... if there is 12,300 people that have home exemptions based on the change of an exemption, they will have to be re- notified. They also have a thirty (30) day window to appeal that notice of change. It has been the interpretation that they are only allowed to appeal what has changed, so if their exemption went from 48,000 to 175,000, they could say no I do not want the increased exemption. It is not to say that they cannot re- appeal value, they can try. We think they cannot but we cannot make that decision, only the Board of Review can make the decision as to whether that is a valid appeal or not. If someone decided after the date, they missed the filing deadline for their appeal on value, they got a second chance because now they have thirty days to appeal this new notice of assessment and they come in with a value appeal, I do not know where that puts us on our certification because we did not have that appeal logged, we did not have appeal moneys set aside for that, and now we have to take it to the Board of Review for them to say no it is not a valid challenge, we dismissed it, no update. That is the only caveat in terms of actually getting out, putting the new exemption amounts in and noting the effect in terms of the net valuation and the new exemption amounts, that is what we would be certifying to, here is the values, here is the amount of total exemptions including the new exemption amounts, and here is the net taxable, but the appeals that would be lodged were the ones that had been initially filed on the original assessments. We do open this thirty day window and my understanding is they can appeal their additional change, which is only the change to the exemption amount, not their value. Ms. Nakamura: And the likelihood of anyone appealing a higher exemption is probably very low. Mr. Hunt: That is our position — it is probably not going to happen. COUNCIL MEETING 88 MARCH 28, 2012 Ms. Nakamura: And the County Attorney is saying that they cannot use this new window as an opportunity to appeal the value? Ms. Winn: That would be our position, as Mr. Hunt said, it would be up to the Board of Review or a Tax Appeal Court. Ms. Nakamura: The second question had to do with will the Finance Department, will you be required to issue new assessment notices and I think you said that you do, and if so, what will the impact have on taxation procedures? You are basically saying that yes you have to go through that process of re- notifying everyone, and maybe this is related to the previous question, if it is deemed valid then our certification of the assessment may not be legally valid knowing we must give thirty days to appeal the corrected notice of assessment. Mr. Hunt: That speaks to the appeals. If anyone challenges their new notice of assessment, then what we certify to — by law have to provide them this window to appeal which we are still, it is semantics but we have an corrected notice and we have an amended notice. The amended notice is post certification saying this change that we found essentially is after the certification and we found a new building or we are amending the certified row by this amended notice. A corrected notice is something that happens before certification, so we know that this exemption passes before certification, we make the changes, we do it, we can do it in mass as opposed to individually having to go and manually touch each one for an amended — what we call a "P" thirty -eight but because we are so close to the window of certification and we do this notice, the notice obviously will not go out before certification, it will be after certification but we knew in advance so we are still calling it a corrected notice. We have to give them the thirty day window to appeal. Ms. Nakamura: Okay, and the last question has to do with whether you are really able to implement new provisions that we may adopt and your comment here is that there will be additional cost involved. We have confirmed that Tyler Technologies cannot accommodate our April 20 deadline to make these changes; however, you have some people here this weekend who can try to work on it? Mr. Hunt: That is correct. Ms. Nakamura: So I am not sure what to do with that response. Mr. Hunt: This is where we are at, our Tyler Technician who is on site and will not be back on site until May 21, is the only one that can do COUNCIL MEETING 89 MARCH 28, 2012 the change because we did contact Tyler directly saying if your technician cannot do it, can you accommodate, and they do give priority to Counties that have ordinance changes. Ordinance changes come in front of the line. Again, we are not the only County they service, this is the second largest appraisal software company or vendor in the United States, so several thousand Counties are using them and they all have ordinance changes; not all, but many of them do. We went to them first and said, if this an ordinance and we need to implement this, our concern is about mid to late April we need to have this done so we can test and roll into our budget; really, the concern is not the certification of the assessment list, it is that impact that that certification is going to have and those changes will have on the May submittal of the budget because we cannot predict the revenue from these people that are impacted by the PHU and the changes until that software change has been done. Really, the biggest change we are talking about is not giving a new exemption, it is the fact that we are applying the change in exemption to the PHU. This essentially circumvents the way we have been doing it and saying we only want it applied to recalculate the market tax; because of this inequity, we do not want it to further reduce the PHU tax, we want to leave it where it is at, so no additional exemption will be taken away from the PHU tax, only recalculating market, and that is a programming change that is going to take some time to write as well as test to make sure it is doing what it is going to do. Because we have our software vendor here through Friday, he has actually volunteered through the weekend if this passes, so ideally we were hoping to get it done, if it passes today early, the Mayor could sign it tonight, and we can start work tomorrow. Until it is signed, we really — we do not know if it is going to be vetoed, what is going to happen, so we are just waiting in limbo to make the move. Ms. Nakamura: Thank you. Mr. Bynum: I want to follow up on that right there. I appreciate these answers because a year ago I was told that recalculation the software is going to be complicated, right? So I said, if we make any changes in the exemption, we have to fix it, right? If we changed it two dollars? Mr. Hunt: That is not correct. If you make any changes, the way you want to do it, which is not recalculate PHU which is not how we do it, so it is specific to your request. If you make a change in exemption, it does, it reduces the PHU. The income exemption that we just gave, the 120,000, that sixty -five additional thousand in exemption, is coming up currently; it is coming off the PHU taxes as additional credit, you are asking not to do that. That is a change. Mr. Bynum: Right and I think everybody understands that. If you got a spread of tax bills like this, the people who are paying too little will pay even less. COUNCIL MEETING 90 MARCH 28, 2012 Mr. Hunt: I understand. Mr. Bynum: So yes, this bill says reach out to market taxes, but if you told me a year ago that that would be complicated... Mr. Hunt: Yes. Mr. Bynum: And I said to the Administration, I said repeatedly, this is something we may want to do, you have a year now, work on the tax software and get it done. That was a position of the Administration, no we are not going to do that unless you, Council, change it, correct? Mr. Hunt: It has not been done. Mr. Bynum: But it could have been done. If we ever are going to use the exemption to lower this gap, we have to have this. And so I have been saying for months and a year, do that. We need this tool, we may choose to use this tool, what are we waiting for? Mr. Hunt: What you are asking me to do is do program changes in advance that contradict the current ordinance, not what you are proposing, which may or may not be implemented? Mr. Bynum: Okay, I will leave it at that. Mr. Rapozo: Thank you. Mr. Bynum: Because the bottom line is, we pass this today and the Administration is going to make efforts to implement it? Mr. Hunt: I will be working this weekend if you pass this today, not my first choice. Mr. Bynum: Mr. Hunt: You will not be alone. Mr. Hunt: Absolutely. I have got soccer coaching duties to pass on. Mr. Bynum: Well I think dealing with inequities might be worth it and I appreciate your willingness. Another question, we really should not be talking about homeowner exemption and TVRs because it is not on the agenda at all but we have had instances where people have abused that, correct? COUNCIL MEETING 91 MARCH 28, 2012 Mr. Bynum: So they did not stay 180 days, they maybe only stayed 30 days, and they had another State where they said they were primary residents. Mr. Hunt: That is correct. Mr. Bynum: And we do not have any real way to do that... to research that right now, right? Mr. Hunt: It is on a case -by -case basis. Mr. Bynum: So that is why we have an agenda item today that we asked these questions of the County Attorney; I hope that we release the answers to the public and I think Councilmember Furfaro and I are working on a bill to fix it up. Chair Furfaro: We have a large agenda, we will probably be taking a dinner break and maybe a breakfast break, but we will be taking a dinner break at 6 because we all had invitations to this reception at the Y and their reception is only from 5 -7, but more importantly like the other ES items that are on here, I would like to take a few minutes to break from here so that we can go to an Executive Session item since Jake is here. Mr. Rapozo: Are we going into Executive Session? Chair Furfaro: No, we are not; we are going to hear from him on some clarity. We are not going into Executive Session until much later this evening, but just like the Police Commission, I wanted to give everybody the courtesy. Steve, we will call you back up after we are all done. Mr. Rapozo: I will call a recess for this item at this point Mr. Chair. Chair Furfaro: Thank you very much. To the Clerk's Office, I would like to make sure that we have gathered the County Attorney on some concerns in dealing with ES 534 and this will not take more than fifteen minutes or so to get some clarity from the County Attorney. Can somebody page Mr. Castillo? There being no objections, ES 534 was taken out of order. ES -534 Pursuant to HRS sections 92 -4, 92- 5(a)(4), and section 3.07(e) of the Kaua'i County Charter, the Office of the County Attorney, at the request of Council, requests an executive session with the Council to provide the Council with a briefing on the retention of special counsel to represent the Office of the COUNCIL MEETING 92 MARCH 28, 2012 Prosecuting Attorney before the Civil Service Commission, relating to the classification of an employee and related matters. The briefing and consultation involves consideration of the powers, duties, privileges, immunities, and /or liabilities of the Council and the County as they relate to this agenda item. There being no objections, the rules were suspended. Chair Furfaro: Jake, as you heard me earlier, we are probably going to be here until the wee hours of the evening and I do want to, like I did with the Police Commission, provide an opportunity for you to give feedback on ES 534, but I do want to also give you an heads up that I have some caution directed at me from the County Attorney. It might be best before you give us testimony that he come up and we hear from the County Attorney first, and then we will get back to you, Jake, but thank you for being here at the specified time. Mr. Castillo, I just want to touch on some items that you discussed with me as it relates to ES 534 that you indicated that the Prosecutor's Office perhaps testifying on the open floor should not be permitted since this subject matter is on a personnel item, that is number one. I must say, I do appreciate your caution. This is a little different than when I allowed the Police Chief's wife to speak, she was speaking on a personnel matter, but she was not an employee of the County of Kaua`i speaking directly about people that were supervised under her Department. Also, the second concern that you brought to me on this posting was the fact that this might be a Civil Service Commission issue versus a County issue and should really be heard with the Civil Service Commission. From my notes, you indicated that maybe some of this activity is premature and that in fact the County Attorney that is closest to this is not available, on vacation, not assigned in the office as a work day today, and again that he should be present with the general Civil Service Commission in hearing this piece. The Special Counsel is being requested based on certain necessities for the Prosecuting Attorney's Office on urgent personnel matters, so they have an urgency to get this resolved. Could you provide as my attorney some guidance on your concerns? Mr. Castillo: For the record, Al Castillo, County Attorney. Good afternoon everyone. I would like to go over the duties, privileges, and liabilities of the County as a whole in Executive Session, but on a general matter, I appreciate the First Deputy Prosecutor coming here and advocating for the Office of the Prosecuting Attorney, which I was there for many years. First of all, I guess what I wanted to say, it all depends on what the First Deputy Prosecutor wanted to say to the Council. I surely do not intend or want to cut off what he wants to say; however, if he does dive into what I would be considering a personnel matter, then I will be advising the Council that we cannot go there because it is personnel. If he wants to dive into any matters or problems concerning personnel and classification thereof, it is clear within the County Charter that that is the kuleana or that is the jurisdiction of the Civil Service Commission pursuant to section 15.03 of the Kaua`i COUNCIL MEETING 93 MARCH 28, 2012 County Charter. If he wants to generally, basically tell you about the need for this position, then he is free to do so, and then I can go into more detail once we get into Executive Session as to why I am making my legal opinion, but it has to be in Executive Session in the Executive Session Chambers. Chair Furfaro: So what I am hearing you say, even as we have breached on it now, should be in Executive Session but you are okay if the Prosecutor Office wants to talk to us about the need for the position? Mr. Castillo: Yes. There is certain parameters I am sure he knows about and if it is about generality but if it goes into specifics, then there is a point in time I might interrupt him, and it is not my intention to merely interrupt him, it is my intention that the County Council and the First Deputy Prosecutor all follow the law. Thank you. Chair Furfaro: It is not my intention to defer this Executive Session when we have it tonight, you can speak to us on those matters in closed session, but I am going to go ahead and call the Deputy Prosecutor up to address us now. Mr. Castillo: Yes, and in terms of the Executive Session matter, even if Marc Guyot does the employment portion in the County Attorney's Office, I am fully prepared to advise the County Council on this matter, and I myself will not be asking for a deferral. Chair Furfaro: Thank you very much. Jake, I reiterate again, we will probably going to be in the wee hours when we go into Executive Session, we are going to break for dinner at 6, come back at 7. We still have a full calendar and you were present in hearing the concerns of the County Attorney's Office. JAKE DELAPLANE, FIRST DEPUTY PROSECUTING ATTORNEY: Thank you, Council Chair. For the record, Jake Delaplane, I am the First Deputy Prosecuting Attorney. The item that is on the agenda for Executive Session involves the Office of the Prosecuting Attorney's request for Special Counsel as it relates to the allocation or the proper designation of our Administrative Officer position which is position 2801. Back in December of 2009, we have requested that that position be reallocated from an SR 20 to an SR 24. That process took quite a while; it was originally denied by the Personnel Department, and the individual that was in that departmental staff assistant position appealed that denial to the Civil Service Commission, and it went through the appeal process through the Civil Service Commission. Eventually it went to hearing in August of 2011, so we have from December 2009 to August of 2011, and I would like to apologize, I do not know if all the members of the Council have the copy of the communication that I sent COUNCIL MEETING 94 MARCH 28, 2012 over, but if you do, I believe that second paragraph may say that on December 3, 2011 the OPA made a request, that should actually be 2009. Chair Furfaro: Let me reconfirm that. All members, do you have that letter, it should be in your Executive Session packets? Mr. Delaplane: And I do not know if that is a typo on the version that I have or if it is on the version that you guys have, but the initial request from the OPA to reallocate that position came in December 3, 2009 and that was actually the request of the Prosecutor Shaylene Iseri - Carvalho, and so again, the correct date should be 2009 for the original request. It went through the normal Civil Service Commission process and the Civil Service Commission took testimony from both Cyndi Johnson, who was the person in that position, as well as the Prosecutor Shaylene Iseri - Carvalho, and also took testimony from the Personnel Department who was represented by Marc Guyot, Deputy County Attorney. As you already know, it is in my communication, the Deputy Attorney General Christine Kuroshige with the Attorney General's Office was in charge of advising the Civil Service Commission. That process went through the Civil Service Commission they issued a finding of fact and conclusion of law, which I attached to my communication, that said based on the testimony that we have heard, the decision of the Civil Service Commission is to reallocate the position 2801 from SR 20 to an SR 24, and after that came through, there were no problems until Cyndi Johnson retired in December 2011. The Office of the Prosecuting Attorney went to post for that position on the NeoGov system, just like we do with all our other positions that we post through the County, and it was approved by Shaylene, it was approved by the Mayor, it was approved by everyone but Personnel. What happened is from that time in December, around December 31, 2011, all the way through January of 2012, we made inquiries to the Personnel Department as to why this position had not been posted, and we kept getting no response, no response, no response, and then finally the Personnel Department calls me up on a Friday and asks me to have a meeting in person with them. Of course I requested that we do it over the phone because I was out doing other things, and they insisted, no, this must be a meeting that we have in person, these are matters that are better to be discussed in person. Even after the meeting, I am not sure why they demanded that, but the basis of what they were saying is... when I arrived at the meeting, they essentially told me that they were not going to approve our NeoGov post for the Admin Officer position because they believed that position is an SR 20 and not an SR 24, and that this opinion came from the County Attorney's Office, and specifically from Marc Guyot from the County Attorney's Office. So the position that put the Office of the Prosecuting Attorney is now, we cannot post for our Admin Officer position, as it rightfully should be, as an SR 24 position which it was budgeted at during the last budget years, an SR 24. We essentially have been operating without a Admin COUNCIL MEETING 95 MARCH 28, 2012 Officer. An Admin Officer, if you do not know, I do not know if it is clear in my communication, handles all the day -to -day personnel matters of the Office Manager that deals with new hires, all types of request from employees, they do the initial intake of grievances or complaints we have from employees. It is an essential part of our Office and that was part of the reason that we requested that it be reallocated from a 20 to a 24 based on the duties and responsibilities that we are involved. We had to double up the responsibilities between three other employees in our office: our Program Specialist, our Grant Coordinator and our Departmental Secretary. So between those three people, they have each taken lumps of the Admin Officer job duties and they have been doing those since December of 2011 because we have not been able to post for the position. I have to take on extra responsibilities, Shaylene has taken on responsibilities that were previously performed by the Admin Officer, and it is putting us in a bind administratively. We were having trouble operating efficiently at least to the peek efficiency that we should be operating at where each of those and it is actually five people if you add Shaylene on into the mix. We are each having to pick up the slack for not being able to post for that position. I understand that there are personnel matters that I probably cannot go into on the floor and I understand that, but I do take issue that the assertion that this would be a question for the Civil Service Commission, and it may be, but what we are asking for is Special Counsel to represent the Office of the Prosecuting Attorney if we do need to go to a proceeding of the Civil Service Commission or if we need to go to a proceeding with any other Court or administrative body. We are asking for representation, and it is our assertion that the County Attorney's Office has a conflict here, because clearly, if Marc Guyot was representing the Personnel Department of the Civil Service Commission at its hearing back in August of 2011, and now that same attorney who represented the opposing side against the Office of the Prosecuting Attorney at that hearing is now opining on the Findings of Fact and Conclusion of Law from that hearing to the Personnel Department to the detriment of the Office of the Prosecuting Attorney, I think a clear conflict exists here. We cannot expect clear and unbiased representation from the County Attorney's Office with regards to this issue. We have a County Attorney's Office that seems to be acting against the interest of our Department, and so because of that conflict of interest, we are asking for Special Counsel to represent us in whatever proceeding may be appropriate so that we can fill the position at the proper SR number. Chair Furfaro: Thank you for your summary, Jake. Mr. Rapozo: Jake, let me get this straight, you guys requested a posting for a job for a Administrative Assistant, is that what it was? Mr. Delaplane: Yes. COUNCIL MEETING 96 MARCH 28, 2012 Mr. Rapozo: And Personnel did not post and they did not post under the advice of the County Attorney? Mr. Delaplane: Yes. Mr. Rapozo: Because it was their opinion that that position was rated too high? Mr. Delaplane: Yes. Mr. Rapozo: But yet that position was, and I just read your letter and I did not have a chance to read it before today, but the Civil Service Commission ruled that that position as it was described qualified for the higher SR? Mr. Delaplane: Yes, it had been fully vetted through the hearing process. Mr. Rapozo: Apparently and then it got appealed. Mr. Delaplane: Right. Mr. Rapozo: So the Civil Service Commission rules that it qualified for the higher SR? Mr. Delaplane: Yes. Mr. Rapozo: Now you are asking for Special Counsel today. It does not involve a person? Mr. Delaplane: No. Mr. Rapozo: It involves a position? Mr. Delaplane: Yes. Mr. Rapozo: No one is appealing, no one did not get hired, no one applied and was told you could not get... it is about a position number? Mr. Delaplane: Right. Mr. Rapozo: Whether or not it should be an SR 20 or whatever, is that correct? COUNCIL MEETING 97 MARCH 28, 2012 Mr. Delaplane: Yes, it is our position that the Personnel Department has acted unilaterally to overturn what the Civil Service Commission did through a hearing process, so they commandeered that whole process and said we are going to turn back the clock and turn this back to an SR 20 when it had been through the process to be reallocated to an SR 24. Mr. Rapozo: It frustrates me because as I looked through these vacant things from Personnel, I see all the reallocated positions and the numbers get reallocated, not the person. Mr. Delaplane: Right. Mr. Rapozo: I just do not believe this is an Executive Session item because it involves a position and not a person; this is not a personnel matter, it has nothing to do with a person, it is about a position. Mr. Delaplane: Right. We are not asserting at all that this has anything to do with a specific person today, this is dealing with position number 2801 and the ability of the Office of the Prosecuting Attorney to post for that position at its proper designation which is an SR 24. Chair Furfaro: Understood. You did understand from me though, we will not be in Executive Session until the late hours tonight? Mr. Delaplane: I understand that, and I also appreciate your acknowledgement that it is not your intention to defer that item. Chair Furfaro: It is not our intention to defer it. I do perhaps disagree a little bit with Mr. Rapozo based on the fact that you are asking for counsel, and the rationale and the questions that come up about counsel may require us to be in Executive Session. Thank you very much. On that note, thank you. Thank you, Mr. County Attorney. There being no objections, the Council recessed at 4:46 p.m. The Council reconvened at 5:06 p.m., the meeting was called back to order, and proceeded as follows: Councilmember Yukimura was noted back in the Council Meeting. There being no objections, discussion continued on Bill No. 2425, Draft 1. Ms. Yukimura: Questions of Mr. Hunt? COUNCIL MEETING 98 MARCH 28, 2012 Ms. Nakamura: Steven, we are looking at this Bill at face value and I am just wondering if there are any unintended consequences that might come out of approving this? Mr. Hunt: I believe so. One (1) of the concerns in reading the language, and I am going to refer to the original "Tim's Bill ", not any of the draft amendments, but on page two (2) of the Bill, I believe it is 5A- 9.3e.1.E., this is the core of the language that takes out the additional adjustments to the PHU. The new language inserted here says that if the type or types of exemptions that the property is allowed is changed... Ms. Nakamura: Steve, can you backup and refer again to the section? Mr. Hunt: Page two (2), it is the underlined section and it is 5A- 9.3e.1., and the subsection which is the new subsection "E" used to be "D," and this is where there is the redacted section which talks about how, when there is a change in the exemption amount. Currently the process is to apply that adjusted taxes to the PHU, and this is the portion that says, no longer do that, only apply it to the market tax only if there is a change in type or types of exemptions, right? So, if someone had a home exemption in 2011 and they still have a home exemption in 2012, the amount of the increase that maybe went from 48,000 to 225,000, that additional increase in exemption amount would not be calculated because it is the type; they still have a home use, last year, they still have it this year. The unintended consequence I see on this one is say someone has a income exemption who just recently applied, it went from 55,000 to 120,000, but they had an income exemption last year, they have it this year, they do not get any adjustment to the PHU base. If their PHU taxes are still the taxes they pay, because it is the lowest even with the application of the 120,000 on the market tax and the new 225,000, they still end up paying the PHU tax the following year — 2013; I did not see any benefit, why should I apply for the income exemption this year? They do not apply, it is a change in type; they had it last year and they do not have it this year. That 120,000 now is a loss of exemption that they had the prior year even though they did not see the benefit of it because it was only for the market tax, but for the PHU tax, that loss of 120,000 now applied at its tax rate, say it is three dollars for easy math, so that is $360 tax adjustment. So if they were paying $400 under the capped tax, 500 under the market tax, and now all of a sudden they have an allowable adjustment added of this 360, they might get to market now, because it is the lower, but all of a sudden they have this big adjustment upward because they did not apply for an exemption that they really never saw the benefit of because they were under the PHU. That is how I am reading this as an unintended consequence. Ms. Nakamura: So how could we address that concern? COUNCIL MEETING 99 MARCH 28, 2012 Mr. Hunt: I know the intent but I do not know if there is an easy fix. I do not know if you want to limit the exemptions that we are talking about. This Bill specifically is mostly addressing the home use exemption, but in here we are talking about if the type or types of exemptions, so that kind of wraps up into all exemption types, and I am not sure if we want to give additional... so if you had the income exemption this year, currently we would be giving the reduction of the PHU which we may not want to do. I am just saying the problem is by exempting out all types of changes and the amounts of changes, when it goes the other way, when there is a loss of exemption, that too is a change. Ms. Nakamura: Would it be helpful to limit it to the home exemption, just the home exemption? Mr. Hunt: If you limit it just to the home exemption, that creates more problems for the programmer but less headache for us to implement if there are changes that do have these negative consequences, but that is also even if there is a change in the home exemption. I will give you an example, they are rare, but these will be the outliers that we are going to hear from. You have two (2) homes on one (1) property that is not subdivided. The father and mother live in one (1) and the son lives in the other. Son is on title to give him the five percent interest that gives him the exemption, so he has his exemption, the whole property under homestead. Son decides to move on, doesn't live there and they rent it out long term or to an LTL or let us just say long term for now, they lose the pit class from Homestead so they have a new rate now, which is based on residential use, and that exemption loss that the son had, which is possibly now 225,000, even though it was not calculated for the PHU tax the year before, that loss of that 225,000, originally was 48,000. So he is not losing the 48,000 because that exemption has now passed; we are in 2012 going into 13 when this happens. When he loses that exemption, that is a change in type, it went from two (2) exemptions to one (1), therefore, we are making an adjustment. The adjustment to the PHU tax is now the loss of that 225,000 times the tax rate, which may kick them out of PHU, and market tax may still be lower, I cannot tell you that, I do not know what all these scenarios are going to be. I am just saying these are potential problems that I see with this language and with this ordinance. Ms. Nakamura: Maybe this is a question for the author of this section. Mr. Bynum: We had multiple meetings with the County Attorney and Real Property, and you had plenty of time to review this language, and now you are coming up with these kinds of rare anomalies. Why today at last minute? You had this; we sat in at multiple meetings to come up with this language; it was given to you officially by this Council to review... COUNCIL MEETING 100 MARCH 28, 2012 Mr. Hunt: Tim... Mr. Bynum: And I did not hear any of these unusual anomalies. The question for me is what Councilmember Nakamura said, how do we resolve this? But this language has been out there, it was. You had plenty of time to comment on it and this is the first I heard of these things. Mr. Hunt: First, this was not in Bill 2408, so this is new language specific to 2425. Mr. Bynum: Right. Mr. Hunt: Second, I did not work on this. You worked on this with our County Attorney, I was provided a copy. In fact, Peter sent me a copy as late as yesterday, thank you. Mr. Bynum: Mr. Hunt: He sent you a copy before that. I did not have a copy before that. There being no objections, and due to a power outage, the Chair recessed the meeting at 5:14 p.m. The meeting reconvened at 5:42 p.m., and proceeded as follows: Council Chair Furfaro: Due to a power outage, we are unable to record or televise the balance of this meeting. The public is advised that this meeting will be in recess and will reconvene tomorrow morning at 8:30 a.m. here. Upon motion duly made by Councilmember Yukimura, seconded by Councilmember Bynum, and unanimously carried, the meeting was in recess. There being no objections, the meeting was in recess at 5:45 p.m. The meeting reconvened on Thursday, March 29, 2012, at 8:32 a.m., and proceeded as follows: Mr. Bynum was noted excused from the meeting. Chair Furfaro: Aloha, good morning. For the public, this is a continuation of yesterday's Council Meeting. I was provided from our Attorneys some specific narrative to read so that we made sure when we recessed the Meeting, we were in compliance with the appropriate codes. We are back here at 8:30. It is my intention first to go through other parts of the agenda to move forward to get some housekeeping things done. We have this Chambers available for the Planning Department at 11:00. We also have Executive Sessions that we will be handling but will be handling it in the Chair's conference room downstairs. Mr. Clerk, I think what I want to do is start with the housekeeping cleanup on page two (2). Please note that six (6) members are present. COUNCIL MEETING 101 MARCH 28, 2012 C 2012 -63 Communication (02/16/2012) from Councilmember Rapozo, requesting the Administration's presence to provide the Council with: • An annual (2011 calendar year) synopsis of construction activity in the County of Kaua`i as reflected in the building permit information that is normally provided to the Council on a monthly basis. • A projection of construction activity in the County of Kaua`i for the 2012 calendar year. Upon motion duly made by Mr. Rapozo, seconded by Ms. Yukimura, and unanimously carried, C 2012 -63 was deferred to the April 11, 2012 Council Meeting. C 2012 -87 Communication (03/08/2012) from the Director of Personnel Services, transmitting for Council information, the quarterly reports (September 30, 2011 — December 31, 2011) relative to vacancies, new hires, transfers, reallocations, and promotions, pursuant to Section 19 of Ordinance No. B- 2011 -732: Mr. Rapozo moved to refer C 2012 -87 to the Committee of the Whole, seconded by Ms. Yukimura, and unanimously carried. C 2012 -88 Communication (02/23/2012) from the Housing Director, requesting Council approval to apply for, receive, expend, and indemnify $133,000.00 in grant money for two (2) Housing Choice Voucher Family Self - Sufficiency Program Coordinator salaries from the U. S. Department of Housing and Urban Development: Ms. Yukimura moved to approve C 2012 -88, seconded by Ms. Nakamura, and unanimously carried. C 2012 -89 Communication (02/29/2012) from the Executive on Aging, requesting Council approval to receive and expend grant funds from the National Senior Corps Association in the amount of $1,842.00 to be used for the 2012 Medicare Diabetes Screening Project for adults 65 years and older to increase awareness of the benefits for diabetes screening: Mr. Kuali`i moved to approve C 2012 -89, seconded by Ms. Yukimura, and unanimously carried. C 2012 -90 Communication (03/01/2012) from the Council Chair, requesting the presence of the County Engineer and the Chief of Buildings to provide an update on the repairs and maintenance of the Kilauea Gym as it relates to the leaking roof, floor damage, and corrective action that has been done to address the roof and floor: Ms. Yukimura moved to refer C 2012 -90 to the Committee of the Whole, seconded by Mr. Chang, and unanimously carried. (Mr. Bynum was noted present in the Council Meeting at 8:37 a.m.) C 2012 -91 Communication (03/01/2012) from the Prosecuting Attorney, requesting Council approval to apply and receive Technical Assistance from the Bureau of Justice Assistance and the Vera Institute of Justice's national Cost - Benefit Knowledge Bank for Criminal Justice, which will allow the OPA to find innovative programs and develop procedures to ensure that the community is served in the most cost efficient manner and in the best way possible: Mr. Rapozo moved to refer C 2012 -91 to the Committee of the Whole, seconded by Mr. Chang, and unanimously carried. C 2012 -92 Communication (03/01/2012) from the Chief of Police, requesting Council approval to accept and expend funding through the S.T.O.P. Violence Against Women Grant in the amount of $63,903.00 for Sexual Assault Nurse COUNCIL MEETING 102 MARCH 28, 2012 Examiner (SANE) exams and DNA analysis, and to indemnify the State of Hawai`i, Attorney General's Office: Mr. Kuali`i moved to approve C 2012 -92, seconded by Mr. Rapozo. Chair Furfaro: Any discussion? Ms. Yukimura: Yes, Mr. Chair, I had a chance to speak with Captain Fort and Gina Kaulukukui and I think the Kaua`i County is leading the way on this issue and doing it in a good way, so I appreciated the briefing. Ms. Nakamura: I just wanted to say whoever wrote these two (2) grant applications did a really good job. I learned a lot about the problems and concerns, and the needs. I just hope that they are successful in getting and expending these funds. The motion to approve C 2012 -92 was then put, and unanimously carried. C 2012 -93 Communication (03/01/2012) from the Chief of Police, requesting Council approval to accept and expend funding through the S.T.O.P. Violence Against Women Grant in the amount of $48,052.00. for Sexual Assault Nurse Examiner (SANE) recruitment, retention (including stand -by pay) and training program, and approval to indemnify the State of Hawai`i, Attorney General's Office: Mr. Bynum moved to approve C 2012 -93, seconded by Mr. Kuali`i, and unanimously carried. C 2012 -94 Communication (03/09/2012) from the Housing Director, requesting Council approval to decline the County's option to repurchase Unit No. 59, Villas at Puali, located at 1974 Haleukana Street, Lihu`e, Hawai`i 96766, and to grant the owner a one -year waiver of the buyback restriction to allow a market sale by the owner for a period of one year: Mr. Rapozo moved to approve C 2012 -94, seconded by Mr. Chang, and unanimously carried. C 2012 -95 Communication (03/09/2012) from Councilmember Yukimura, requesting agenda time to discuss and approve the public release of the following: • January 17, 2012 County Attorney opinion regarding Delegation of Fee Setting for Wailua Golf Course, • February 16, 2012 County Attorney opinion regarding Bill No. 2427, relating to Bus Fares. Mr. Rapozo moved to approve C 2012 -95, seconded by Ms. Yukimura. Chair Furfaro: Any discussion? Ms. Yukimura: Yes, Mr. Chair, I just wanted to say that these two (2) County Attorney's opinions are about the fee setting power of the Council with respect to Wailua Golf Course and to bus fees. It is a clarification of our powers — as questions arose in the bus bill that we passed recently and we have confirmed with the County Attorney and I do not think there is no reason to keep the memos confidential. It will help the public understand these issues and so I hope the Council will release these opinions for public review and understanding. Chair Furfaro: Any additional comments? Mr. Bynum. Mr. Bynum: Because this is a fairly new process, I just wanted to make sure I understand the process issues involved in this. There was a COUNCIL MEETING 103 MARCH 28, 2012 time when I served on the Council where County Attorney opinions of law were treated like they were super secret and they were never released. There was resistance from the County Attorneys at that time to release them. I think I really appreciate our current County Attorney is willing to have their work held accountable even to the public. So my understanding is if we want to release a County Attorney's opinion, we first have an Executive Session to discuss about whether there are any personnel issues or legal reasons that they can't be released and then we put it on the subsequent agenda like it is today for a release? That is what I think we are doing now right, so if we approve this, we are approving releasing of these two (2), is that correct? Chair Furfaro: That is correct. I want to commend the entire Council for agreeing to this procedure that we actually have an opportunity within the two (2) week period after we discussed the pros, the cons, the legal issues attached, a briefing from the County Attorney, we will be following this practice going forward. Mr. Bynum: Later on the agenda, there is an Executive Session about a County Attorney opinion that I requested regarding home exemptions and TVR, so when we meet today, if we do not have obstacles and there is no objections, then it will be on next week's agenda for release. Chair Furfaro: That is the policy I just described. Again with the super majority of the Council agreeing to such and that there are no legal objections from the County Attorney. Mr. Bynum: that process. Great, thank you very much for clarifying Mr. Rapozo: One clarification Mr. Chair. Chair Furfaro: I am sorry, next week is Committee not Council, so it would be two (2) weeks. Ms. Yukimura: I am thinking that we could actually release it on the day of the meeting if we post it accordingly and there are no problems once we had an Executive Session. I do not know that there would be reason to have to wait for two (2) weeks but I am not asking to change that policy right now, I am just thinking that in the future we might consider it. Chair Furfaro: Thank you. I think under this leadership of the current Chair, I think you ought to acknowledge that we are being very progressive in releasing it in a two (2) week period and therefore let us practice that for now. Ms. Yukimura: Okay, that is fine. Mr. Bynum: I think I started this discussion by saying, I am very pleased that we have adopted a process by which to release these and it is progressive both from the County Attorney and the Chair and that is very appreciative. Thank you. Chair Furfaro: Thank you. Any further discussion? COUNCIL MEETING 104 MARCH 28, 2012 The motion to approve C 2012 -95 was then put, and unanimously carried. C 2012 -96 Communication (03/13/2012) from the Anti -Drug Coordinator, requesting Council approval to apply for, receive, and expend funds from the State of Hawai`i Department of Human Services, Office of Youth Services Title V Incentive Grant in the amount of $128,198.00, which will be used for a mentoring /advocacy program to prevent youth at risk of becoming delinquent and from entering the juvenile justice system: Mr. Rapozo moved to approve C 2012 -96, seconded by Mr. Chang. Chair Furfaro: Any discussion? Ms. Yukimura: Mr. Chair, I think we should be entitled like the Police Department, in understanding how the grant is going to work and how the money will be used. I would like to ask for a deferral, so that we can get that information unless it has been made available, I only have one (1) cover letter and nothing else. Chair Furfaro: Would we defer to Public Safety Committee next week? Mr. Rapozo: Mr. Chair, Theresa was here last night, so she may be prepared to discuss it today. I saw her after the power went out, apparently she was here. Chair Furfaro: Staff, could we make a call over to Ms. Koki's office and we will hold this to the end of the agenda. Ms. Yukimura: And if there is something in writing too, that would be helpful. C 2012 -97 Communication (03/16/2012) from Councilmember Kuali`i, requesting Council approval of the following Councilmembers to represent the Kaua`i County Council to the respective organizations stated below for the fiscal year 2012 -2013: • Hawai`i State Association of Counties (HSAC) o Mel Rapozo — Representative o Jay Furfaro — Alternate • National Association of Counties Board (NACo) o KipuKai Kuali`i — Representative o Dickie Chang — Alternate • Western Interstate Region Board (WIR) o Tim Bynum — Representative o Dickie Chang — Alternate Mr. Rapozo moved to approve C 2012 -97, seconded by Ms. Yukimura, and unanimously carried. There being no objections, C 2012 -98 was moved to the end of the agenda. C 2012 -99 Communication (03/21/2012) from Councilmember Kuali`i, transmitting for Council consideration a Resolution Supporting the Hawai`i State Association of Counties' Proposal of Establishing a Position for a Hawai`i State COUNCIL MEETING 105 MARCH 28, 2012 Association of Counties State Director: Mr. Rapozo moved to receive C 2012 -99 for the record, seconded by Ms. Nakamura, and unanimously carried. Ms. Yukimura was noted as recused from C 2012 -100. CLAIMS: C 2012 -100 Communication (03/13/2012) from Deputy County Clerk Jade K. Fountain - Tanigawa, transmitting a claim filed against the County of Kaua`i, by David Yukimura, for damage to his vehicle, pursuant to Section 23.06 Charter of the County of Kaua`i: Mr. Kuali`i moved to refer C 2012 -100 to the County Attorney's Office for disposition and /or report back to the Council, seconded by Mr. Rapozo, unanimously carried. Ms. Yukimura was noted back in the Council Meeting. COMMITTEE REPORTS PLANNING COMMITTEE REPORTS: A report (No. CR -PL 2012 -02) submitted by the Planning Committee, recommending that the following be approved on second and final reading: "Bill No. 2422 - A BILL FOR AN ORDINANCE TO AMEND CHAPTER 8, KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO THE COMPREHENSIVE ZONING ORDINANCE," Mr. Rapozo moved for approval of the report, seconded by Ms. Yukimura, and unanimously carried. (See later for Bill No. 2422) A report (No. CR -PL 2012 -03) submitted by the Planning Committee, recommending that the following be approved as amended on second and final reading: "Bill No. 2423 - A BILL FOR AN ORDINANCE TO AMEND CHAPTER 6, ARTICLE 14, KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO THE PUBLIC ACCESS, OPEN SPACE, AND NATURAL RESOURCES PRESERVATION FUND," Mr. Rapozo moved for approval of the report, seconded by Ms. Yukimura, and unanimously carried. (See later for Bill No. 2423, Draft 1) FINANCE / PARKS & RECREATION / PUBLIC WORKS PROGRAMS COMMITTEE REPORTS: A report (No. CR -FPP 2012 -03) submitted by the Finance /Parks & Recreation /Public Works Programs Committee, recommending that the following be received for the record: "FPP 2012 -02 Communication (03/01/2012) from Committee Chair Bynum, requesting the Administration's presence to provide the Committee with an update on the Parks & Recreation's Parks Master Plan," COUNCIL MEETING 106 MARCH 28, 2012 Mr. Bynum moved for approval of the report, seconded by Mr. Rapozo, and unanimously carried. A report (No. CR -FPP 2012 -04) submitted by the Finance /Parks & Recreation /Public Works Programs Committee, recommending that the following be approved as amended, on second and final reading: "Bill No. 2425 - A BILL FOR AN ORDINANCE TO AMEND CHAPTER 5A OF THE KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO HOME EXEMPTIONS," Mr. Bynum moved to defer CR -FPP 2012 -04, seconded by Mr. Rapozo, and unanimously carried. (See later for Bill No. 2425, Draft 1) Chair Furfaro: I want to go back to the Anti -Drug piece for a moment. Theresa Koki is not available on this side of the island today. C 2012 -96 Communication (03/13/2012) from the Anti -Drug Coordinator, requesting Council approval to apply for, receive, and expend funds from the State of Hawai`i Department of Human Services, Office of Youth Services Title V Incentive Grant in the amount of $128,198.00, which will be used for a mentoring /advocacy program to prevent youth at risk of becoming delinquent and from entering the juvenile justice system: Mr. Rapozo moved to refer C 2012 -96 to the Public Safety & Environmental Services Committee, seconded by Ms. Nakamura. Chair Furfaro: Any discussion? Ms. Nakamura: It is interesting that the two (2) proposals from the Police Department were very thorough, and this one was the Prosecutor's with the grant application. Very good description and yet this one was just a one (1) pager without any... so I am wondering if we could make it a standard to have that in the packet for those who want to review it to prevent these types of deferrals from happening in the future. We should make that a requirement upfront. Chair Furfaro: We can send that communication to the Administration from the Council's expectations for grant writing. We would like to have the material, the narrative and the pros and cons associated with that further expanded. Will the staff so note that request to go to the Administration? Okay and this item here will be referred to the Public Safety, one week from now. The motion to refer C 2012 -96 to the Public Safety & Environmental Services Committee, was then put, and unanimously carried. COMMITTEE OF THE WHOLE REPORTS: A report (No. CR -COW 2012 -06) submitted by the Committee of the Whole, recommending that the following be approved on second and final reading: "Bill No. 2429 - A BILL FOR AN ORDINANCE AMENDING CHAPTER 26, KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO SPECIAL IMPROVEMENT FINANCING BY COMMUNITY FACILITIES DISTRICTS," COUNCIL MEETING 107 MARCH 28, 2012 Mr. Kuali`i moved for approval of the report, seconded by Mr. Rapozo, and unanimously carried. (See later for Bill No. 2429) A report (No. CR -COW 2012 -07) submitted by the Committee of the Whole, recommending that the following be approved on second and final reading: "Bill No. 2430 - A BILL FOR AN ORDINANCE AMENDING CHAPTER 5A, KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO REAL PROPERTY TAX," Mr. Kuali`i moved for approval of the report, seconded by Mr. Rapozo, and unanimously carried. (See later for Bill No. 2430) RESOLUTIONS: Resolution No. 2012 - 26, RESOLUTION ESTABLISHING NO PARKING AT ANY TIME ALONG A PORTION OF THE COUNTY ACCESS ROAD IN THE VICINITY OF VIDINHA STADIUM SOCCER FIELDS, LIHU`E DISTRICT, COUNTY OF KAUAI Chair Furfaro: I believe we talked about a deferral for two (2) weeks on this, is that still the desire of the body? Any discussion? Mr. Chang: I was looking at this Resolution and I think the Councilmembers had a testimony from Ms. Sasoong and I think we are all familiar with that Northern side of Vidinha Stadium, it is very narrow so there is reason why people should not park there. There were concerns that there are children that are handicap and kupuna that watch family members. I would just say while we are having this deferral, when we have the various events such as Hospice Concert in the Sky and different things, there is VIP parking that is inside of the Stadium along the fence. I would like to be able to take a look at that to see if we can allow parking inside which is an easy access to get inside, so these people that are handicap or that need the access will be able to do that. The reason as you folks know, there is a small opening that it is easy to park there and to let the handicap or those who have trouble walking, to get in. I would like, during this deferral, ask that we take a look at what would be the alternatives to be able to park it inside and stay away from the roadside but just on the inside where VIP parking or handicap parking have been traditionally practiced. Chair Furfaro: Let us have a staff prepare a communication from Mr. Chang to the Parks Director asking for some consideration and options. Ms. Yukimura: I am glad that that concern has been raised because I think it is a real issue for those who have difficulty walking. It is just that when you have car traffic mixed with pedestrian, you just have to have some safeguards and so hopefully Parks will look at that too in terms of how the traffic is managed, if it is allowed inside. Chair Furfaro: Would you like to co -sign that communication along with Mr. Chang? Ms. Yukimura: Sure. COUNCIL MEETING 108 MARCH 28, 2012 Ms. Nakamura: The reason why this was also deferred from a couple meetings ago is that I had asked the Police Department whether Parks Department was talked to with respect to this Resolution and they were not. The concern was about the use of soccer and where that parking is very critical. The discussions were going to be taking place this week, so I think this deferral gives them additional time to work through some of the issues, including one suggestion which was move the fence so that there is adequate parking for the cars. Chair Furfaro: Staff, will you make sure that the communication is also copied to the Police Department's Traffic Bureau. Mr. Rapozo: Keep in mind that as this is delayed, it does create an unsafe passageway and the officers, and I am hoping they will not do it but there is not enough access way to create safe travel for emergency vehicles, fire trucks and so forth. There is a possibility that the officers can cite the people that park and not provide that safe access way. Let us keep that in mind and again I do not know if the officers are citing vehicles but in discussions with one of the officers that they have that right. So we want to create a safe environment for everybody, including the emergency vehicles that need to pass and that is the purpose, I believe the request from the Police Department was because we all seen it and all have participated in it where we have a soccer game and cars line up on both sides, sometimes double park and there is not enough room for the emergency or even a fire truck to get through. That is against the law. Although I do appreciate the deferral and I will support it, we need to keep in mind that there is a definite reason for this Resolution and it is for safety reasons. Chair Furfaro: We include in that communication that this deferral in acting on this Resolution will only be deferred one (1) time. Mr. Bynum. Mr. Bynum I did not realize that we were going to have this much discussion on this but... Chair Furfaro: This is nothing compared to yesterday. One (1) item for five and a half hours. Mr. Bynum: I fully agree with Mel, on the other hand these soccer fields have been temporary for the last ten (10) years. We have not addressed the ADA access issues on those fields either. We have competing laws and I just wonder if Mr. Rapozo might know that even if we defer this for two (2) weeks, I believe the Police Department will have the authority to temporarily post that as a no parking area. I am concerned about the safety issues as well but it is kind of like competing issues and it has been that way for ten (10) years. But we have not addressed the issues for people with disabilities that are entitled to access to the soccer games as well. Ms. Yukimura: This discussion raises the whole issue of how we do our planning. We just recently heard about the Parks Master Plan, which I hope is designed so that we do not just keep doing things temporarily and then have them last almost permanently. It creates problems like this. Even in terms of short term problem solving, this thing that is single purpose and people just do it to solve their problem without thinking who are the other stakeholders in this that I should be talking to because they will be affected. That is something I think, perhaps the Administration can look at interdepartmentally speaking and then all of us can look at in terms of the problems that we all are called to solve. COUNCIL MEETING 109 MARCH 28, 2012 Chair Furfaro: This discussion was good. Mr. Chang, your correspondence co- signed with Vice Chair Yukimura will raise those questions and we will have a more meaningful dialog in two (2) weeks. Upon motion duly made by Mr. Bynum, seconded by Mr. Chang, Resolution No. 2012 -26 was deferred. Resolution No. 2012 -30, RESOLUTION ESTABLISHING THE REAL PROPERTY TAX RATES FOR THE FISCAL YEAR JULY 1, 2012 TO JUNE 30, 2013 FOR THE COUNTY OF KAUAI: Mr. Kuali`i moved to approve on first reading, schedule for Public Hearing on May 9, 2012 at 5:00 p.m., and refer to the Committee of the Whole, seconded by Mr. Chang. Chair Furfaro: Any discussion? Vice Chair Yukimura. Ms. Yukimura: I actually have a problem with this Resolution because based on the law that we passed recently, we are going to have one (1) rate for building and land. This is not sufficient notice to the public to show them what we are going to be doing. We need to amend this somehow - I do not know with the average rates. This is not a legal proposal because we, I believe our law said we are going to a single rate between land and building. Chair Furfaro: Please come up to address the legal concern raised by Vice Chair Yukimura on this Resolution. There being no objections, the rules were suspended. JENNIFER WINN, DEPUTY COUNTY ATTORNEY: Deputy County Attorney, Jennifer Winn. I am not sure off hand if the single rates starts in tax year 2012 or 2013. I would like to look that up real fast. Chair Furfaro: Go right ahead. Let us give the County Attorney some help. I think when Mr. Hunt walks in the door, he will tell us this is for the year 2013, so the notice we have been given is one (1) and one (1) month ahead of schedule. I believe that will be the outcome. Jennifer, do you still need time to look? Ms. Winn: No. The single rates starts in 2013. Chair Furfaro: Very good, so my assumption was correct. Thank you very much. Vice Chair Yukimura. Ms. Yukimura: Are we having different classes in 2013 as well? Ms. Winn: Yes. Ms. Yukimura: I apologize for my misunderstanding. Ms. Winn: Okay. COUNCIL MEETING 110 MARCH 28, 2012 Chair Furfaro: It is early and we all went without lights last night, we could not read, at least in Hanalei, until 10:15, so your apology is more than accepted. Mr. Bynum: I have two (2) things that I just wanted to put on the record. The first is — Councilmember Yukimura is correct we are moving to a single rate, it is not required this year. I sure hope we have that discussion about the impact of that on the different tax classes during budget and we may choose to move in that direction this year in some of these categories. If you look at the rates, the difference in saying apartment, commercial, industrial — those three (3) it is a dollar difference between land and building. In averaging of that probably would not have a big impact on individual parcels but in the Ag and conservation, there is a significant difference between the building and land rates, and so if we average those out, it would impact different properties differently, depending on whether there were buildings there or not, and so it is something that we need to have on our radar screen and discuss. I have had preliminary discussions with Mr. Hunt about this and I do not know what the recommendation — well I do know because the Mayor put this forward without any rate changes this year. But it is something that we should discuss about this transition and how it impacts property taxes during our budget discussions. My second issue with this Resolution is this is the Mayor's proposal, it is for the eighth (8th) year in a row, no change in property tax rates. The outcome of that we have heard in testimony will be that the non - resident tax categories are all likely to have a significant reduction in taxes this year because of lowered assessed values. Probably I will ask later today if we have a ballpark figure on what that would be but I think it is in the millions of dollars of additional tax reduction. The acceptation in the homestead class because of the way it is structured, these rates will probably cause little or no reduction in this class. I think it is very important that the Council look at these rates. My final thought is that because of being a County where the Mayor is allowed to submit a second budget in May, which is different in other counties, he kind of does not need to own his proposal right now and in his budget message he says well here's my budget proposal but I may change it in May. It is just another example about how our budget process, I believe is flawed because when the Mayor resubmits in May, say he does have a different rate proposal, we have not had that on the radar screen during all of our budget hearings. It is something that the Council has to act on it within days and so I just think it is really important that we look at this whole budget process and I do not know that we would want in the future to allow future Mayors to be able to submit a proposal that they are not really serious about and then go through all the deliberations and then allow significant changes. I do not believe that happens in any other County in the State and it is something that I hope we all look at closely. I just wanted to make those comments but I am going to... this is first reading and will do this later. It is not something that takes effect on the move today, so I will be supporting it today. Chair Furfaro: Before I recognize any other members, I want to respond to Mr. Bynum and Vice Chair Yukimura on some of the questions they have. This is thirteen (13) months ahead of schedule. I also want to make note that you have the Mayor's narrative; your interpretation of his having a second blush look at the budget is a Charter activity. If you want to make a change to that process, we need to either hear your documentation of the rationale here for it so we can send over a Charter recommendation from the Council and /or you can have the COUNCIL MEETING 111 MARCH 28, 2012 initiative to go in front of the Charter Review Commission which has the same power to influence a change in the Charter. There is no dialog on that, I just want to make sure I am clear on the record that that is what we have to do. It is certainly possible, Mr. Bynum, that I would entertain a Charter amendment if you introduce it. Ms. Yukimura: Yes, thank you Mr. Chair. I think this discussion is important — the change to a single rate will happen in thirteen months but we still need tax rates for this coming fiscal year. This is what this Resolution is about. What are the tax rates going to be for this upcoming fiscal year? In order for the public to be able to testify, they need to understand the impacts of rate setting. I just want to point out or reiterate what Councilmember Bynum has said, in our discussions about the exemptions, there has been a lot of concern about the two point six million dollars or the two point three million dollars of revenues that we will need to offset the one hundred and seventy -five thousand additional exemption that the present amended bill has. We could raise the rates but not the taxes on the non - residential properties and make up that two point three million dollars fairly easily, I think. Chair Furfaro: I am going to say that you are a little bit confused. This Resolution is about submitting the rates for this year. If you look at the calendar that I produced, you will see that there is a 45- minute new item on there specifically for the Council to reflect on some comments about the budget. This might be the appropriate time to submit to me some topics that you would like to see in that narrative before we get into the budget. Ms. Yukimura: Okay. Chair Furfaro: But this Resolution is about establishing and reflecting on the rates of this budget. I am going to ask Mr. Rezentes to come up to the mike. Ms. Yukimura: Can I just finish my thought? Chair Furfaro: I was not cutting you off because you are asking questions that I think we need to make sure we have some continuity here and we all understand what is in that Resolution. Ms. Yukimura: Chair Furfaro: Okay. But, you have the floor. Ms. Yukimura: I just want to finish and say that I think I am talking about this Resolution and the potential rates that we could set in terms of offsetting some of our concerns about finding money for the real property tax drop that we would incur by passing the exemption that is being proposed and fixing some of the inequities that if we do not fix, are going to get even wider as we try to set rates. Mr. Bynum: Why are we asking Mr. Rezentes up? Chair Furfaro: Because I am asking Mr. Rezentes to come up for clarification on this Resolution. COUNCIL MEETING 112 MARCH 28, 2012 Mr. Bynum: That is fine. Chair Furfaro: having him come up. WALLACE REZENTES, JR., DIRECTOR OF FINANCE: Good morning, Wally Rezentes Jr., Director of Finance. Chair Furfaro: Wally, I had indicated that the purpose of this Resolution is to reflect the rates that are coming up in the upcoming budget and they are not preventing us from having discussions on the new tax range as submitted for the year 2013. Mr. Rezentes: For the assessment year 2013, fiscal year 2014, right? Chair Furfaro: Yes. Mr. Rezentes: Okay. Chair Furfaro: I just wanted to make sure I am correct. Mr. Rezentes: Yes. Chair Furfaro: Does anyone else have any questions of Mr. Rezentes? Mr. Kuali`i. Mr. Kuali`i: Aloha and mahalo Wally. Just one quick thing. I heard either from you or Steve or someone say that yes, these are the tax rates that the Administration is putting forward now and they are exactly the same with no changes. Mr. Rezentes: Correct. Mr. Kuali`i: But we are still getting more information, we are going to get the tax roll at the end of the month and between now and actual budget time, the Administration may be actually recommending some changes to make the real property taxes revenue neutral. Mr. Rezentes: Correct. Well you asked the question why are we Mr. Kuali`i: As the term you used. So there may be some different recommendations other than what we are looking at — this is the starting point? Mr. Rezentes: With respect to rates, yes. The information that we have compiled for the budget was the best information we had as of the February — March timeframe. There are information that we will receive in the next month or so that could potentially impact revenue streams or expenditures that may not have been identified. Therefore, we will again submit a budget in May that could reflect changes in revenues, changes in expenditures, changes in rate structure, etc. I heard the comments earlier relative to the timing of the changes and I can understand that. I believe the County Council and the Administration made some (inaudible) in the timing of this assessment rolls and the light and for us COUNCIL MEETING 113 MARCH 28, 2012 as well. The earlier we get a certified tax roll in the process, in our budget cycling process, the more time we have between the certification and the time of budget submission, the better for us as well. We are happy to work with you folks whether it be — things that we can control within the ordinance structures or the Charter. I think it is healthy to really look at the changes that need to take place and it is better for us as well as the County Council in decision - making. Mr. Bynum: Good morning Wally. You commented on two (2) things and I do appreciate that we are trying to move some of these deadlines forward. A lot of that was on the initiative from the Administration. I would just encourage that when you get that data — that we discuss that during our dialog on the budget and so if the Mayor is inclined to do that, there is no reason he cannot give us some head up or be engaged in that dialog prior to the resubmittal. I would encourage you to be open to that. Ms. Yukimura: That request is really seriously made because it puts us in a really difficult position when you do not show your cards, if I can use a pretty rough term, and help us think through and also be part of the discussions in creating the solution. My question is that if we only have tax rates to manipulate and not have exemptions, will we be able to correct the inequities as much as we would be able to if we had the exemptions? Chair Furfaro: waving her hand. Jennifer? Ms. Winn: topic for this Resolution. Chair Furfaro: Ms. Winn: Yes. Excuse me but the County Attorney is I am sorry. It just seems like it is a little off Thank you very much. Mr. Rapozo: I apologize, I was going to ask this question after but since you are up there, but I have a process question and this is right out of section 5A and I know Mr. Bynum has brought this up on several occasions. If you look at 5A -6.3 real property tax determination of rates, this is what we need to follow. If you go to subsection C, this is on page sixty -seven (67), do you have this in front of you? Mr. Rapozo: Subsection 3 it says the Council shall set the tax rates for each class of property using the following method. Number 1 net taxable lands and net taxable buildings within each class of property shall be assigned a percentage of the total revenue to be derived from real property. My question is how do we set the rate before we set the percentage? Are we violating the code by setting the rate without determining what that allocation that percentage of allocation will be? Ms. Winn: I will have to think about that a little further. Mr. Rapozo: Okay and that is fine, I will send it in writing. This is fine because we will not act on this today, it will go to public hearing. But I think Mr. Bynum brought this up a while ago and I just honestly was not aware of this until he brought it up and I have been doing this for many COUNCIL MEETING 114 MARCH 28, 2012 years. I believe we got to set that percentage first and we have never done that as long as I sat on this Council but I do not want to continue the bad act. It came to my attention and now I see it. I guess the question Mr. Chair will be, it is a legal one because it contains the word shall and it may not mean shall. If in fact this is true, and that is a mandatory statement then we are doing it all wrong. Chair Furfaro: Well Mr. Rapozo, if I can say earlier in yesterday's meeting before we continued this, we are pursuing a legal definition of shall. Mr. Rapozo: Chair Furfaro: And I also believe that we are mandated to do it and also that complicates the equation because no matter what we discount to a certain category, it has to comply to a certain allocated percentage. We will leave it at that for the County Attorney. Mr. Rapozo: Mr. Chair and this will be for the staff as you prepare my request. My concern is that we as the Council need to set the percentage of allocation prior to the rate, which would mean that we would have to redo the entire process that this Resolution should include the percentage of allocation and then it is real simple. You divide the number of taxpayers in that class by the percentage and that is how you get your tax rate. That is what the code says. I do not want to debate the code Mr. Chair, I want to ask for the legal... Chair Furfaro: We will have the legal opinion requested and we will have more discussion on this at budget time. Vice Chair Yukimura. Ms. Yukimura: That is part of my question; the exemptions are part of setting the aggregate value to which the tax rates will be applied. How can you say that my question is not relevant? That is an extremely narrow interpretation and I don't think the Sunshine Law should be used to limit debate on a very important issue. Ms. Winn: another agenda item. item. Ms. Yukimura: Yes. I think you are going into specifics on No, but it might be related to another agenda Chair Furfaro: We should let her finish her explanation first. Please members, there has been a lot of that lately, if you ask a question, let the question be finalized in a form of a response. Ms. Winn: The point that I was trying to make was that this Resolution is specifically on tax rates and while the exemptions as to what the exemption should be, is covered by another agenda item. Chair Furfaro: We will be sending over correspondence to the County Attorney's Office as requested by Mr. Rapozo and we look forward to an urgent response as we get ready to go into budget session. I think the Vice Chair has a question for you. COUNCIL MEETING 115 MARCH 28, 2012 Ms. Yukimura: Jennifer, are you saying that because there is another related item on the agenda, you cannot speak about this because it is related? Ms. Winn: No, that is not what I am saying. Ms. Yukimura: Then, what are you saying? Ms. Winn: What I am saying is that this item on the agenda is for a Resolution on the tax rate and that people may not have grasped that you would also be discussing tax exemption. Chair Furfaro: That is your answer at this point. We will be having further discussion on this in the near future. Mr. Bynum has his hand up. Mr. Bynum: Jennifer, I do not want to be argumentative but yesterday was a frustrating day for all of us. The agenda item that we were on most of the day was about homeowners exemptions, but over the last couple of weeks, we talked about low income exemption, we talked about bond ratings, yesterday we talked about reserve policy, we were all over the map. I was personally fine with that because my position was that we need more latitude that has been exercised by this Council regarding Sunshine. OIP has opined that if there is a rational nexus to the discussion, we should have more latitude. My concern is that whatever standard we come up with that it be equally applied. Yesterday nobody stood up and said... Dave Spanski came up here and talked about our bond rating. I could have argued what does that have to do with this? I just wanted to put those thoughts on the record because I am personally one who says we need to have a broader latitude to discuss related matters on these items. Chair Furfaro: Jennifer, that does not require your response. Certainly as Mr. Bynum said, personally he would prefer that we had a little broader piece but if any members want to sanction the Chair for being too restrictive, too broad and so forth, that is another dialog, not for this meeting. Ms. Yukimura: Mr. Bynum just helped me recall how to frame this, so are you saying that there is no rational nexus between exemptions and property tax rates? Ms. Winn: No. Ms. Yukimura: Because that is the test, is it not? Ms. Winn: I do not have the exact language in front of me. Quite honestly I do not remember exactly what your question was. Ms. Yukimura: My question was if we only have tax rates to manipulate and not exemptions and I did not even finish. Ms. Winn: If you only have tax rates? Ms. Yukimura: Yes, I did not even finish my question. Chair Furfaro: You did not finish because she was trying to answer the first part. COUNCIL MEETING 116 MARCH 28, 2012 Ms. Yukimura: No, because she stood up and waved her hand. So the question is if we only have tax rates to manipulate and not exemptions, will not that impact higher and benefit higher assessed properties? Ms. Winn: Okay. I think again my concern is that the tax exemption is covered in the other agenda item and this one was about the rates. This Resolution is what the rates should be. That was my concern. Ms. Yukimura: What you are saying is... Chair Furfaro: That is her answer. Ms. Yukimura: Okay, so I have a further question. You are saying that if there is another agenda item that is related, we cannot talk about the issue covered by the other agenda item even though they are overlapping agenda items? Even though they both relate and there is a rational nexus? In fact, one of the issues for the public and us to understand is how they interact. Their interactions are important. Chair Furfaro: If you have no answer for that, I would like to move on with the rest of the housekeeping agenda here. I agree with the County Attorney, we can have that discussion in the next piece. Mr. Rapozo: I want to thank Mr. Bynum for bringing up the tax ordinance and its instructions to the Council because that is something I have been talking about for some time. I think that does need to be part of our process that we need to follow the ordinance as written. I also assume that that will occur during our budget process. Chair Furfaro: As I said earlier, members the budget calendar is out. It went out on Monday, along with that there is a new topic for a report from the Chairman which will reflect your comments before we get into the piece. As you know I have expanded the discussion in many areas and so we will have that opportunity and that is affirmative. Mr. Rapozo: This is just to add to the communication to the County Attorney's Office, if in fact the interpretation of that Chapter or that Section is as I believe it is, which is, we need to set the percentage versus the rate, this Resolution, would we be able to amend the Resolution or is the change so substantial that we would require a new Resolution? Chair Furfaro: to amend the Resolution. Mr. Rapozo: change is substantial, it would Chair Furfaro: question. Mr. Rapozo: I think it is always possible for this Council I know it is but there is that rule that if the require a brand new... What is substantial, that would be the Correct. COUNCIL MEETING 117 MARCH 28, 2012 Mr. Bynum: May I ask one (1) other question of the Clerk? This is a different Resolution, this also get set for public hearing and do we have to note that? Mr. Rapozo: Mr. Bynum: That was the motion. Oh, I'm sorry I did not hear that. The meeting was called back to order, and proceeded as follows: The motion for passage of Resolution No. 2012 -30 was then put, and carried by the following vote: FOR PASSAGE: Bynum, Chang, Kuali`i, Nakamura, Rapozo, Yukimura, Furfaro TOTAL — 7, AGAINST PASSAGE: None TOTAL — 0, EXCUSED & NOT VOTING: None TOTAL — 0, RECUSED & NOT VOTING: None TOTAL — 0. Resolution No. 2012 -31, RESOLUTION CONFIRMING MAYORAL REAPPOINTMENT TO THE BOARD OF REVIEW (Cayetano Gerardo): Mr. Rapozo moved to approve Resolution No. 2012 -31, seconded by Ms. Nakamura, and carried by the following vote: FOR ADOPTION: Bynum, Chang, Kuali`i, Nakamura, Rapozo, Yukimura, Furfaro TOTAL — 7, AGAINST ADOPTION: None TOTAL — 0, EXCUSED & NOT VOTING: None TOTAL — 0, RECUSED & NOT VOTING: None TOTAL — 0. Resolution No. 2012 -32, RESOLUTION CONFIRMING MAYORAL REAPPOINTMENT TO THE SALARY COMMISSION (Randy Finlay): Ms. Yukimura moved to approve Resolution No. 2012 -32, seconded by Mr. Kuali`i, and carried by the following vote: FOR ADOPTION: Bynum, Chang, Kuali`i, Nakamura, Rapozo, Yukimura, Furfaro TOTAL — 7, AGAINST ADOPTION: None TOTAL — 0, EXCUSED & NOT VOTING: None TOTAL — 0, RECUSED & NOT VOTING: None TOTAL — 0. Resolution No. 2012 -33, RESOLUTION CONFIRMING COUNCIL REAPPOINTMENT TO THE KAUAI HISTORIC PRESERVATION REVIEW COMMISSION (Architecture) (Patricia W. Sheehan): Mr. Kuali`i moved to approve Resolution No. 2012 -33, seconded by Mr. Rapozo, and carried by the following vote: FOR ADOPTION: Bynum, Chang, Kuali`i, Nakamura, Rapozo, Yukimura, Furfaro TOTAL — 7, AGAINST ADOPTION: None TOTAL — 0, EXCUSED & NOT VOTING: None TOTAL — 0, RECUSED & NOT VOTING: None TOTAL — 0. Resolution No. 2012 -34, RESOLUTION SUPPORTING THE HAWAII STATE ASSOCIATION OF COUNTIES' PROPOSAL OF ESTABLISHING A COUNCIL MEETING 118 MARCH 28, 2012 POSITION FOR THE HAWAII STATE ASSOCIATION OF COUNTIES STATE DIRECTOR: Mr. Bynum moved to approve Resolution. No. 2012 -34, seconded by Mr. Kuali`i. Chair Furfaro: Any discussion? Mr. Rapozo: I have some discussion. Chair Furfaro: Go ahead Mr. Rapozo. Mr. Rapozo: At the last HSAC Meeting, we had quite a lengthy debate about this issue, Maui is still hesitant, they have a lot of questions, so does Big Island, and frankly so do I. The way they drafted the position, it was pretty broad and vague, I wasn't here when they did the presentation. I did not see what they presented to the Counties and I realize that the Chair had a question about the corporate sponsorships and in fact made the forty percent, I believe that was your suggestion, Mr. Chair? Chair Furfaro: Yes, that was my suggestion. They should not exceed forty percent of the membership. Mr. Rapozo: Whatever the pleasure of this Council is, I will support it. I just want this body to know that I still have some concerns. I do agree that HSAC is at a level right now that we should create an Executive Director to be a point of contact. Because of rotation, there is also a proposal for a bylaw amendment coming out of the Big Island that would require a new President every year which would make it very difficult for continuity, so the Executive Director hence would definitely be an asset. I have very serious concerns about corporate memberships as it pertains to HSAC. I do not want the corporate members to believe that they have some sort of control of our State Association. I do have some concerns, I do appreciate the forty percent rule because that does take some of the question away but I use the example of the GMO labeling bill. The GMO labeling bill never made it to the HSAC legislative package. Now had the seed companies been a corporate sponsor, whether or not they influence the vote or not, the appearance would have been that they did. I am very concerned about that. As the President of HSAC, an Executive Director takes no power — the very little power that I do have, takes no power away because Executive Director would still report to the Board of Directors. It is not a power trip that I am on but I just want to make it clear that there are certain components of that position that I oppose the corporate memberships. I do believe we need a point of contact, I do believe we need to strengthen the bonds over at the Legislature to have somebody on the ground running for HSAC, obviously because we all have different islands to represent. Again it is a Resolution I think it supports the position in concept. The matter at the HSAC level is on hold right now because of Maui. Maui specifically came out and in fact one of their Councilmembers came to testify that he does not support it at all. I do not believe it will pass Maui. Kaua`i did budget in the budget for the additional dues. O`ahu did as well. Maui did not and I cannot remember if Big Island — they did? Chair Furfaro: It was only Maui that has not. I just want to say, Mr. Rapozo, the reason I proposed the amendment was that I had the same concern. They had no restrictions on corporate membership. Mr. Rapozo: Exactly. COUNCIL MEETING 119 MARCH 28, 2012 Chair Furfaro: At the same time they pleaded with us that the financial burden would be greater for us if they did not have any corporate membership. So the amendment came in from me at forty percent. Ms. Nakamura: I shared similar concerns to Councilmember Rapozo when the two (2) — when the Councilmember from O`ahu came over. I think my point was that I have concerns about corporate membership period and that this should not be a part of this Resolution, it is a separate issue that needs to be discussed and go through the same process with every County. I really believe it is credibility issue and that we should not — I have an amendment that supports this Resolution but takes out number one (1). Can it be treated as a separate issue of discussion. Ms. Yukimura: I am so glad that Councilmember Rapozo raised this issue because I have had reservations in the back of my mind. I did express them too when the briefing was done by HSAC. I agree that corporate membership is a very tenuous place to stand on and I would agree to take that out and I thank Councilmember Nakamura for working on an amendment. I do not think that is enough. I do not think we should approve anything until we know what kind of viable approach we are going to take and how we are going to fund this position. I am all for professionalizing HSAC, having some continuity in staff, all of it makes sense but it is hard to approve that concept without knowing how you are going to actually make it work. Chair Furfaro: I would suggest that this item should be deferred, so we can have more dialog. Mr. Rapozo: Mr. Chair? I would agree. I suggest that it would be deferred with no time period until we get more information from HSAC. If Maui does not come to the table, then it is really a moot issue. I do want to say, Mr. Chair, because I had heard at the last meeting that you had provided the forty percent language... Chair Furfaro: Again, I do want to make sure we all understand. I was concerned that they had no controls and also they did not have a rational relationship on voting power. Mr. Rapozo: Correct. Chair Furfaro: Those were two (2) concerns that I raised. Again, I want to recognize Mr. Bynum and see if we cannot, after he speaks, get a deferral. Mr. Bynum: I appreciate this discussion as well. I would support this amendment if we want to go there. The issue here is I really value HSAC and I watched it happened since I have been a Councilmember. I value the leadership that Mr. Rapozo has brought to the table and has kept us informed. I am very supportive of the concept of HSAC having an Executive Director, but in the sake of total transparency here, I have been going to HSAC Meetings since I have been a Councilmember. When you go to the annual conference, there is a lot of corporate sponsorship that corporations and these are consultants primarily who do business with the County government. They are sponsoring the luncheon and the breaks and that is kind of a pretty normal routine in the world but in total COUNCIL MEETING 120 MARCH 28, 2012 transparency, those folks are present and they should be because they are part of the dialog but they put their corporate sponsorship in. I do also trust Mr. Rapozo and the rest of the HSAC Board and all Councilmembers to not be influenced by that corporate sponsorship, although it is a different level when you are asking them to be members of an association. I was prepared to support this today because of my faith in Mr. Rapozo and the rest of the HSAC Board to kind of sort these issues off. Thanks for letting me put that on the record. Chair Furfaro: And we can have more discussion along those lines because I would also like to expand on my restrictions when I submitted the amendment. I am looking for a deferral based to have broader discussion and we have some time concerns today. Mr. Rapozo: Mr. Bynum is absolutely correct, when you go to any conference even at the HSAC conference that each island host on a rotational basis, we have corporate sponsorship. The difference between the Executive Director is that corporate sponsorships or corporate memberships will now be used to pay the salaries of the Executive Director. When you sponsor an event or you host the event and you get corporate sponsorships, they are getting the benefit in return because they are buying table space, they are buying banner space but they expect that all the members of the conference will be able to stop by and be able to see what they have or what they have to offer versus a corporate membership of the association itself where now your funds are paying the salary and the benefits and whatever it is — like I said I am hesitant, confused, and concerned. All of the State Associations throughout the Country have corporate memberships, it seems to work well. I appreciate your comments about the trust on the State Board and the deferral is the best way to go until we get more information on the policy. Upon motion duly made by Mr. Chang, seconded by Mr. Bynum, and unanimously carried, Resolution No. 2012 -34 was deferred pending further clarification or information from HSAC. BILLS FOR FIRST READING: Proposed Draft Bill (No. 2431) — A BILL FOR AN ORDINANCE RELATING TO THE OPERATING BUDGET AND FINANCING THEREOF FOR THE FISCAL YEAR JULY 1, 2012 TO JUNE 30, 2013: Mr. Kuali`i moved for passage of Proposed Draft Bill No. 2431 on first reading, that it be ordered to print, that a public hearing thereon be scheduled for May 9, 2012 at 5:00 p.m., and that it thereafter be referred to the Committee of the Whole, seconded by Mr. Rapozo, and carried by the following vote: FOR PASSAGE: Bynum, Chang, Kuali`i, Nakamura, Rapozo, Yukimura, Furfaro TOTAL — 7, AGAINST PASSAGE: None TOTAL — 0, EXCUSED & NOT VOTING: None TOTAL — 0, RECUSED & NOT VOTING: None TOTAL — 0. Proposed Draft Bill (No. 2432) — A BILL FOR AN ORDINANCE RELATING TO CAPITAL IMPROVEMENTS AND FINANCING THEREOF FOR THE FISCAL YEAR JULY 1, 2012 TO JUNE 30, 2013: Mr. Kuali`i moved for passage of Proposed Draft Bill No. 2432 on first reading, that it be ordered to print, that a public hearing COUNCIL MEETING 121 MARCH 28, 2012 thereon be scheduled for May 9, 2012 at 5:00 p.m., and that it thereafter be referred to the Committee of the Whole, seconded by Mr. Rapozo. Chair Furfaro: I believe we are going to entertain an amendment, am I correct Councilmember Nakamura? Ms. Nakamura: Yes. There were some items that were not included in the original ordinance — the bill that was sent to us. This replaces that bill in the entirety. Chair Furfaro: Members, if you want to, we can come back to this item if you want to breeze through it for a few minutes. Ms. Nakamura moved to amend Proposed Draft Bill No. 2432 as circulated, seconded by Mr. Bynum. There being no objections, Proposed Draft Bill No. 2432 was moved to the end of the agenda. Proposed Draft Bill (No. 2433) — A BILL FOR AN ORDINANCE TO AMEND CHAPTER 8, KAUAI COUNTY CODE, 1987, AS AMENDED, RELATING TO AMENDING THE COMPREHENSIVE ZONING ORDINANCE IN ITS ENTIRETY: Mr. Kuali`i moved for passage of Proposed Draft Bill No. 2433 on first reading, that it be ordered to print, that a public hearing thereon be scheduled for April 25, 2012, and that it thereafter be referred to the Planning Committee, seconded by Mr. Rapozo. Chair Furfaro: Mr. Rapozo, I do want to make a comment before we go further, this packet that you got will come to us in phases. This is phase one (1), it is more housekeeping pieces and so forth and it is the non - technical parts. Mr. Rapozo: My question is a little different. Normally when we get an amendment it is ramseyered, so we get to see where the changes occurred, this does not. This is an entirety so I do not have... I guess my question would be if this was introduced by request of the Planning Department, so if we could get some kind of narrative that explains to us what was changed, what we removed and what was added. It is very difficult for me to decipher what is new and what is not in this bill because it is in its entirety. I do not believe I have seen this, done this way and I know it is very cumbersome to ramseyer the entire Chapter but we need to know that and I think the public needs to know what has changed otherwise a lot can be missed. This is what it is and there is no indication of what is new, so if we can get that across to Planning and get that to us as soon as possible. I would really appreciate it, Mr. Chair. Chair Furfaro: Peter Morimoto, can I ask you to come up to the mike please? I asked similar questions, these are non - technical pieces, certain tables of use that are in here. Peter could you come up since you worked on this with Planning. There are none technical pieces in here, this is again for the first reading. It has tables of uses which indicate what processes are needed in various permitting whether it is in residential, commercial, agricultural and so forth. Could you expand on this so we know what right questions to send over. COUNCIL MEETING 122 MARCH 28, 2012 PETER MORIMOTO: Peter Morimoto, Analyst for the Council. In essence what the Planning Department did was they took all of the revisions to the CZO that has taken place over the years and incorporated it into one (1) document. They also cleaned up some of the language, basically grammar and I think reference to gender. The changes are what I would refer to as non - substitutive, they are not changing the substance of the text, and it is in essence putting together all of the revisions that have been made throughout the years to the CZO. The next phase of the revisions to the CZO will be the substantive changes that go beyond mere grammatical changes. Chair Furfaro: Peter, that was a quick summary as I said this reflects what we should anticipate as just the first phase of this piece. Mr. Morimoto: come later. Ms. Yukimura: changes and no substance changes? once? way. Mr. Morimoto: Ms. Yukimura: Mr. Morimoto: That is correct. The meat of the matter will These are really technical and grammatical No. Why don't they bring everything to us at I think it would be less confusing to do it this Mr. Rapozo: Aida just showed me the ramseyered version; we do have it in our possession. It was not copied for the agenda because it is about that fat. But she has assured me that she will make copies for all of us, so I withdraw the request to Planning. We do have it and I just saw the first page and I agree, this is probably easier for the discussion purposes but I do need that as the backup to verify there are no substantive changes. Mr. Bynum: Couple things, I understand that this has become a two (2) stage process and I understand the rationale for that. For myself, I prefer a scanned version of that thick piece of paper that I can review on the computer and to save paper for another reason. This is step one (1) and I know our staff has reviewed to make determined that there are no substantive changes but our current CZO is this hodge -podge because it has not been updated since 1972, it has been added to and so to get all in understandable and readable format, make sense to me as the first step. Chair Furfaro: I began going through this with these pieces and came out with first phase, not real substantive changes, non - technical items not included and so forth and Mr. Morimoto came up to expand on that. I would like to move forward or defer this again. Okay, let us move forward and kokua some talk here and Vice Chair Yukimura, you have the floor. Ms. Yukimura: My thought was what about the public, this thing is going to public hearing and I was going to say let us make available to the public what we were wanting for ourselves. With the explanations, you sort of say, well if these are really non - substantive, not important to make available to the public... COUNCIL MEETING 123 MARCH 28, 2012 Chair Furfaro: I did not use the word important. Ms. Yukimura: I am asking the question. Chair Furfaro: I said none technical. Ms. Yukimura: I am just saying in my head, how do we deal with this in terms of the public? So do we make a scanned copy of the ramseyered form available to everybody or is it just easier for them to read this cover to cover and understand what is being done? Chair Furfaro: Choice is yours. Ms. Yukimura: And I was going to say that this is historic but I cannot say it yet without the substantive provisions. Chair Furfaro: I understand what you are saying, it is historic because I sat on the CZO volunteer Committee in 1997, pretty historic fifteen (15) years later. Ms. Yukimura: Actually my Administration was working on it in 1990. I'm eager to see the substantive changes although here we are doing all these things for so long that, actually the bottom basic general plan which is supposed to support the CZO changes is changing too. Yes, maybe we will make a scanned copy available for anybody who wants to see it. Chair Furfaro: The Clerk has said we can certainly make available the supporting documents. Mr. Bynum: I am supportive of this process and I think we are going to move this forward today but I want to say that our current CZO is (inaudible) 1972 and this Council and I have done presentations here in the past three (3) or two (2) years ago, this Council the various Councils over the years have been assured that there would be an update of the CZO since the mid -80s and again in the 90s. When Councilmember Furfaro was the Chair of the Planning Committee, he (inaudible) a commitment to have it done by the end of that calendar year which was two (2) or three (3) years ago and I had personal experience of knowing how outdated and confused CZO misapplied creates grief for our community. Ms. Nakamura: Through the interest of time, if we could limit the discussion in order to get through our agenda, I do not know how long we have for today. more. Chair Furfaro: So let us move forward. Chair Furfaro: We will have one hour and five minutes Ms. Yukimura: Chair Furfaro: One (1) sentence. One (1) sentence? Okay. COUNCIL MEETING 124 MARCH 28, 2012 Ms. Yukimura: Given the length of time that this has taken, I do want to acknowledge the Planning Department for actually bringing it to fruition. The motion for passage of Proposed Draft Bill No. 2433 was then put, and carried by the following vote: FOR PASSAGE: Bynum, Chang, Kuali`i, Nakamura, Rapozo, Yukimura, Furfaro TOTAL — 7, AGAINST PASSAGE: None TOTAL — 0, EXCUSED & NOT VOTING: None TOTAL — 0, RECUSED & NOT VOTING: None TOTAL — 0. (Proposed Draft Bill (No. 2432) — continued) Ms. Nakamura: I have the clarification that there were some items that had erroneous numbers next to them. The first one being the Piikoi interior renovation phase two (2) from eight hundred forty -six thousand to one point one million document, imaging program from a hundred fifty thousand to a hundred seventy -two thousand, and the General Fund document imaging program from two hundred ninety -nine thousand to two hundred seventy -seven thousand decrease. Two (2) were increases, one (1) was a decrease. The net increase was two hundred seventy -eight thousand thereabouts and so they wanted to change those specific line items and then the overall total was increased upwards of two hundred seventy -eight thousand four, thirty -one. Those were the three (3) changes and then the impact to the overall CIP budget number. Ms. Yukimura: Point of clarification, the changes here were the intention of the Administration? Ms. Nakamura: Yes. Ms. Yukimura: Which somehow did not get in the initial paperwork that came over to us, so that is what we are doing here today? Just adding and making the corrections? Okay, thank you. The motion to amend Proposed Draft Bill No. 2432 was then put, and unanimously carried. The motion for passage of Proposed Draft Bill No. 2432, as amended herein, was then put, and carried by the following vote: FOR PASSAGE: Bynum, Chang, Kuali`i, Nakamura, Rapozo, Yukimura, Furfaro TOTAL — 7, AGAINST PASSAGE: None TOTAL — 0, EXCUSED & NOT VOTING: None TOTAL — 0, RECUSED & NOT VOTING: None TOTAL — 0. BILLS FOR SECOND READING: Bill No. 2424, Draft 1 - A BILL FOR AN ORDINANCE TO ALLOW SOLAR ENERGY FACILITIES IN THE AGRICULTURE DISTRICT COUNCIL MEETING 125 MARCH 28, 2012 Ms. Yukimura: Mr. Chair, when we passed it out of Committee, there were testimony from KIUC and some additional data. I have been working on since then on an amendment and we are not quite — we have been working with KIUC and the Planning Department. We are asking for one (1) deferral to complete the work on that. Upon motion duly made by Mr. Bynum, seconded by Ms. Yukimura, and unanimously carried, Bill No. 2424, Draft 1, was deferred. Bill No. 2422 - A BILL FOR AN ORDINANCE TO AMEND CHAPTER 8, KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO THE COMPREHENSIVE ZONING ORDINANCE: Mr. Bynum moved to adopt Bill No. 2422 on second and final reading and that it be transmitted to the Mayor for his approval, seconded by Ms. Yukimura, and carried by the following vote: FOR ADOPTION: Bynum, Chang, Kuali`i, Nakamura, Yukimura, Furfaro TOTAL — 6, AGAINST ADOPTION: Rapozo TOTAL —1, EXCUSED & NOT VOTING: None TOTAL — 0, RECUSED & NOT VOTING: None TOTAL — 0. Bill No. 2423, Draft 1 - A BILL FOR AN ORDINANCE TO AMEND CHAPTER 6, ARTICLE 14, KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO THE PUBLIC ACCESS, OPEN SPACE, AND NATURAL RESOURCES PRESERVATION FUND: Mr. Bynum moved to adopt Bill No. 2423, Draft 1, on second and final reading and that it be transmitted to the Mayor for his approval, seconded by Ms. Yukimura, and carried by the following vote: FOR ADOPTION: Bynum, Chang, Kuali`i, Nakamura, Rapozo Yukimura, Furfaro TOTAL — 7, AGAINST ADOPTION: None TOTAL — 0, EXCUSED & NOT VOTING: None TOTAL — 0, RECUSED & NOT VOTING: None TOTAL — 0. There being no objections, Bill No. 2429 was taken out of order. Bill No. 2429 - A BILL FOR AN ORDINANCE AMENDING CHAPTER 26, KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO SPECIAL IMPROVEMENT FINANCING BY COMMUNITY FACILITIES DISTRICTS: Mr. Chang moved to adopt Bill No. 2429 on second and final reading and that it be transmitted to the Mayor for his approval, seconded by Ms. Yukimura, and carried by the following vote: FOR ADOPTION: Bynum, Chang, Kuali`i, Nakamura, Rapozo Yukimura, Furfaro TOTAL — 7, AGAINST ADOPTION: None TOTAL — 0, EXCUSED & NOT VOTING: None TOTAL — 0, RECUSED & NOT VOTING: None TOTAL — 0. Bill No. 2430 - A BILL FOR AN ORDINANCE AMENDING CHAPTER 5A, KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO REAL PROPERTY TAX: Mr. Rapozo moved to adopt Bill No. 2430 on second and final reading and COUNCIL MEETING 126 MARCH 28, 2012 that it be transmitted to the Mayor for his approval, seconded by Mr. Bynum, and carried by the following vote: FOR ADOPTION: Bynum, Chang, Kuali`i, Nakamura, Rapozo Yukimura, Furfaro TOTAL — 7, AGAINST ADOPTION: None TOTAL — 0, EXCUSED & NOT VOTING: None TOTAL — 0, RECUSED & NOT VOTING: None TOTAL — 0. Chair Furfaro: Mr. Clerk, we have three (3) items that are being referred to Committees; we have several items that have been deferred. It is not necessary for us to recap that before we go into item 2425. Do you have all the information you need on the referrals and deferrals? Okay, very good. The way we ended our meeting and again we have approximately an hour to finalize this. We have the last County testimony was coming from Mr. Hunt from the Tax Office. (Bill No. 2425, Draft 1— continued) Chair Furfaro: Because I made a full presentation I need to turn this meeting over to Vice Chair Yukimura. Again, I want to say that this was the recap from yesterday, and we have approximately 50 minutes to do the recap. Ms. Yukimura: Thank you. Questions for Mr. Hunt? There is an amendment that has been circulated that I think responds to the issue that was before you. Mr. Bynum moved to amend Bill No. 2425, Draft 1, as shown in the Floor Amendment attached hereto, seconded by Mr. Kuali`i. There being no objections, the rules were suspended. Ms. Yukimura: Questions for Mr. Hunt, or actually if you have any comments off the top? Mr. Hunt: I am looking at it and my interpretation of this is that if exemption types remain the same, the changes to the exemption amounts shall not affect the recalculation of the permanent home use taxes. If there is a change in exemption, in other words a potential loss of an exemption that someone had from the prior year to a new year occurs, that there is given some discretion to the Director of Finance to use the lower /higher adjusted amount of that adjustment within the last two (2) years if it benefits the taxpayer. It is not something that can be programmed, it is just on a case by case basis; if it affects the taxes, the Director can step in and use his discretion. Ms. Yukimura: Is that workable for you? Mr. Hunt: Depends how many we have and how the taxpayer finds out about it. Obviously from a general policy, we are going to write the program to look at the type or types of exemptions they had the prior year, type or types they have in the current year — if there is changes, it is going to populate that with the change based on the current exemption for that year. If you adjust the taxes at a very large scale, the taxpayer may come in and complain and ask why and then the Director may use his discretion to change that but it is not something COUNCIL MEETING 127 MARCH 28, 2012 we can program to look at the base year on what the exemption for that particular type was in the base year. Ms. Yukimura: Further questions? This is seeking to address the problem you raised yesterday right? Mr. Hunt: Yes. Ms. Yukimura: And gives you the remedy which is a bit awkward but possibly workable. Mr. Hunt: Right. The way I see this is prior to this bill any change in exemptions amounts was in fact adjusted to the PHU base, either change in their age, income, whether they gained one or lost one, those adjustments were being done to the PHU base. This says to not do that, however if there is a change in type now, where you had a particular exemption of the amount per say — type of exemption... Ms. Yukimura: Like the low income or the age. Mr. Hunt: ...but you really receive no benefit this year for the additional sixty -five that we changed the amount because you had income last year, you still have it this year, no change to the PHU base. But for the following year 2014 you do not qualify for that income exemption then there is a change in type, you had one in 2013, you lost it in 2014, there is an adjustment to the base. What this says is the Director may use the discretion as to what the amount of adjustment, it was based on fifty -five when they initially received it, now it is based on one - twenty because of our new amount, they can go back and make the adjustment based on the fifty -five if it occurred within the last two years, is what this says. Ms. Yukimura: I happen to know that Jennifer Winn was instrumental in figuring out this solution and I want to thank her for that. Mr. Kuali`i: I am still not clear in you saying that it is workable? Mr. Hunt: It is a work around. Mr. Kuali`i: It is a solution? Mr. Hunt: It is a work around. It provides potential remedy for a taxpayer who may be affected adversely by not receiving the benefits that prior to this bill would have been applied to the PHU. In other words, if we did not have this provision that specifically states type or types, the additional amount, that sixty -five thousand in additional exemption that they went from fifty -five to one - twenty, would have been applied as a reduction to their PHU base. If they were to lose that in a subsequent year, it would be adjusted at a hundred and twenty but they would have received that lower amount to begin with, so it would have been brought up to par and then the fifty -five lost on top of that, it would have been a wash. It would have basically been reset to where they were plus taken it away. What this does by circumventing the amounts if the types remain the same is they do not get the benefit of the higher exemption if the PHU is still the better program. They will get the benefit if this higher amount, lowers their market below the PHU, COUNCIL MEETING 128 MARCH 28, 2012 it is a PHU reset, they have a new base now going forward. But if at any time past that, there is an exemption is lost, it is now being adjusted at the full amount, whatever that amount is in that year — or I should say in the prior year. Mr. Kuali`i: It sounds very complicated and I do not know that I understand it. It sounds like you are explaining it as far as what impact it has to the taxpayer. I just want to hear from you that you guys can do it without five additional staff and increase in budget. Mr. Hunt: It will be programmed as it is now and all this says is if the results of this program are adverse to the taxpayer because they had a exemption that really wasn't affecting their PHU tax and that is lost, the Director may step in and say, when you adjust their taxes, do not adjust based on the new higher amount, adjust it on the lower amount that they had a year or two ago. It is not going to automatically program and calculate that, this has to be done by a case by case basis. It cannot be programmed, I can assure you that. Mr. Kuali`i: So that is why you said it depends on how many there are? Mr. Hunt: Correct. Mr. Kuali`i: Do you have any idea, if it would be a small amount or? Mr. Hunt: No and that is why I would state here on camera publically if you have an income exemption even if you do not receive the benefits of that, continue to file. Do not change your status on your exemption types. Mr. Kuali`i: Can you estimate on what would be the most that you would have to do and what would that mean to your operations? Mr. Hunt: This year we actually increased the number of — and I am just speaking to income exemptions because that is the one that has been affected the most. All other exemptions with the exception was proposed for the home exemption and what we did for the income exemption remained the same, so it is not an issue. With the income exemption, we went from fourteen hundred and eighty -one to two thousand and twenty- eight, so that five hundred some odd increase, if some of those start to decrease. Next year we know already that the eighty percent of the household median income results in a gross income for the 2013 year application, I believe it is sixty thousand two hundred is the level. It may even increase more, we might get more applicants but if someone who say have a large capital gain in any one year or was unemployed this year but got a high paying job next year all of a sudden falls out and no longer qualifies for the income, that loss of exemption will be adjusted at the current amount which would be the one, twenty. Mr. Kuali`i: So we already have some tax — new tax measures credits to take effect in 2013. That already means there will be additional applicants and exemptions given, so have to accounted for that already and then with this on top of that. We know that the hundred seventy -five thousand dollar amount will cost what they put forward as financial impact as two point seven million, but that is just the dollar cost to the taxpayer on their credit, can you COUNCIL MEETING 129 MARCH 28, 2012 provide any dollar cost to the department, so that we know that it is two point seven million plus — I mean I just saw the eighteen positions that are dollar funded positions being funded and for eight months it is something like eight hundred thousand dollars and I am not sure if that includes benefits. There is a lot of money involved in positions. Mr. Hunt: Right. We do have one dollar funded position that I believe is two eighty six, tax clerk position that we are proposing to reinstate and we do have a big challenge in front of us in terms of the use because we are going to tax on use for 2013. April 9 will be mailed out a proof of the new survey form that is going out to approximately just under twenty -six thousand people. Some of them are multiple owners of the same property so there are duplication but we are sending out to everyone involved for improved properties. Based on the result of those surveys we are going to have potentially twenty -six thousand surveys to review and to enter and that is primarily going to fall upon the tax clerks to do them. We are hoping both in terms of potential summer staffing with internships using it because it is primarily review it, look at the use and basically go to the field where you have to change the code to the type of use. So it is somewhat repetitive but you still have to screen them, file and tax map key order, find storage space, so there will be some demands on the clerks for that. That is one position that we are reinstating and the fact that the general workload in terms of exemptions and everything that is coming through, new income, more people are applying, having to review it, we just need more staff upfront to help on the intake side. That is already in our fiscal 2013 budget plan. Mr. Kuali`i: It sounds a little to me that you are going to need a lot more than one position. The other thing I have to say and maybe you can confirm it, with these change in uses and this change in classes where the apartment become condo and now you have vacation rental — all that breakdown. Mr. Hunt: Correct. Mr. Kuali`i: Potentially unless the Council changes the rates, we would have these different classifications at lower rates, so you would be doing more work, bringing in less revenue, and so we got to find the money someplace else to pay for real property staff. Mr. Hunt: I agree with you. We are going to be having puts and takes, we are going to have some going from Ag and conservation to a residential class, we will have some going from the condo to the residential, some from the long term which would then qualify for homestead but we are going to have some coming out of the single - family and Ag going into the vacation rental class, so there are going to be a lot of movement in all kinds of directions. The magnitude, percentage wise, we have no idea to get the sense of what the surveys tell us. And then compliance becomes a major issue for us. Mr. Kuali`i: Just to close out and get to the specific amendment, were you involved on the break with the attorney in trying to come up with this amendment and is it truly you can support for your department to implement? Mr. Hunt: The problem is going to be a lack of uniformity where someone did not complain about the increase and someone did. The system is not going to catch it. There is no way we are going to program the COUNCIL MEETING 130 MARCH 28, 2012 software to say use a three year old base to establish what the change is going to be which is the higher of the two. There is no way we can do that and the longer this goes out, the harder — if we are only looking two years beyond, at some point the third year comes along and we do not have that discretion anymore anyway, so someone who had an income exemption that was based on a lower number three years ago is now — has to be adjusted at the higher amount. There are going to be some unintended consequences from this as well. I think it is the best I think we can work out at the moment. It basically gives discretion to Wally on a case by case basis to waive tax increases and to reset the base based on that loss of the lower exemption amount, not perfect. Mr. Kuali`i: So now that you said it is the amount. Mr. Hunt: Correct. Mr. Kuali`i: I think this whole thing about these moving parts, there are things that still need to take place, we are going to get the roll in a week or ten days or whatever it is... it is the best we can do at the moment but we can do much better comprehensively if we waited and got more information in your opinion? Mr. Hunt: I think better information helps obviously, I know there is some sense of urgency, part of Mr. Bynum was attempting to give relief for a long time. We are in the middle of... and it is not relief, it is reform and we are not complete with it. I think as it was brought up by Councilmember Rapozo ultimately you are going to have that decision to set how much percentage from each class of what they're paying. I do not know what kind of guidelines that it is going to give you because you again have moving parts. You may have a growth in a particular class, so you cannot freeze that percentage, so it may be relative percentage. We want homeowners to represent twenty -eight percent of the tax base to pay eight percent of the taxes but if that becomes forty percent of the base, is it still eight percent of the taxes? So you are going to have these decisions to make annually and I do not know what measures or guideline you are going to use as standards. And that is not really defined in that section of the ordinances, what standards are you using to establish what those percentages are. Mr. Kuali`i: Thank you very much. Mr. Bynum: Good morning Steve. I will try to stay focused on this amendment. Because the complexity of our homestead class that has developed over a number of years, it is difficult to make changes right? And you have shown us that there may be a few unintended consequences and this provision gives the discretion to the Director to correct those and so it deals with that. In a bigger picture, the homestead class because of the complexities that have been laid on (inaudible) the PHU and others is different than every other class right? Other classes assessed value times the exemptions if there are any, minus exemptions if there are any, times rate. Mr. Hunt: You can easily calculate the rate. Mr. Bynum: But in the homestead class, it is much more difficult and the reason this bill is here, the primary reason this bill is here is because over the years, the PHU which was very effective has created huge unintended consequences, agree? COUNCIL MEETING 131 MARCH 28, 2012 Mr. Hunt: Unintended consequences being the disparity in taxes you are talking about? Mr. Bynum. Did we intend that one homeowner would pay seventeen hundred when another homeowner with the same value pay seven hundred? Mr. Hunt: No. Mr. Bynum: I know that was not the intention of the Council or the introducer when this bill came but we went out of the norm, we went out of the normal assessed value times rate and it has created huge unintended consequences. Mr. Hunt: I honestly cannot speak to the intention of it because prior to the PHU program, we actually used to have a dedicated program which created the exact same inequities but it required a commitment of ten years. So there were times in the past where that was the intent that someone who was living here and has lived here for a long period of time, not speculating does get benefits from that. I cannot speak as to the intention of it. Mr. Bynum: I can because of public record. Ms. Yukimura: I think the word is undesirable consequences. Mr. Bynum: I have become convinced based on a lot of reasons that it is important to keep a cap in place to get predictability and assurance to homeowners that these kinds of anomalies and unintended consequences are not going to happen in the future and I think it is important that we retool that. That is the whole point of this bill. My point for this amendment is, you have identified some complexities that may create some unintended consequences and this is a potential solution for that and gives the discretion for the Director to use his good judgment about correcting should those unintended consequences come up, correct? Mr. Hunt: That is the way I see this, yes. Mr. Bynum: So I am in support of this amendment and I appreciate Jennifer Winn working and literally in the dark, late last night and again this morning to do this. But I do not think it is a rationale for not proceeding with something — these might create a few unintended consequences that we can correct but if we do nothing, the unintended consequences that we had and the anomalies remain. Hopefully we can get to the substance of the bill because this amendment just makes sense. Chair Furfaro: Let us be very clear on the rationale behind it - -the cap, as the author, it was for predictability. The tax office at the time was in some cases three years behind in their evaluations of property values, would you confirm that? Mr. Hunt: I was not here at the time but I agree. COUNCIL MEETING 132 MARCH 28, 2012 Chair Furfaro: And you have improved tremendously in getting us current but why would we not reset the cap? Mr. Hunt: Well I can speak as a taxpayer. As a taxpayer and not being an Administrator or having to administer the cap, as a taxpayer, you are absolutely right, it is predictability. I know what my taxes are going to be, they may be different from my neighbors but my circumstances may be different. My income level when I bought in might be different from the guy who just bought in who could afford to pay more for his home and maybe can afford more taxes. Are you going to change the rates if values are going up? From a taxpayer's perspective, I don't have to worry about it. Chair Furfaro: But in the reality as values accelerate like they did in my presentation 2006, 2007, 2008 they nosedived, the reality is that is where the Council could then adjust the rates downwards to get to a zero impact. The Council did not do that, the other choice was to cap it for predictability. One is about revenue, adjustments through using rate, and the other one is capping so you do not have this out of control escalation that you have no predictability. Those are the two options. Mr. Hunt: I agree with that statement, I would also state that the other categories during that time that were not protected by the cap and also had no rate changes, the revenues from those categories skyrocketed. The reason why the percentage for participation of the homestead group got as low as seven point eight percent is because of the increase in taxes from all the other categories. Chair Furfaro: The increase in value. Ms. Yukimura: I think we are discussing the main bill rather than the amendment itself. I think the discussion is very helpful and so what I hear is the cap was established and created for two purposes, one (1) was for predictability and the other was for protection against these huge spikes that we were experiencing in the early 2000. Chair Furfaro: Because of the spikes we introduced the cap. Ms. Yukimura: Correct. Chair Furfaro: It is in that order. Ms. Yukimura: And what has resulted is a larger number disparity between similar properties which is also a concern of (inaudible) taxes because it is based on value and you have two similarly valued properties with hugely different taxes. It is not an income tax to be based solely on income but it is to be based on value. Mr. Hunt: Correct. Ms. Yukimura: So that is the issues that we are trying to address here. Is there any more questions about the amendment? The amendment is saying if we do this bill with income exemption added, what is the best way to do it and how this amendment is trying to mitigate any negative impacts from the proposed bill. Any more questions on the amendment? COUNCIL MEETING 133 MARCH 28, 2012 There being no objections, the meeting was called back to order, and proceeded as follows: Ms. Yukimura: Any discussion on the amendment? I just hope that even though you might not want the bill as is, you vote for this amendment because it makes the bill better. And if it does pass, it will be better with the amendment than without, right? Mr. Rapozo: I learned that from Councilmember Yukimura as she supported all the amendments and voted against the bill and I asked her why, and she said well because even if I do not support the bill, it needs to be the best bill possible. Ms. Yukimura: Thank you, that is the issue here today with this amendment. Mr. Chang: I have a comment, not a question. I just wanted to say thank you for reminding us that even if you do not like the bill, win, lose or draw with the amendment it makes it stronger. I just want to once again clarify that because that is very helpful, I think whatever the outcome, it will be the best bill possible. Ms. Yukimura: Thank you. The motion to amend Bill No. 2425, Draft 1, was then put, and unanimously carried. There being no objections, the rules were suspended. Mr. Rapozo: Wally, thank you for being here today again. I wanted to hear from the Administration as far as the plans for the Administration and I know we referenced your efforts. Mr. Hunt gave us a presentation early on at the Committee on the successes of the targeted relief that has been already implemented. I wanted to hear from the Administration as far as your plans going forward, is the Administration still anticipating working towards the equity of the tax structure here? I know we have made some great strides but we still have some ways to go. Mr. Rezentes: Along those lines, Steve has spoken about, some of the (inaudible) that we have made relative to fiscal 2013 as a result of the first ordinance that was passed. We are still not aware of the impacts of what was already approved by this Council for fiscal 2014. We are still going to have to do the surveys and get input back and see where the changes will take place. People — property owners moving from one class to likely a lower tax rated class, etc., but we are not going to have that data until the surveys are completed and that is not going to be ready until likely we — close to our budget presentation for the (inaudible) year. We are open towards equity and we know that there are different challenges along that road, it is a complicated task but we are always open and willing to try to address the fair and equitable treatment. Unfortunately having different classes in and of itself creates inequality because that is the makeup unless you want true equality, you are talking pure assessments, same tax rates across the board, but if the discussion point was equality, that is pure but I do not COUNCIL MEETING 134 MARCH 28, 2012 think that is where we are heading. I think we are looking at subsets equality within a certain tax class. Mr. Rapozo: One of the things that concerns me and I am not the accountant like you, I am not a financial guy but I have been in enough of these budgets in seeing some — often times we do things that produce some unintended consequences and I think one of my concerns is the uncertainty of what this would do. Does the Administration share some concerns about the uncertainty of the actions that we are about to take? Mr. Rezentes: There is concerns of the uncertainty of items that we have already approved and we mutually worked on because we do not know the impacts of that yet and whatever is passed and whatever is considered to be passed is just another layer of uncertainty if you will because we would have to go back and reload the system and reconfigure the system to calculate whatever decision is made here. Unfortunately, that is what we got to go by. There is always going to be that degree of uncertainty when we still would have to again pull and get information back from the public, the property owners before the financial decision making can take place on rate setting and etc. Mr. Rapozo: I know Mr. Hunt was asked by Councilmember Kuali`i can it be done? If the law said it will be done, it will be done. The fact of the matter is to make anything happen takes resources and that I think I heard coming out of the question from Mr. Kuali`i was can you do it? Yes, we know you can, we can program a computer to do pretty much anything we want. The manual component has got to be done with human resource and that is another uncertainty, it sounds like Mr. Hunt was being very diplomatic on that but I think I can see through... it is going to be difficult, you will do whatever the Council tells us to do but I am concerned that we may be over - committing so that we do not upset Council. Mr. Rezentes: It is a concern, Councilmember, and again we have the May submittal to try to rethink with that information what we need to change. I know that if you talk to the staff over there, this day and age over fifty percent of their workload is not assessing property anymore, it is managing these types of programs. Mr. Rapozo: Like I said, Wally, for the last decade, the solution for equity is to get the assessments proper and accurate and I would much rather see your resources out assessing property getting the assessments to a fair... because much has been said about the inequity. Mr. Rezentes: Because to Real Property's credit, and I think other members of the Council have acknowledged that, we have made significant strides to improve that with available staff and the resources that we have. Mr. Rapozo: And you have and we have come a long way, Wally. To your department's credit, we have. But I think we talk about the inequity within the tax class as it relates to an exemption or the cap but the reality is the assessment is also a component. If my house is assessed at two hundred thirty thousand dollars and somebody else's home — same type of home is assessed higher, there is inequity. COUNCIL MEETING Mr. Rezentes: 135 Sure. Mr. Rapozo: I do not care what the exemption is, the inequity is not in the way we apply the exemption, it is how we assessed the property. I said it yesterday, there is so many moving parts in this exercise, it is very easy to get consumed then what is popular and what is the right thing to do. But there are so many moving parts that we got to acknowledge. We have moved your staff to working on fixing a computer program and manually doing some adjustments when that people should be out in the field assessing properties accurately. If you are asking me personally, I think that is the better way to go, let us get the assessments up to a standard and I try to manipulate exemptions to bring equality and equity. It is just differences of philosophies that I am glad that we have seven people on the Council so we all can be heard. You have answered my question, there is a concern of the uncertainty going forward. Mr. Rezentes: Sure. MARCH 28, 2012 Ms. Yukimura: Other questions of Mr. Rezentes? Mr. Bynum: I heard in the last half hour agreement that the assessed values in 2003, the Chair said some properties have not been reassessed for three years? I have been trying to confirm that but I have not been supplied the data which I asked for a year ago now, but I believe that is accurate. The assessed values had very little credibility in 2003, they were a mess. Do you agree? Mr. Rezentes: I know that they have been improved. I would not go as far to say there was a mess, I think there was like in any other case, there was likely an inaccuracy. Again, we have made strides to improve... Mr. Bynum: I agree I believe and this I do have data on and this I have done considerable research on our current assessed values in my opinion are about, or I know that Mr. Hunt and his staff were always trying to get — achieve a standard of excellence here. Mr. Rezentes: And that is why there are mechanisms within the code. The mechanism in the code to address some of the inequities is the appeal process. That has helped provide more equality but that is the fall safe, that is not the ideal first step but it is another means in which if there are inequities, people have the ability to appeal and the process would allow for changes in the assessment if it is found to have grounds. Mr. Bynum: I appreciate what you just said, it is not the question I asked... so the assessed values now are in acceptable state in my opinion and they will further improve. In 2003, they were not in acceptable state but yet that is the basis of the cap. The Chair said why not reset the cap that is actually what this is. To try to take the worst anomalies created by two things, poor assessed values in 2003 which made a base year that was inequitable but then those folks who the Chair said that we never changed the values and Steve pointed out — we never changed the rates, I am sorry, Steve pointed out that those tax categories other than residential had a very large increase based on assessed values going up. That is why I have not complained about the reduction that has occurred as the assessed values go down because not only did the assessed values go up and COUNCIL MEETING 136 MARCH 28, 2012 those business classes and other classes paid increases in taxes, it increased our revenues and it increased our reserves. Ms. Yukimura: Mr. Bynum, I would like to ask because I want to follow up to your question, I think I would like to support the point you are making if I may? Mr. Bynum: Go. Ms. Yukimura: Wally, you said there is this appeal process but it is gone after a year and what we are dealing with are those assessments that were set low and improperly. Mr. Rezentes: I understand. Ms. Yukimura: And now they're capped and other people have not been, so the discrepancies are intense because of the inaccurate assessments that were made back then and we are asking — if I may just ask one question, is how are you going to improve that situation with just tax rates this year? Mr. Hunt: The question you ask is challenging because it makes the assumption that the lowest tax rate is the benchmark by which we are trying to get all the higher tax rates down to. The cap at the very low value that may have begun has precluded this property from being reassessed or re -taxed at maybe what would have been assessed at that period, probably would have been a more reasonable tax at that time. The cap prevents that property from coming up fast enough. CPI is helping to bring it up a little faster had we not had the two percent compounded for a number of years, it would have been more realistic, it would have been coming up a little faster, there is going to be that bridge. Short of removal of the cap, if your intent is to bring everybody down to the lowest common denominator which is the low tax because really even the exemption itself if you are not getting it down, someone is still going to have a lower tax, someone is still going to have a lower cap tax and there are still going to be inequity even with this, unless you bring everyone down. Ms. Yukimura: Okay, but that is not the assumption here. We are not trying to bring everybody down to the lowest level, that is not a fair statement of what we are trying to do. We are trying to bring some equity as much as possible without jeopardizing our tax base and without creating more inequity, i.e., dumping people into the minimum tax category. It is an imperfect solution but it is better than not doing anything with the exemption. I am hoping that everybody is listening to this, this is really critical. We are trying to stop the growing inequity and bring some equity and keep a good tax base and keep some revenues both between the classes and within the homestead class. My suggestion of a hundred and seventy -five thousand which is in this bill and I should put this up again because it shows possibilities and now if a hundred seventy -five thousand dollars is not the right one, a hundred forty, hundred fifty might be better and we can see the consequences of that but once you pass today and you do not have that, all you have is a tool, is the tax rate and that is a much more inaccurate tool and does not achieve our purposes in its multiplicity as using the exemption plus the tax rate. COUNCIL MEETING 137 MARCH 28, 2012 The amounts at the top are the proposed exemptions and the arrow down means that all ages get those exemptions, there is no age differential but everybody gets a benefit. The tax rates are below that and then the personal PHU line, so the three thousand, four thousand that... Chair, this is such an important topic, I know it feels like it has been going on forever but it is really important for people to understand what we are voting on. Chair Furfaro: Well I would suggest we do the following: we go into our Executive Meetings, we set up for downstairs for our three Executive items, we take a lunch break and we continue by that time with the Public Workshop be complete, that is the option. Or we defer this to another time. Ms. Yukimura: I think your first option is workable. Mr. Rezentes: Can I say something with respect to timing? Ms. Yukimura: Yes. Mr. Rezentes: We have a certified tax roll that is due tomorrow, we are in desperation mode with completing, getting the information done, getting our consultant to commit working from Friday, Saturday, Sunday so that we can get this information... I plead to you guys... Chair Furfaro: So Wally, what is wrong if we did our Executive Sessions, we took a lunch break and then we came back from this item? Mr. Rezentes: Two hours, that is the concern. The faster we can get this, we are hoping to give them a go ahead earlier this morning and maybe Steve can provide more detail because he has spoken to our contractor. Ms. Yukimura: Okay. Let me just be clear we have Doctor Jackson at 11, right? Chair Furfaro: That is right. Ms. Yukimura: And you are saying, Chair, after that we do Executive Session? Chair Furfaro: During that we do our business in Executive Session. Ms. Yukimura: Oh, during Doctor Jackson's. Chair Furfaro: Then we go lunch. Mr. Chang: We are going to miss Doctor Jackson's presentation. I think what we should do is, I agree with what the Chair has to say however, we should hear about the challenges that the technician will have which they need time. Ms. Yukimura: Okay. Mr. Chang: I think we should let Steve answer the question. COUNCIL MEETING 138 MARCH 28, 2012 Mr. Hunt: There are a series of change jobs that we have to run and they are predicated on what the exemptions are. There are going to be errors in this report that we have to manually adjust by the amount of exemption applied to land and building if they are on a (inaudible) this year or the clerks have entered it based on a percentage. We need to address those before we can certify. The jobs take typically about five to six hours to run, we were counting on something to occur yesterday, something to get signed possibly last night, early this morning, so that we would have all day to start putting in the exemption amounts, running the jobs, checking the error reports, so that we can run the gauntlet first thing Friday morning so that we would actually generate a report to sign Friday evening, Friday late afternoon. We are against our backs right now and we are just waiting on pins and needles for a decision as to what we can do. We cannot start programming until we know a decision. Mr. Chang: I have a question and this might be for the Chair. The scheduled Planning Meeting with Doctor at 11, was that to be televised? Chair Furfaro: Yes. Mr. Rapozo: I have a question. Is the Planning Room open today? Does anyone know if the Planning Conference Room is open today? Chair Furfaro: The request to do it here came from the Planning Director. Mr. Rapozo: I understand but if they are available, I would suggest we relocate the Planning to the Planning Department. They have cameras hooked up there right. Ms. Yukimura: Unless our camera man was assigned to Mr. Jackson. You can service two places? Mr. Rapozo: That would be my recommendation. Ms. Yukimura: I think that is something we should try. Chair Furfaro: Let us take a recess right now. There being no objections, the Council recessed at 10:50 a.m. The Council reconvened at 10:57 a.m., and proceeded as follows: Chair Furfaro: Aloha everyone, we are back from our recess and the final conclusion about our activities and agenda today will be that the County Council will go into Executive Session in the Chairman's Conference Room downstairs. We will then break for lunch of which members can then participate in parts of this workshop, approximately 1:30 the Council will come back and recess after lunch, to continue on the ordinance that we are working on at the appropriate time. On that note member, I would like to call up the County Attorney to address our Executive Session items and we will go into that Special mode. There being no objections, the rules were suspended. COUNCIL MEETING 139 MARCH 28, 2012 ALFRED B. CASTILLO: Al Castillo, County Attorney. Council Chair, with your permission, I am going to read all three? ES -534 Pursuant to HRS sections 92 -4, 92- 5(a)(4), and section 3.07(e) of the Kaua'i County Charter, the Office of the County Attorney, at the request of Council, requests an executive session with the Council to provide the Council with a briefing on the retention of special counsel to represent the Office of the Prosecuting Attorney before the Civil Service Commission, relating to the classification of an employee and related matters. The briefing and consultation involves consideration of the powers, duties, privileges, immunities, and /or liabilities of the Council and the County as they relate to this agenda item. ES -535 Pursuant to HRS sections 92 -4, 92- 5(a)(4), and section 3.07(e) of the Kauai County Charter, the Council requests an executive session with the County Attorney to provide the Council with a briefing on the retention of special counsel to represent the Police Commission in filing a declaratory action to determine who has the authority to supervise and /or discipline the Chief of Police. The briefing and consultation involves consideration of the powers, duties, privileges, immunities, and /or liabilities of the Council and the County as they relate to this agenda item. ES -536 Pursuant to Hawai`i Revised Statutes Sections 92 -4, 92- 5(a)(4), and Kaua`i County Charter Section 3.07(E), the Office of the County Attorney, on behalf of the Council, requests an executive session for Council to consult with the County Attorney regarding the Council's release of the County Attorney's written legal opinion dated January 24, 2012, relating to transient vacation rentals with homeowner's exemption and related matters. This briefing and consultation involves the consideration of the powers, duties, privileges, immunities and /or liabilities of the Council and the County as they relate to this agenda item. The meeting was called back to order, and proceeded as follows: Mr. Bynum moved to convene in Executive Session to discuss ES -534, ES -535, and ES -536, seconded by Ms. Yukimura, and carried by the following vote: FOR EXECUTIVE SESSION: Bynum, Chang, Kuali`i, Nakamura, Rapozo, Yukimura, Furfaro AGAINST EXECUTIVE SESSION: None EXCUSED & NOT VOTING: None TOTAL — 7, TOTAL — 0, TOTAL — 0. There being no objections, the meeting was in recess at 11:01 a.m. The Council reconvened at 1:59 p.m., and proceeded as follows: Ms. Yukimura: We are back in session and back on Bill No. 2425 which is the last item on the agenda. I was in the middle of explaining this chart and if everyone is okay, I am going to continue. The upper line defines a proposed additional exemption that we could choose and this arrow down means that it is clear for all age categories, that it will be the same for all age categories. We are actually achieving some age equity here. These are the tax rates used to calculate the consequences that are shown below here. This line talks about the number of units that are removed from PHU which is an indicator for how much equity we are putting back into the system, so these are the COUNCIL MEETING 140 MARCH 28, 2012 numbers of households going back. The minimum tax is the number of people that will be in the minimum tax category and I think right now there are about seventy- five. The number added here if we were to set the exemption at a hundred forty, then two hundred sixty -five minus seventy -five would be the additional people that go into minimum tax. This is the financial impact, I rounded it off two point three million or three million. Under the present bill as amended, we have a hundred and seventy -five thousand set as an additional exemption, at the rate of three dollars and twenty -five cents, four thousand two hundred and seventy -one would be brought back into equity and that means it is going to go lower, they are coming down. Mr. Bynum: It means that the new market tax brings...the new market tax resets for those people at the new assessed values. Right, Steve, did I say that right? Mr. Hunt: For the record Steve Hunt, Real Property Assessment. Councilmember Bynum, I believe what you are referring to is that the resets are where market taxes are below the PHU taxes and they get a new reset for PHU going forward, is that correct? Mr. Bynum: That is correct. Ms. Yukimura: But they are mainly coming down because they are not establishing equity by bringing the really low income... Mr. Hunt: We cannot bring up the low ones because they are subject to the cap. Ms. Yukimura: Okay. So we are not raising... Mr. Bynum: Under this proposal, nobody's taxes go up but some people come down and get reset and then they get subject to the PHU at this new value. Mr. Hunt: I would not say nobody's go up, they go up by three point seven — three percent is the max. Mr. Bynum: But the bill is not a mechanism that raises anyone's taxes. The people who currently have the PHU will go up three point seven percent, those people who are above that line, if they come down, then they now get the cap at this new market rate. Mr. Hunt: Correct. Ms. Yukimura: Are you folks understanding this? Mr. Rapozo: Yes. Mr. Bynum: The higher this number, the more people we are bringing into equity. Mr. Rapozo: Do I not look like I am understanding? If I have a question, I will ask it, thank you very much. COUNCIL MEETING 141 MARCH 28, 2012 Ms. Yukimura: Okay, thank you. And then four hundred eighty - nine people will be in the minimum tax level and the consequences are two point eight million at three, twenty -five rate and that would be if we made a rate at both land and building? But we have the option of going to a three, fifty rate which changes things, drops the number of people that are brought back into equity, drops the number of people of minimum tax by two and drops the fiscal impact to two point three. Now, we will not be setting rates today, this bill does not, but it shows you that if you set, this chart shows you that if you set the assessment at one, seventy -five then you have different options for rates. Now, you could go down to one, fifty and I had three examples of a hundred fifty thousand and you can see at different tax rates you have different numbers of people that are coming into equity, you have slightly different — not much of a difference in terms of people going into minimum tax. Then you have different fiscal consequences. At a rate of a hundred and fifty thousand exemption and three dollars and fifty cents tax which is still lower than the existing rate, you could get to the one point seven million dollars tax consequence or you can go to a hundred forty and I only did at one tax rate, what was that? I think it is three and then you get this consequence, two point three million less than what is presently in the bill. Fewer people going into minimum tax but also fewer people brought to equity. If we have other proposals, I think we welcome that but we can test them to see what kind of consequences we have using the chart. Any further discussion? Ms. Nakamura: Under the spreadsheet that was shown yesterday, the tax consequence was two point seven million dollars, that is what you described. I do not know if you were here Councilmember Yukimura when Councilmember Bynum made his presentation using the hundred seventy -five thousand dollar exemption. I am not sure what assumption you used on the tax rate but I recall a head of two point seven million, so I am not sure where that comes from. Mr. Bynum: We are very close to that two point eight but that spreadsheet, we can pull it up. My recollection was that it was at one, seventy - five and the tax rate of three, twenty -five. Ms. Yukimura: So we should check the accuracy if that hundred thousand makes a difference. Mr. Bynum: Scott, can you put in the one, seventy -five with a three, twenty -five tax rate. Ms. Nakamura: Because I think we should know what that number is if that is the proposal on the table. Mr. Bynum: These are based on the assessed values this year and so when we get new assessments — we can achieve the same outcome in terms of dollars but the rate may be somewhat different if the assessed value come down like we suspect. The rate to achieve the same outcome may be three, thirty instead of three, twenty -five but we do not set those until we know what those figures are. This is what the data we have and it is... Ms. Nakamura: The best data we have to work with. Mr. Bynum: Right. But I did want to caveat that to get that dollar figure, the rate and what Mel was saying this morning is, that is really COUNCIL MEETING 142 MARCH 28, 2012 what we were tasked to do is to determine what we want the revenue impacts to be and then set the rates accordingly. So it is two point seven, two, five, zero, one, one. Ms. Yukimura: I am sorry, I do not know how I got to two point eight. Ms. Nakamura: Thank you. Ms. Yukimura: Other questions? Mr. Rapozo: I want to raise again my question that was raised earlier regarding the tax rates if in fact the attorneys come back with a ruling that I believe that they should, that we do not set the tax rates, we set the percentage. It kind of messes up the spreadsheets because we are relying on what we know those tax rates to be today, so we are going to be working at a different angle, we are working backwards, we are not going to set the tax rate to determine the percentage of allocation, it is the opposite way. I just wanted to raise that because it is a problem, it is because we are mandated by the code to do it by percentage and not tax rates, so I just wanted to raise that as a concern. Ms. Yukimura: No matter what we set as a percentage of total taxes that we want any class to produce, we are going to set a tax rate times a certain base. This is determining the base. It is either going to be a fairer base, one which has more equity or it is going to be a base — what we do today is going to determine whether the base is a fairer one or a disparate one, that is what we are determining today. It is true we are not setting the tax rate and there is a process of setting the tax rate but we are foreclosing some options if we just leave the system as it is today. It is going to be a very unequal base, there is not going to be a tax rate that we can set that cures that. Mr. Rapozo: My point is that the spreadsheets represents fiscal impact to the County if we do the formula based on percentage and the tax rate is higher, the impact obviously will be higher, so I think we need to make that disclosure to the public that it may not be two point three, or two point eight or whatever, it could be higher depending on what the allocation is, that is what I am trying to say. That is based on the numbers as we know today, that if in fact if we come back and the percentage — it is math, it is a formula, it is not subjective. It is going to be this is what the tax rate is going to be. Ms. Yukimura: Mr. Bynum has a response to that. I just want to say that under this situation I believe we are going to be at about twelve percent give or take. The residential class or the homestead class — no? Mr. Bynum: Under this one? Ms. Yukimura: Yes. Mr. Bynum: Right now it is eleven point two nine, it is likely to go up if we stayed the same and to maybe a twelve percent range. If this proposal, it will come down from eleven point two. I have not been able to calculate that, I do not know if Steve can but logically it would come down a couple percentage points, I would think if we did this scenario. If we would have done the COUNCIL MEETING 143 MARCH 28, 2012 scenario I suggested, it would come down even further. I cannot tell you how thrilled I am that Councilmembers are paying attention to the tax ordinance, which instructs about a process that we use. Whether we come at it from the rates and say that is what the percentage is and then adopt it as a percentage, I mean we would do that analysis both ways to determine what that appropriate percentage would be so I think Mr. Rapozo is correct, I do not think it is a problem. I think we do the math and see where those percentages are but we would want to do that to make that determination, to make that policy call. I know for myself when it came down to the seven percent range, I thought good, that is where we want to be and then when it went back up to where we almost started, I thought we lost the progress. Not only did we lose the progress but the burden of that addition was going to these people paying much higher rates when their neighbors were paying. Mr. Kuali`i: I do not know if this is a question or a comment but — so in essence this is all being pursued for what you call equity but in making it a hundred seventy - five thousand for all categories, that means we are getting rid of the principle that there should be targeted relief for seniors who are on fixed income. There was a greater amount for people over sixty and then for people older than seventy and I know a lot of seniors that have benefited from that. But we are saying that we are no longer going to recognize that and they will still get the dollar amount but now we are giving everybody that same dollar amount that we called a targeted relief for seniors? Ms. Yukimura: Thank you for that question. Fixed income does not necessarily mean that people are having a hard time making ends meet. Some people have some very high fixed incomes, so what this does — is it actually it does not give any disadvantage to the seniors, what it does is it gives everybody a pretty good break or at least a way to lessen the tax increases that may be coming with the cap being used now as the CPI rather than a two percent rate. The low income exemption will and should help the seniors with fixed incomes that are struggling. Right now seniors with very high incomes are getting an additional break. That is what we are working with; we are trying to actually close the wide disparities and the seniors are not getting hurt in any way, they are getting an increase in exemption, not as much as the regular taxpayer but they are not getting hurt at all. Mr. Kuali`i: By fixed income, I mean fixed limited income, just living off of social security and that the combination of the low income exemption and the senior exemption is what is helping the majority of our seniors who are in a fixed limited income, just living off of social security, minimal retirement from a company if any. In a way, yes they are still getting the assistance but now, everybody gets that assistance. There is no special assistance for them who need it the most. We are giving that same assistance that is needed by the people living on fixed income social security to everyone. Now, everyone is getting... Ms. Yukimura: Oh no. Mr. Kuali`i: Yes a hundred and seventy -five thousand exemption for everyone, no longer having a senior exemption — clearly that is going to cost a lot and that is why we are at three million dollars. Ms. Yukimura: If I may try to respond — we are all concerned about those seniors that you are talking about and you have indicated that your working definition of fixed is those who have low incomes who are struggling. COUNCIL MEETING 144 MARCH 28, 2012 Mr. Kuali`i: Right. Ms. Yukimura: The low income tax exemption credit is what is really addressing that plus they are getting an larger amount. I do not think those seniors will be hurt by this, in fact they are many of the ones that are falling into the minimum tax. Mr. Kuali`i: I guess the only thing I am saying is that they will not be hurt because it is a hundred and seventy -five thousand and that will offset the current hundred twenty thousand plus — well they could still be eligible for the low income. Relatively it is the same but now you are saying that the kinds of assistance that this County should be giving to our senior citizens who are living off of social security should be the same assistance we give to everyone. Ms. Yukimura: If I may say what I am saying is... in the process of bringing equity, we are also taking care of our seniors, we are not putting them at any disadvantage. Mr. Kuali`i: We are taking care of them and everyone as if they were seniors living on a fixed limited income. Ms. Yukimura: No. Mr. Kuali`i: Yes, a hundred seventy -five thousand to everyone. Ms. Yukimura: But the purpose of the hundred seventy -five thousand is not to give everybody the same privileges as the seniors, it is to remove the huge discrepancies between similarly valued properties paying very different taxes because the real property tax system is an ad valorem, it is according to value of property. However because we are concerned about the fixed income seniors and others on fixed incomes, not just seniors — single moms and single parent families, we have this safety net of the low income exemption which catches them and enables them to be protected against onerous taxes. Mr. Kuali`i: I am just saying in the name of equity for neighbors that live next to each other and for whatever reason because the cap reset when the property sold, in the name of equity we are giving everyone the same assistance that we give senior citizens to limited income. A hundred seventy -five thousand is the same rate for all three (3) categories and you got to make choices, you are choosing equity over limiting that assistance to seniors over sixty years old. Ms. Yukimura: Because we are talking about a functioning real property system that has to provide enough income for government operations, be fair to people who are being taxed and take care — my criteria is not should we give a special benefit, it is do we protect people, protect the seniors against taxes that are hard to pay. I think we are doing that, we are achieving that. Mr. Bynum: The proposals that I favored did have a graduation for seniors but Maui who has a large exemption does not because they realize that it is impacting seniors as well. Right now people over seventy have a hundred and twenty, they will go from one, twenty to one, seventy -five at this proposed. I do not think it is either, there is a tradeoff. I was asked what is the COUNCIL MEETING 145 MARCH 28, 2012 logic of that, it is kind of traditional that many communities have graduations of exemptions for seniors and their rationale was they are on fixed incomes, they are not going to get raises perhaps but that is why in those communities and like ours, we are at forty -eight now, we go to ninety -six and one, twenty that is a big difference if you look at it. But if we bring everybody up to this level because of the times we are in and then I agree with Councilmember Yukimura that you are still and we put the one, twenty in. My own personal preference is some graduation for seniors but I do not think it is necessary in terms of making sure that we are not taxing people out of their homes. Chair Furfaro: The reality is when you talk about the one, seventy -five making it equitable maybe you are using the wrong term. Equitable in this particular case is we are judging everybody the same I think that is Councilmember Kuali`i's piece, that there is impartial treatment for everyone, that is kind of the definition of we are judging everyone fair that maybe where we are struggling with that definition. Now as regarding to the tiered process, well it is kind of understood that after sixty -two you used to be able to retire on your social security and so forth, I think that is the rationale, not just the definition that Mr. Bynum gave — it is kind of like they earned it or whatever. There were days you could retire at sixty -two, there were days when you made seventy, you could not clean your yard anymore and so you had maintenance expenses to take care of your house and there was another break. There is more rationale to that than just swiftly saying there was the time and motion in your place and so forth. I just wanted to say on those two (2) subjects, I do not see it the same. I see that there was good, solid rationale on when you got to sixty -two (62), I think there was good, solid rationale when if you were attempting to be in your home and maintain your independence that you may have incurred additional expenses after seventy. Whether it was home care, maintenance, yard care, I think those are some of the rationales behind it. I do not interpret the term equitable any different than the way Councilmember Kuali`i was trying to express it. Ms. Yukimura: Thank you. I just want to say that I think I am one of those seniors, right, if you hit sixty, is that the cut off for the first tier? And so, there is a lot of people like me who are turning sixty... Chair Furfaro: JoAnn, I said that was the old terminology that got us there. You cannot even retire at sixty -two (62) anymore and draw social security, you have to wait till you are sixty -six (66) now. I was just trying to clarify this quick brush over that we had and I am a little older than you and I am still working. Ms. Yukimura: Well that is my point that we need to protect people on fixed incomes and I think this proposal does do that and the best mechanism for doing it is the income base because there are such a variety within the age group, there is such a variety of incomes. We are trying to achieve multiple goals here. Mr. Bynum: I agree with what the Chair is saying, there is rationale for the ages, elderly people are more active at older ages that is the other trends in our world. People are retiring later, they are living longer and they are living active longer, especially the baby boomer generation who women are still wearing their hair long and are out very active, different than my mom's generation. But if you put the senior's graduation back in there, you are going to increase the minimum tax considerably because most of those people are minimum COUNCIL MEETING 146 MARCH 28, 2012 tax payers — of the minimum tax payers are seniors. If you put the graduation in, that number is going to go up and it is going to be because of seniors. Mr. Kuali`i: My parents, they pay more than the minimum tax but with the low income exemption and the senior exemption, it is enough to give them a low tax that is not the minimum tax. It is maybe a hundred dollars, not twenty -five dollars and that works. It only works because they are putting into place their low income exemption and their senior exemption, my dad is now over seventy. So the senior exemption, the low income exemption was increased from fifty -five thousand to eighty thousand. This exemption is a hundred and seventy -five thousand across the board, it is not an exemption that they need or want because they are paying their low taxes of a hundred dollars, they are happy to pay that because the County provides good services to them and if in the name of someone's hardship, we are lowering the taxes, that in fact we reduce our County's operating revenue in such a way that the County cannot deliver those services to the people who need them, we are not helping them, we are making it worse for these seniors and these people living on a fixed income. Yes, we need to protect people on a fixed income but do we need to protect everyone the same way we protect the people on fixed incomes? I do not think so, I do not think we can afford to. Mr. Bynum: Can we do a little experiment here? If you put in one, fifty right here on the first line, it is already in the box, one, five, zero, zero, zero — and then one, seventy and one, ninety in the next one and go to a tax rate about three dollars. Well that is about two point seven fiscal and now the minimum tax count went up some, not a lot because the only one that went up that would affect it is this one, ninety. That is about the same yes? Ms. Yukimura: The PHU count, yes. Mr. Bynum: The PHU count. Ms. Yukimura: Yes, it is about four thousand four hundred. Mr. Bynum: This is another way to do it to keep the senior graduation, what you will see in the charts here then is these ones that dip down, these two (2) that is probably somebody sixty to seventy, and that is probably someone seventy to eighty. Now they were the ones that were already below because of the current senior benefits. Remember the blue is what people are paying. This bill is a lot about these people. This person paying twelve, thirty -two and this person paying five, fourteen, you can do it in any range you want. This bill is about these folks. If we did this scenario, yes, we would have the senior. There are the seniors, you can see them about sixty to seventy — that is somebody over seventy. They already — now they are not going to go up to ninety, thirty- eight, they are stay at seven, twenty -three and they are there now probably because of being seniors and having low income exemptions — blue is the current rates. If you wanted to do it with senior discount, look at seven hundred thousand. This is the seniors right here. There are many ways to accomplish this and if we go back to sheet one (1), it says two point eight, so that is in the ballpark within a hundred thousand. This would be personally my preference to keep a senior graduation for the reasons that the Council Chair said. I am not a senior quite yet, AARP says I am but I am getting to this stage where it sure would be nice if I did not have to mow the lawn every week. I just wanted to point that out, that there are other COUNCIL MEETING 147 MARCH 28, 2012 ways to do this and there are trade outs. Give more senior graduation, you increase the minimum tax. Ms. Yukimura: I think your last point though was about the fiscal impact and again that can be addressed without raising anybody's taxes but by setting the rates so that the other sectors do not keep dropping in taxes. So you can still preserve the integrity of the budget without raising anybody's taxes and correcting some of these inequities. Mr. Kuali`i: Is it not correcting inequity raising somebody's tax? How are you going to correct any inequity in the tax system without raising their tax — the rate, I guess you are talking about? Ms. Yukimura: Well you are not letting the other categories drop as they are dropping. So you keep their taxes the same rather than lowering their taxes basically, that is how you would do it. Mr. Rapozo: Let me just start off — because I know they are here waiting for a vote because if in fact if this passes, they got to go to work. I think we heard enough. Unless anyone else has more presentations to make I am prepared to do the final discussion and call for the question because — otherwise they are going to be really pressed should this pass. If you want, I can start with my discussion and my vote. Ms. Yukimura: Okay, so there are no other proposals coming forth then? Councilmember Bynum has one (1) more amendment, it is a technical thing we are just changing the language. Mr. Bynum: We did that already. Ms. Yukimura: It just changes the purpose statement. Let us pass it out. It just makes the bill integrated. Right now the purpose statement does not match what has been amended in the draft, that is all. Mr. Bynum moved to amend Bill No. 2425, Draft 1, seconded by Ms. Nakamura, and unanimously carried. Ms. Yukimura: Discussion on the main motion as amended. Mr. Rapozo: Unfortunately, I will not be supporting the bill and I have four (4) bullet points if you allow me to go through them. I made bullet points so I do not go too far off base. I will start by saying that after hearing from the auditors and the Finance Department, it is quite clear to me that we have an issue with revenue. Despite on what has been said, I will rely on what I have been told by the auditors and by our Finance Department and our Treasurer. I am concerned if the net value of taxable real property, if you look at our sheet that was handed out and I appreciate whoever made this for us but since fiscal year 2010, we have seen a decline every year. Annually we have a decline not just in evaluations but in property tax collected. Our revenues are declining every single year and it is not going to change, not for a while. This bill will further drive that real property tax collections down and I find that unacceptable. The second point is really with the inequities. Inequities still remain with this bill, we may have brought some of those blue and red dots closer together, but COUNCIL MEETING 148 MARCH 28, 2012 there is still some inequities and the biggest one that I see is the minimum tax. We are increasing the number of people paying twenty -five dollars for County services, people like myself who should not be paying twenty -five dollars, like Mike Dahilig, and again I use his name because he said I could. People like Steve Hunt will drastically reduce their tax bills by this bill. I do not think that is acceptable. If you want to solve the inequity of our tax code, why would we not address the cap that is the root. But not one mentioned in any amendment, any discussion about removing the cap why — because it is not popular politically. Because somebody is going to get upset if we remove the cap, but the cap is the cause. If we are going to talk about inequities and making things fair, the first discussion should be remove the cap but again it is an election year, so nobody is going to go there, neither am I, we are not going to go there. My point is if this bill was to address inequities that is the first place that should have been targeted. The third point and as Wally properly said today — uncertainty. We heard from our treasurer, the bond rating could be at risk with this bill. Future bond floats and our refinancing which we are in the process now, we just approved I believe seventy -five thousand dollars for special counsel to help us refinance the bond. And now we are going to go back and say first of all we are going to dive into our reserve fund and take ten point eight million and then we are going to increase our home exemptions which will further diminish our tax revenue. I do not think and Mr. Chair can probably say more to this because he has been to these bond presentation in San Francisco, I have never been to one but I am very familiar and aware with what goes on in those things. The other as far as uncertainty, we do not know what the rate setting process will be. We heard from the County Attorney today, Mel that is interesting, I need to think about it — fine, if it comes back which I believe it should that we set the percentage, that tax rate may go up which again would further increase the deficit of property tax collections. That is in the uncertainty bullet. The other one — Maui had to reduce their exemptions last year. When times were good they increased it and I believe they had like a three hundred thousand dollar exemption on everybody. When times got tough, they had to drop the exemption to accommodate for the shortage in funds. We are looking at a trend of reducing our revenues and we are going the other way. We keep saying Maui did this and Maui did that, let us learn from Maui. Do not give the exemption only to have to take it back when times are tough. Mr. Bynum, you can shake your head if you want, this is my time on the floor, you can disagree that is fine. Last month I testified at the State Legislature to help this County get some TAT, I had to go as the State President of HSAC and it was uncomfortable to sit on that seat amongst the House of Representatives and be asked, you guys need the money so much, I understand Kauai has a bill that is going to increase home exemptions. I could not lie, I said yes we do but that is a proposal from a Councilmember that has not gone through the process yet, I am not inclined to support it I can tell you but I speak personally for myself. But the State Legislature looks at these things and if we are in dire straits and if we need to go after a TAT, this is not the right message to send. That we have so much cash that we can do the exemptions. I know the article tomorrow, Leo may say Rapozo opposes because I do not know how everybody is going to vote, it may say Rapozo opposes tax relief. That is the furthest from the truth, I can tell you right now I would love to give back tax relief, I would love to do it right now. My conscience tells me, Mel, we do not know enough right now. I am concerned that in fact the fiscal impact, we are tapping into a reserve to balance a budget. A reserve that we told the public last year that we are going to set this policy for a rainy day but yet we are going to tap into that now. At COUNCIL MEETING 149 MARCH 28, 2012 the same time we are going to be reducing our tax revenues, I am having a difficult time with that. Governor Ariyoshi in my first term said to a bunch of us new legislators and I will end with this says that you new legislators, you should never forget your core function of government. Do not ever forget what you should be doing and I try to remember it all the time, sometimes this job requires us to do what is right and not what is popular. We all received hundreds of emails, template — vote for it or we do not vote for you. I understand and I respect those emails, but I know they did not see what they saw over the last couple of days. They did not see the report from our auditors, they did not get a chance to see, whether or not you believe them or you believe Mr. Bynum, it is irrelevant. I rely on the fact as presented by our external auditor, non - County employee, no dog in this fight other than to provide us with the real revenue numbers. Having said that, I will not support this bill; however, I had the assurance from the Administration that they are continuing to work on measures that are going to provide more targeted relief where it is needed, where it does not present such a stronger fiscal hit to this County at a time where we do not know what is happening. I am not going to be supporting the bill, I appreciate the work and I really appreciate the discussion, I think we had a lot of interesting dialog but I will not be supporting the bill as it is written. Mr. Chang: I would like to start off by saying that I am not going to support this bill either. When it first came on to the discussion, I had concerns with five point four million and I believe I did my due diligence and I have met many times with people to hear the same answers and same concerns. I want to start off by saying two (2) weeks ago on March 15 we got the budget and in that budget in which we discussed, what is just glaring on page two (2) is we are taking unappropriated surplus equities up to twelve million five, we are taking whatever you want to call it reserve, surplus or what have you another ten point seven million, we are taking from capital improvements three point seven million as the Chair mentioned, that is upwards to about twenty -seven million dollars. One of the things that is going on in Honolulu is the discussion of our transient accommodations tax, the TAT tax. That TAT tax is in tune of thirteen point six, four million so we are looking at about — if we took that hit which everything is on the line that is forty million dollars. Do we then have the pleasure of taxing our residents across the board hurting everybody? With our Kaua`i population, we do not have enough people on this island to make up that kind of deficit. If and when we were to lose the TAT tax, I just want to remind the viewing audience and the people here that is not just going to be for one (1) year that is going to be forever. So now, what do we do? Do we raid the retirement funds, where does this come from, do we charge them for benefits, do we take something from the rainy day fund, the hurricane fund? Yesterday we had a realtor and I am not going to mention her name but I think when she came here, there was a tremendous amount of clarity because it came apparent that we need to identify groups as to where we would get the money from and up until this point, I still have not heard of anywhere that we are going to identify a group outside of maybe those that can quote unquote afford it because they have second vacation homes over here. Now we hear from the hotel industry people which originally were the people in the original bill that was going to be taxed. Now many of them are very afraid because if and when we need to tap into the well — sort of speak, do they now come up for consideration? I want to say yesterday as we were going through this deliberation, I just want to say this because it has been a long time and many, many hours... Councilmember Nakamura has asked the Administration three (3) specific questions and I am going to read very quickly the first, second and the third. The first question is if this bill passes yesterday, will the Finance Department be able to roll out the tax rolls by COUNCIL MEETING 150 MARCH 28, 2012 March 30, which is tomorrow? The short answer was yes. If draft 2425 passes which was yesterday, will the Department be able to assess the new notices, if so what will the impacts be with the new assessed notice. Short answer is yes. But I want to read the third question here, it says if Bill No. 2425 passes yesterday /today, will the Finance Department be able to implement its provisions, what will the additional resources, i.e., staff, overtime, software, etc., be for the Finance Department and let me just read the answer. There will be cost to implement the changes such as overtime, printing, mailing, corrected assessments and software programming to meet the ordinance changes. The biggest concern is being able to make these (inaudible) to know the financial impact for the May 8 submittal of the budget. We have confirmed that Taylor Technologies and again they do work all throughout the Country, not just Kaua`i at the drop of a dime, can accommodate our April 20 deadline to make these changes; however, the programmer and technical support person within the State of Hawai`i is on Kaua`i this week and might be able to make the changes if he works over the weekend provided that the staff also shows up to work this weekend to test the changes. What I heard a little earlier is how long will the testing take, once the testing is there is it foolproof testing, how long is that test going to take to be accurate. To the end, our real property assessment needs clearer guidance from the Council as to what these changes are and how they interplay for both the 2012 and future taxes. If there are delays or the programmer cannot make the changes as intended this weekend, then the risk is not so much the certification of the assessment but rather the amount of anticipated revenue would set exemptions changes in place which would ultimately have budgetary impacts. Last night during the blackout, it is a very humbling experience for a few hours to sit there and say okay, I am in the dark, where is the flashlight? Found it and there are no batteries in the flashlight. Then I go and say, what am I going to do? So I figure let me get prepared for tomorrow, I am going to iron my clothes, guess what, the iron does not work. Now I am walking around to get my hand held phone to make a couple of calls, where am I going to eat, what am I going to do — the phone does not work. I figured cell phone, guess what cell phone battery dies, so it is a humbling feeling but what I gained in the dark — the light bulb sort of speak went off because I said that at any given time there is so much uncertainty with what is going to happen and at any given time something can happen. We are not out in any fiscal doldrums, it speaks for itself. I believe this year alone we are going to lose about one point nine million dollars in property tax assessment, somewhere around there but what I would like to say is pondering around in the dark and when you really got to find yourself, yes we were hit by a lot of emails but I think yesterday alone showed a lot of clarity for anybody that was listening in or tuning in live, that I do not believe that we have and some may argue that we have money but I want to just say that this is not the right time and the hardest thing to not say to your constituents that they say please vote yes for those that you represent. I am sadly not a parent, I wish I was but I would imagine for parents to be able to have to say no to their children does not mean that it will not come around at another time, you do not stop loving your children, you do not stop trying to do the best for your children and in this case I want to say yes but now is not the time to say yes. Last night while I was pondering, okay is it political suicide, are you doing the right thing, well politically doing the right thing would be to support the bill in any way, shape or form. But if you asking me professionally with a background of reporting or journalism, if you ask me — this is not the right time and I am not going to support this bill. COUNCIL MEETING 151 MARCH 28, 2012 Mr. Kuali`i: Councilmember Rapozo referenced the chart that was handed out that you have in front of you and I asked Scott to put it on, it is actually the net value of taxable real property that the Chair put together in his presentation from yesterday and I asked the staff to take it and take it a little further and bring it up more current, also to add the numbers of the actual property taxes collected, so it is very clear that the net value of our taxable real property has gone on a steady decline from the negative two point eight 2009 and 2010 to negative eleven point five to negative five point eight and the estimation for — well even that change right there between 2011 — 2012 to 2012 — 2013, that is three hundred and thirty -two million decrease in our net value of our taxable property. In the last column on the real property taxes collected, in the Mayor's message he — the forecast is that the real property dollar collected will go down again this next year, one point nine million as Councilmember Chang referenced and three percent. Clearly, the number one (1) reason I feel that I have to oppose this bill at this time is that I think it is my fiscal responsibility to do so on behalf of all our citizens. We have heard from Administration, Finance, Real Property Tax, we have heard from the Auditors — I think that it would be nice to give tax relief across the board to everyone whether they need it or asking for it but we just cannot afford it. I am interested in perhaps continuing on with what the Administration has already done with some — well what we have done because they have recommended it to us and we have taken that action for some targeted relief and I would be interested in looking at even more targeted relief. But as far as fiscal responsibility, even if we were to find that we had some money in our surplus, I think that it would be more fiscally prudent to pay down some of our hundred and twenty million dollars in debt. But I do not believe we have that surplus and it would be fiscally prudent also to during this budget session, come up with the budget cuts, come up with the money first and then take the money and give additional tax relief. But to say that we are going to give this tax relief where we do not know how we are going to pay for it, the scary part on that is that you can give somebody a tax break and then take away their job. Potentially they say it was a modest proposal at two point seven million dollars, two point seven million in our budget is not a modest amount. The eighteen new dollar funded positions are being filled; just for eight months it is eight hundred thousand dollars, so we can be talking about twenty or thirty positions that would be lost in our County or we could be talking about furloughs. It would be fiscally irresponsible to move in this direction when we do not know how we are going to pay for it. So budget cuts first then tax cuts. My second reason is we talked about blanket tax relief needs to be put in place because of hardship. But the two — of all the testimony we have seen, and the two testifiers who came before us yesterday, one (1) being in real- estate and the other being in hotel industry — from the real- estate, she said that passing this bill would help lessen the disparity but we need to relook at the caps and relook at the distribution across all categories. Owner - occupants across all categories need to be reset according to use, well that is underway. We need to see what is already put in place, what that is going to cost and what impact it will have. The other testifier said from the hotel industry and she wanted us to guarantee her that if we gave these across the board tax cuts that cost three million dollars, that when it came time to balance in the budget, that we would not then go to the hotel and resort categories and increase their taxes and she wanted it in writing from Councilmember Bynum. He almost said he was going to give it to her with the minutes of this meeting and said that this bill will have no impact positive or negative on hotels. But later when some of our other Councilmembers said, myself included and the Chair, that there is no way we can guarantee that because we do COUNCIL MEETING 152 MARCH 28, 2012 not know yet and we come upon the budget of what kinds of tough decisions we might be asked to make based on cutting expenses or making different decisions on where the revenue will come from. After that, Councilmember Bynum did agree with us as well. My last point on the hardship was that in fact the written testimony that we received was very short and simple; it says do this because it is the right thing to do for the people. I was really hoping to see in the testimony some real examples of genuine hardship of where this County is not addressing people on fixed income, low income, our seniors — this Council is addressing those hardships. We did not hear in our testimony — instead what we heard in our testimony was primarily from one (1) group of people, real - estate agents, and I think you have to recognize that when it is solely from one (1) group of people — we can see them as a special interest and they do not necessarily speak for the entire community. The real- estate lady here yesterday said it had nothing to do with her, bottom line and the kind of rates that she would — money that she would make but low property taxes which she even said that Kaua`i has really low property taxes and she has never not sold a property because of the property taxes and that in fact most of the buyers are — they gasped in surprise at how low our taxes are. Nevertheless, if taxes were even lower, that could arguably be a salable point for properties on sale. Makes it more attractive, real- estate agents can make better commissions, people can sell their properties for a higher price because it has even lower taxes than it already has. My third point about this whole equity piece, the Chair said it clearly where there is equity and there is equitable. I think there are a lot of people out there who are okay, they do not feel like they are paying too much in taxes for the types of services they receive and they would rather continue paying the modest level of taxes they do pay in order to ensure that the services would continue. If they were asked that we can lower your taxes if you give up services, I am sure they would not want to give up services. In fact we are hearing from people that they want more services, they want their parks maintained better, fire, police — that is all just critical services that everyone depends on. I listened very carefully over the last two (2) days and since I started on this Council and I think this is the only decision I can make and it is the right decision for the majority of our people. I do hope to take that path that we have taken with targeted tax relief and I appreciate all the work that everyone in the Real Property Tax Division have done so far and I look forward to working with you further. For me personally, I look back at this permanent home use, the language of when the law was passed, it did say that it was temporary. I heard the rationale is being predictability and the protection against huge spikes and skyrocketing property values, we are not there anymore, property values are going down, you see the numbers. The inequity is caused by the permanent PHU and if we try to offset it and fix it if you will with these large homeowner exemptions, but leave the cap in place, in a couple of years when properties sell and resets, we are going to have the same inequity. What is inequity and if the system is set up to create that inequity, there may be a reason. Maybe it is not supposed to be all equal. Maybe this is meant to be for permanent home use, to be for people who are in their homes and staying there permanently. When Steve mentioned about the thing about a commitment of ten (10) years, it made me think of the thing I have been thinking of all along about how long time residents who stay in their home, yes they benefit more from this cap because they are staying in their homes. Their discount continues, whereas the person who left and the new person who bought that property, it resets to market value and now they as a new homeowner on this island have the same benefit to not have increases more than the cap. So they're benefiting going forward, how can we say that they should benefit going back when they were not a homeowner ten years ago or twenty COUNCIL MEETING 153 MARCH 28, 2012 years ago. The former Council — the Council that voted on this, voted to have that reset. It is that reset is bringing about what is being presented now as inequitable. That inequity to what degree, what are the variances of that inequity, what causes that besides the cap, what are the other variables that have not been presented to us about the price that the house was sold at, the price of the house was appraised at, whether it was a good market and it sold higher than the appraised value or bad market and it sold lower than the appraised value. The value on any improvements, there are so many moving parts in there even to the assessed value of a property that we cannot accept that they're really all equal and that they should all pay the same amount. I think there are too many variables and there should be some acceptance of what that variance can be and if we do not want that then we have to look in the future of reevaluating this cap, what was its purpose and how will it serve us going forward and maybe there is another mechanism to prevent what the cap prevented when it did but at the time now, we do not have those huge (inaudible) so we do not necessarily need the cap. I was survived that if the whole idea was to fix this inequity to begin with, we should remove the main thing that created the equity and it was the cap. For my constituents, I will vote against this bill at this time. Mr. Bynum: I want to thank the Council for having this discussion over the last two (2) days. It is important and we are going to continue to talk about finances for the next several months and that is also important and I am very pleased to serve on this Council with people focused and the passion that is in this room. I want to say that I am a convert to the cap. I used to say what KipuKai was just saying, the cap caused this problem and I worked my butt off over the last year to understand real property tax system. I had obstacles to do that and I still to this day cannot access the data that I need to do my due job and I hope we address that in the budget and address that going forward. The cap did not cause the problem, not managing the real property tax system as Councilmember Rapozo said, by not having those decisions each year in budget and looking at the rates very carefully like we are instructed to do, the cap did not cause the problem. It was not managing the real property tax system that caused the problem. That is why I support the cap going forward but I also support us managing it so the cap just really becomes what is was originally intended predictability and safety. Let us talk about some certainties, this is going to take me about fifteen minutes — this is our real property tax collections are down from the peak of ninety thousand, seven, forty -nine, they are down roughly eleven million. What is the estimate from the Mayor's message, they are going to go down again about two million. Well I can tell you that eight thousand seven hundred people that have the caps, resident homeowners, their taxes are going to go up three point seven percent. I estimated about three hundred thousand, so we have two million three hundred thousand that somebody else is going to pay less. Who is going to pay less? Apartments, visitor industry, hotels, agriculture, single - family homes that are owned by wealthy people who live on the mainland, they are all going to pay less, those two million dollars that the Mayor is estimating is going to come from somewhere. There are some people in the homestead — resident homeowners who are going to pay less too. Those who are not under the cap and are tied to the assessed value, they are going to get some reduction too but as a class, the resident homeowner are going to get little or no reduction if we keep things the way the Mayor has proposed. For eight thousand seven hundred, it is going to go up, for some people it is going to go down. But this two point three million of lost revenue is going to come from single - family residential who over the last three (3) years have had about a six million dollar decrease, they are going to have an additional COUNCIL MEETING 154 MARCH 28, 2012 decrease. The apartment class who that is mostly visitor units, four million dollar decrease in the last three years and they are going to have an additional decrease. Agriculture lands, mostly large landowners that have had an over eight million dollar reduction in the last three years, they are going to have an additional reduction this year. Conservation, it is only one point four million reduction they have had in the last three years but they are going to have further reductions. The hotel and resort class that has three point six million dollars worth of reductions since 2008, they are going to have additional reductions that is where these two million of loss is going to — where the lost revenue is going to be reductions in these classes. Now let us look at the homestead class, they are going to have little or no reduction and over the last three years, they have not had three, four, five million dollar reduction. They had a three million dollar increase. This is not figures I made up, these are figures I got from the real property tax system. This is the proposal that is before us and we have three people that say they are going to vote no, what are these inequities, these are ten homes, this person is paying twelve, sixty -one I do not know if they need the relief but when their neighbors are paying six, zero, four or eight, twenty -seven and they are paying twelve hundred, that is just not fair. Councilmember Kuali`i said that these are new homeowners that they were not here with these capped people down here, well not everybody that purchases a home — housing has a lifecycle, these are people who like me had two kids and a elderly father living at home, but I am just looking just having me and my wife, I do not need my big house anymore, I am going to downsize, I am going to get a two (2) bedroom house or three bedroom here in Lihu`e maybe but — so not all of these people new homeowners. A lot of them are people who are in this housing lifecycle but these inequities are real, you tell Mrs. Shiraki or Mr. Rapozo here that it is not okay with them and people out there in our community are hurting. You want to go to a higher value, this proposal says we are going to still collect the thousand dollar of property tax from these middle class people but why should this guy pay seventeen hundred while this person pays seven, twenty- three? These are real residents on Kaua`i. And we are going to leave this and do nothing. What will happen is these folks will come down a little bit because they are tied to the assessed value, these folks will come up a little bit, so the gap will narrow a little bit but it will not make any real significant difference. These are certainties. As I said removing the cap — the cap is not and never was the problem. The problem was that we had the cap but as the assessed values go up, we never adjusted the rates. If we were to pass this proposal, this would be the new cap for these people, equitable, fair, equally valued homes. Say next year it goes up say four percent, CPI is four percent, this is going to go up four percent, we set the rates so it goes up three point five percent then the cap is there just to keep from allowing this to happen again. It will not happen again if we manage the system the way our tax ordinance requires us to do and Mr. Rapozo said and I agree with him that in the time I have been on the Council, we have never done the things that those tax ordinances ask us to do, I know we will this year because we have new leadership on our Council and we have this passionate group that I have the pleasure of serving with. So housing has a lifecycle, the realtor did say I have never not sold a property because of taxes, that was from the perspective of a mainland person coming here and saying these taxes are not that bad and compared to the mainland they are not. If our housing agency people were allowed to come here and speak and I did not ask them to do that because they work for the Mayor who clearly opposes doing this from his actions or inactions over the last three years, what they would tell you is that we have plenty people and Lisa Ledesma who is our mortgage banker, who works with our Housing Agency, she is not working with people that come from the mainland with great resources, she is working with local families COUNCIL MEETING 155 MARCH 28, 2012 that have been through our housing classes, that are really at the margin and trying to get into homeownership and have a unique opportunity to do that right now but I showed you here yesterday our lowest value homes, current owner paying three, seventy -one it will go up to eight, eighty -seven for the new owner. That is a huge gap and that is enough to knock people and it has and it is knocking people out of the opportunity to homeownership. I showed you charts of our self -help housing in Hanapepe, the people who got in earlier capped at four — five hundred dollars a year. The new people who got in there, the first year they go to over a thousand, same houses right across the street, people were trying to get into housing. Is inequity real? They are absolutely real. I went over this chart Councilmember Rapozo said, did you kind of cherry picked these, we can go back to that chart right now and go to any place you want and you will find that those things are there, everywhere, all over. I am offended by the argument — I am really unhappy that somebody comes here and says if we use two point seven million dollars worth of our resources to do something about the worst of these inequities that it will affect our bond rating. Twenty -four million dollars of lost revenue over the last three years, if the bond people are concerned, what they are concerned about is this two point seven million that will go to local families but they are not concerned about the twenty -four million of loss that went to business interest and many people who do not live here. We are going to lose the jobs and I have one last thing, I am working on a reserve ordinance right now following the Denver model because both the Chair and our Auditor and other people said they had a good model, I have spoke to the people in Denver. I think they have a good model but these are not my opinion, this is from our Audited report, for years this County — we have always had what we call for years the unappropriated surplus and here is a chart of it. When we had in 2005, fourteen point four million, that was in essence our reserve, we called it the unappropriated surplus at the time and we in 2005, we assigned a portion of that — three point five million of that to balance the budget. But at the end of the year, it did not go down if you look from 2005 -2006, it went up twenty -three million because we did not need any of those assigned funds that we assigned to balance the budget. We actually had revenues that exceeded expenses that made our balance go up. Our balance went as high as sixty -two million. Last year we assigned a lot and we used some of it and we should, and so our fund balance came down to fifty -one million — our, what we used to call unappropriated surplus. That is money sitting in the bank that is real. We have a reserve of twenty -five million, we can use that reserve to assign to next year's budget and see how it goes but is it true that... and so at the Legislature, I have also been to the Legislature, we are entitled to the TAT that has been this big (inaudible) for the last four (4) years and it is a real debate, it is a real serious concern but the Legislature, what the ones I have talked to, they were not talking about how we distribute tax burden, they were talking about this, you guys are sitting on surpluses. There has been a lot of talk about Maui, Maui made a decision and we saw the chart yesterday, their effective tax rates for homeowners is by far the lowest in the State and it has been for a very long time. They manage their tax system, they have raised the rates for their homeowners in the last couple of years and they have, you're right, over a trend of years it was at three hundred thousand, they have lowered it next year to two hundred. I have talked to the Finance Chair and he said but we are also going to lower the rates, so there is not an increase, they are doing this revenue neutral thing. The other Counties have bumped up their rates, not so people pay more taxes, but so they did not lose all of their revenue. We have not changed our rates in eight or ten years, we have are not managing our property tax system. So it was the cap that caused these problems, I will say this COUNCIL MEETING 156 MARCH 28, 2012 again because I have been saying it to the Mayor for two years, this is a problem, please give me a proposal. I worked hard and I have come up with a proposal and the bottom line of this, what is the right time to do this, Councilmember Chang said this is not the right time, I respectfully disagree. This is the exactly the right time, not only did people pay three point one million increase in taxes when everybody else was paying less, we put in trash fees of one point five million. People out there are really hurting, we have fewer homeowners than we used to because people are losing their homes and they are struggling and we have increased their fees while they're hurting. I am very passionate about this because it is my job and fairness and I feel like I serve the people who live here on Kaua`i, not the people who live in Connecticut and buys a vacation rental here and they have had tax breaks over the last three years and they will have more. Obviously I am going to vote for this. Ms. Yukimura: Thank you. Anyone else? Ms. Nakamura: I want to thank Councilmember Bynum and the Real Property Tax Division Steve Hunt, Sally Motta for really educating me over the past few months about the real property tax system. There are so much to learn and understand it is very complex and it has been a big learning curve for me and so I just want to thank you. I feel real torn with this proposal because in an ideal world, we would want to look at the County's expenses, you would want to look at all the revenues that are coming in, you want to be able to make the tradeoffs at the table and then decide whether we can afford to make this tax exemption work. Unfortunately given the way our system is set up, we are unable to do that. I agree with Councilmember Kuali`i it is a little scary because of the reduced revenues that was shown earlier of three percent reduced revenues, two million dollars, the fact that we are in our general fund and the proposal sent over by the Mayor, that we are really going to be tapping out our special funds and not leaving the cushions in there in order to balance this budget. The proposal shows us dipping ten point seven million into our reserve fund to balance the budget and I have these concerns on how we end up paying for the two point seven million dollars that is estimated which will be the tax hit. I feel that we have provided some targeted relief this past year to the tune of six hundred thousand dollars, six hundred additional families will share in this income exemption. The Chair has shared that the cap has provided relief to the tune of seventy million, the effective tax rate which to me is a very important indicator shows that the homestead class pays an effective tax rate of one dollar and ninety -one cents which is the lowest of all classifications. I agree that there are inequities and that we should have a way to address the disparities and I thank Councilwoman Yukimura for providing an alternative because — that gets us closer to addressing the disparity but I feel like I need more time to understand it, to really be able to look at the minimum tax issue, the real fix which I agree with Councilmember Rapozo which is fixing the cap, the issue that was raised yesterday by public testimony that we should be looking at increasing taxes for second homes. To me this is an ongoing discussion and I think that as a Councilmember, I would like to work with the Administration. I think we should create some sort of Commission or Advisory Committee in order to look at this and try to find a long term solution but I also have a problem with — it feels so rushed and I just want to be able to deliberate more in the context of the overall budget. Even if we can set aside funds in this budget to apply to as Councilmember Kuali`i suggested to a future budget, I would be willing to really look at that alternative as well. I just need to see it in the overall context of the budget and I am afraid that where I am today in the budget process, I do not have that perspective, so I will not be supporting this proposal but I feel that I would like to be moving in this direction in the near future. COUNCIL MEETING 157 MARCH 28, 2012 Ms. Yukimura: Thank you. Chair, do you want me to give my comments before you do? Chair Furfaro: If you do not mind. Ms. Yukimura: Like Councilmember Bynum, I really appreciate everybody's willingness to dig in and learn about this because it is a really complex issue. Like Councilmember Chang said about amendments to the impacts and how you think about them, sometimes we do not know all the things we need to know. I want to first address the cap, maybe I am a convert too but it was set in place for two (2) very good reasons, to protect against the huge spikes that we were experiencing in the early 2000 and we had to do that because it was causing huge suffering for people. It also created certainty. What the cap also causes is this huge growing disparity. It also discourages people from moving and changing houses like we sometimes have to do as their situation changes. I think we have actually addressed the worst of that by changing the percent to the CPI because that will allow for growth according to maybe what is the best — the criteria that we have which is cost of living. But what that means is that as we transition and we have been transitioning from that place in the mid- 2000's where our homeowners were really paying little because they were protected and now they have been paying more and more and the other properties are coming down, so now this year, they are going to pay more and Tim is saying eight thousand of them will be paying more. If we are going to try to mitigate that, we are going to set the tax rate but we are going to set the tax rate lower maybe than it has to be set or that we want to set it at and it is going to be against this very disparate situation. So what this bill does is to bring everybody closer and it is not perfect but more equitable, closer to everybody who owns similarly situated property, paying the right fee and allowing us to use the tax rate to alter it. It is a problem that we have to make this decision before we can go through the whole budget; however, this proposal is a small impact, two point six million, which can be made up easily, and I really disagree with this financial disaster scenario, it can easily be made up by raising the tax rate on some of those properties whose assessments are coming down, they will not pay more taxes but it will make them pay more than what they would... they would pay the same taxes as they paid last year, but we would be able to make up this difference. We are gaining equity, we are able to keep our budget fiscally sound to the extent that two point six or two point seven million is fiscally unsound and we go from there. It is like saying this equity is so important and if we can do it in a budget mutual way, we need to do it now otherwise it is continually to grow and it is going to be harder and harder to address. That is why I feel that this is urgent because I think this is a window that is not going to be open again, so this is not so much about tax relief as it is about tax fairness and I think we can do it without really damaging the budget. We have many ways to address the two point seven million and I think it will create a better system and I can understand so well the discomfort expressed by Councilmember Nakamura because you are a new Councilmember and some of us has been grappling with this for a long time but I think the CPI removes the worse impacts of the cap and by passing this bill will cure the inequities and then from then on we can address the minimum income tax and some of these other problems. I am not sure if we are going to find any better solution to the cap because if you remove it entirely, you are going to have this problem again of spikes and lack of certainty. I think the CPI might end up to be the best compromise and we can still address it later on but I will tell you that the CPI is going to cause this increase, we are going to manage it and to only have the COUNCIL MEETING 158 MARCH 28, 2012 tax rate and not have this assessment also as a tool to address it is going to make our addressing of the system less effective and less fair. Chair Furfaro: I want to talk about some particular items because it is very important, first I think to say mahalo to the introducer of the bill because it really stimulated our discussion. It really did and quite frankly it is about time we have this kind of discussion. I have six (6) points that I want to make because this is not an easy process and first is a message also to the Administration, I feel we have been very dormant and being active with you folks about issues that are important to this community. Point number one (1), this Council is the body that monitors, measures and evaluates performance. I think I tried to expand on that from the PowerPoint presentation I made. It is no longer being asleep at the switch when we want information about staff planning, dollars against the dollar amounts actual, because that contributes upfront to any potential surplus that we might have as it relates to beginning the next year. This Council is entitled to financial information ending in December so that we can have this discussion in January because we now have the six month history of a timely basis. Steve, I am looking at you because this is going across the Administration from me as Chair. The work that I did in my presentation and Councilmember Kuali`i took the next step forward, we basically had ten (10) days to work on that, this is too critical of an issue and we need to make sure we have that information so that we know we can have financial goals that are sustainable. Number one (1), the role of monitoring, measuring and evaluating performance is with this Council. Second point, our financial health is extremely important to the citizens of this County and although there had been some parameters set up about hearing about our bond issues, the reality is this County has a hundred and twenty -one million dollar worth of debt tied to bonds and based on a payment of about four million dollars a year, we are going to reduce the principle only by about two point five million dollars. That financial help is very important for us and we have not had a discussion about how we can revisit potential revenues with the TOT tax, not the TAT tax, the TOT tax that we have in our timeshare inventory. We have preliminary discussion about the money that we are leaving on the table for these new improved line in the sand transient vacation rentals, but there lays some potential revenue for this County. That needs to be a discussion as part of the financial health of this County, fair, reasonable and where possible, I am using this term, equitable assumptions on taxes. Three, without having a sound financial position, this County has a very difficult time in developing contingency plans for financial events, like the storm we just recently went through, we have an item coming up on the agenda in Mr. Rapozo's Committee to get some kind of report on unplanned expenditures tied to financial emergencies in these kinds of events. We are hearing for the first time, we got a presentation from Lenny Rapozo about parks, the development, the goals and so forth and then the next week we turned around and we used the CIP by three point five million dollars to meet the budget for this operating year. If you looked at the wish list in my estimates, we had fifty -eight million dollars worth of wish list items on there for ten years. We had eighteen million dollars worth of items earmarked of which we took three and a half million away from Parks. There is something wrong with that picture, again making sure because we have a very dynamic group here at the Council and I have to tell you, we easily pick up on those kinds of things, presenting a wish list and then reducing the funds to meet the operating budget. I also want to say that the reserve plan that we put in place and Mr. Bynum touched on that — my point is that I worked very hard when I was the Vice Chair to COUNCIL MEETING 159 MARCH 28, 2012 come up with a policy that we had a reserve and I did evaluate the one from Denver and I thought it was the best possible piece. But we are lacking an ordinance that supports that and until such time, the Administration can address those moneys and you can use up to fifty percent of the reserve. We are using it now in the first year. That certainly needs to be evaluated. As we go forward, I am a little concerned that we are not able to make these assumptions midyear and therefore some of the initiatives that we took I have no idea from the vouchers that I saw and so forth about the cost associations with the expanding of the bus. I also do not necessarily feel that we fully evaluated with planning when we do pass the important Ag land piece, there is a credit line in there for Ag properties on taxes potentially. We do not have an idea how much if we make commitments and we apply to the State's requirements, we have no idea what that impact is. So what I am trying to say — we have all these things on the radar screen and we need to have some real healthy discussions about and I think when we get through the budget for this year and tomorrow is the tax roll, the certification, we need to make opportunities to make workshops, not with outsiders but with the Administration and us to address the monitoring, measuring techniques, to address the financial health as it relates to our bond float, to make sure we mutually agree on contingency plans, to make sure we can shift gears smoothly if we have to adjust the budget. We have to also make sure that we agree, the six month financial comes out in a timely basis, so next January we get some hard facts to discuss prior going into the budget and also this whole wish list that we have about establishing reasonable growth and so forth. I do not care if it is the first phase of the Mayor's twenty /twenty plan, if it is the bus, CIP and so forth, we need to have some credible discussion strategically about how far we can go and I just do not know that we are there yet but it was very obvious from this discussion which was a healthy one, that we have some opportunities here. Frankly for me, as the author of the cap, I played football in Waianae, I was an outside linebacker between Mr. Moniz who is with the operating engineers now and Levi Stanley who later played for the 49ers, I rarely got an opportunity to tackle anybody but I knew what my responsibility was and if I had to deliver a dirk sandwich, I would deliver it. Please understand, we are going to get to a budget cycle here and we need to have a healthy discussion about the six points that I just brought up because this Council body, a lot of independent thinkers and we want to work really close with the Administration and we have to get to there in a future opportunity after the budget to do some workshops with the Administration and the Council. Mr. Kuali`i: I did thank the Real Property Tax and the Administration but I forgot to thank both of you. I know that there was a lot of work involved especially by you Councilmember Bynum and I wanted to thank you. I know you will keep at it and join you. Mr. Chang: I too want to thank Councilmember Bynum. He has got a lot of passion and I know he worked very hard on this bill and thank you Vice Chair Yukimura also. Ms. Yukimura: So I guess there is no possibility for something lower like a hundred forty thousand or a hundred fifty thousand as an amendment? Okay, then we are ready for the vote. The motion to approve Bill No. 2425, Draft 1, as amended, was then put, and failed by the following vote: FOR ADOPTION: Bynum, Yukimura TOTAL — 2, COUNCIL MEETING 160 MARCH 28, 2012 AGAINST ADOPTION: Chang, Kuali`i, Nakamura, Rapozo, Furfaro TOTAL — 5, EXCUSED & NOT VOTING: None TOTAL — 0, RECUSED & NOT VOTING: None TOTAL — 0. Ms. Yukimura returned the Chairmanship to Chair Furfaro. Chair Furfaro: I want to indicate that I was very serious about future workshops as we get into the new year July and August. To the Clerk's Office, I believe we have some business that is carried over from the Executive Meetings? C 2012 -98 Request (03/13/2012) from the Police Commission for authorization to expend funds up to $10,000.00 to retain special counsel to represent the Police Commission in filing a complaint with the Fifth Circuit Court and asking for a declaratory judgment as to who has the authority to supervise and /or discipline the Chief of Police: Mr. Rapozo moved to approve C 2012 -98, seconded by Ms. Yukimura. Mr. Rapozo: I am going to obviously be supporting the request, I believe that this is something that needs to be done, there is a definite controversy involving the powers of the Commission and the Mayor, so I am hopeful we can get the five (5) votes necessary to give the Commission a tool to start the process to get a declaratory judgment from the Court as to the interpretation of the Charter. Mr. Bynum: The recent events regarding the Police Department is very sad for our community, it caused a lot of tension and a lot of it unnecessary in my view. This is the third Police and Mayor dispute about who has authority to do what in three Mayors and three Police Chiefs, so clearly we very much need clarity going forward. I am going to support this measure in hopes that it helps provide that clarity or at least starts a process that leads to it but I am not that optimistic, I think there is a good chance that the Courts will not decide that they are involved in this but back to Civics 101, we have the Executive, Legislative and the Judicial and when there is conflicts there the Judicial role is often to make that decision and end the controversy. I agree with Councilmember Rapozo that even though the immediate issue seems to be at least at an outcome, the controversy and the concern still exists, so I hope the Court will get engaged in this process and help us avoid this kind of thing in the future, thank you. Chair Furfaro: Any further discussion? Ms. Yukimura: I am going to be voting for this because I think it will help all of us to have a definitive ruling from the court as to what the division of powers is. I want to however also encourage the Police Commission and especially the Mayor because he needs to take leadership on this and it would involve the Police Chief to possibly look at some even while the court case is pending some agreements amongst themselves is to how to handle these various situations because we do not know what the outcome will be of a court decision. It is not always what the parties want or it is not always as clear as what the parties want and so the more that the parties could amongst themselves try to define and clarify processes for responding to situations such as the recent situation, I think the better off we will be and maybe we can set up a model for what is the best way for the whole system to work which would be helpful because if we get something COUNCIL MEETING 161 MARCH 28, 2012 from the court that we do not like, the next option is a Charter amendment that defines the system that we want and that works well. Ms. Nakamura: I agree with Councilmember Yukimura that we need to develop a system between the Mayor, the Commission and the Police Chief on what are the supervisory responsibilities and who takes the lead and develop a communications protocol that would not just apply to the Police Commission but hopefully to all other Commissions that are in the situation. I am hoping that something like this, this alternative dispute resolution approach to bringing all the parties together can happen simultaneously while this court procedure goes on. I think this is needed in the long run to really solve the issues. I will be supporting the request but I am hoping at the same time the Mayor, the Police Chief and the Commission can under the Board and Commissions Administrator work on some protocol and some further deliberation. Mr. Kuali`i: I just want to say that I agree with Councilmember Nakamura and Vice Chair Yukimura comments regarding the parties working it out. I will be supporting the motion. I am not hopeful that we are going to get our answers from the Court and I think we should be aware and make sure that everyone is aware about what the deadlines are for the process for Charter amendment if that is what it might take. Ms. Yukimura: I just want to point out for the public that we have a very unusual form of corporate governments in that we have a CEO who is the Mayor and then these key functions in the corporation — Police, Fire, Civil Service, Planning Commission are not directly accountable to the Mayor, at least not in terms of appointments and removal and then all the stuff in between gets to be a gray area. It is very difficult for a corporation to run where there is not that direct accountability to the CEO and where you have a lay body of people who are not around on a daily basis, so that is part of the problem. That Commission system was set up to mitigate politics but we have seen in some Commissions... past Police Commissions have actually involved some politics and I think maybe we have other examples with other Commissions. Those are the balancing factors that have to be here and so the issue of the roles and how they are divided up is a really challenging thing and we are all involved in how to create it or recreate it. I think as long as we keep really goodwill and have some leadership, we can address this. Chair Furfaro: My comments on this I want to share with you that during my ten years on the Council, I know that we need to find a way to get some clarity on this item. We have gone through three (3) various Police Chiefs and obviously at some point in time, our current Police Chief will retire but any future recruitment, we need to have clarity for the Police Chief as to what their chain of command is for reporting. If not, we put ourselves in a very difficult spot to recruit the best possible person for the job, understanding what the reporting system is and in this particular system case, I think going to the Court for this declaratory judgment will be one that starts. I concur with Vice Chair Yukimura and Councilwoman Nakamura that if we can have some discussion with third parties on conflict resolutions and so forth and maybe come up with some other agreements that might be a very good option. For the members, if this does pass, I do want to ask you to... let us have one spokesman from the Council on the rationale behind this and not find ourselves getting engaged in different conversations about what we want this effort to be and for the clarity. If you do not mind, I would like to ask you if we vote for the money that you let me be the spokesperson for this body. COUNCIL MEETING 162 MARCH 28, 2012 Ms. Nakamura: I was just wondering if we can send a communication to the Administration — the Boards and Commissions Administrator asking for leadership in initiating a conflict resolution process. The motion to approve C 2012 -98 was then put, and carried by the following vote: FOR APPROVAL: Bynum, Chang, Kuali`i, Nakamura, Rapozo, Yukimura, Furfaro AGAINST APPROVAL: EXCUSED & NOT VOTING: None RECUSED & NOT VOTING: None ADJOURNMENT. There being no further business, the meeting was adjourned on March 29, 2012 at 3:49 p.m. /ds Chair Furfaro: I think that would be more than reasonable. Respectfully submitted, RICKY WATANABE County Clerk TOTAL — 7, TOTAL — 0, TOTAL — 0, TOTAL — 0.