City officials, like their state counterparts, face difficult decisions in the coming months as they attempt to keep budgets balanced amid stiff economic headwinds. Right now nobody's ruling out tax hikes and fee increases as a means of filling an estimated $13 million to $40 million deficit in the fiscal 2010 budget year ending June 30 of next year. Honolulu Mayor Mufi Hannemann has forecast a budget deficit of up to $100 million in fiscal 2011.

"Nobody wants to raise property taxes and we're all going to work hard to avoid that," said council Chairman Todd Apo.

The city's budget negotiations begin in March, when the mayor rolls out his proposed budget. Fortunately for the city, it's largest single source of revenues — property taxes — is relatively stable. Unfortunately, it's a source that's expected to decline as property values slide.

Excluding new inventory and construction, the value of O'ahu residential property dropped 1.4 percent to $155.3 billion last year, according to the city. The total gross assessed valuation for all real property — including commercial and residential — on O'ahu increased 0.2 percent to $191.1 billion.

The addition of new inventory and construction and renovations to existing properties helped offset the decrease in residential property values. But that may not be the case if Honolulu home prices fall 30.9 percent between 2008 to 2011, as www.Economy.com, an affiliate of Moody's Corp., predicted this month.

Even if tax revenue remains stable, the city's costs continue to rise.

"Obviously what we'll call fixed costs — things we have no control over — are going up," Apo said. "That's everything from the cost of goods and services to union contract requirements."

Council member Gary Okino said those increased costs, which are partly driven by federal mandates, may drive the city to raise taxes.

"I think there's the possibility to increase tax rates but not increase property owners' current tax bills," he said. "A lot of the deficit is coming from reduced property tax assessments. It's a difficult situation."

Council members currently are hesitant to discuss how to pare city expenses. Last July Hannemann asked department heads to trim up to 3 percent of their operating budgets for current fiscal year 2009, which ends June 30. That was expected to shave $54 million out of the city's $1.8 billion operating budget. City department heads, who oversee more than 8,300 employees, have already instituted measures such as suspending city job fairs, delaying filling vacant positions and even using less air-conditioning at City Hall.

NEED FOR TRASH PLAN

Apart from the budget, there's likely to be a lot of talk about trash in the coming months. That's because the city faces a November deadline to close the 107.5-acre Waimanalo Gulch Landfill. The landfill was scheduled to close at the end of May 2008; however, the state Land Use Commission allowed the city to keep it open until November. Separately, the city is seeking to expand the landfill to remain in use up to 15 years.

Meanwhile, Wai'anae Coast residents, elected officials and environmental activists feel the city should be doing more to expand recycling and H-Power waste-to-energy conversion while attempting to close the landfill.

This year the city is expected to make progress on several solid-waste fronts. The city has plans to expand its waste-to-energy conversion facility and to ship more than 100,000 tons of trash to the Mainland each year. In addition, the city's curbside recycling program is scheduled to expand to several more communities in May, including Waipi'o Gentry, Halawa, Wahiawa, Kane'ohe and Waimanalo. In November, communities from Foster Village to Makiki and Kahuku to Kahalu'u are expected to join the list.

It's hoped those measures will reduce the need for a landfill. Still, what to do with Waimanalo Gulch will remain a front-burner issue for the city.

"That's just going to be a perennial issue," said council member Charles Djou. "We are going to expand Waimanalo Gulch. The people on the west side want Waimanalo Gulch closed.

"It is my belief that we would be able to get more community consensus on the landfill if the city government was being more proactive about an aggressive recycling campaign, if we had a plan for shipping more waste out to the Mainland, if we had our ducks better lined up with what's going on with our H-power plant expansion," Djou said.

City Council member Donovan Dela Cruz said he wants the city to finish developing a long-term trash plan. Mayor Hannemann has said his administration is drafting a 25-year solid-waste management master plan.

That plan "needs to be comprehensive," Dela Cruz said. "It needs to have new technology (and) it needs to use recycling and incorporate increasing recycling as time goes on not just at the home level but in business and agriculture."

SEWAGE ISSUES LOOM

Longer-term, the city also must deal with a recent Environmental Protection Agency decision to deny Honolulu's request to exempt the Sand Island and Honouliuli wastewater treatment plants from full secondary treatment. That means the city faces the possibility that it may have to upgrade both facilities at a cost of more than $1.2 billion.

The EPA concluded that wastewater discharged to the ocean from Honolulu's two largest treatment plants does not meet federal water quality standards. However, city officials and some scientists argue that secondary treatment is not necessary because wastewater is discharged far offshore, in deep water at the center of the world's largest ocean.

The city will have to increase sewer fees and seek money from the federal government if it loses its appeal of the EPA order. Barring an unexpected reversal, county taxpayers will have to pay $800 million to upgrade the Sand Island facility and $400 million to upgrade the Honouliuli plant, according to earlier city estimates.

This year also will be a key year in determining whether Honolulu's plan to build a $5.3 billion elevated commuter rail system stays on schedule. City officials hope to begin construction on the 20-mile East Kapolei to Ala Moana train in December, with limited service beginning between West Loch and Waipahu in late 2013 and full service between East Kapolei and Ala Moana Center starting by 2018.

That ambitious timetable is contingent on the city finalizing project engineering and management plans and acquiring land for the train's right of way.

More immediate barriers include choosing the route of the 20-mile line and fixing a technical problem that's preventing the city from soliciting construction bids for the train project. The City Council is expected to resolve both those issues Jan. 28.

The city also needs federal approval of the project's environmental impact study before it can award a design/build contract for the first segment of elevated guideway.

It's important to make progress on these and other issues in the coming year, said Councilman Nestor Garcia.

"With respect to the budget, with respect to solid waste (and) with respect to sewage treatment, if the community feels that we've been aggressively moving on these different fronts, and we're not shirking our duties, I would like to think they would give us that opportunity to deal with these scenarios," said Garcia, who is also chair of the council's budget committee. "We can't afford not to."