City's planned 115% sewer fee hike under Council scrutiny
STAR-ADVERTISER / OCT. 23 The city is looking at options to deal with a proposed 115 % sewer rate fee hike that is supposed to take effect in July. A worker maintains a primary clarifier at the Sand Island Wastewater Treatment Plant.
To publicly avert what one city official termed 'rate shock, ' Mayor Rick Blan giardi's administration and Hono lulu City Council are now offering competing ideas to deal with proposed city sewer fee rate hikes expected this summer.
The city Department of Environmental Services says the planned sewer fee increases—which they say amount to a total increase of 115 % across all rate-paying classes over a 10-year period—would take effect July 1.
Currently, the city says, an average single-family residential sewer bill totals approximately $110.89 a month. By July 1 that bill could rise to $122.04 a month.
ENV contends planned sewer fee rate hikes are necessary to address rising operational costs as well as fund critical projects within its $10.1 billion capital improvement program, scheduled from 2025 to 2040.
That includes work to upgrade the Sand Island Wastewater Treatment Plant to full secondary treatment, which will cost an estimated $2.5 billion.
Potable water fee rates will not be adjusted, as they are separate fees administered by the Honolulu Board of Water Supply.
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In October, ENV initially proposed to increase sewer fees annually for the next 10 years—by 9 % over the first six years, followed by smaller annual increases of 8 %, 7 %, 6 %, and 5 % over the subsequent four years.
But since that time, other versions to Bill 60 have materialized—including a revision by ENV itself that supposedly lessens the initial blow of higher fees to its rate-paying customers.
ENV Director Roger Babcock on Tuesday presented to the Council's Budget Committee the so-called '6 % option '—which sees sewer rates rise by 6 % on July 1. Those rates would increase by 7.5 % in 2027 ; 8.5 % in 2028 ; 9 % in the following four years ; then rise by 8 %, 7.5 % and 7 % in the final three years, ending at year 2035.
Under this 6 % option, the city said the same average single-family residential sewer bill in the first year would go to $119.18 a month instead of $122.04, a 2.3 % difference.
'We were asked if we could do anything to try to modify the rate schedule in order to perhaps reduce rates in the initial years, ' Babcock told the panel. 'The important thing was we took our revenue requirements for the 10-year period, and actually beyond, and made sure that we had enough revenues in each year of the rate package.'
He noted new rates should ensure the city is 'whole, in terms of operations and maintenance, debt service and new debt issued in order to do our (capital improvement program ).'
During committee questions, Council Chair Tommy Waters noted ENV's new 6 % option 'starts at 6 %, but over the years, will increase up to 9 %, right ?'
'Correct, ' Babcock replied.
Waters added, 'And ultimately, they both come out with approximately the same amount, which is about a 100 % increase, right ?'
'That's correct, yes, ' said Babcock. 'Because it's all based on the revenue requirements that we generated during our rate study.'
But Waters asserted the city's new 6 % option is 'putting the big rate increases at the end of the 10-year cycle, rather than at the beginning.'
Babcock said, 'It redistributes some of the increase from the earlier years—really the first three years only—(and ) moving that out a little bit to the later years.'
Meantime, Waters told the committee 'we understand the reality that families are facing.'
'Food costs are up, transportation costs are up, utilities and electric bills are up, ' he said. 'One of the things that I'm suggesting, and I have a bill already drafted, which would infuse the sewer fund using the Oahu Transient Accommodations Tax, or OTAT, using approximately $49 million a year.'
Waters noted 50 % of OTAT currently funds the city's over-$10 billion rail project.
'This is a tax on the visitors, whenever they come to Hawaii, ' he said, adding 8.4 % of OTAT goes toward city parks to mitigate impacts of visitors too. 'I'm suggesting we take the balance of 41.66 % and infuse it into the general fund.'
Waters claimed by 'using cash from the OTAT ' the city won't have to issue as many bonds to fund major city projects like sewer treatment plant upgrades.
'Thereby, creating savings, ' he said. And rather than 'a 100 % increase over the 10 years, it would amount to approximately about a 70 % increase over 10 years, ' he added.
Waters' tentative proposal to increase sewer fees annually for the next decade includes a 6.75 % increase for the first five years starting July 1, followed by an 8.75 % increase for the next two years, and then it would decrease to 7.75 %, 6.75 %, and 5.5 % over the remaining years.
Although not a voting member of the Council's Budget Committee, Waters said, 'he'd love for this committee to seriously consider this approach, rather than ' the city's versions of Bill 60.
Earlier in the meeting, the city's bond counsel spoke to the importance of Honolulu maintaining its strong bond rating—currently AA +—as the city tackles multibillion dollar upgrades to its sewer treatment infrastructure and related utilities.
'As you may know, the city has approximately $2.5 billion in aggregate principal amount of wastewater bonds outstanding, which are designed to finance improvements for the city's waste-water system, ' said John Wang, a partner with San Francisco-based law firm Orrick, Herrington &Sutcliffe LLP.
He asserted current bond covenants 'or promises '—first established in 1998—commit the city and ENV to do 'certain things, while those bonds are held by investors.'
'These promises collectively form a legally binding contract with the city's existing and future bondholders, ' Wang said. 'These promises, of course, include the promise to pay bonds on time and in scheduled amounts but also include other important commitments.'
He said that includes the 'rate covenant, which requires the city to set sewer rates at sufficient levels to generate revenues to allow the city to cover its (operating and maintenance ) expenses as well as its obligations to make debt service payment on the bonds, plus a certain cushion.'
Wang added 'unfortunately, monies generated from the surplus and the city's general fund or any other monies derived from the general fund do not legally qualify as monies to meet this requirement.'
He noted investors use bond ratings 'to help determine whether to buy bonds, and if purchased, at what interest rate.'
'The higher the rating on the bonds, the lower the borrowing costs, ' he said. 'And in turn, the lower the rating on the bonds, the higher the borrowing costs.'
However, he asserted 'failure to meet the rate covenant could expose the city to legal risks.'
'If the city were not to enact sewer rates, and charges sufficient to meet the rate covenant, such failure could lead to a default under the resolutions and entitle bondholders to pursue legal remedies against the city, including declaring that all outstanding bonds to be immediately due or payable, ' Wang asserted.
'And the net effect of the city's borrowing costs could end up costing ratepayers more in the long run, ' he added.
During public testimony Tuesday, Hawaii Kai resident Natalie Iwasa disagreed with Waters' plan to use OTAT funds to cover sewer costs rather than city rail, as she suggested such actions might sway bond investors.
'If you are taking cash, or you are taking TAT or you are taking any other money that could go to the general fund and using that to supplement the sewer fund, what does that tell investors ?' she asked. 'Investors want to have the assurance that (the city has ) the sewer money here, and that they have the general (fund ) money here.'
'And if you're taking from the general money and you're putting it over here, what happens to the general fund ?' she queried. 'Is the bond rating in the future going to go down because of that ?'
Kaneohe resident Donald Sakamoto also expressed concerns over higher sewer fees. 'As a 'Go for broke' guy, I don't want to be too broke to 'Go for broke'
anymore, ' he said. 'Fee increases are very hard for myself, who is disabled and a kupuna.'
In the end, Budget Committee Chair Tyler Dos Santos-Tam—who'd offered his own version of Bill 60—recommended the budget committee postpone discussion on this measure to a time to be determined. However, the panel plans to deliberate the matter further at meetings in May.
The full Council's overall budget sessions for fiscal year 2026—in which a finalized Bill 60 is likely to be included—are scheduled to continue through early June.
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