Property tax rates will remain unchanged after the City Council yesterday approved $2.76 billion in spending for the coming fiscal year, a 13.7 percent increase from this year.

The total assessed value of residential property on O'ahu has decreased for the first time in six years, falling 2.7 percent. So with tax rates staying the same, individual owners could pay less in property tax if their assessed value fell.

The budget includes a $100 real property tax credit for qualifying homeowners, down from a $200 credit last year.

The budget includes no fee increases other than a previously approved 18 percent sewer fee increase.

The budget reflects priorities that Mayor Mufi Hannemann announced in March, including repairs and upgrades to infrastructure such as roads and sewers.

Some council members criticized the increased spending for putting the city into debt that would be paid for by future generations.

By a 6-3 vote, the council passed an operating budget of $1.808 billion for the fiscal year July 1, 2008, through June 30, 2009, a 10.3 percent increase over the current fiscal year.

The council voted 8-1 to pass a capital budget of $954 million — about a 21 percent increase — much of it for road, sewer and transit projects.

Council members Charles K. Djou, Donovan M. Dela Cruz and Ann H. Kobayashi voted against the operating budget, while Djou was the lone no vote on the capital budget.

City spending is financed primarily with property tax revenue, fees and the sale of general obligation bonds.

Hannemann's administration attributed the increase in operating expenses to interest payments on debt, pension and health-insurance payments, and arbitrated pay raises.

Sewer fees jumped from an average of $41 a month in 2005 to $56.81 a month now, and are expected to rise to $79.10 a month by 2010. In 2005, Hannemann proposed a six-year schedule of sewer repairs financed by the increased sewer fees.

"I'm very pleased that the council agreed to not raise taxes or fees, and to provide the $100 homeowner tax credit I proposed," said Hannemann in a statement. "With the economy slowing, it's very important to protect taxpayer money and plan our spending wisely so we can continue providing the important services that our residents expect and deserve."

Dela Cruz voted for the tax credit but said he wished the city could have found a way to maintain the $200 credit homeowners received last year.

"Gas (prices) are going up, electricity is going up, the cost of milk and eggs is going up, this is a really tough time for people," Dela Cruz said. "I'm really disappointed the budget committee couldn't come up with some more relief."

SPENDING JUSTIFIED

Last year, the budget decreased the property tax on an average single-family home, but increased the average sewer fee by a much greater amount.

Property taxes are determined by multiplying the assessed value of a home by the tax rate, which is set each year by the city.

The council last year lowered tax rates for homes and apartments from $3.59 to $3.29 per $1,000 of assessed value.

The total gross assessed value of all property on the island slid from $191.5 billion to $190.7 billion, or 0.4 percent, last year. Hotel and resort property values went down by an average of 4.9 percent.

Budget committee chair Todd K. Apo said he understands the need to be fiscally responsible but said the increased spending is justified and could save the city money in the long run.

"We obviously need to pay extreme attention to our city budget but we also need to be sure we are taking care of the responsibilities we are supposed to provide," Apo said.

"Maybe the smaller budgets in the past is exactly why we have to spend this money today. To say we cannot afford the size of the budget today, I say we can't afford not to do these things."

Djou said he is worried that the increased spending will affect residents well into the future and that both the operating and capital budgets are "porked up."

"We can't keep spending money like a drunken sailor. When we increase government spending at a rate greater than inflation and population growth, we're spending too much money," Djou said. "It was just a few years ago that we were able to operate the entire city and county of Honolulu for less than $1.5 billion. We can't sustain this pace of spending."

Djou said he has long sought to rein in government spending. He has voted against the final version of every city operating and capital budget since 2004.

Hannemann called Djou's votes "self-serving" and said Djou voted against $59.78 million worth of expenses and capital improvements in his district, which runs from Waikiki to Hawai'i Kai.

"Let's be very clear: Council member Djou has voted against the police and fire departments, environmental protection programs, sewer repairs and all the other important services and projects funded through these budgets," Hannemann said.

The budgets will now be reviewed by city budget analysts before being forwarded to the mayor for final approval.