Last December, A&B became the first landowner to file a petition.
The petition covers what A&B claims is the country’s largest single coffee estate, located along the southern coast of Kaua`i. The farm, run by A&B subsidiary Kaua`i Coffee Company, Inc., produced three million pounds of green coffee last year. A small portion of the land is also used for seed corn, rice, and pasture. The petition area makes up nearly 20 percent of A&B’s holdings on the island.
After receiving favorable comments from the state Office of Planning, the state Department of Agriculture, and Kaua`i County, the LUC unanimously approved the petition on March 5 with little public fanfare. State Rep. Ezra Kanoho, who helped craft the IAL legislation, and the HFBF’s Okimoto urged the LUC to approve the petition. They were the only two members of the public to testify on the matter.
Kanoho called A&B “good corporate citizens” and thanked the company for committing “a good chunk of their property” to agriculture.
Okimoto said that A&B’s petition would pave the way for other landowners interested in having their lands designated.
“Several landowners are watching the process and thought it would be onerous. Your quick action in this matter will mitigate a lot of their concerns,” he told the LUC, adding that large agricultural operators like A&B help support small agriculture by making imports like fertilizer cheaper.
“If we lose large agriculture, it will become a problem. They support a lot of research. IAL [designation] will be led by larger farmers…willing to help a lot of the small farmers,” he said.
According to its 2008 annual filing with the Securities and Exchange Commission, A&B plans to seek IAL designation on Maui as well, where it owns 68,265 acres. Although no other petitions for IAL had been submitted to the LUC as of mid-March, Dan Davidson, the agency’s executive director, said he’s aware some may be in the works.
“Everyone was watching this one,” he said.
Nitpicking
When the Legislature passed the IAL incentives package last year, one particular provision garnered harsh criticism. Jeff Mikulina, then-executive director of the Sierra Club, Hawai`i chapter, condemned the Legislature in an op-ed piece for inserting “at the 11th hour” language allowing owners of IAL to reclassify up to 15 percent of their holdings into another district without going through the LUC’s normal boundary amendment process.
Although Mikulina expressed his worry that this provision could lead to large-scale urbanization of agricultural land, A&B, in its first petition, chose to waive the designation incentive, which allows an IAL owner to either redistrict 15 percent of its lands covered in a single petition – or receive credit to redistrict other lands in the same county within 10 years of the petition’s approval – to Rural, Conservation, or, Urban, so long as the Urban area is consistent with county planning documents.
Had A&B not waived those credits, which could have allowed for the redistricting of about 566 acres, Office of Planning director Abbey Mayer told the LUC at the March meeting that his office would probably have objected to A&B’s decision to include two large gulches in the petition area.
Although the state DOA had determined that the area represents a critical mass of agricultural land, most of the land is actively farmed, and the University of Hawai`i had classified more than 80 percent of the area as having high productivity soils, the OP questioned whether the rest – made up of gulches, streams, and reservoirs –deserved IAL designation. While the OP did not oppose the petition, Mayer said he and his staff wanted to make sure all of the lands were worthy.
“We felt a strong need to examine lands for designation as Important Agricultural Lands… Are they all high-value ag lands or are there others included?” he asked.
In addition to the two large gulches, Mayer pointed out few other areas that might not immediately warrant IAL designation. They included reservoirs serving lands outside the petition area, gulches along the coast, and a small area near the Hanapepe Valley River where the OP was not sure there was active farming.
“We’re not trying to nitpick too much, but we are forming precedent for the other cases,” he said.
A&B attorney Benjamin Matsubara responded that he thought it was important to include agricultural resources, such as the reservoirs, in the petition and said that the 20 or so acres near the Hanapepe Valley River provided for recharge of the area’s groundwater sources. The gulches near the ocean were also a part of the agricultural system, he said, adding, “If we didn’t include it, we would be accused of planning to have luxury seaside homes there.”
Kaua`i LUC member Thomas Contrades said he was very familiar with the petition area and said he believed the questionable areas should be included.
To make sure designation credits aren’t given out needlessly in the future, Mayer said that the LUC might want to adopt a threshold for gulch lands receiving IAL designation.
Tax Credits
While A&B waived its designation credits because, as Matsubara told the commission, it “does not intend to have acreage placed into another category,” the company does plan to take advantage of income tax credits once they become available.
At the LUC meeting, Matsubara said, “In the future, there may be an opportunity for tax credits, permit processing…. In the future, those would be utilized.”
Last year, the Legislature provided income tax credits of up to $7.5 million, to be distributed on a first-come, first served-basis, to owners of designated IAL land. Under Act 233, a single IAL owner may receive income tax credits of up to 50 percent of qualified agricultural costs incurred since July 1, 2008 or of $206,250, whichever is less. (A&B’s agribusiness capital expenditures for all of 2008 totaled $15.2 million.)
In the first year after the credits are made available, an owner of IAL may receive income tax credits for 25 percent of its agricultural costs or of $625,000, whichever is less. In the second year, the landowner can claim 15 percent of costs or of $250,000, and in the third year, the landowner may receive 10 percent of the lesser of agriculture costs or $125,000. The act states that the costs upon which the tax credit is computed will be determined at the entity level. DOA deputy director Duane Okamoto told Environment Hawai`i that although A&B subsidiary McBryde Sugar Company, Ltd., owns the petition area and Kaua`i Coffee Company farms the land, A&B, as the petitioner, would be the only entity eligible for the tax credits for this property.
According to A&B’s 2008 annual Securities and Exchange Commission filing, the income tax credits are sorely needed. For the first time since 1995, A&B’s agribusiness section lost money, about $13 million, A&B reported. A March press release from A&B attributes the deficit to losses at its Maui sugar company, Hawaiian Commercial & Sugar. The release also stated, “In 2009, it is expected that greater HC&S losses will be incurred due to the impact of prior drought conditions, manifested in lower sugar yields and production; a significant pension cost increase due to the 2008 decline in pension asset values; and revenue reductions in power sales.”
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