Above photo: Office of Housing and Community Development administrator Suzan Kunz.
Hawai‘i County, like every other county in the state, struggles with the problem of affordable housing. Unlike the others, though, it has a law – Chapter 11 of the County Code – that is intended to spur the development of lower-cost housing by awarding housing credits to companies that propose to build units that will be within reach of households earning from 60 percent up to 120 percent of the area median income (AMI).
It is a system of almost byzantine complexity, with no fewer than a dozen ways for developers to earn these credits.
In the case of housing developments, developers receive half a credit for each sale of a completed unit to households earning between 120 and 140 percent of AMI. If the unit is affordable to households earning between 100 and 120 percent of the AMI, that earns the developer one credit. Some of those credits apply to the development itself, to satisfy the onsite affordable housing requirements (equal to 20 percent of the total number of units). The remainder of the credits are deemed to be excess.
Sales of units to households earning be- tween 80 and 100 percent AMI get 1.5 credits per sale, while sales of units to households earning less than that earn two credits. Builders of rental units have a similar sliding scale of credits.
And so it becomes possible for a developer of an affordable housing project of, say, 100 units that are theoretically affordable to households earning no more than 60 percent of the area median income to actually earn 200 credits, of which 180 are excess.
When acquired by other developers – whether they are building houses to be sold or rented at market rates, or whether their projects are shopping centers, industrial parks, or most anything else requiring re-zoning – those credits can be cashed in to satisfy the affordable-housing obligations imposed on them.
Developments that need to “earn” these credits include not only housing developments, but also:
• Resorts and hotels that are expected to employ more than 100 full-time workers. These must earn one credit for every four full-time equivalent jobs.
• Industrial developments (except home improvement centers), which are required to earn affordable housing credits depending upon the size of the development, number of anticipated employees, and where they are proposed to be built.
Options available to satisfy the credit requirement include:
• Building and selling “affordable for-sale units off-site,” but only if that site is within 15 miles of the main site being developed;
• Building and renting out affordable units, either on the site itself or within 15 miles;
• Donating to the county or, if the county so directs, to a non-profit organization “developable land” within 15 miles of the main site.
• Finally, the developer can “obtain excess credits from another developer.”
When that last option is chosen, the developer need not create any affordable housing at all.
A market has thus developed in the trade of affordable housing credits, with at least one recorded sale of $50,000 per credit.
The county Office of Housing and Community Development (OHCD) is charged with keeping track of these “excess credits.” This is not stated explicitly in Chapter 11 of the County Code, but is implied in § 11-19, “Reports by housing administrator:”
“The housing administrator may provide timely periodic reports to the council of all significant actions taken under authority of this chapter, including but not limited to the approval of excess credits, the acceptance of transferred credits, and the choice of resale restrictions.”
Susan Kunz, OHCD administrator, told Environment Hawai‘i that no such report had ever been made.
What’s more, a 2021 memo from OHCD staffer Anne Bailey to Kunz suggests that at least until late 2018, the agency “had no tracking procedure for the affordable credits that had been issued over the years.” Only then did it develop “credit transfer procedures to begin to account for the credits issued by OHCD,” the memo states.
OHCD has retained a consultant, Keyser Marston & Associates, a California firm, to review Chapter 11. The firm will be paid $102,000, Kunz said, and its report is due in October.
Belated Accounting
What seems to have prompted the development of a tracking system was confusion surrounding the 261 credits awarded to both West View Developments and Luna Loa Developments in 2015. Both entities were registered the same date – December 17, 2014 – with the Hawai‘i Department of Commerce and Consumer Affairs, and both were controlled by Rajesh Budhabhatti.
West View had received 104 housing credits on the promise of developing 52 low-income units on 13 acres of land at Kealakehe. Nine credits were to be applied to the onsite development and 46 were assigned to the seller, Ron Brown, in lieu of cash as payment for the land. That left West View with 49 credits. Luna Loa received 212 credits on the promise of developing 106 low-income rental units on 4.6 acres in Waikoloa, with apparently no deductions to be applied to onsite units.
As of this year, West View has 45 credits on the books, having transferred four credits to Luna Loa in 2016.
An account register maintained by OHCD for the Luna Loa credits shows that of the original 212 credits, 70 remain on the books. It is near impossible to assign any certainty to that number, however, since the account reflects some transfers that apparently were not approved by the county, some registered with the Bureau of Conveyances, most not, and some of the documents for which BOC numbers were provided not matching up at all with what they were purported to reflect in the account. In addition, there is said to be a transfer of 22 credits to Big Island Housing Foundation “in the pipe line.” However, a note attached to this entry states that the county did not sign on to this in 2017. In 2018, the note continues, Gyotoku “transfers credits from/to BIFH … File is corrupt … so don’t know what was transferred.”
According to Bailey’s memo to Kunz, developments in the fall of 2018 led Gyotoku to devise a more structured protocol for the assignment of credits. That November, OHCD prepared a form “that Alan [Rudo] had put together” for Gyotoku to sign that would allow the release of five credits held by West View to a developer called Hawaii One 1 Investors, LLC. The following month, Gary Zamber, attorney for West View, called the OHCD, stating that the credits should not be transferred.
In January 2019, Zamber stated that the transfer should now be approved by OHCD.
In the end, the transfer was not approved, but “there was significant discussion about whether we should allow West View to sell credits when their Affordable Housing Agreement was about to expire,” the memo states.
In August 2019, West View again requested that OHCD approve the transfer of five credits to the same investor. Gyotoku reminded Budhabhatti of the correct procedure to transfer credits, including the production of corporate documents indicating that the parties to the transfer are empowered to execute the transfer on behalf of their respective businesses.
In 2021, Budhabhatti was still trying to flog the excess credits to Hawaii One 1 Investors. When the OHCD was slow to respond, he emailed county deputy managing director Bobby Command, complain- ing about “the kind of 2nd rate treatment we the developers [sic] get from OHCD. Something is wrong here.”
That got the attention of Kunz. In an email to Bailey, she wrote, “I am concerned that now it is going to the mayor’s office … This is unacceptable… I keep hearing Raj’s name but I am not familiar with him or his project.” (Kunz – then known as Susan Akiyama – had signed off on the West View affordable housing agreement in 2015, when she was housing administrator under Mayor Billy Kenoi.)
Bailey responded with the long memo referenced above, reciting the troubled history of dealing with the excess credits assigned to Budhabhatti.
Finally, on March 7 of this year, Kunz replied to Budhabhatti’s request to assign credits. She recapped the history of credit assignments from the West View balance and noted that his accounting – that he had 49 credits – disagreed with OHCD’s accounting, which included the four credits transferred to Luna Loa, leaving West View with just 45.
If Budhabhatti still wanted to transfer credits, she said, he would need to submit a revised form, reflecting a corrected accounting of credits, to the housing administrator, as well as documents attesting to the corporate authority of the parties involved.
There was no response to Kunz’s letter in the files reviewed by Environment Hawai‘i.
If, as Environment Hawai‘i was told, Budhabhatti’s excess credits have been impounded by the U.S. Marshals Office, the matter may be moot.
— Patricia Tummons
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