New Kona School Plans Raise Concerns About Financing, Affordable Housing

Dawn Chang, a member of the state Land Use Commission, had a question for David Hamilton, president of the non-accredited University of the Nations-Kona, relating to the school’s plans for developing about 62 acres of undeveloped land adjoining the existing campus.  The site is about a mile south of the Kailua-Kona town center, sandwiched between Kuakini Highway on the west and on the east, the area where Queen Kaʻahumanu Highway intersects with Hualalai Road.

“You made a comment that, ‘we’re back on track with a normal project.’ But I think you’d have to agree this is a little unusual, in the sense that, normally, [land use] entitlement comes after the environmental impact statement process, after we know what the project is.

“In this case, though, 20 years later, we’ve got entitlements and we’re doing the EIS process for a very different project than what was originally proposed,” she said during the November 2 meeting of the Land Use Commission, held in the University of Hawaiʻi-Hilo campus center.

The meeting had been called to give commission members the chance to ask representatives of the school about their updated plans for developing the acreage. When the school petitioned for a district boundary amendment – from Agricultural to Urban – back in 2003, it had said it would build a 300-unit condominiumon about half the land, with the rest given over to a tourist-oriented Cultural Center and associated parking, an “educational facility,” and infrastructure.

There has been little to no progress on the development since then, and two years ago, the university proposed a new master plan that nixes the Cultural Center and all of the housing units.

Crickets

In August 2003, when the commission voted to approve the project, it had determined that the boundary amendment was consistent with state and county plans and that the project did not require any environmental assessment or environmental impact statement. 

Among other things, school-affiliated U of N Bencorp, the land’s owner, was required to submit annual reports documenting progress made and compliance with the 18 other conditions.

Not until August 2006 did the university submit an “annual” report, through its then-attorney, Steve Lim of Carlsmith Ball. And it was a doozy.

Lim reported that U of N Bencorp had changed its name to AEKO Hawaii. “AEKO, together with Loren Cunningham, the founder of the University, determined that the Original Project, with its commercially driven Hualalai Village condominiums and Cultural Center, was not in keeping with the purpose, mission, and needs of the University, and that the educational facilities planned under the Original Project were insufficient for the current and projected needs of the University.”

Lim did not offer any explanation on the name change or the altered plans, but information in other filings with the LUC suggested there was a good deal of turmoil in the university leadership in years following the original LUC decision. In a traffic impact analysis report (TIAR) prepared in 2006, there’s this:

“Early in the spring of 2004, the top administration of the University of the Nations decided to change direction in the planning for development of the … property. They decided it was a mistake to develop the land for primarily commercial purposes…. At that time, the Bencorp board renamed the benefit corporation ‘AEKO HAWAII,’ appointed new members, and all of the former Bencorp members resigned.”

In 2006, Lim informed the commission that the university would be filing a motion to amend its original proposal. “AEKO believes that the Revised Project continues to be in substantial compliance with the representations made to the commission” in the original proceedings, he said, adding that it also “is more in keeping with the important mission and purpose of the University and will have significantly less impact on the surrounding area than the Original Project.”

That December, Lim submitted the motion to amend, with the new project now consisting of about 400 units of housing, athletic facilities, and educational buildings. The housing was to be either sold or rented to staff and students at rates subsidized by the university.

(Since the housing would be sold or rented out at rates substantially below the area median income, Lim suggested in a letter to the Hawaiʻi County Office of Housing and Community Development that the university would qualify to receive affordable housing credits. He asked that the OHCD “confirm that these subsidized ‘for sale’ and ‘for rent’ residential units will … satisfy the affordable housing requirements [imposed by the LUC] for development of the project.” In addition, he asked that “any affordable housing credits generated in excess of the minimum requirements … will be classified by OHCD as ‘affordable housing excess credits’ which may be sold or transferred to third parties and other project areas.”

(The OHCD did not agree. Replying to Lim’s letter, OHCD Director Edwin Taira wrote, on February 6, 2007, that under Chapter 11 of the Hawaiʻi County Code, “the affordable housing units must be available for sale or rent to all qualified households. In regards to excess affordable housing credits, since these units are not available for sale or rent to all qualified households, no excess credits will be approved.”)

In March 2007, the LUC held a hearing on the motion to amend but did not vote on it. In 2019, Anthony Ching – who had been executive officer of the LUC at the time of the March meeting, but who now was a planning consultant for the University of the Nations – told the commission that it had lost quorum back then. 

“I think just before we lost quorum, it’s my recollection that there was a comment made to the petitioner to not come back to us until you have all your ducks in a line and financing and ready to go,” Ching testified.

More Crickets

From 2007 to 2019, the LUC heard nothing from the University of the Nations. Then, in February 2019, it petitioned the LUC to have the land withdrawn from the Urban District and revert it to the previous classification of Agricultural.

Barely six weeks later, though, it asked to withdraw that petition. On March 28, it submitted a report to the LUC, just minutes before the commission was about to begin a status hearing on the school’s compliance with terms of the 2003 decision and order. That report, covering the period from 2008 to 2019, refers to a period of indebtedness related to the school’s development of a market-rate condominium project just outside of the area covered by the LUC petition, known as Hualalai Village, and also to the resolution of unspecified litigation. 

In his testimony that day before the LUC, Paul Childers, at the time the chief operating officer, described “several issues that have happened over the last several years that definitely absorbed a lot of our effort and energy.” One such issue, he added, “was a fraud perpetrated on us over the last year by Pablo Rivera.

Rivera, whom Childers described as a volunteer, served as the university’s chief financial officer. In 2017, he pleaded guilty to defrauding the school of more than $3 million and in January 2018, he was sentenced to 115 months in federal prison.

(In 2020, Rivera asked to be released from the federal medical center in Massachusetts where he was held at the time, citing fears of contracting COVID-19. In denying his request, U.S. District Judge Susan Oki Mollway wrote, “Over a significant period of time, he wrote scores of checks to himself, created a fraudulent spreadsheet in an attempt to hide his crime, and falsely inflated invoices from others. With the proceeds of his crime, he bought residences, jewelry, a gold mine in Africa, and other luxury items. He paid thousands of dollars for spa treatments. Uncovering his crime was difficult, as he did not promptly admit to any wrongdoing when questioned. Instead, in an apparent attempt to gain sympathy, he falsely claimed that his wife had breast cancer. Then, approaching sentencing, Rivera submitted to the court a materially altered email purporting to show that he was not hiding assets.”)

Childers also mentioned that the school had been sued “in connection with an accident on the mainland.” Ultimately, he added, the school was cleared.

“So,” he continued, “as we have come through this relatively challenging season, we believe that reestablishing, reaffirming our faith-based model, which is walking forward, really, walking with the Lord in the issues of development, we really believe that we will be able to develop this campus as an educational facility for the local Hawaiians, training missionaries to go around the world, and we will be able to do it in a way that accords with Kona, our town here, as well as being able to fulfill our mission mandate.”

The LUC was unmoved. The following day, it issued an order to show cause as to why the land should not revert to the Agricultural District, given that the university “had failed to perform according to conditions imposed and representations made to the LUC” when the 2003 reclassification was approved.

At a hearing on the order in May, the LUC agreed to postpone any decision for at least six months, at which time the university was to report on progress made toward developing and financing its plans for the area.

After several further hearings, in March 2020, the university withdrew its 2006 motion to amend and filed a new motion to amend. In July, after an executive session, the LUC dismissed its order to show cause, but strongly encouraged the school to comply with the Hawaiʻi Environmental Policy Act (Chapter 343) as it moved forward with its plans.

‘Points of Concern’

On August 8 of this year, the university submitted a three-page status report to the LUC. Rather than explaining the progress made toward each of the conditions contained in the commission’s 2021 amended decision and order, Paul Childers, identified now as a “university leadership team member,” described the way in which the disruptions experienced by the university as a result of COVID-19 impeded its ability to move forward with its plans.

The university then, on its own initiative, sent a more fleshed-out, 13-page-long supplemental report on September 9, signed now by university president Hamilton.

Dan Orodenker, the commission’s executive officer, prepared summary of the status report as well as background information and staff comments in advance of the commission’s November 2 meeting.

The report cites several “specific points of concern:” affordable housing, apparent lack of progress toward preparation of the environmental impact statement, a change in the planned project, and the ability of the university to finance the development.

Housing

On the issue of affordable housing, Derek Simon, the attorney representing the university, said that in 2020, Duane Hosaka, then-head of OHCD, stated that the university’s master plan, while including dormitory housing, did not trigger any affordable housing requirement under the county code, since dormitories are not considered housing.

Hamilton said that despite that, the university already had been involved with two housing projects.

The Hualalai Village project was originally intended to be the first phase of a four-phase project, with phases two through four being part of the 62 acres included in the 2002 boundary amendment petition. More than 100 units were eventually built in Phase One. According to a 2019 presentation to the LUC, the land under five of the eight buildings in that phase is owned by a university land trust.

Phases 2-4 – part of the original project now abandoned – were to include 297 units in 21 buildings on roughly half of the LUC petition area. That would have triggered the county affordable housing requirement, which the LUC referred to in its original decision and order.

Hamilton also mentioned the university’s role in rehabilitating the 126-unit Kamaʻaina Hale, off Kuakini Highway immediately north of the campus. That development is owned by the state on land held by Kamehameha Schools, but with permission of the Hawaiʻi Housing Finance and Development Corporation, the university renovated and now manages the project under a sublease from HHFDC. Hamilton told the commission that 42 of the apartments are rented to households earning 50 percent or less of the area median income, while 84 are rented to applicants earning up to 80 percent of AMI. While university staff may apply for these units, he said, there is no preference given to them.

Deputy attorney general Bryan Yee, representing the state Office of Planning and Sustainable Development, asked Hamilton to confirm, “for the record, because it’s an existing facility, it’s not used as a credit by other developers.”

“Correct,” Hamilton responded. “We took it over in 2014 and created a separate entity to manage. Technically, it’s not University of the Nations.”

But if the new plan does not trigger any affordable housing requirement, as the university claims, then why did the August 2022 status report mention ongoing talks with the current OHCD director, Susan Kunz? Commissioner Michael Yamane asked the question of Simon.

“That relates to Phase One of Hualalai Village,” Simon replied, adding that the statement in the status report “caused confusion.”

Actually, the statement raises questions as to whether the university had in fact complied with affordable housing requirements relating to its market-rate housing. According to the August status report, a June 22 meeting with Kunz was “to confirm that all affordable housing obligations related to its predecessor’s development of Hualalai Village … have been satisfied, and to determine whether UNK may be entitled to any additional affordable housing credits as a result of the affordable units provided at Hualalai Village. … UNK is in the process of providing OHCD with additional information on the affordable housing units it has provided. UNK’s discussions with OHCD remain ongoing.”

The affordable units in Hualalai Village, however, would seem to be restricted to those occupied by university staff and faculty – the units which, as the university explained in 2019, are sold at a “fixed price” to staff and may only be resold at the same fixed price to other staff. As former OHCD administrator Taira noted in commenting on the housing plans presented in the first development proposed to the LUC in 2002, credits are not to be awarded for any affordable housing if it is not made available to the general public.

Commissioner Chang weighed in on the housing issue as well. “My concern is, in 2003, when this project was presented to the Land Use Commission, the community had certain expectations, including affordable housing, based on the project being presented. And this affordable housing condition is kind of vague. It depends on the county, depends on the project.

“Because you have dramatically changed what was presented – and there’s no judgment whether this is better or not – it’s substantially different from what was presented. I am concerned about the change… The decision-and-order may not match what you are proposing to do now.”

Simon, the university’s attorney, replied that the environmental impact statement would be the first approach to the community, before the commission would address what’s being presented.

The EIS

An environmental impact statement preparation notice was published in the Environmental Notice in March 2021. In the September status report, the university reported that the EISPN had overestimated the number of students that were anticipated to be on site at any given time. “Specifically,” it stated, “UNK’s intent is to reduce the number of dormitories, based on modified projections of student enrollment, which in turn reduces the other planned facilities, such as classrooms.” 

At the November meeting, university representatives said that the draft EIS would be published in the first quarter of 2023, with the final EIS “by the end of 2023.” “The motion to amend the LUC petition” – the one approved in 2003 – “will be after the EIS process is completed,” Jeff Overton said. Overton is principal planner with the G70 Design group, retained by the university to prepare the EIS and master plan.

Although the draft EIS has not yet appeared, the university provided to the LUC a “master plan update” in 2020. It provides a general description of what the forthcoming draft EIS is likely to propose.

The first phase (to be completed within 10 years) includes a chapel for the university’s “Discipleship Learning Center,” classroom building, dormitories, a gym and practice field, roads and paths, and an “instruction building” and playground for the primary school for children of staff.

Phase Two (build-out in 10-20 years) anticipates a “student resource center,” more classrooms and dorms, a soccer field and aquatic center, classroom buildings and athletic areas for the middle and high schools for children of staff, and cabins for a youth camp.

Phase Three (beyond 20 years) includes further buildings and dorms to support the discipleship learning center, more dormitories, full build-out of the aquatic center, including parking areas and a pool complex, and a “Discovery Center” and associated exhibit buildings along Kuakini Highway, among other things.

Financing

“The LUC staff is particularly concerned about the financial status of the petitioner and funding of the project,” the staff report stated.

The question of exactly how the new plan would be financed had arisen earlier in the proceedings. In November 2019, the university entered into a stipulated agreement with the county and the Office of Planning, under which the university would be allowed to file all its financial information under seal. Only the commission and staff would be allowed to review the financial documents submitted by the university.

That didn’t fly with the commission. Its chair, Jonathan Scheuer, informed the university’s attorneys that they had not provided “a legitimate basis for approval of such a protective order.” Scheuer noted that the LUC’s rules require petitioners “to show, and the commission to find, that the petitioner has the economic ability to carry out the representations relating to the proposed use or development.”

To that end, the petitioner must provide “a statement describing the financial condition and a current certified balance sheet and income statement and a clear description of how the petitioner intends to finance the proposed development.” A protective order may be allowed if the information falls under one of the exemptions set forth in Hawai’i’s Uniform Information Practices Act,” Scheuer noted. However, he continued, “[t]he stipulation … does not state a statutory authority under which the petitioner would be entitled to a protective order, or what specific privacy interest is being claimed. In sum, we do not see anything in the presented stipulation that justifies the level of protection sought or why the privacy interest of the individual outweighs the public interest in disclosure.”

Following Scheuer’s letter, the university released to the LUC audited financial statements covering the years 2017 to 2019. Assets at the end of the 2019 fiscal year (June 30) were pegged at $45.5 million, the bulk of which were non-cash, including land and buildings valued at more than $37 million. Actual cash on hand was just over $3 million, with another $700,000 or so made up of accounts receivable, prepaid expenses, and “cash advances.” (Those cash advances were explained as funds given to missionaries and students “for travel and outreach purposes. The cash advance is maintained in full on the balance sheet until receipts are provided.”) The actual amount of cash available to meet cash needs for one year, the auditors stated, came to just under $2.9 million.

According to a master plan update submitted to the council in 2020, the total cost of improvements over the next 30 years is around $163 million. Without the volunteer labor, the cost would approach $270 million, the university claims.

Faith-Based Financing

The university’s original plan for the 62 acres, presented to the LUC in 2003, called for the development to be financed by the sales of condos in the Hualalai Village complex. The first increment was built on land outside the LUC petition area, but adjacent to it.

But the plan to continue on with construction of the remaining 300 or so condos in the redistricted petition area was abandoned.

In a filing with the LUC connected with the 2020 motion to amend the original petition, the university describes reasons for this. The original plan was based on what the university calls a “business model.” “In the business model when funds are needed for expansion it is typical to borrow,” the university says. While the university and its sponsoring Youth With a Mission (YWAM)  does not believe it is wrong to borrow, the statement continues, “we agree with Proverbs 22:7 where it says: ‘The rich rule over the poor, and the borrower is slave to the lender.’ Thus we have chosen to fund our campus development through faith/donations and not through borrowing.”

The university still owed around $5 million in debt “related to the time when we followed the business model,” the statement says, “but we are paying this off and hope to be debt-free in the near future.”

It then goes on to list the various improvements and buildings on the campus that have been developed, “with a faith-based model,” over the last 35 years, placing their collective value at more than $78 million (“based upon new building costs”).

Another document submitted at the same time to the LUC shows how yearly increases in enrollment over the 30-year project timeline could generate more than $181 million, with each student paying tuition of $2,000 per quarter. That projection calls for student numbers to increase from the current 500 to 2,000.

Yet, as the most recent annual report notes, the university is experiencing a decrease in enrollment, leading to “a significant reduction in funding and revenue.”

The commission’s administrative rules require petitioners to provide “a clear description of the manner in which the petitioner proposes to finance the proposed use or development.” The commissioners must then determine whether the petitioner “has the necessary economic ability to carry out the representations and commitments relating to the proposed use or development.”

Economic Impact

In the discussion of affordable housing, commissioner Chang wanted to know about the provision of housing for the university’s work force. “How many people work within the campus, serve the campus, who are not faculty members?” she asked.

Pretty much none. That was the answer given by university president Hamilton. “All of our staff on campus – not just faculty, but also operational, administrative staff – all of them serve on the campus as members. No one has a salaried position. Everyone raises their own support. We’re not hiring anyone for any of those functions. Everything is all volunteer.”

He later qualified that a bit. “We do have times when we employ people. Construction workers, electricians, engineers. Sometimes we can provide expertise on our own. … When we have a function we can’t provide on our own, we employ locals.”

A review of the financial documents provided to the LUC tells a slightly different story. In a note to the auditor statement, there’s this: “the university contracts with outside employment agencies for certain key functions, but is otherwise staffed by volunteers (missionaries). Volunteer staff are responsible for raising their own support and are considered independent contractors and not employees. The university acts as a qualified missions agency and collects and disburses donations to the missionaries. The volunteer staff are individually responsible for any required filings with government agencies.”

In other words, the volunteers (“missionaries”) can receive disbursements from the university. Any payments to those volunteers, however, since they are from a “qualified missions agency,” don’t have to be reported to the government on any 1099 or W-2 form. As the audit states, the responsibility of reporting is placed on the individual “volunteers.”

The most recent IRS filing by the university (for the fiscal year ending June 30, 2021) states that the university employed just two individuals, but had 1,050 volunteers.

Among the missionaries who received support, four of them are closely related to members of the board of directors. Darlene Cunningham, wife of Loren, the university president, received $64,092 in missionary support. Allen Anjo, husband of Julie Anjo, in-house counsel and secretary of the board of directors, received $23,337. Yoo Lee Park, wife of board member Sun Wah Park, received $41,277. Janice Rogers, identified as a sister to a board member, received $45,689. (The 2021 Form 990 does not show anyone surnamed Rogers on the list of board members. That filed for FY 2018-2019 does, however, list a James Rogers as treasurer. James Rogers is reported to have received a loan of $90,000 from the university, with a reported balance due of $148,000.)

What’s more, despite the Land Use Commission having been informed by Hamilton that “everything is all volunteer,” the school paid out a total of $335,186 to its board members, including $68,034 to Hamilton. Among the others receiving payment were Loren Cunningham, $67,961; Park, $51,051; Julie Anjo, $30,219; and Paul Childers, $79,000.

— Patricia Tummons