Land Board Cancels Lease, Permit Held by Ke’ehi Marine Center
The Board of Land and Natural Resources has cancelled the lease and revocable permit held by Ke’ehi Marine, Inc. The action, taken at the board’s April 25 meeting, followed protracted negotiations over future rent and mounting concerns by the board over the company’s good faith in its dealings with the Department of Land and Natural Resources.
At the time of the cancellation, Ke’ehi Marine owed the state approximately $367,000 in back rent on its lease and revo cable permit. The arrearage began accumu lating in April 1993, when Ke’ehi Marine first fell behind in its quarterly lease payments of more than $40,000. By January 1995, the amount in arrears peaked at $420,319.05, according to a worksheet prepared by the DLNR’s Division of Boating and Ocean Rec reation. Around that same time, the problem came to the attention of the Land Board, which has since been receiving periodic up dates from DOBOR on the status of the lease.
At the April 25 meeting, DOBOR admin istrator David Parsons was recommending to the board that it approve a new lease rent for Ke’ehi Marine of $260,000 a year, retroactive to February 1, 1996. That was the amount agreed to by a three-member arbitration panel in December 1996.
On February 14, 1997, the manager of Ke’ehi Marine, Yoshi Muraoka, wrote Par sons, taking exception to DOBOR’s account ing of the amount due. Noting that DOBOR had assessed a late charge of 2 percent per year on the outstanding balance, Muraoka stated: “We believe that we are not responsible for the delinquent interest for the period during the rent negotiation and subsequent arbitra tion.” In addition, he objected to DOBOR’s “method of calculating delinquent interest, in which interest is assessed on previously owed balances – i.e., interest on interest.”
Muraoka further objected to the fees DOBOR assessed for the revocable permit: $4,935 a month. “The amount seemed exor bitant,” Muraoka wrote, “and therefore in 1996 we commissioned an independent study of comparables. That study disclosed your fee is out of line and inappropriate. A fair and equitable fee should be $14,000 per annum or $1,166.67 per month… We will not dispute the permit fee for 1993… But, beginning February 15, 1994, we believe that $1,166.67 per month should be charged.”
Recalculating DOBOR’s figures, Muraoka determined that the total back rent, late payments, and interest Ke’ehi Marine really owed came to just $110,279.85 – a difference of more than $200,000 from the state-calcu lated balance. “We are applying for a loan of $110,279.85 to pay you all off the above debts,” Muraoka informed Parsons.
Muraoka’s claims swayed Parsons, to judge from Parsons’ report to the board. Parsons recommended that the board accept a lower rental figure for the revocable permit of $1,571.54 per month – not as low as Ke’ehi Marine had requested, but still well below the $4,935 per month that Ke’ehi had been pay ing without protest up to this point. In addition, Parsons recommended that the board “review the proposal of KMI to settle the balance.”
Board member Colbert Marsumoto de scribed Parsons’ plan to lower the revocable permit rent retroactively as amounting to a refund. Parsons responded that nothing had been refunded: “it was just that much less in arrearages that they would owe us.”
Matsumoto disagreed: “In effect, it is a refund for the revocable permit that they’ve enjoyed for the last year.”
Parsons: “Technically, I suppose.”
Matsumoto: We renew revocable permits every year. If they’re unhappy with the rent we assess, they could have come in and asked us to reduce it based on their studies. When the year is up, why should we be revisiting that? Are we going to do that with other tenants who have RPs?”
Parsons: “They had proposed it.”
Matsumoto: “Sounds like a bad practice.”
Matsumoto went on to recapitulate the history of Ke’ehi Marine’s tenancy over the last couple of years. “When you were going through the arbitration,” he told Parsons, “we were concerned about the failure of the department to cure the delinquency… Yet you were allowing them to proceed with arbitration. That’s not typically what a landlord would do in this kind of circumstance. So we kind of indulged them based on their representation that once we got the rent determined, they would be able to get financ ing to pay off the amount owed.”
“At any time that we were proceeding through that arbitration, did they suggest to you that they were going to dispute the amount that was in arrears? Did they give you any inkling that, basically, as long as the lease rent payments that were due, that the state owed them money as opposed to them owing us? Because in their letter, they suggest that with respect to the lease, they’re owed a credit of $50,000?”
Parsons acknowledged that they had never suggested a problem with DOBOR’s account ing until the February letter.
Muraoka, the manager of Ke’ehi Marine, attempted to explain how his company had determined that a problem existed with DOBOR accounting, but board members – especially Matsumoto – were losing their patience. When Matsumoto asked why Ke’ehi Marine had not challenged the rent for the revocable permit until February 1997, Muraoka indicated that Ke’ehi Marine had waited until it had in hand the renegotiated lease rent to use as a basis for calculating the value of the adjoining submerged land under revocable permit.
“Is that my fault or your fault?” Matsumoto asked. “I don’t understand why you expect us to retroactively reduce that…. Basically, we leased you property that you were able to make money off. And for years, you folks didn’t pay us a single dime on the rent that you were supposed to pay for that.”
Public testimony on the subject came mainly from boaters who alleged Ke’ehi Marine engaged in dishonest, unfair practices – often, they said, with the blessing or outright encouragement of Steve Thomp son, DOBOR O’ahu district manager.
Following their testimony, one of the Japa nese principals of Ke’ehi Marine made a last-ditch plea, mentioning that his company had inherited a host of debts at the time it took over the lease. Everyone except the DLNR had been paid, he said.
If that was intended to notify the Land Board, it had the opposite effect. A motion to cancel the lease immediately was unanimously approved.
(For background on the Ke’ehi Marine lease, see the May 1995 issue of Environment Hawai’i.)
In December, Annette Niles was the top bidder (there were only two) for lease of land in Kula, Maui. Since Niles had been convicted in 1995 of 22 counts of animal cruelty, resulting from treatment of cattle at a ranch on state land at Ma’alaea leased by her father, the late Stephen Perreira, the award of the Kula lease to her caused many to question the new lease qualifying process employed by the DLNR’s Division of Land Management to determine and score eli gible bidders for state leases.
As the Division of Land Management reported to the Land Board on May 9, following the December auction, “almost immediately, both TV and newspaper me dia reported the irony of this situation and the department was besieged by alarmed phone callers from the Humane Society and other animal rights organizations.” Their questions – and outrage – only increased in April, when Niles was con victed on eight additional counts of cruelty to animals.
On May 9, the Land Board discussed whether changes were needed in the appli cation bidders must fill out to qualify” for state leases. The application form was ap proved last fall. Bidders who complete it must disclose a vast array of information, including a three-year financial projection and past experience in agriculture (Niles scored high in this field). Missing from the application is any question about an applicant’s record of convictions on charges that might relate to his or her suitability to occupy state land.
The Division of Land Management was recommending that the Land Board ap prove giving it the ability to “disqualify any applicant … convicted of any crime from bidding on a lease in cases where said crime directly relates to the applicant’s ability to adequately and appropriately use the state lands,” with an applicant’s failure to dis close any such conviction in his or her application being “grounds for cancellation of said pasture or agricultural lease… should they be the winning bidder for said lease at public auction.”
Dean Uchida, administrator of the DLM, stressed to the Land Board that the disclo sure of a conviction would not necessarily result in disqualification.
Colbert Matsumoto asked how this might affect instances where corporations were the bidders. Big Island board member Chris Yuen gave a close-to-home example: “New Oji paper company, for instance, was convicted, pleaded guilty to criminal anti trust violations in federal court in Canada. Would they have to disclose that?”
Uchida responded that they would, if they went through the qualification pro cess. (New Oji, which has signed a letter of intent to lease state-owned land in the Hamakua area for growing eucalyptus, did not fill out any application form.)
Yuen also noted that almost all of the convictions in Hawai’i on animal-cruelty charges result from cock-fighting. “I don’t have any problem with somebody fighting chickens and getting a state lease,” he said – to which Uchida responded, “So long as they don’t fight chickens on the state land.”
State law does require disqualification of anyone whose lease has been cancelled as a result of failure to comply with lease terms. However, as Matsumoto noted, the Ma’alaea lease was in Niles’ father’s name, even though she was the manager.
“I would like to find some way for people who are in that circumstance, where they abuse a state lease, as she did, to be barred,” Matsumoto said.
In the end, the Land Board approved the recommendation.
Meanwhile, Niles’ lease of land in Kula is not yet executed. According to the Division of Land Management report, it is being reviewed by the Department of Attorney General.
On April 25, the Land Board renewed three Natural Area Partnership agreements for lands in Moloka’i, Lana’i, and West Maui. The agreements, under which the state provides a two-to-one match for costs of managing the lands, extend previous agreements with The Nature Conservancy of Hawai’i, which were to expire in 1998. The new agreements run through the year 2004.
The Nature Conservancy is to receive $794,406 over the next six years for managing the Kapunakea Preserve in West Maui. This preserve is on 1,264 acres of mountainous land owned by the Pioneer Mill Co., a subsid iary of Amfac/JMB Hawai’i. The state’s share is to be matched by a contribution from private sources of $397,206.
The Kanepu’u Preserve on Lana’i consists of seven different discontiguous areas, rang ing in size from 13 to 368 acres, with a total land area of 590 acres. Land ownership rests with Castle & Cooke, Inc. The total six-year budget for Kanepu’u is $1,180,834. Of that, the state will pay $787,224, with the private match to be $393,610.
The Pelekunu Natural Area Partnership consists of 5,759 acres on the north shore of Moloka’i, owned in fee by The Nature Conservancy. (The land was deeded to Castle and Cooke by Moloka’i Ranch in 1986.) The state’s share of the $1,191,612 six-year management budget is $794,406; the private match share is $397,206.
The Land Board has instructed the Division of Boating and Ocean Recreation to develop rules to implement the Kane’ohe Bay Master Plan by the end of November. In the meantime, the board extended the permits for commercial recreational tour operators in Kane’ohe Bay until November 30, 1997, or such time as the rules are adopted, whichever occurs earlier.
The Land Board continues to lag in ap proval of minutes of its meetings. State law (Chapter 92) requires minutes of state agen cies to be available within 30 days of the date a meeting is held. From January 1995 through the end of May 1997, the board has had 55 meetings. Of those, minutes should be available for 53. In fact, however, no minutes at all are available for 12 such meetings (or more than 22 percent of the total number of meetings for which min utes should be available).
Minutes were approved in timely fash ion for just 10 (19 percent). For three addi tional meetings, minutes were approved within a few days of the 30-day deadline.
Of the 40 meetings for which minutes have been significantly overdue or remain unavailable, the average length of time that passes between a meeting date and the approval of minutes for that meeting was more than six months.
To date, there are still no minutes for board meetings of June 23, 1995 (nearly two years overdue), March 8, 1996, July 12, 1996, and November 22,1996. No minutes have been approved for any meeting in 1997 past the January 10 meeting. (There have been 10 meetings since then.)
Volume 7, Number 12 June 1997
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