{"id":15013,"date":"2023-03-01T09:50:26","date_gmt":"2023-03-01T19:50:26","guid":{"rendered":"https:\/\/www.environment-hawaii.org\/?p=15013"},"modified":"2023-03-01T09:53:07","modified_gmt":"2023-03-01T19:53:07","slug":"audit-reveals-hawaii-county-has-poor-control-of-housing-credits","status":"publish","type":"post","link":"https:\/\/environment-hawaii.org\/?p=15013","title":{"rendered":"Audit Reveals Hawai\u2018i County Has Poor Control of Housing Credits"},"content":{"rendered":"\n

The Hawai\u02bbi County Office of the Auditor has released its report on the handling of affordable housing credits issued by the Office of Housing and Community Development (OHCD). And it isn\u2019t pretty.<\/p>\n\n\n\n

The County Council requested the audit after the U.S. attorney in Honolulu, Claire Connors, brought criminal charges against four men \u2013 including a former county Housing Office employee \u2013 accused of gaming the county\u2019s system of awarding housing credits in return for the development of affordable housing units. Altogether, the federal government alleges, the men enriched themselves through fraudulently obtained credits to the tune of more than $10 million.<\/p>\n\n\n\n

Conducted under the supervision of county auditor Tyler Benner, the audit found little good to say about the OHCD\u2019s practices prior to the issuance of federal criminal charges. Of the 49 developers receiving excess affordable housing credits, the OHCD had no affordable housing agreement on file for 24 of them, or nearly half, the report found. The agreements with four other developers were missing required signatures. Seven developers were awarded credits before any housing was built, six developers resold those pre-awarded credits, and four developers resold pre-awarded credits without any affordable units constructed. Two developers were awarded more credits \u2013 a total of 48 more\u2013 than they were entitled to.<\/p>\n\n\n\n

Overall, the audit found, \u201cWe found prior internal controls were generally inadequate and not operating according to best practices to prevent, detect, and deter fraudulent transactions.\u201d<\/p>\n\n\n\n

When addressing the circumstances that contributed to the fraud, the auditor notes one of the unique provisions in the County Code. \u201cOther jurisdictions use a combination of in-lieu fees and land conveyance to satisfy all or a portion of housing obligations. Hawai\u02bbi County is the only county that awards \u2018excess\u2019 credits and does not charge in-lieu fees,\u201d the report states.<\/p>\n\n\n\n

The complexity of Chapter 11 itself was identified as another contributing factor. That law offers developers and would-be developers a veritable smorgasbord of options by which affordable housing obligations tied to developments may be fulfilled: \u201cdeveloping finished lots, selling, or renting the required units on- or off-site, conveying land or infrastructure, or purchasing affordable housing credits.\u201d Given this complexity, \u201cAt approximately 44 percent, purchasing [credits] has become the most often used method of satisfaction\u201d of the affordable housing requirement, it found.<\/p>\n\n\n\n

The relatively easy availability of credits has resulted in a market of sorts, small, yet often incredibly lucrative. Of the 1,800 or so credits that the OHCD has issued since 1988, at least 638, or 35.2 percent, \u201chave been sold at least once,\u201d the auditor found. \u201cHistorically, private credit sales have varied in price from as little as $5,000 to as much as $75,000 each.\u201d <\/p>\n\n\n\n

According to the audit, Housing Office staff said that \u201chistorically, they were advised not to interfere with private-party credit transactions.\u201d<\/p>\n\n\n\n

\u201cHowever,\u201d the audit continued, \u201ccredits have significant potential values. When used as intended, credits provide developers with a means to liquidity, which in turn contributes to housing production. However, when bought and held, the lack of liquidity means less overall capital investing in developments, and production suffers. As public stewards, behaviors, actions, and decisions must be made in the public\u2019s best interest. OHCD should have a solid understanding of credits\u2019 impact on production.<\/p>\n\n\n\n

\u201cThe program has under-served communities around the island. Excess credits are bought and held for long periods rather than to produce housing units. For OHCD to successfully achieve its mission of providing affordable housing, foundational reforms must accompany improvements to its internal control system.\u201d<\/p>\n\n\n\n

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Pre-Award of Credits<\/strong><\/p>\n\n\n\n

Following the revelations by the federal prosecutor last summer, details of two of the criminal schemes involving the award of excess affordable housing credits were aired in public (and also in the June 2022 issue of Environment Hawai\u02bbi<\/em>). Central to those schemes was the pre-award of credits to two self-described development companies before the first shovel of earth was turned, before the very first approval of plans, and even before title to the land was deeded to the developers.<\/p>\n\n\n\n

As the auditor discovered, however, the Office of Housing and Community Development had pre-awarded credits to not just those two firms, but to at least seven firms over the years. Six of them resold credits. Four of them resold the credits without any affordable units having been constructed. <\/p>\n\n\n\n

In one of the pre-award cases, the developer was a non-profit; in that case, the pre-award of credits helped it to raise the capital needed to move forward with the development, much as was anticipated when Chapter 11 was adopted. That developer did build affordable units.<\/p>\n\n\n\n

That leaves two cases in which the county pre-awarded credits to companies that then sold them off, with no affordable housing ever built by either the companies awarded the credits or the companies who purchased them: Lava Kuakini, LLC, which was pre-awarded 10 credits in 2005, and Suffolk Investment, which was pre-awarded 50 credits. Both those entities have been dissolved.<\/p>\n\n\n\n

Poor Documentation<\/strong><\/p>\n\n\n\n

With access to records at the Office of Housing, the auditor was able to come up with a list of credits awarded, credits sold and purchased or otherwise alienated, and credits redeemed. Overall, the auditor could account for 1,811 total credits, all but 161 of which were awarded by the county. (The Department of Hawaiian Home Lands awarded those remaining 161 to developers of affordable housing on DHHL land, an award allowed under state law.)<\/p>\n\n\n\n

Of the total number, 781 were sold, transferred, confiscated by the federal marshal, dissolved, or brokered. A total of 660 credits had been purchased, and 335.8 were redeemed, which means the county accepted the credits in satisfaction of developers\u2019 affordable housing obligations. Altogether, the auditor concluded, there remain 1,354.2 credits still outstanding, available to be sold to developers wanting to satisfy affordable housing obligations by surrendering credits instead of building affordable homes or apartments or developing improved lots for sale at affordable prices.<\/p>\n\n\n\n

But a relatively high percentage of the files for the various affordable housing projects \u2013 40.7 percent, or 24 of the files \u2013 did not include executed affordable housing agreements. \u201cOf the remaining projects,\u201d the audit states, \u201cwe noted four instances where required signatures were missing.\u201d<\/p>\n\n\n\n

It goes on: \u201cWe note 22 instances where the Bureau of Conveyance (BOC) recordation could not be confirmed between missing AHAs or incomplete project files. Furthermore, we noted 12 instances of AHA were not recorded\u201d with the Bureau of Conveyances.<\/p>\n\n\n\n

The poor documentation, lack of signatures, lack of recordation, and other irregular features of several of the affordable housing agreements may yet change the total number of credits available. In a footnote, the auditor states: \u201cThe status of some projects may be pending administrative review by the Office of the Corporation Counsel and is subject to change.\u201d<\/p>\n\n\n\n

Recommendations<\/strong><\/p>\n\n\n\n

The litany of problems with the OHCD\u2019s management of its system of awarding affordable housing credits and working out affordable housing agreements is extensive, as laid out by the Office of the County Auditor.<\/p>\n\n\n\n

Its report identified four \u201cdeficiencies\u201d related to OHCD\u2019s compliance with Chapter 11:<\/p>\n\n\n\n