When it comes to describing the practices and procedures of the Hawai\u02bbi County Office of Housing and Community Development, words fail.<\/p>\n\n\n\n
Literally, words fail. Until just a few months ago, there were no written practices or procedures, at least when it comes to the OHCD\u2019s administration of valuable housing credits. And those that were hastily adopted in August 2022 still fall far short of what is required.<\/p>\n\n\n\n
So exactly how valuable are those credits? <\/p>\n\n\n\n
Well, a developer can buy his or her way out of building housing that is affordable to households earning up to and slightly over the area median income by simply buying those credits. So instead of having to pollute a luxury, upscale development with more downscale offerings, and thereby forego selling up to 20 percent of the lots to families with just average incomes, developers can simply purchase a credit or two, or dozens. Credits can sell for tens of thousands of dollars apiece, but they are still a bargain. There is utterly no way a house lot of any level of affordability can be developed as cheaply as a credit can be bought.<\/p>\n\n\n\n
As described by the county auditor, the Office of Housing and Urban Development had practically no system of accounting for the fate of credits it had awarded over the previous two decades. The office was inconsistent in how it calculated the award of credits. It wrongly interpreted parts of the law \u2013 Chapter 11 of the County Code \u2013 that established the system allowing developers to earn credits in return for building affordable houses or improving land so it can be sold at affordable prices. <\/p>\n\n\n\n
No policies or procedures. No administrative rules. No monitoring of the contractually binding affordable housing agreements made with developers that should have resulted in the construction of at least some affordable housing over the years.<\/p>\n\n\n\n
How was this possible?<\/p>\n\n\n\n
The audit report identifies several factors, including the sheer complexity of Chapter 11. This certainly helped to create the environment that allowed former county employee Alan Rudo to believe for years he could engage in criminal fraud with no one the wiser. Rudo was given deference as the in-house expert; the affordable housing agreements he worked out with developers weren\u2019t challenged, the documents he presented for signing were signed without question \u2013 not just by the housing administrator, but by the deputy corporation counsel and mayor or mayor\u2019s representative as well. All of them bowed before Rudo\u2019s Delphic mastery of Chapter 11 arcana.<\/p>\n\n\n\n
The Scope of the Problem<\/strong><\/p>\n\n\n\n Last year, Rudo\u2019s involvement in three affordable housing agreements led to serious federal criminal charges against him and three other men. But the review of documents we were able to obtain that relate to the award and transfer of those credits suggest a whole range of additional ways in which the system of awarding credits could have been, and probably was, abused. Perhaps not all rise to the same level of criminality. But they do suggest that, whatever lip service developers, including some who hold themselves up as pillars of the community, may pay to the critical need for affordable housing, their actions have betrayed that very cause.<\/p>\n\n\n\n Here are some of the issues that should be addressed in any program of reform.<\/p>\n\n\n\n Zombie Credits: <\/strong>The auditor concluded that there are more than 1,300 credits still outstanding. At least some of those are held by companies that have legally ceased to exist. And if they don\u2019t exist, neither can their assets. Any credits held by companies at the moment of their death should follow them to the grave. Efforts to claim them should be dismissed as fraudulent, absent some indisputable evidence that the credits were conveyed before the company was legally terminated. Given the lightning speed with which some of the LLCs have come and gone after their members have exploited weaknesses in the housing credit system, a quick death to any credits they may have held onto is fully warranted.<\/p>\n\n\n\n Dubious Provenance: <\/strong>Over the decades, the trade in credits has not been well documented. The affordable housing agreements themselves \u2013 at least the ones we have been able to review \u2013 contain a requirement that they be filed with the Bureau of Conveyances, just like any other legally binding contract that burdens real property. Yet developers have not uniformly complied, and there seems to have been no monitoring by the Housing Office to ensure that this occurs. (Had this been scrupulously observed, the failure of servers in 2018 may not have been quite so catastrophic, since many of the records could have been retrieved from the Bureau.) What\u2019s more, those same agreements also call for the advance approval of the Housing Office whenever credits are transferred. Perhaps the Housing Office did bless a good number of the credit transfers that have occurred, even though it may not be able to locate the supporting correspondence. In that case, the onus should be on those who wish to redeem those credits to substantiate their claims. Show the receipts, or we\u2019ll show you the door.<\/p>\n\n\n\n Ultra-Vires Schemes: <\/strong>Time and again, what starts out as a by-the-book agreement, with developers and the Housing Office signing onto terms that are respectful of Chapter 11, they end up being amended with substitutions for performance that stray far beyond anything anticipated by the law. Instead of building apartments for rent or houses or improved lots for sale at affordable rates tied to the area median income, developers have been able to finagle deals that do nothing to advance the cause of affordability. At times, the temptation to self-deal seems to have been too great to resist, as our review of the Hilo One-Hilo Two deal shows. It\u2019s bad enough that staff at the Housing Office could have approved these. But how could these deals have won the stamp of approval of the Corporation Counsel, given that they are so untethered to the law? Was someone on the Housing Office staff being paid under the counter to shepherd these amendments through to final signing? While the thought may have been dismissed as too outrageous to entertain as recently as a year ago, given what is now known about the workings of the OHCD, it is no longer beyond the pale.<\/p>\n\n\n\n Moving Forward<\/strong><\/p>\n\n\n\n The county auditor, Tyler Benner, is to be commended for his 55-page report on the affordable housing credits and their management. The recommendations it contains, recapped elsewhere in this issue of Environment Hawai\u02bbi, <\/em>should be embraced by the OHCD as well as the County Council. They provide a road map to a rational, accountable system of oversight that is much needed.<\/p>\n\n\n\n At present, the bewildering array of options available to developers to satisfy Chapter 11 obligations needs to be simplified. Better yet, it should end.<\/p>\n\n\n\n Instead of allowing developers who do not wish to build affordable housing themselves to earn credits in the current fashion, the county should require them either to make in-lieu payments, tied to realistic cost estimates for new affordable units, or to donate improved land. This would provide the county with the funds and\/or the land to develop affordable housing itself or to support non-profits that would undertake the work.<\/p>\n\n\n\n The ability of developers to earn credits for offsite housing has led to the easy proliferation of upmarket, exclusive gated communities. At the same time, on the rare occasions when affordable housing has actually been built, it has been off-site. The unsavory consequences of such segregation along socio-economic lines should not be overlooked. <\/p>\n\n\n\n The county will still need to deal with the state-mandated system of credits earned by contractors developing housing for the Department of Hawaiian Home Lands, but those credits are just a small fraction of the total number outstanding. <\/p>\n\n\n\n Apart from addressing the matter of credits, there is a crying need for internal controls and segregation of duties within the Housing Office. As the auditor says, \u201cOne individual should not oversee key elements of the affordable housing process. Compensating controls should be implemented to reduce the risk of duties that cannot be sufficiently segregated.\u201d<\/p>\n\n\n\n The Housing Office has recently implemented procedures that are intended to address many of the problems identified in the audit. However, the auditor found that those policies and procedures, not written by the Housing Office until August 2022, were not reflected in the forms that they continued to use. In addition, monitoring practices were still insufficient and were not addressed in those policies and procedures. Moreover, \u201cno new projects were available during the audit to test compliance with new procedures.\u201d<\/p>\n\n\n\n The fact that affordable housing agreements \u2013 both past and future \u2013 are now receiving the close scrutiny they deserve is progress, to be sure. But much, much more is going to be needed before Hawai\u02bbi County has anything approaching an effective program that will not just encourage the development of affordable housing, but actually get it built.<\/p>\n\n\n\n See also the editorial in the June 2022 edition of Environment Hawai\u02bbi: \u201cBig Island\u2019s Housing Policy: Troubled, Confusing, Ineffective.<\/a>\u201d<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" When it comes to describing the practices and procedures of the Hawaiʻi County Office of Housing and Community Development, words fail. Literally, words fail. Until just a few months ago, there were no written practices or procedures, at least when … Continued<\/a><\/p>\n","protected":false},"author":1,"featured_media":15021,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10,338,508],"tags":[7],"class_list":["post-15020","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-editorial","category-land-use","category-march-2023","tag-patricia-tummons"],"_links":{"self":[{"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=\/wp\/v2\/posts\/15020","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=15020"}],"version-history":[{"count":0,"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=\/wp\/v2\/posts\/15020\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=\/wp\/v2\/media\/15021"}],"wp:attachment":[{"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=15020"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=15020"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/environment-hawaii.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=15020"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}