EDITORIAL: What Is NELHA Doing?

posted in: August 2018 | 0

The Natural Energy Laboratory of Hawai`i Authority – NELHA – has been allowed to run on its own for some years now. It has a special fund that typically brings in around $5 million a year, most of which comes from rents and other fees paid by its tenants. Their number and operations vary frequently, but at the moment, there are 35.

Driving through NELHA’s 870 acres, which lie immediately to the south of the Kona airport, the landscape offers a bewildering array of sights. Next to the Queen Ka`ahumanu Highway is a landmark set of modernistic buildings, the Gateway Energy Center, that was intended to showcase energy efficient building techniques. For the most part, it has remained empty, although now NELHA is entertaining a proposal from the University of Washington to use the buildings for the physician-assistant training program it is establishing on the Big Island. That’s not really anything anticipated when the state set aside the area for the demonstration and development of alternative energy programs, but, well, little that is on the NELHA campus is in line with those goals.

Next to that is what’s left of the failed effort of Sopogy to generate electricity by collecting solar energy in mirrored troughs. That project, at least, was in keeping with NELHA’s founding objectives.

Continuing down the main road, most of the area is rough lava dotted with tufts of fountain grass. Here and there are buildings where seawater bottlers and marine aquaculture companies have their operations.  For the most part, the buildings are poorly maintained; it is hard to know, by driving past, which ones house ongoing businesses and which ones have been abandoned.

More than a decade ago, the Department of Land and Natural Resources surrendered its oversight powers to the NELHA board of directors. And the Legislature has also turned a blind eye to what NELHA does, so long as its expenses are paid out of its special fund and it doesn’t ask much else.

NELHA’s annual reports do not help much, when it comes to figuring out how the public’s resources are being stewarded. Like too many other state agencies these days, the annual report to the Legislature is a public-relations document, growing exponentially in megabyte size even as it shrinks proportionately in real content. A picture may be worth a thousand words at times, but a picture book is no substitute for text and tables.

The articles in this issue point out some of the problems NELHA has had with managing its tenants. To be sure, they do not take notice of the economic benefits of the operations on NELHA lands. (NELHA itself does a more than adequate job when it comes to public relations.)

While acknowledging those benefits, however, we need also point out what seem to be some inherent problems that our (admittedly incomplete) review of NELHA operations has raised.

Sublease Compliance

The accumulation of unpaid rent is an ongoing problem at NELHA. Tenants are responsible not only for payment of their land rent, but also for the seawater and freshwater they use and for their portion of NELHA’s huge electric bill. The back rent, combined with 1-percent-a-month interest on outstanding balances and monthly late fees, can mount quickly. In the case of most of the desalinated water bottlers, they also pay a royalty fee so their customers can be assured that the water comes from Kona. Finally, as is standard in most commercial leases, businesses are also supposed to pay an annual percentage rent fee, if their gross income exceeds a certain threshold.

NELHA has bent over backwards to accommodate its tenants. Sometimes that has paid off, as with the recent acquisition of Big Island Abalone – which had huge arrearages – by KOWA. At other times, the forbearance has not paid off.

And rent payments are not the only area where tenants have often fallen short of sublease requirements.

Time and again, in the lease files reviewed by Environment Hawai`i, tenants had to be begged and cajoled to provide evidence that they had adequate liability insurance. And at times, even when a policy was provided, it was not from an insurer authorized to do business in Hawai`i, representing another lease violation.

On several occasions, tenants have sub-sub-leased their property out to other companies, with NELHA neither giving its consent nor even being informed. That, too, is a clear violation of sublease terms, yet there seems to have been no penalty.

Lessees are responsible for maintaining their property. No one would expect manicured lawns, but when canvas covers of ponds are shredded, PVC pipes are scattered like so many pick-up sticks, signs are faded and even broken – it smacks of a ghost town, not the center of thriving entrepreneurship that NELHA wants to portray.

County Taxes

Another issue is the lack of any requirement that NELHA subleases are recorded at the Bureau of Conveyances. This means that the County of Hawai`i has no formal means of knowing who is on which lot. No good reason exists as to why NELHA should not include this as a requirement of each lease, just as the DLNR requires it of all DLNR lessees.

(Quite apart from NELHA management’s lack of interest in seeing that the county participates in the successes of NELHA tenants, there’s the lack of transparency by the county itself when it comes to assessing and collecting taxes on the tenants for whom it does have billing information. We look forward to an explanation of this from the county.)

OHA Payments

Perhaps if NELHA had to pay even nominal rent to the state, it would be more aggressive in making sure tenants kept current with lease rents and other fees. As it is, the only non-NELHA agency to receive income from the use of this vast expanse of state-owned land is the Office of Hawaiian Affairs.

As with all leases of ceded land, OHA is to receive 20 percent of the rent proceeds. In recent years, payments have faltered, owing largely to the exodus of water bottling companies.

But apart from that, NELHA pays rent based on receipts, not on what it is owed. So NELHA is able to write off more than a million in back rent and fees with no penalty. OHA could make a legitimate claim that it should be paid what is owed, not what is taken in. If NELHA doesn’t collect, that should not be OHA’s problem.

Oversight

When the Board of Land and Natural Resources gave up its oversight of NELHA subleases, it was largely because NELHA had failed for years to keep the BLNR in the loop. Presented with a huge backlog of subleases that the BLNR had little choice but to bless after the fact, it may have been an easy decision for the board to throw up its hands and have little more to do with NELHA.

In hindsight, that was a mistake. NELHA’s current executive director, Greg Barbour, and his staff can’t bear all the blame for NELHA’s problems, many of which may be traced back to his predecessor, Ron Baird. And to give credit where due, Barbour has been diligent in efforts to keep NELHA expenses in line with income to the special fund.

But overall, the state’s interest in making its $100-million-plus investment in NELHA infrastructure – seawater pipelines, pumps, roads, buildings, and other improvements – warrants a higher degree of oversight and involvement than it has been given.

At a minimum, the Land Board should require NELHA to provide it – and the Office of Hawaiian Affairs – with regularly updated lists of tenants and rents. As things stand, NELHA is accountable to no one but itself.

And it shows.

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