Land Use Commission Defers Decision Regarding Turtle Bay Resort Redistricting

posted in: December 2013, Development, Tourism | 0

Serious legal questions surrounding the state Land Use Commission’s 1986 Decision and Order to redistrict of 236 acres owned by Turtle Bay Resort, LLC (TBR) will remain unanswered at least until the end of the next legislative session.

On November 8, after discussing matters in executive session, the LUC unanimously deferred deciding on Defend O`ahu Coalition’s (DOC) renewed motion for an Order to Show Cause (OSC) why the land – currently a mix of a golf course and open space – shouldn’t revert from the Urban District back to the Agriculture District.An initial motion by commissioner Lance Inouye to deny the petition without prejudice failed.

At the time of the commission’s vote, negotiations among representatives from the resort, state agencies and private land trust organizations regarding the protection of the resort’s undeveloped coastal lands were ongoing. The working group, which established by Senate Concurrent Resolution 164 of the 2013 Legislature, was to have ended its work and submitted a report to the Legislature on November 30.

Commissioner Dennis Esaski cited the group’s work as the main reason behind his motion to defer taking action on DOC’s motion. Commissioners also noted during discussion that the 60-day appeal period for TBR’s supplemental environmental impact statement for its planned expansion, accepted by the Honolulu Department of Planning and Permitting on October 23, was still wide open.

While no decision was made, the attorneys representing the various parties to the case gave commissioners a lot to chew on over the next several months.

Old vs. New

Back in 1986, Kuilima Development Company (KDC) planned a massive expansion of the Turtle Bay Resort on O`ahu’s scenic North Shore. The company, an arm of Prudential Insurance Company of America, proposed to add more units to its existing 500-unit hotel and to build three new hotels for a total of 1,450 new hotel units. The company also planned to build 2,063 resort condominium units.

In addition to the new visitor units, the company proposed to create public and private parks, a new golf course and club house, a stable, and a commercial center. It also agreed to build affordable housing units equivalent to ten percent of the resort units proposed for the redistricted area. Under the original plan, that would have equaled 100 units.

With regard to the redistricted area, the original plan called for 1,000 condominium units to be built on 78 acres. A new golf course would cover 132 acres and 16 acres of parks would have been created. The rest of the area, 10 acres, would have been used for a stable.

Once KDC got its entitlements from the LUC and the City & County of Honolulu in 1986, it sold the 800-plus-acre resort property to Japanese developer Asahi Jyken two years later, “just at the time Phase One was promised to be done,” according Greg Kugle, an attorney representing DOC. Kugle called the move “speculation and land banking at its worst.”

After completing some improvements initially (but none of the resort or affordable units), the development stalled for years. Then in 1999, the land was resold again, but little more happened until 2005 when the new owner, Oaktree Capital Management, sought bulk subdivision approval from the city.

Given the backlash from community members, as well as a change in market conditions, the resort unveiled a revised and largely downscaled expansion plan in 2011.

The plan still includes the golf course, parks and an equestrian center in the redistricted area. However, instead of condominium units, the resort is proposing to build single-family and multi-family resort homes totaling 265 units. It’s also planning to build 160 affordable homes – called “community housing” in the environmental impact statement, but also referred to as “workforce housing” by TBR staff – within the redistricted area.

Unmet Conditions

The main, and some argue, only reason the LUC issues an OSC is when a landowner violates one or more conditions of the D&O to redistrict the property. (TBR further argues that the D&O must include a specific condition allowing for an OSC proceeding.)

In its 1986 D&O redistricting the resort’s 236 acres, the LUC included conditions requiring the resort to 1) build “full-service hotels” on lands outside the petition area to ensure job opportunities for North Shore residents, 2) build housing for low to moderate income residents or employees, no less than 10 percent of the planned number of resort condominium units planned for the redistricted area, 3) fund the design and construction of improvements to Kamehameha Highway, 4) develop water sources to meet the expansion’s demand, 5) help the U.S. Fish and Wildlife Service and the state Department of Land and Natural Resources protect Punaho`olapa Marsh, 6) protect archaeological sites, 7) ensure public access, free parking, and dedicate at least 10 acres to the county for parks, 8) develop a private sewage system, and 9) establish a coastal monitoring system.

DOC contends that conditions 1, 2, 3, and 7 have not been met. Although neither the state Office of Planning nor TBR dispute that, they both argue that none of the conditions have been violated.

“[T]he boundary amendment approved in 1986 was issued without ‘time performance’ or ‘compliance with representations’ requirements,” OP director Jesse Souki wrote in his response to the DOC’s motion. “[P]arties subject to an administrative decision must have fair warning of the conduct government prohibits or requires.”

TBR attorney Wyeth Matsubara also noted, “The plain reading of the D&O does not require TBR to complete the conditions within a specific time period.”

To this, Kugle has argued that no conditions were needed because the LUC’s administrative rules governed timing and scheduling of improvements.

The LUC’s rules in effect at the time the D&O was approved required those requesting boundary amendments to make “substantial progress in the development area redistricted to the new use approved within a period specified by the commission not to exceed five years from the date of approval of the boundary change.”

In addition, the rules also required developers to submit proof that the development would be completed within five years of the date of the commission approval. “In the event the full urban development cannot reasonably be completed within such period, the petitioner shall also submit a schedule for development of the total of such project in increments, each such increment to be completed within no more than a 5-year period.”

To Kugle, these rules meant that substantial progress must have been made within five years.

To suggest that TBR is free from any performance deadlines is to “ignore the rules that the LUC and the developer were bound by,” he wrote in one of his recent filings to the LUC.

‘Substantial Progress’

One of the biggest debates since the DOC first filed its motion in 2008 has been whether or not there has been substantial progress within he redistricted area.

The D&O states that Kuilima Development Company had originally proposed to complete more than a dozen infrastructure improvement projects, including a sewage treatment plant, improvements to parts of Kamehameha Highway fronting the resort, and a new hotel along Kawela Bay, among other things within five years of redistricting.

With regard to the redistricted area, KDC planned to complete a new golf course, a stable, building pads for the proposed condominium sites, and 315 of the 1,000 condominium units in that first phase.

The rest of the resort improvements, both within and outside of the redistricted area, were proposed to be completed in 1996, the D&O stated.

Of the Phase 1 improvements that fall within the redistricted area, only the golf course has been completed. According to TBR attorney Matsubara, the golf course improvements cost $20 million.

Back in 2010, when the LUC last heard arguments on DOC’s motion, Matsubara had argued that enough progress had been made to contest any reversion of the property. A TBR representative noted that the 192-acre 18-hole Palmer golf course, which lies mostly within the redistricted area, covers more than half of it.

Kugle then countered that substantial progress, according to the old LUC rules, referred to the new uses approved, which in this case were a golf course, 1,000 resort condo units, a public park, a private park, and a stable.

“Of those new uses, they have a golf course, no condos, no parks, no stable. I would say of the five new uses [approved], they’ve got one. …The public benefits that were so important – the parks and affordable housing – don’t exist,” he said.

Given that the LUC has in recent years penalized two developers – by reverting lands or issuing an OSC hearing – who have either not made substantial progress in a timely manner or have departed from representations made at the time of redistricting, “it would be arbitrary to look at this situation and not issue an Order to Show Cause,” Kugle told the commission last month.

The OP and TBR point out, however, that the D&Os for those two projects (the Villages of `Aina Le`a on Hawai`i island and the proposed mega-mall on Maui) contained conditions regarding performance and/or representations. The Turtle Bay Resort D&O did not.

Retroactivity

If TBR has, indeed, violated the LUC’s old rules governing the timing of development, Matsubara argues that the commission could initiate a boundary amendment proceeding to redistrict the area, but it cannot grant an OSC hearing.

The statute establishing the OSC process was adopted years after the 1986 D&O. Matsubara argues that rules or laws affecting an entity’s substantial rights cannot be applied retroactively.

The Order to Show Cause process is “extremely difficult,” as it shifts the burden of justifying the current district designation onto the petitioner, he told the commission. “It definitely affects [TBR’s] substantial rights.”

So, the process for enforcing the resort’s D&O is essentially frozen, asked one commissioner.

“That is correct, because it affects our substantial rights. That’s case law,” Matsubara responded, citing the Hawai`i Supreme Court’s decision in Richard vs. Metcalf.

Kugle, however, argued that agencies can apply new rules to old decisions and cited another, more recent case, Morgan vs. Kaua`i Planning Commission. In that case, the Hawai`i Supreme Court supported the Kaua`i Planning Commission’s application of a 1992 rule on a 1981 Special Management Area permit.

Curve Ball

Back in 2010, the OP had argued that the D&O should be amended to include performance deadlines and a number of commissioners at the time seemed eager to do so. But those commissioners are now gone. And in its arguments last month, the OP seemed to want the OSC motion to simply go away.

“The Office of Planning is not unwilling to find violations or support reversions. In this case, it’s not a case for an Order to Show Cause. It’s better to end this process now. You simply can’t find the violation. It is important there be a finality to our decisions,” said deputy attorney general Bryan Yee, representing the OP.

Kugle responded, once again, that there was no need to include an express condition regarding when improvements should be completed because rules were in place that already did that.

“It is not at all appropriate to say they don’t have fair notice,” Kugle said.

In the end, though, the commission’s decision had nothing to do with the arguments presented. After holding a rather lengthy executive session, the commissioners returned and immediately asked Matsubara and Kugle what they knew about SCR 164, which established the working group to investigate ways to protect the coastal areas owned by TBR (in lieu of pursuing a Senate bill seeking to purchase the the property for $50 million or condemn it through eminent domain).

Matsubara had not even heard of the resolution. Kugle said he knew little about it other than the entities that composed the working group. (The group includes representatives from TBR, the Board of Land and Natural Resources, the State Historic Preservation Division, the LUC, the Legacy Land Conservation Commission, the Trust for Public Land, and the North Shore Community Land Trust.)

Before the final vote on Esaki’s motion to defer the matter, commissioner Ronald Heller said that although there hadn’t been much discussion about the working group, its negotiations “may affect whether this is the best time to make a decision.”

“There are a couple things that could change things materially – an agreement with the state or an appeal of the final SEIS,” Heller said. “It might be better to know where we stand … before we try to make a decision.”

Esaki recommended that the matter be deferred until after the next legislative session.

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