'Net Lands' or 'Swiss Cheese': Transfer Of Land Raises Entitlement Questions

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The state-owned land at Wahikuli, cultivated by Pioneer Mill and coveted by the Housing Finance and Development Corporation, is ceded land, income from which is administered through the Public Land Trust established under Section 5(f) of the Admissions Act. Under Article XII, Section 4 of the state Constitution, lands to which the federal government held title at the time of statehood, but which were later conveyed to the state (under subsection (b) of the Admission Act) “shall be held by the State as a public trust for native Hawaiians and the general public.” The Wahikuli land falls into this category.

In 1980 the state Legislature provided that 20 percent of all funds derived from the Public Land Trust be turned over to the Office of Hawaiian Affairs. In addition, the Department of Hawaiian Home Lands is to receive 30 percent of the income to the state derived from sugar-cane cultivation on state land.

With the proposed withdrawal of land from the Public Land Trust for the HFDC’s housing development at Wahikuli, above Lahaina, OHA and DHHL are together to be paid half of the fair-market value of the land (two-fifths to go to OHA, three-fifths to DHHL).

Over the last three years, the HFDC, DLNR, OHA, DHHL, and, to a lesser extent, the Native Hawaiian Legal Corporation have been involved in discussions as to how the land was to be appraised and exactly what portion was to be withdrawn from the Public Land Trust have. The Legislature has weighed in, too, with passage in 1992 of Acts 317 and 318, which further attempt to clarify compensation to DHHL and OHA.

Net Lands

The DLNR and HFDC agreed from the outset that the state would charge nothing for transferring the land to HFDC, although HFDC would have to pay half the fair-market value of the land used for housing to OHA and DHHL. Land used for other purposes in the Villages of Leali’i (such as roads, parks, schools, common areas) would be used in a manner that, as Land Board Chairman Keith Ahue put it in a letter to Clayton Hee, OHA chairman, would be “for the benefit of all beneficiary classes of the Public Land Trust.” For this reason, the DLNR has maintained that HFDC need not pay OHA or DHHL anything for the transfer of land put to such public use.

The DLNR has thus proposed what it calls a “net lands” payment – that is, DHHL and OHA will receive payment only on the net total of land used for housing, and not the gross total acreage conveyed to HFDC for the entire Villages of Leali’i project.

Under the “net lands” approach, the DLNR proposes to turn over to HFDC all of the land needed for the entire Villages of Leali’i development. As HFDC completed the various phases of the development, it would turn over to OHA and DHHL payment equal to 50 percent of the value of the lands used for housing, while turning over to the DLNR lands developed for public use.

As explained in a May 9, 1994, memorandum from Mason Young, administrator of the DLNR’s Division of Land Management, to Deputy Attorney General Johnson Wong, “the ‘net lands’ accounting was determined by DLNR to be a practical way to account for entitlements rather than the resultant ‘swiss cheese’ conveyance to HFDC when parcels identified for public use in the master plan are excluded from the conveyance.” As an added benefit to this approach, Young continued, it would allow for greater flexibility in master plan development. “The master plan maybe subject to change,” Young told Wong. Under the ‘swiss cheese’ approach, “should public sites be relocated as the project is developed, or exact acreage for public sites amended, DLNR and HFDC would be required to execute land exchanges. This would result in added administrative paperwork, may re-open entitlement issues and would be time consuming.”

‘Legally Bankrupt’

Clayton Hee, chairman of the board of trustees of the Office of Hawaiian Affairs, has indicated strong objection to this approach. In a letter dated March 30, 1994, to Keith Ahue, Hee wrote, “there is no legal and certainly no moral basis for the ‘net lands’ theory bureaucratically invented to reduce OHA’s (and DHHL’s) compensation.” Hee quoted Act 318, which requires payment of entitlements on “any land of the public trust which is conveyed by the Department of Land and Natural Resources to the Housing Finance and Development Corporation.”

“Clearly,” Hee wrote, “the law does not allow DLNR to interpret ‘any land’ to mean ‘some land’ or ‘only land used directly for housing.’ Thus the ‘net lands’ concept is legally bankrupt.”

After Hee’s letter, Young requested, in the May 9 memo quoted earlier, that the attorney general provide some guidance on the matter. In that memo, Young referred to a Memorandum of Understanding between the DLNR and HFDC dated January 4, 1993. That MOU, Young told Wong, establishes “procedures to implement the valuation and compensation for the conveyance of lands. The MOU referred to certain ‘omitted lands’ which were not intended to be conveyed to HFDC since they were planned for public facilities or uses.” While OHA and DHHL “were not parties to the MOU,” Young wrote, “copies were forwarded to them.”

“OHA and DHHL may have a good argument against the ‘net lands’ accounting methodology,” Young wrote, “since a conveyance of all project lands occurs” in the scenario preferred by the DLNR and HFDC. “It remains to be seen to what degree OHA and DHHL will further their legal challenge to the ‘net lands’ concept. Both agencies have opposed it from the onset and continue to oppose it. It is also unclear to what degree DLNR will continue to support the concept in the face of legal challenge.”

According to staff at the Division of Land Management, while the attorneys for all the parties wrangle over the legal issues, the Division of Land Management is preparing a long-term lease for HFDC that will allow HFDC to develop the land without waiting for the entitlement issues to be resolved.

— Patricia Tummons

Volume 5, Number 2 August 1994