General Lease S-4229 allowed Pioneer Mill the use of 1,820 acres of state-owned land on the slopes of West Maui above Lahaina. For most of the 25-year duration of that lease, however, Pioneer Mill’s rental payments were based on cultivation of far less land than that.
At the time the lease was entered into, in 1969, a total of some 1,257 acres were classified as cane lands – that is, as lands “presently suitable for the cultivation of sugar cane.” About 90 acres were described as “potentially suitable for cultivation of sugar cane.” Pasture lands made up 134.7 acres of the area under lease (although the lease does allow these lands to be used for cane). “Waste lands” accounted for the remaining 338 acres.
Disappearing Lands
But from the very outset, Pioneer Mill has paid rent on far less than even the cane land acreage identified in the lease. Initially, the sugar company calculated rent on the basis of 1,123.91 acres in cane. Starting in 1973, the acreage on which rent was paid was reduced to 1,098.01 acres; in 1982, it was reduced still further to 1,054.45 acres. By 1993, the last full year of the lease, Pioneer Mill was paying rent on just 973.25 acres.
The lease called for Pioneer Mill to pay either a minimum annual rent of $36,000 ($20 an acre) or 5.25 percent of Pioneer Mill’s gross proceeds from the sale of sugar cane and cane by-products harvested from the “net cane lands” of the plantation, if that percentage of the gross exceeded the minimum annual rent. The very first year of the lease, the percentage income on the gross amounted to $56,311.68, well above the minimum rent. For the remainder of the 25-year lease term, it never fell below that amount – and, in fact, substantially exceeded it. (In 1974 and 1980, in fact, the percentage rent exceeded $200,000 – which meant that Pioneer Mill had income on the state-owned land of approximately $4 million in each of those years.)
Had Pioneer Mill been paying rent on the full 1,346 acres of cane and potentially cane lands, income to the state would have been substantially higher. At no time, however, did the state question the usable acreage figures provided by Pioneer Mill, even though they were far lower than the figures provided in the lease itself.
Finding Fault
In 1979, the Legislative Auditor released a financial audit of the Department of Land and Natural Resources highly critical of the way the state managed its land. “Our general finding,” the audit stated, “is that DLNR is not properly managing the public lands. Indeed, DLNR is unable to exercise proper controls over public lands.” Nor could it, the auditor found, since the department had no comprehensive land inventory, had not classified public lands by uses as required by statute, and had no use policy for public lands or long-range plans concerning their disposition.
In several respects, the Pioneer Mill lease provides examples of the practices and policies so heavily criticized by the auditor.
The Auction
In theory and by law, all parties having an interest in leasing a given parcel of state land should have a chance to submit a bid when the lease is put up for auction. However, the Legislative Auditor noted in 1979, “contrary to its representation, [the Division of Land Management] does not really expect the fair market value to be established by the auction process. Indeed, in general, DLM does not expect any competitive bidding at all. It anticipates a bid only from the party at whose request the auction process on the lease to a particular parcel has been activated. Thus, in the usual case, DLM works out the terms and conditions of the lease, including the amount of the rental, with the initial requestor. The lease is tailored to the needs of the initial requestor and to the use to which the requestor intends to put the parcel in question.”
After Pioneer Mill’s previous lease expired, to obtain another lease on that same land, it had to go through the process of bidding at a public auction. From the outset, the playing field appears to have been tilted in the sugar company’s favor. Soon after the Land Board approved, in February 1968, putting the land up for lease at auction, the then administrator of the Division of Land Management, James J. Detor, wrote Amfac Properties, Pioneer Mill’s parent company, to inform the company of this. In addition, Detor wrote, “As soon as a draft lease has been prepared, we will forward a copy for your review and set a sale date.” In the meantime, Detor said, Pioneer Mill would be issued a revocable permit, covering the same area, retroactive to April 6, 1966… the same to serve until such time as the new lease is sold.” (The file copy of this letter at the Division of Land Management contains, in Detor’s hand-writing, a note dated March 4, 1968: “As per discussion with John Loomis…instructed Survey to delete 11.70 acres ‘abandoned cane’ parcel from lease.” Loomis was vice president of Amfac Properties at the time.)
The lease was scheduled for public auction on September 4, 1968. Detor notified Amfac of the auction on August 7. However, after Loomis conveyed to Detor a list of “suggestions” for changes in the lease on August 21, Detor agreed to withdraw the lease from the scheduled auction. In a letter confirming a telephone conversation between Detor and Loomis on August 26, Detor stated that he and Loomis had agreed that the lease would be withdrawn from the September auction; that “advertising costs, etc., incurred thus far with respect to this item will be born by Amfac Properties”; and that “necessary corrections to the lease draft will be made for sale of this item to be scheduled at a later date.” (Amfac paid the state $35.29 in November 1968 to cover Pioneer Mill’s “pro-rata share of the advertising cost.”)
Waste Lands
The Legislative Auditor in 1979 criticized the inclusion of waste lands in cane leases. “HRS Section 171-36(7),” the auditor wrote, “provides that a ‘lease shall be for a specific use or uses and shall not include waste lands, unless it is impractical to provide otherwise.’ The purpose of this provision is to ensure that land deemed unsuitable for the use or uses specified for a lease is not automatically included in the lease at a token or nominal amount. It minimizes the lessee’s opportunity to put to productive use supposedly waste lands at little or no rental. Our examination revealed that supposedly waste lands have been included in various cane leases in violation of statute.”
The auditor found that in 1977, 15,000 acres of waste land were included in 28 of the 41 cane leases then in existence. In the case of Pioneer Mill, 134 acres were classified as “waste land” when the lease was issued, although in reality, a far higher percentage of land under lease was being written off as waste, inasmuch as Pioneer Mill was paying rent on at most 1,200 acres of the 1,800 under lease.
“These waste lands were included in the leases,” the auditor found, “not because it was impractical to provide otherwise but, rather, because it was more convenient to include them in the leases. Indeed, it appears to be DLM’s standard procedure to include waste lands in leases when it is more convenient to do so and to rely on the sugar companies to report any use of these lands and to adjust the lease rentals as the companies so report. In some instances” – including Pioneer Mill’s lease – “‘waste’ lands are included in cane leases at the request of the sugar companies themselves.”
A Dump
Contrary to the “waste” label, lands so designated have been put to productive use by Pioneer Mill. In 1983, for example, Pioneer Mill asked the state for permission to use 15.8 acres of so-called waste land for the dumping of boulders and mud. According to a memo from Maui Land Agent Eddie Ansai to James Detor, the company needed the land for disposal of “boulders and mud gathered during their normal operations of developing new fields, harvesting, and milling…. The dumping of boulders and mud in the subject area will improve the efficiency of Pioneer Mill Company, Ltd., normal operations and will not damage this area being considered as waste land.”
If the dump should be considered “cane contributory” land that is, contributing to the production of cane “an increase in lease rental should be adjusted,” Ansai wrote. No such adjustment was made.
In addition, Ansai wrote that the dumping of mud and boulders would constitute use of the land as a landfill, requiring a permit from Maui County. A check of Maui County records shows no permit requested for a landfill on the parcel.
— Patricia Tummons
Volume 5, Number 2 August 1994