Despite pressure to abandon their practice of renewing revocable permits (RPs) every year with little to no review or rent adjustment, the state Department of Land and Natural Resources (DLNR) and its board last year settled for incremental progress, as the latter, once again, renewed hundreds of Land Division permits, this time with just a slight uptick in rent.
In February 2016, spurred by a series of critical articles by the Honolulu Star- Advertiser’s Rob Perez, as well as concerns expressed by members of the public and the Land Board itself, the DLNR formed a task force to evaluate how it renews its month- to-month RPs. Those concerns focused mainly on stagnant rents and the failure to evaluate whether environmental reviews were required for the uses to which the land was being put or whether the permits should be converted into some kind of long-term disposition, such as a lease or easement.
As the Land Board’s discussion of the Land Division’s annual permit renewals late last year revealed, raising rents to market value and transitioning permits to long-term dispositions or to other state agencies has been problematic, to say the least.
“We’ve said all this time, and continue to say, we have leftovers and remnants—stuff no one else wants,” DLNR Land Division administrator Russell Tsuji told Environment Hawai‘i. The state Departments of Education, Transportation, and Agriculture, as well as the University of Hawai‘i and Agribusiness Development Corporation, “took the good lands and left us with what [the] Land [Division] has,” he said.
Earlier this year, the Land Board debated whether or not it should send to public hearings rules proposed by the DLNR’s Division of Boating and Ocean Recreation that would vastly increase mooring fees at the state’s small boat harbors by setting them at market value, as required by the state Legislature. While the board as a whole voted to send the rules to public hearings, two board members opposed the idea because they believed the fee hikes were too great.
There is no similar mandate to set rents for revocable permits at market value. Even so, in 2013, the DLNR’s Land Division obtained a preliminary appraisal of its 350 RPs, which estimated that the rents being charged were 1,000 to 4,000 percent below market rent. A more recent evaluation of the 247 permits deemed worthy of appraising also found that, with a few exceptions, the division was under-charging permittees, but to a smaller extent — seven to 1,000 percent below market rates.
According to DLNR responses to questions Perez posed last year, the difference between the 2013 and 2018 appraisals is that the latter factored in the short-term tenancy and use restrictions in determining market rent.
While state law does not require the DLNR to charge market rent for the permits, rents charged and conditions imposed on permittees do need to serve the best interests of the state. With that in mind, the Land Division proposed marginal rent increases — either three or ten percent — from 2018 to 2019.
In its reports to the Land Board, the division explained that it was not implementing the recommended market rents because that might spur permittees to abandon their permits, “resulting not only in the loss of revenue, but also forcing the division to expend resources to maintain these lands.” Rather, the incremental increases would achieve rents closer to market value without causing any major disruptions, the division stated.
Board member Keone Downing asked staff whether they thought the division would reach market rents in ten years with the incremental increases.
“Unfortunately, we’ll probably have to do this [again] in five years. The increases that the appraisers gave us, they said three percent a year for next five years,” the division’s Richard Howard replied.
“We’re going to appraisers to get things we’re scared to charge the people. So why do we go to appraisal?” Downing asked.
“We have to know what market is. … It’s good to know. I don’t think it’s possible to increase someone’s rent by 90 percent and expect them to remain on the property,” Howard replied.
At a later meeting, Downing questioned the division’s Kevin Moore why it chose to cap its rent increases at 10 percent, especially when the recommended market rents were so much higher. “How did you get to 10? The 10 could just as easily be 30. It wouldn’t be that much more,” he said.
Moore replied, “We didn’t want to go over 10 percent for fear of getting pushback from tenants … and being a burden for us to manage.”
As a precautionary measure, the Land Board delegated authority to its chair to adjust the rents recommended by the Land Division. If those rents are implemented as approved by the board, the total increase this year over last year’s rent will only be about $16,000, since O’ahu’s total rents decreased, while those for the other islands increased. The appraisal alone cost $500,000, according to division staff.
In addition to choosing to keep rent increases low, the division has tried only a handful of times since the 2016 task force report to find long-term tenants via public auction and has failed in a number of cases.
One of the main criticisms levied against the DLNR and Land Board has been that by simply renewing revocable permits year after year, they are creating de facto leases and denying opportunities for other interested parties to bid.
In testimony to the board, the Office of Hawaiian Affairs bemoaned the fact that no timetable had been established to convert some three dozen RPs to a long-term disposition, as recommended by the revocable permit task force.
“Notably, many of these RPs involve parcels that have been continuously issued to the same permittees for years, if not decades, and several have been approved for conversion to leases since the 1990s or prior. Delays in the conversion of such RPs to longer-term, market value leases or similar dispositions accordingly represent continued lost opportunities to obtain a more appropriate return from the private use of public lands, including public trust lands whose revenues are subject to Native Hawaiians’ pro rata share,” OHA wrote.
Division administrator Tsuji tried to explain to the board how some of the lands under revocable permit are undesirable. As an example, he noted that the division tried to auction off a parcel in Mapunapuna two or three times recently and got no takers. That parcel is notoriously vulnerable to flooding and even board member Sam Gon acknowledged, “Nobody’s gonna want that.”
Tsuji also complained that preparing to auction a parcel is expensive. “Before we go out, we gotta get it appraised. You spend money with package being publicized …” he said. Tsuji added that compared to other agencies such as the Department of Transportation or Department of Agriculture, where parcels under their jurisdiction are contiguous, his division has “one parcel here and there.”
“When [DOT] harbor guys lease out the industrial [lots], they do one appraisal for the whole area and charge pro rata per square foot. [For] every single one [of the Land Division’s parcels], we have to do an appraisal,” he said.
Board member Chris Yuen suggested that perhaps the division needed more flexibility in how it disposed of its lands.
“We really have two boxes: leases and the RPs. The leases are hard and the RPs are really easy. Maybe we need another box,” Yuen said.
While revocable permits are not a “favored disposition,” under state law, the bulk of the division’s properties that are under RPs are not of great interest to anybody, he continued.
Yuen reminded the board of a couple of pasture lease auctions the division did for Hawai‘i island in recent years, which got only one bidder. Another for an agricultural lot got none, he said.
“We’ve haven’t had rip-roaring success when we have gone out for public auction,” he said.
Board member Downing suggested that the division forgo getting an appraisal and simply set the lease upset price at the revocable permit rent.
“What you’re really trying to do is get at least RP price. If you used an appraised price, chances are you’re not going to get anybody to bite,” he said.
While Tsuji said that might not be a bad idea, he said the statute may require the division to get an appraisal. “Another idea, too, if we could do direct lease, it would make it so much easier. … Now [direct leases are] limited to renewable energy, non-profits,” Tsuji said.
Yuen said that the laws governing how the division disposes of its lands are similar to the state’s procurement laws, which are based on the suspicion that somebody’s getting a special deal. “They wind up setting these very elaborate procedures that have had the result of not doing very many public auctions anyway. … Another kind of statutory procedure, with oversight, would help,” he said.
Despite the difficulties the Land Division has had successfully auctioning a lease, board member Stanley Roehrig reiterated his concerns that so many of the RPs were several years old and suggested that the division redouble its efforts to secure long-term dispositions.
(For more background on this issue, see “Board Talk: Lack of Detail in Permit Renewal List Draws Fire from Public, Board Members,” from our February 2016 issue and “Rent, Subdivision Issues Confound Efforts To Fix DLNR’s Revocable Permit Mess,” from our May 2016 issue.)
— Teresa Dawson