According to Tim Johns, the head of the Department of Land and Natural Resources, when it comes to dealing with the closing sugar operations, “The state needs to be proactive, not reactive. There is a direct interest — state lands are involved.”
The final harvests of most of Hawai`i’s few remaining sugar plantations are not far off. For decades, those companies have occupied thousands of acres of state land and have maintained the elaborate ditch systems that irrigate them. With large amounts of land and expensive infrastructure soon to be out of use, the state Department of Land and Natural Resources and other agencies are hustling to “not skip a beat” between the closing of sugar and the moving in of diversified crops.
In the past few months, the DLNR’s Land Management Division has made two significant efforts in this direction, both involving AMFAC subsidiary sugar companies. While the effort to plan ahead is necessary, the execution so far has had its share of flaws.
Handout, or Helping Hand?
In late April, the Board of Land and Natural Resources approved the issuance of a new lease to Kekaha Sugar Co., Ltd., despite the company’s owing the state nearly a million dollars in back rent.
At the BLNR’s April 23 meeting, with unanimous support from the Land Board, Kekaha Sugar was awarded a 15-year lease for more than 27,000 acres in Kekaha, Kaua`i, at a rent equal to half of what the company was paying in 1994 for the same land.
In addition, the lease includes a credit system that allows the company to deduct up to $171,000 from its annual rent of $251,500 for maintenance work done on the property, and contains language allowing Kekaha Sugar to pass on the cost of capital improvements to the state, so long as a Capital Improvement Projects budget receives approval.
In the past, the Land Board has given similar breaks to Kekaha Sugar as well as a number of other Amfac subsidiaries in order to help keep sugar alive.
Between 1969 and 1993, Kekaha Sugar Co., Ltd. paid the DLNR $61 per acre per year for 27,724 acres in Kekaha. In August 1993, Amfac/JMB Hawai`i proposed that the Land Board cut its subsidiaries’ sugar lease rents to $10 per acre and/or a percentage rent. The justification that DLNR staff provided at that time was that the state’s best interest lay in the direction of assisting the sugar industry, since the sudden closures of sugar plantations on the Big Island were having “a tremendous impact on the local and state economy. Continuing sugar operations would allow for an orderly transition should economic conditions warrant change.”
And so, at its August 27, 1993, meeting, the Land Board halved the annual rent for Kekaha Sugar Co., Ltd.; Lihu`e Plant Co., Ltd.; East Kaua`i Water Co., Ltd.; and Pioneer Mill Co., Ltd., on Maui. The board also gave O`ahu Sugar Company a lease for $10 an acre. Since 1994, when the board’s action finally took effect, Kekaha Sugar has had a revocable permit with the DLNR.
So what is the state getting out of this? Kaua`i District Land Agent Sam Lee explained in his submittal to the Land Board at the April meeting:
“As users of large tracts of land and providers of many jobs, sugar is without parallel,” he wrote. “In recognition of such benefits, especially outer island rural communities such as Kekaha, where sugar provides work, housing, medical, retirement and even social opportunities to much of the population, the board has expressed its willingness to support the sugar industry.”
In addition, the new “template” lease allows for the piecemeal return of portions of the land to the state, allowing the state to find new tenants, thereby keeping the lands productive. This, the staff says, will reduce the time between the production of sugar and new crops and prevent the ditch system from falling into disrepair.
Questions
While the intent of the lease is to keep agriculture alive after sugar, some of its conditions may be seen as a giveaway to the sugar Kekaha Sugar Co..
At the April 23 meeting, board member Colbert Matsumoto questioned the lease term providing Kekaha Sugar with rent credits up to $171,000 in exchange for maintenance work on the property’s elaborate infrastructure. The infrastructure, built in the early 1900s, includes irrigation systems, roads, drainage canals, pumps, and 40 miles of combined ditches and tunnels, according to state sources.
According to DLNR Land Administrator Dean Uchida, staff included the rent credit provision to help preserve the infrastructure for future agricultural use after Kekaha Sugar’s lease expires in 2008.
But what if half a million dollars is needed to properly maintain the system, “as opposed to $170,000?” Matsumoto said. “Are we going to end up with the infrastructure in the condition that we expect it? Is the lessee limited to spending this amount?”
In fact, the maintenance costs are well over $1 million right now, Amfac’s Tim Riesling told the board.
According to Uchida, Amfac did not submit a CIP budget because it had to “reconstruct costs.” Amfac did not have any cost projections for 1999 or 1998.
Uchida responded to Matsumoto’s concerns by saying that the intent of the lease was not to have the lessee maintain the infrastructure until the end of the lease. Instead, it was expected that portions of land would be phased out and transferred to diversified agriculture. Last April, for instance, the federal government provided $1.5 million — through the Rural Economic Transition Assistance-Hawai`i program — to help Kekaha Sugar diversify, he noted.
“As sugar fields are phased out, DLNR would sell leases or issue permits to others for purposes compatible with ongoing sugar operations,” Kaua`i land agent Lee wrote.
Matsumoto was still concerned about the effectiveness of the lease terms. Land Board chair Johns, who used to serve as corporate counsel to Amfac, tried to settle the issue: “We can either not sign the lease, if we don’t think we’re going to benefit, or we can try to make the lease work,” he said.
Matsumoto replied, “Let’s just make sure we don’t end up with a liability.”
Before the discussion closed, Big Island board member Russell Kokubun asked Uchida about the role of the Agribusiness Development Corporation, the state agency responsible for acquiring the Waiahole Ditch. Would it undertake the planning and management and be responsible for Kekaha’s capital improvement plans?
Uchida replied, “On the books, the agency has a lot of authority. In reality, they haven’t been able to do anything… [We need to] get ADC a more active role in Kekaha because the ADC can cut through laws.”
Johns interjected, “The ADC is a resource agency. The DLNR has ultimate responsibility.”
The board unanimously approved the lease.
The ADC Angle
Earlier this year, in anticipation of Kekaha Sugar’s eventual demise, the Department of Land and Natural Resources issued a $100,000 contract to Bow Engineering of O`ahu to prepare a study of the Kekaha Sugar lands that would address concerns related to the preservation of non-sugar crops, to determine what infrastructure is necessary to preserve the usability and utility of the state and the Department of Hawaiian Home Lands for reuse, and to provide a basis for determining how best to operate and maintain this infrastructure, according to the contract’s scope of services. The study began May 17 and will be completed on April 5, 2000.
Shortly after the Land Board approved the Kekaha Sugar lease, the Agribusiness Development Corporation formed an ad hoc committee to prepare a contingency plan for the operation and management of the Kekaha Ditch system. The committee was composed of Allan Smith of Kaua`i; James Nakatani, head of the state Department of Agriculture; David Blane of the Office of Planning within the Department of Business, Economic Development and Tourism; Janet Kawelo, deputy DLNR director; and Jack Keppler, vice-chair of the ADC.
Since March 1998, Sam Lee had been in touch with the ADC, “calling for the need of a contingency plan to continue the operation of the Kekaha Ditch in the event that Amfac closes the Kekaha Sugar Plantation,” ADC meeting minutes state.
At the April 30 ADC meeting, ADC member Allan Smith “explained that the objective of the … services sought by DLNR is to address the concerns relating to the preservation of agriculture in the western region of Kaua`i which is occurring on state owned property. This study will identify the infrastructure that is necessary to preserve the usability of that area. Also, it will provide a basis for determining how best to operate and maintain this water management and land use system.”
“There is not enough developed water for the region,” the minutes report Smith as saying, “but there is potential for more storage capacity… The total capacity of both systems is about 100 million gallons per day. It is a resource that needs to be preserved regardless who owns or operates it. As it exists today, it can be run rather inexpensively with proper maintenance and attention. If Amfac is not an operator on that property, a quick transition needs to be made to keep the system running. Being that it is state property, an organization like ADC needs to be the catalyst to bring the agencies together to implement a contingency plan.”
Since then, the ADC’s ad hoc committee on the Kekaha ditch has made a helicopter fly-over of the system, but no further action has been taken.
Meanwhile, on Maui
The preservation of West Maui’s irrigation system also concerns the DLNR. Pioneer Mill Co., which is nearing its last sugarcane harvest, cultivates sugar and other irrigated crops on 6,200 acres of state and private land in west Maui. The future use and upkeep of the Honokohau Ditch — the system that irrigates those lands — is uncertain.
Of the 6,200 acres Pioneer Mill irrigates, 1,600 belong to the state. DLNR Land Adminstrator Uchida told the board at its June 25 meeting that the DLNR would do well to acquire Honokohau Ditch to ensure it stays in working order. In this way, Uchida said, the state could protect the value of its land in West Maui. Funds for the acquisition could come from a $3 million appropriation made by the Legislature last year for agricultural purchases.
But efforts to acquire the ditch got off to a rocky start shortly after the proposal to purchase the ditch was placed on the Land Board agenda for June 25. The announcement took Amfac by surprise. Amfac faxed a letter to the department, vehemently opposing the acquisition.
At the June meeting, Uchida began his briefing of the Land Board with a request to amend the submittal to change the proposal so that it would not be to acquire the ditch directly, but rather to enter into “negotiations for” acquisition. “We need to hire appraisers and consultants. The action would allow the money to be spent,” Uchida said.
Referring to Amfac’s letter, Matsumoto said, “It seems they’re ready to maintain the ditch. They view the proposal as hostile. Should we investigate this [acquiring the ditch]? Let them undertake that cost. Considering this hostile communication, we shouldn’t be bothering.”
Johns suggested that perhaps the state should bother, considering that the infrastructure may be in disrepair if Amfac abandons it. According to Uchida, there is a noticeable difference in the condition of the ditch as it runs from the Maui Land and Pine property, where it is in good condition, to the Pioneer Mill property, where the condition is poorer.
Matsumoto was concerned Amfac’s letter “doesn’t suggest a cooperative relationship with the state.”
Jim Riesling of Amfac acknowledged that it was “unfortunate that we started out this way. We got a letter from the state on Tuesday about the acquisition. The board was meeting for it on Friday. Now we are more than willing to talk with the state.”
Johns assured Matsumoto that, perhaps, an “overactive imagination might explain the tone of the letter.”
Matsumoto then requested Amfac provide that same day to the DLNR a follow-up letter, confirming the company’s new position. Receiving such assurances, he and the rest of the Land Board then voted to authorize negotiations for the acquisition of the Honokohau Ditch.
Waiahole, Hamakua
Two other ditches have been in the news lately: in mid-July, the state completed purchase, through the ADC, of the Waiahole ditch on O`ahu.
On the Big Island, meanwhile, funds for operation and maintenance of the Hamakua ditch are in a state of some confusion. In late May, the Agribusiness Development Corporation was informed that the Department of Agriculture’s funds to pay for a contractor to maintain and operate the ditch would expire on June 30. At its meeting of July 22, the ADC approved a transfer of $75,000 to the Department of Agriculture, through a memorandum of understanding, that will allow the DOA to continue to pay the contractor for another six months.
The memorandum of understanding drafted by the ADC was revised in two key respects by the Department of Agriculture. A requirement for written progress reports was rejected, with the DOA’s Paul Matsuo explaining that the situation with the ditch was so fluid, written reports would be meaningless by the time they were completed.
Also, while the ADC had hoped to recover the costs of maintenance once the Department of Agriculture set up a system to collect fees from ditch users, the Department of Agriculture also vetoed that provision. The Department of Agriculture has no formal rules for collecting fees, Matsuo said, and such rules probably wouldn’t be in place for another year or two. Thus, he said, with the Department of Agriculture having no certain way to guarantee repayment of the amount advanced by the ADC, it could not enter into any memorandum of agreement requiring repayment.
After some discussion, the ADC finally agreed to accept the Department of Agriculture’s version of the memorandum of understanding.
— Teresa Dawson
Volume 10, Number 2 August 1999