Kuka`iau Ranch Owner Poised to Get $2.6 Million for Koa Reforestation Project

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In the years since he purchased Kuka`iau Ranch, owner David S. DeLuz Sr. has received hundreds of thousands of dollars in federal funds to support his cattle operation. According to the Environmental Working Group, which tracks subsidies made by the U.S. Department of Agriculture to farms and ranches, DeLuz received between 1995 and 2009 $585,470 in conservation and disaster subsidies. According to the USDA response to a request for information from Environment Hawai`i, in 2010 and 2011, he was paid an additional $78,634, bringing the total to $664,104.

Throughout that time, the ranch has supported logging operations that continue to this day. Although the company logging Kuka`iau Ranch land claims it is taking only dead or wind-felled trees, on a recent day, its mill at the ranch was in full operation processing what appeared to be recently cut logs.

Now, after paying hefty subsidies to underwrite DeLuz’s cattle operation, the USDA, through its Forest Service, is proposing to pay him another $2 million for a conservation easement over 3,688 acres of his 10,000-acre ranch, including lands that are now being leased to and planted in koa by Hawaiian Legacy Hardwoods. In September 2010, the state’s Forest Stewardship Advisory Committee voted to accept the ranch’s proposal to be nominated by the state to the national Forest Legacy priority list. The Forest Service’s Forest Legacy program is intended to protect from development or degradation lands that is intended to protect “working forests” – “those that protect water quality, provide habitat, forest products, opportunities for recreation, and other public benefits.”

The Forest Service ranks the nominations that come in from the states. Last year, the Kuka`iau Koa Forest was slotted in as No. 13 on the Forest Service’s national priority list for 2012.

In addition to the $2 million that the federal government will pay DeLuz for the easement, The Nature Conservancy of Hawai`i is asking the state’s Legacy Lands program to pay DeLuz an additional $600,000, which will be part of the non-federal match for the Forest Legacy easement. (The Forest Service requires a match of one dollar for every two dollars in Forest Legacy funds.) The total cost of the easement is pegged at $3 million: $2 million from the federal government, $600,000 from the state, and $400,000 as a “donation” from the ranch owner.

(The cost of the easement is based on an appraisal that looks at the value of the land without the easement and compares it to the likely value with the easement. According to documents filed with the state, the market value of the three parcels making up the 3,688 acres of Kuka`iau Ranch land that would be subject to the easement was $11 million in 2010. With the easement, the value would be $3 million.)

The terms of the easement are yet to be spelled out. Sheri Mann, who manages the Forest Stewardship Program for the state Department of Land and Natural Resources’ Division of Forestry and Wildlife, told the Forest Stewardship Advisory Committee (FSAC) that the easement language could not be made public until after the deal was consummated.

Still, the committee is tasked with advising the state on the management plans submitted by Forest Legacy applicants. As Mann told the committee, “we need your approval to meet the Forest Legacy application needs. We’re not holding it to a high level of forest stewardship, but it needs to be a plan we stand behind and feel is worthy.”

No one from either Kuka`iau Ranch or Hawaiian Legacy Hardwoods was present to explain the plan or answer questions. John Henshaw, director of land protection for The Nature Conservancy of Hawai`i and FSAC chair, championed it in his comments, noting that “TNC is supporting the plan.” (TNCH receives $1 for every Legacy Tree planted by Hawaiian Legacy Hardwoods, and HLH has also promised TNCH $50,000 a year in addition.)

J.B. Friday, a forester with the University of Hawai`i’s extension service, criticized the proposal for its lack of specifics. “There’s no economic analysis in the plan,” he said. “Yet it’s claiming to be a commercial plan.” Referring to published projections on the HLH website, Friday observed that HLH will be getting $32,000 an acre for planting investor trees, and $22,500 an acre for the legacy trees. “We’re all familiar with establishment costs,” he said. “Boutique re-establishment costs $5,000 an acre. They’re getting $32,000 an acre.”

Henshaw again defended the project: “This is enormous in terms of its cost,” adding that the economics of HLH “is interesting, since it’s all prepaid. You’ve got great economics” – prompting committee member Rich von Welsheim to remark: “What you’re doing is defrauding the public.”

Once more Henshaw rose to HLH’s defense: “The investor is told these are estimates, and only qualified investors can invest – someone who’s very wealthy already. The third thing is, I’m not altogether sure they can’t do this.”

Following a robust discussion, the committee decided to not accept the plan until it had been substantially revised.

Legacy Lands

The state Legacy Land Conservation Commission (LLCC) must approve the application for the $600,000 portion of the non-federal funds match for the Kuka`iau Ranch easement. The Land Conservation Fund receives 10 percent of the conveyance taxes paid to the state annually, and with this, the LLCC issues grants to state agencies, counties, and non-profit organizations to assist them in acquiring properties with resource value. Counties and non-profits must provide matching funds equal to at least 25 percent of project costs.

Last year, the LLCC received a request for funds for the project that listed both TNCH and the state of Hawai`i’s Division of Forestry and Wildlife as applicants. Since TNCH is not going to be holding the easement (DOFAW will, if the Forest Legacy purchase is completed), it is not clear why TNCH would be in on the application. When asked, the TNCH’s Henshaw said his organization “is a supporter of Forest Legacy conservation easements in Hawai`i…. We are doing what we call a government assist as the state of Hawai`i will hold” the conservation easement.

In December, the LLCC met to rank the various applications made for the coming year’s appropriations. Commissioners heard a report from three of their members – Dale Bonar, LLCC chairman, Rob Shallenberger, and Carl Berg – of the site visit they made to the HLH site in September. According to draft minutes of the meeting, “Chair Bonar explained that they [HLH] will be planting legacy trees (there forever) and then other trees, thirty, fifty, a hundred years down the line, they can be harvested.”

In response to a question about management of the area, Henshaw replied, “Right now it is with the DeLuz family. Once it [the Forest Legacy easement] goes through, then the plan is to have Hawai`i Legacy Hardwoods buy the restricted fee from the Deluzes so it would be managed as a forest under HFH.”

What if the company fails? asked another commissioner. “Mr. Henshaw rights and the property will always be transferred as a whole,” the meeting minutes state. Another question concerned HLH’s tenure on the land. Henshaw assured commissioners that HLH would have a 60-year lease.

In the final ranking of projects, the Kuka`iau Ranch easement came in tied for third with the proposed expansion of Ka`ena Point Natural Area Reserve on O`ahu (estimated to cost $86,450). The commission staff estimates that the grants totaling at least $3.7 million can be distributed this year, making it likely that the $600,000 match for the Forest Legacy easement will be available.

Subsidies Continue

In an interview with Environment Hawai`i, Jeffrey Dunster, the CEO of Hawaiian Legacy Hardwoods, Dunster said he and his partner, COO Darrell Fox, “are just trying to find a way to put the forest back, without government handouts and philanthropy.”

But the “handouts” continue. Over and above payments made to DeLuz, USDA and state programs have underwritten HLH operations with one-time payments of $57,920 ($36,500 from the USDA for enrollment in its Conservation Reserve Enhancement Program, $19,790 from the state as a one-time payment for its cost-share of CREP monies covering 84 acres of plantings) and ongoing, annual payments of at least $92,722. When asked to verify the figure, Dunster said he didn’t know exactly – “and even if I did know, I don’t know if I should share it.”

As HLH clears and plants more acreage, the size of the subsidies will increase, since the USDA programs, on which the state payments are based, are a function of acreage in production.

Patricia Tummons

Volume 22, Number 9 — March 2012

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