Members of a House of Representatives committee of inquiry on Tuesday asked the heads of the State Department of Land and Natural Resources about the lease practices and rent it charges its tenants.
An audit by DLNR’s real estate department in 2018 found that the office lacked a strategic plan to guide its work in this area, that the rent was overcharged, and that it lacked the transparency required to operate efficiently.
The DLNR hearing, which will take place on the second day, is part of a year-long investigation by two state agencies that have been the subject of critical reviews that have identified deficiencies in the management of state-owned land and the revenues generated from it.
House majority leader Della Au Belatti, who chairs the committee, focused many of her questions during the last two days of the hearings on whether state auditor Les Kondo was properly following all legislative instructions in conducting the DLNR audit.
The three-hour hearings on Monday and Tuesday are part of the legislature’s investigation into DLNR and another agency, Agribusiness Development Corp.
The committee has summoned numerous documents from these two agencies and plans to request more, including those related to DLNR’s finances, Belatti said during Tuesday’s hearing.
The ADC hearings are slated to begin next week. An audit found that the agency failed to revive former pineapple and sugar countries.
Committee improves rent
On Tuesday, the house legislature paid particular attention to the rent that DLNR charges its tenants.
The auditor found that DLNR may receive only part of the revenue it could charge to tenants who have a permit to operate businesses on state land. Using an independent assessor, the auditor found that DLNR lost more than $ 1.6 million in potential rent on a sample of land during the audit period.
House parliamentary group leader Val Okimoto and MP Dale Kobayashi both urged DLNR director Suzanne Case and other land managers for potential revenue that may have been lost.
Kobayashi described an internal memorandum from a DLNR employee who advocated higher rents. The state refused to accept this proposal.
“Come on, in real life you go out there and find out if you can get this, it’s a lot of money to leave on the table,” Kobayashi said
Kevin Moore, DLNR’s state assistant, said he did not specifically recall that discussion. However, he said that some DLNR employees had proposed revenue-generating measures similar to those of the auditor.
However, Moore said the state needs to consider the cost of managing land and building improvements, as well as the staff who could oversee it.
In general, revenue isn’t the only thing the department worries about when it comes to managing public land, DLNR officials said.
Some lands are used for charities like the Hawaii Food Basket, Russel Tsuji, the state land manager, told lawmakers.
“It’s not just the idea of maximizing sales,” said Tsuji.
DLNR appeared to be following most of the auditors’ recommendations to develop an overall strategic plan for its real estate fund, revise internal lease collection procedures, and develop a long-term plan for real estate management.
Case informed the legislature that DLNR has increased the revenue from its revocable permits since the audit report was published in 2019.
The department raised about $ 2 million from these permits in 2019, compared to about $ 2.6 million in the fiscal year that ended July 1.
Case attributed these gains in part to the auditor’s recommendations, as well as other findings from a DLNR task force recommending changes to the agency’s appraisal of the value of their lands.
Questions beyond the scope of the exam
Belatti, the chair of the committee, addressed her questions on Tuesday about the planning of the audit and what questions the auditor had asked Les Kondo before starting work on the report.
In 2017, lawmakers directed Kondo to review contracts issued by the Land Fund and verify that those contracts were “in accordance with the laws and terms of the contracts, grants, and letters of intent, and that contractors and award winners have been adequately reviewed and qualified.”
Instead, the audit focused on DLNR’s leasing practices.
The DLNR officials could not remember any specific meetings with Kondo’s team to discuss the planning of the audit. Russell Tsuji, the land division administrator, said he was surprised when the audit team began investigating revocable permits.
“If there was a difference in what even the audited agencies should have understood in terms of scope, that’s interesting. In my opinion, there is a clear interest in this committee in expert contracts, in contracts with third parties. I also worry that this was not done, ”said Belatti.
On Monday, Kondo said the process his team followed to determine what the audit should focus on was no different from any other audit. He told lawmakers that auditors determine which activities are most critical to an agency’s functions and what are the greatest risks that could affect those activities.
Kondo told lawmakers that he would remain ready to review the contracts if lawmakers asked again.
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