Posted on: Wednesday, September 18, 2002

Maui to write off rental project debt

By Christie Wilson
Neighbor Island Editor

WAILUKU, Maui — Maui County is preparing to write off an unpaid balance of $462,000 on a loan used to finance an affordable rental project in Wailuku.

While County Council members and administration officials say the Hale Makana O Wai'ale project is a good one that deserved county support, they are questioning why the former administration of mayor Linda Lingle excused the nonprofit developer from paying the balance without notifying the council.

Budget committee chairman Riki Hokama said the council learned of the 1998 agreement only last month, when it was brought up by finance director Wesley Lo.

"The committee members are concerned about what did we really agree to, and can the administration agree to guarantee funds the council has not had a chance to consider or approve," Hokama said.

He said separate agreements committed the county to pay for future capital improvements at the project and cover operating deficits, also without council knowledge.

Lloyd Yonenaka, a spokesman for Lingle's gubernatorial campaign, said yesterday he is not familiar with the MECC arrangement, but that Hale Makana O Wai'ale has been widely praised and has been a great benefit to the community.

No one on the council or in the administration of Mayor James "Kimo" Apana is saying that the developer, Maui Economic Concerns of the Community Inc., acted improperly, and Hokama said MECC officials have been helpful in trying to sort out the matter.

The 200-unit Hale Makana O Wai'ale apartment complex opened in 1997 next to the Ka Hale A Ka Ola Homeless Resource Center, also run by MECC. The rental project offers transitional housing for former residents of the homeless shelter and other low-income residents, who also are provided with job training and other services.

The $16.8 million Hale Makana O Wai'ale project received private, county, state and federal financing.

The county provided MECC with about $8.8 million in construction financing. But permanent financing to pay off the monies advanced by the county totaled only $8.3 million, which included tax credits, federal money and a $4.2 million general obligation bond, Lo said.

The county was left with a $462,000 shortfall that is reflected in its accounts receivable, he said.

Even though county officials knew back in the spring of 1998, when the bond was issued, that the loan repayment would fall short, it wasn't until the final days of the Lingle administration on Dec. 29, 1998 — after the former mayor's unsuccessful campaign for governor — that the county signed a statement agreeing not to require MECC to pay the remaining balance.

The agreement also gave the nonprofit developer favorable bond repayment terms, allowing it to make annual payments in the full amount due or pay 90 percent of its available cash flow, whichever is less.

Over the past two years, MECC has been paying only a fraction of the $470,000 annual payment, leaving the county to cover the remainder, Lo said. MECC's most recent payment was $200,000, he said.

Lo said that, in most cases, the county would have just given the money outright as a grant, and that it was laudable to attempt to get the developer to pay it back.

But it was obvious from the start that the nonprofit organization did not have the wherewithal to do so, and Lo said the county is now faced with appropriating $462,000 in the next budget to cover the loss.

He said he would have handled the financing for the project differently. "I would have taken a more conservative approach to call this a grant/loan, as opposed to expecting it to be paid, and to properly appropriate the money," he said.

Lo said the $462,000 in accounts receivable has been showing up in county audits and that he has spent the past two years researching the deal and negotiating with MECC to find a way to clear the debt off the county books. He finally determined it would be better to write it off and advised the council of that.

"No one has a problem with the project or what happened with the money. It's a matter of clarifying the situation and cleaning things up," Lo said.

The council's budget committee yesterday deferred action on Lo's communication. Hokama said the committee wants more information on the county's agreements with MECC. "There's no finger pointing (at the Lingle administration). We just want to figure out how to deal with this issue and do it better in the future so we can avoid repeating this situation," he said.