Army builder seeks tax breaks

By Jim Dooley
Advertiser Staff Writer

Congressman Neil Abercrombie yesterday accused a company that won a $1.7 billion contract to build and operate Army housing on O'ahu of trying to "extort tax exemptions" from the state and city and of offering a $500,000 "hush money" payment to a local construction firm.

U.S. Rep. Neil Abercrombie said Actus is "reneging" on an Army housing contract. Advertiser library photo

"Basically, they're saying, 'Please bail us out from a low bid we made and can't fulfill by giving us hundreds of millions of dollars in tax waivers,' " Abercrombie said.

The congressman's highly critical statements about Actus Lend Lease LLC, a Napa, Calif., firm are contained in letters he sent last week to Gov. Linda Lingle and Honolulu Mayor Jeremy Harris. He elaborated on those accusations in an interview with The Advertiser and spoke to a Honolulu City Council committee via telephone yesterday urging the city to make sure it collects what it is entitled to from the company.

Actus spokesman Ryan Mielke said yesterday that the company is seeking tax waivers but that any money generated by such waivers would be plowed back into its Army housing projects here.

Mielke denied that any threats were made, saying that construction of the units would be delayed "three to four years" but would still be completed within the overall development deadlines imposed by the contract. He said the company's original bid included the cost of paying the state and city taxes.

If the tax exemptions are granted, the units would be completed earlier and extra money generated by the exemptions would be used to add "amenities" such as recreational facilities and community centers to its Army housing projects, Mielke said.

In paperwork filed with the Housing and Community Development Corp. of Hawaii, the U.S. Army Garrison of Hawai'i wrote that the impact of having to pay the state and city taxes means that the construction of 853 new homes, renovation of 858 existing homes and renovation of 387 historical homes would have to be delayed, at a cost of $244 million. The paperwork notes that "all of the soldiers (and their families) that were on the parade field for the Iraq departure ceremony (in January) will not get new or renovated houses for 11-15 years."

Mielke said Actus was not involved in the Army presentation to state housing officials.

Col. David L. Anderson, commander of the U.S. Army Garrison here, yesterday issued a statement saying that the military's housing construction plans "will have a very positive impact on the state's economy."

"The United States Army remains committed to working with state, county, city and industry leaders to resolve any issues" associated with the massive new military housing projects, Anderson said.

Abercrombie yesterday charged Actus is "reneging" on promises to subcontract much of the housing work to local firms.

"As soon as Actus got the contract, they canceled an agreement with Haseko Construction to be the local builder," Abercrombie said. "Now they're trying to give Haseko $500,000 in hush money to keep quiet about it."

Abercrombie said the source of his information was Haseko vice president Kenneth Choate, who did not return repeated telephone calls for comment.

Mielke of Actus said the company is "involved in very confidential discussions with Haseko" and "it is unfortunate that they (the discussions) are being characterized that way" by Abercrombie.

Actus has had a "non-binding agreement" with Haseko regarding the Army housing contract since 2002 and "we have enjoyed our relationship with Haseko," Mielke said.

The $500,000 figure cited by Abercrombie involves payment for services already rendered by Haseko, Mielke said.

Abercrombie helped write federal legislation, passed in 1996, that allows the military to privatize housing, speeding up a nationwide effort to renovate and build tens of billions of dollars worth of homes for members of the armed services and their dependents.

The Actus Army contract is one of three such multi billion dollar jobs awarded here last year. It requires Actus to maintain and operate the housing for 50 years.

Actus also won a $1.1 billion Air Force housing contract last year. The Navy selected Hawaii Military Communities LLC — a partnership of two large Mainland firms and 18 local companies — for the initial phase of a housing contract that will eventually involve renovation or construction of 7,300 homes for Navy and Marine Corps personnel on O'ahu. The first phase is valued at $358 million and the entire contract is estimated to be worth $1.1 billion.

Abercrombie urged members of the Honolulu City Council Budget Committee yesterday to pass legislation meant to ensure the city collects taxes for federal property leased to private companies.

Budget director Ivan Lui-Kwan said federal law may trump any bill the council approves.

"We're in favor of generating as much revenues as possible, but we have to be careful to do it in a way that's fair to the payer and is legal," Lui-Kwan said.

But several council members said taxpayers shouldn't be forced to pay for city services supplied to privately operated military housing projects.

Mielke said the Actus project housing sites would not use such city services as police or firefighter protection.

Councilman Charles Djou said demanding taxes or other payments connected to the military housing would be a bad move.

"It just does not look right for the City Council to be moving to tax their housing while they are overseas fighting," Djou said.

Linda Smith, senior policy adviser to Gov. Linda Lingle, said HCDCH, the state's public housing agency, was approached last year about granting a "blanket exemption" from state taxes for privately operated military housing projects. The housing agency has drafted amendments along those lines that are under review by the administration, Smith said.

"There are serious tax, budget and legal issues involved," she said.

Amended regulations allowing such exemptions would have to go through a public hearing process before taking effect, she said.

The issue will come up again today during a hearing of the state House Labor Committee, and Abercrombie said he plans to deliver more telephone testimony at the hearing.