Senator sees no conflict in many ties to Ko Olina

By Jim Dooley
Advertiser Staff Writer

State Sen. Colleen Hanabusa, backer of the controversial $75 million tax-credit program benefiting Ko Olina resort developer Jeffrey Stone, lives in a luxury Ko Olina townhouse purchased by her fiancé from Stone, and works in a downtown law office subleased from Stone, according to real estate and business records.

Sen. Colleen Hanabusa is engaged to be married to state Sheriff John F. Souza III. Advertiser library photo*

Souza bought the townhouse in the recently completed Kai Lani development in June, less than a month after Lingle signed the tax-credit package into law. Hanabusa introduced the bill in early 2002, and it was passed by the Legislature but vetoed by then-Gov. Ben Cayetano. Hanabusa, an attorney, sued Cayetano over the veto and reintroduced the bill in January 2003. The Legislature approved it in May.

Hanabusa has been working out of downtown Honolulu law offices subleased by Souza from Stone since mid-2002, about the time she sued Cayetano. She lost the suit, but is appealing to the state Supreme Court. Last year, she filed another lawsuit on behalf of the Ko Olina Community Association opposing city plans to extend use of a landfill next to the resort.

Hanabusa said last week her financial connections to Stone are indirect — through her law firm or her fiancé's business enterprises — and that she has not benefited financially from them. She was not required by law to disclose those connections and doing so voluntarily "never occurred to me," she said.

She said was not involved in the Kai Lani purchase other than to tell Souza it might be a nice place for them to live. She said she pays rent to her fiancé.

"I do believe in the area," she said. "I have a very strong commitment, and I do believe that Ko Olina is the future of the Wai'anae coast."

The unit Souza purchased is one of six that a Stone company, Hawaii Land Development, bought and made available for resale to Stone's family, friends and business partners, Stone said.

Stone and Souza described each other as friends who met in 2001 when Souza's trucking company began working on the Kai Lani construction-related contract.

The $569,000 price Souza paid for the three-bedroom, two-bath unit appears to be generally in line with prices that Stone's company charged other buyers. One unit was sold to Stone's father, one to another Stone company, and two to business associates. The last was sold to an independent buyer.

Souza said he and Hanabusa had been trying unsuccessfully to sell a condominium they own in Honolulu, and he was short of cash for a down payment. Stone granted a $405,773 mortgage loan as part of the sale, Souza said.

Stone said his companies routinely provide mortgage loan financing to buyers, and the 6 percent rate Souza is paying for his one-year, adjustable-rate loan is "way over market; he could have gone and gotten a much better rate" elsewhere.

Souza originally said he had made a $50,000 cash down payment and financed the balance of the purchase price with the mortgage loan from Hawaii Land Development. But the difference between the purchase price and Souza's mortgage is $163,227, not $50,000.

Souza was unable to explain the discrepancy, but then said later he had paid Stone's company the full $163,227 down payment in cash.

Stone said his company made a $20,000 profit on the sale, and also profited from the unit sold to his father, Ralph Stone. Real estate records show the elder Stone paid $32,000 more than Souza for a townhouse identical in size, design and location. The transaction was financed by a $443,678 mortgage loan that Ralph Stone borrowed from another of his son's companies, One Keahole Partners, records show.

Stone said he is careful to avoid even the appearance of favoritism in real estate transactions with friends, business partners or family members since 1998, when the state Attorney General's office brought, then dropped, theft and bribery charges against him.

The state had alleged that Stone overpaid then-Bishop Estate trustees Henry Peters and Richard "Dickie" Wong for real estate purchased from them in return for favorable treatment in a large land transaction with Bishop Estate.

Stone, Wong and Peters denied wrongdoing, and Circuit Judge Michael Town dismissed the case, ruling that prosecutors had obtained the indictments illegally. The Hawai'i Supreme Court upheld Town's ruling.

"Every time ... that I do anything with anybody that I know," Stone said, "whether they're a partner or even a family member, we've made it a policy to no longer give them the same price, you know, we paid."

Last month, his Hawaii Land Development sold a two-bedroom unit in the building where Souza and Hanabusa live for $775,000, grossing $225,000 in less than a year. Stone is now listing the unit directly above Souza and Hanabusa for $850,000.

Hanabusa said she and Souza plan to marry at the end of the year, after which she is required to include his financial information on her public disclosure form. She said she and Souza had decided to keep their financial activities as separate as possible, so she will continue to pay him rent even after they are married. "I've always paddled my own canoe," she said.

Souza, a retired Honolulu police detective appointed by Lingle to head the state Sheriff's Division in August, said his official financial disclosure form lists his business ties to Stone but is not open for public inspection.

The relationship between Souza and Stone goes back to 2001, when Souza's Pueo Trucking firm went to work for Armstrong Builders in 2001 on the Kai Lani development.

Pueo Trucking began work last month on a "verbal contract" Souza said he holds with Royal Construction to do hauling at the new Centex Homes residential development at Ko Olina, single-family homes priced at $1 million or more. Souza said Stone introduced him to Centex personnel, but he won the job through competitive bidding.

Hanabusa represented Pueo Trucking in its successful efforts to win a trucking license from the state Public Utilities Commission in 2002-2003. But the senator neglected to disclose that work on her 2002 financial disclosure form filed with the Ethics Commission.

She did disclose that she represented Souza in a disability claim he filed with the state Labor Department in 2002.

Hanabusa said her failure to include the PUC work on her disclosure form was "an oversight," and that she would file an amendment with the Ethics Commission disclosing her PUC work for Pueo.

A bill passed unanimously by the Senate last year and pending before the House would expand conflict-of-interest disclosures required of legislators and establish ethics committees in each house.

The bill says that when a legislator's "personal or financial interests and obligations ... may reasonably be perceived to be in potential conflict with pending legislation," the situation must be disclosed to, and reviewed by, the ethics committee.

State Sen. Les Ihara, who introduced the bill, said he believes senators should start the practice of disclosing potential conflicts of interests. "Lawmakers should be responsible for helping to increase public trust and confidence in the legislature," Ihara said.

Reach Jim Dooley at jdooley@honoluluadvertiser.com or 535-2447.

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