Smith, who was born and raised on the Big Island and is part Hawaiian, has lived at Ka Hale Kahalu'u for nearly 12 years. During that time she complained repeatedly about squalid living conditions and criminal activities, and helped forge a coalition of tenants and public and private agencies, including the Big Island prosecuting attorney's office. Last year the coalition presented evidence of mismanagement at Ka Hale Kahalu'u that was so compelling it moved some HCDCH board members to tears.

"It was very traumatic," HCDCH executive director Stephanie Aveiro said of her feelings when she saw, firsthand, living conditions at Ka Hale Kahalu'u.

"Some of us were literally in tears. I was ashamed by what I saw," said Aveiro, who was on the board at that time and this year was named HCDCH executive director.

Several broken tiles cover the bathroom floor of Rodelle Smith's apartment in Ka Hale Kahalu'u. She said other units have bathrooms shut off because of leaks, as well as rotting cupboards and broken appliances. Kevin Dayton • The Honolulu Advertiser

The struggle by Ka Hale Kahalu'u residents is just one example of how those concerns are affecting public housing tenants statewide.

Because of the deficiencies brought to light by Smith and the coalition, HCDCH canceled the contract with the private company overseeing Ka Hale Kahalu'u and three other HCDCH facilities in Kona but allowed the firm, Urban Real Estate Co., to continue managing 17 other public housing projects statewide.

For a while, state personnel tried to handle management duties at Ka Hale Kahalu'u themselves, then awarded a sole-source, short-term management contract to another company, Hawaii Affordable Properties Inc.

Urban Real Estate official Lui Faleafine, who oversees the company's HCDCH contracts, could not be reached for comment. But Aveiro said HCDCH was satisfied that the Ka Hale Kahalu'u problems were caused by "one bad manager" and that the company "has performed well on its other contracts with us."

Lawsuit filed

"Some units have bathrooms shut off because of water leaks. One of my neighbors, the bathroom cabinet is collapsing because of water damage. Tiles are missing from floors. Cupboards are rotting away, appliances don't work," she said.

For Smith, fighting for Ka Hale Kahalu'u was just the beginning of the battle to bring the state's public housing agency up to standard.

Now, she and three other Ka Hale Kahalu'u residents have filed a class-action federal lawsuit against HCDCH, alleging that hundreds of low-income public housing residents statewide have paid millions of dollars too much in utility bills.

For at least seven years, HCDCH has failed to include utility rate increases when calculating what are called "utility allowance" rental deductions for about 500 low-income public housing residents on the Big Island, Kaua'i, Maui and Moloka'i, according to the suit.

As a result, those residents have paid an estimated $8 million too much in rent, according to Gavin Thornton, an attorney representing Smith and other plaintiffs in the lawsuit.

Thornton said Smith's monthly "utility allowance" is now $71 but should be $144.

Aveiro would not comment on the suit, but one "must-do" item on a long list of improvements demanded of HCDCH by the federal government this month is development of "updated utility allowances."

HCDCH must complete dozens of other tasks within the next 12 months, according to a 23-page "memorandum of agreement" signed last week by the state agency and HUD.

The agreement was hammered out after HUD officially designated HCDCH "troubled" and threatened to begin withholding housing money or even take direct control if things don't improve substantially by Sept. 1, 2005.

"It really was to no one's surprise" that HCDCH was given the designation, said Michael Liu, a former Hawai'i Republican state senator who now heads the HUD Office of Public and Indian Housing in Washington, D.C.

"These problems have been building for a long time," Liu said.

But there's a different attitude at HCDCH under Gov. Linda Lingle than there was under previous administrations, Liu said. "We have cooperation with them — a significant change from past management," Liu said.

"They have accepted responsibility and we have hammered out a very pointed and outcome-oriented agreement."

HCDCH's problems have been building for years and the agency has spent millions of dollars trying to meet federal demands for improvement.

In May 2002, Liu ordered HCDCH to spend $2 million of its own money on a study that would provide "technical assistance in all areas of management."

And in November 2002, Liu demanded the resignations of HCDCH executive director Sharyn Miyashiro and eight of nine members of the agency's board of directors. Liu said Miyashiro violated federal conflict-of-interest regulations when she awarded a $771,000 sole-source housing repair contract to her ex-husband's company. He demanded that HCDCH return the $771,000 to HUD.

HCDCH complied, hiring a subsidiary of IBM Corp. to conduct an exhaustive analysis of HCDCH and its many low-income housing projects statewide. The consultant's lengthy and detailed recommendations for change were delivered last year.

Earlier this year, after Aveiro took the reins at HCDCH, the agency returned the $771,000 but there has been no attempt to recover that money from the contractor, Punalu'u Builders, which maintains that it performed the required repair work at a reasonable price. Aveiro will only say that recovery of the money is being studied by the state attorney general's office.

Now, after satisfying federal demands to spend or refund nearly $3 million during the past two years, HCDCH has still landed in the "troubled" category and has to complete numerous additional and expensive reforms by next September.

Aveiro would not put a price-tag on the latest HUD requirements, other than to estimate that just one computer system overhaul project will cost "between $400,000 and $750,000."

She did say HCDCH hopes to get some federal financial assistance to complete some items on the HUD list (see accompanying chart). But she also noted that falling into the "troubled agency" category disqualifies HCDCH from receiving certain kinds of federal money.

"This year we got a $2 million bonus for spending all of our federal grant money on time. You can't get bonus money if you're a troubled agency," Aveiro said.

And HCDCH is heavily dependent on federal dollars, receiving between $24 million and $25 million per year, so any threatened loss of that money is taken seriously, she said.

The "troubled agency" label, Aveiro said, "is obviously not a good thing but getting the specific guidelines and deadlines can actually benefit us."

She said that to a certain extent, some of the problems cited by HUD are not as serious as they appear to be because HCDCH has simply not done a good job of reporting its activities to HUD within prescribed deadlines and in the proper form.

Money is tight

Smith points out a gas line and tank that has raised concerns because children in the complex climb on them. She said she has repeatedly asked the apartment management to enclose the tank. Kevin Dayton • The Honolulu Advertiser

"There's only so much money to go around," she said. "We have between $12 (million), $15 million available every year for renovation and repair and it's just not enough," she said.

"We're trying to leverage some of our money — borrow against it — to increase our income. We've sold some property and we'll be developing some commercial property."

There are about 3,200 state and local public housing agencies like HCDCH nationwide. The San Francisco Housing Authority, which oversees about the same number of federally subsidized housing units as HCDCH, fell into HUD's "troubled" category shortly after HCDCH, also failing in the financial condition category. That agency has threatened to declare bankruptcy, largely because of an inability to pay about $9 million in legal judgments pending against it.

The IBM study warned that public housing in Hawai'i is old.

"The average age of properties in the federal housing stock is 33 years, which is particularly old considering the impact of a tropical climate on properties and equipment," the study said.

Rodelle Smith in Kona said age and neglect have taken a terrible toll on her home and those of her neighbors at Ka Hale Kahalu'u.

She said HCDCH officials have promised to begin a "revitalization" program, similar to the one that is now transforming Kalihi Valley Homes on O'ahu.

"But it doesn't look like that's going to happen until at least 2006," Smith said.

"So we wait some more," she said.