"We've been spending our own money and working on the boat when we have the time," Ohai's son Nephi said last week. "We just want to get this thing over with, finish the boat, pay what we owe and catch fish."

That may not happen soon. With back taxes and unpaid lease rent on state land at Pier 18 that the family business occupies, the Ohais' debt to the state totals close to $2 million, according to state Circuit Court records.

Attorney Ted Hong, a former state labor negotiator who is now representing the Ohais free of charge, says he's trying to negotiate a settlement to fairly repay the state and finally get the 80-foot, fiberglass-hull boat, named Kauai, operational.

"The Ohais are great fishermen, but there's room for improvement as businessmen," Hong said.

The Ohais' unpaid loans make up the largest delinquency in the state's now-defunct boat-loan program. Begun in the 1970s by the state Department of Business, Economic Development and Tourism, the program offered low-interest construction loans to build new commercial fishing vessels here when conventional financing was unavailable.

The program was shut down in the mid-1980s after more than 70 percent of its $5.2 million loan portfolio grew seriously delinquent and fell short of its aim to expand commercial fishing into a major industry.

The state is still carrying nine delinquent boat loans on its books, with principal values totaling $1.1 million, said Alex Watanabe, DBEDT loan officer. Watanabe said he did not have current numbers for the unpaid interest on the loans, but these could significantly add to the amounts owed to the state.

Interest charges grow

Nephi Ohai looks at the engine of the Kauai, a fishing boat he and his father, Leo Ohai, rear, have been build-ing since 1982. The family received state loans through a program designed to improve the fishing fleet. Richard Ambo • The Honolulu Advertiser

"The other boats out here, they can only do one or maybe two of those things. But this boat can do all of them," he said.

The Ohais' first state loan agreement was made in January 1982 for $560,000. As of October 2004, the interest owed on that loan totaled $682,000, according to court records.

State officials approved a second loan worth $166,000 in 1986 to complete the Kauai. That loan also is unpaid, and the interest owed on it totaled $152,000 as of October, the state said in court papers.

Interest charges on the two loans are accumulating at more than $135 per day, according to state records.

The state reluctantly made the second loan to the Ohais because a legal dispute between the family and the boat builder had delayed construction and "substantially increased" the cost of the project, according to loan papers filed in court.

If the state stopped financing the Kauai project, "It is highly unlikely that someone else would take over the project and be able to come up with the funds for the completion," then-state loan officer Doreen Shishido said in January 1986.

Shishido said the Ohais "were willing to put up all of their assets for this loan," and she described the borrowers as "local people, born and raised in Hawai'i (who know) the ins and outs of the commercial fishing industry."

She said the Ohais "have exhausted all of their resources for this project" and recommended continued state financial assistance because "we will be fulfilling the intent of the large-fishing-vessel loan program."

The second loan was approved, but the Ohais claim in a lawsuit that the money was disbursed too slowly. "There was a 13-year period where the state provided us its promised loan proceeds in a piecemeal fashion which prevented us from finishing the vessel Kauai based on the original cost estimates," according to a sworn affidavit filed in court by Leo Ohai.

In 1999, the state notified the Ohais that it was considering loan foreclosure for nonpayment, as well as the seizure of the Kauai and the Ohai's family residence that had been posted as collateral for the loan.

Leo Ohai said he told the state "our funds were extremely limited" and he was trying to pay carrying costs such as insurance and wharfage fees while still finishing the boat and carrying on a full-time commercial fishing business.

Two years later, the Ohais themselves sued the state, alleging that the state would only disburse small amounts of the promised loan payments and stopped all funding from March 1988 through May 1995 when a final $101,000 was disbursed. The delay caused the boat project to founder, the family said.

Major work remains

The Kauai is in the water at Pier 18. The design is patterned after the open-stern wooden "aku boat" sampans that once dominated the fishing industry here. Its hull is complete, and the engine, propeller shaft, electrical system and most major fittings are in place and operational. Major work remains to be done, specifically coating the interiors of 12 huge fish holds with fiberglass.

"It's a big job," said Nephi Ohai, estimating that it will take another year and "quite a bit of money" to make the Kauai seaworthy.

The main deck is covered by a makeshift shed that allows family members to work on the vessel when they're not out fishing.

"We start up the engine regularly to keep everything in operating order," Nephi Ohai said. "We even had to have one of the generators overhauled not too long ago."

The Kauai is a longer, wider version of the Libra, another fishing boat designed and operated by the Ohais that was built in the late 1970s with an earlier $265,000 loan from the state.

Nephi Ohai said the Libra loan was satisfied and the boat, also docked at Pier 18, is the Ohais' main fishing vessel and part of the collateral posted by the family to support the loans for the Kauai project.

Lots of problems

Despite numerous problems in designing, financing and building the Kauai, the Ohais and Hong still believe it's possible to build more boats like the Kauai at relatively low cost.

"The idea is to revitalize the local fishing industry," Hong said.

Over the years, Leo and Nephi Ohai and their companies, Oceanic Kaimamala Corp. and Oceanic Libra Corp., have been hit with a series of tax liens filed by the federal, state and county governments for unpaid business and property taxes.

The state also has filed an eviction lawsuit in District Court to remove the Ohais and their businesses from waterfront property they occupy at Pier 18, alleging they owe some $87,000 in unpaid rent.

Hong acknowledged that the tax bills and lease rent have gone unpaid but he said those problems are part of the legal dispute the parties are trying to resolve in Circuit Court.

Deputy Attorney General Myra Kaichi, representing the state in the case, said settlement negotiations are at a delicate stage now.

"We're very hopeful that we will reach a mutually beneficial resolution," Kaichi said. "Both sides have put forth a lot of proposals, some of them quite novel and creative, to reach a satisfactory settlement."