County Housing and Human Concerns Director Vanessa Medeiros wrote in an October letter to the County Council that the homeless resource agency's financial situation was "tenuous," and that her department last July had provided $220,000 in emergency funds, in addition to $300,000 already provided by the state, to keep the shelters and programs open through June 30, 2008.

"Apparently the organization has been running at a deficit," she told the council's Budget and Finance Committee on Monday.

In addition, MECC has not made any payments on two $4 million county loans, one of which dates back to 1996.

The agency's annual financial audit for 2006 indicates that MECC has spent nearly half of a $1 million endowment fund meant to support daily operations at its facilities. But former executive director Charles Ridings said that report was inaccurate, and that once the organization collects its receivables it will likely be left with less than a $187,000 deficit in unrestricted funds, with the endowment intact. He said he expected the audit to be revised.

Ridings said there were a number of reasons the county loans had not been repaid, including an unexpected shortfall of $844,925 in county funding commitments for the agency's west-side shelter.

The Budget Committee in an 8-0 vote Monday advanced a resolution authorizing Council Chairman Riki Hokama to contract for a management audit of the nonprofit organization. The resolution is expected to go before the Maui County Council for final approval Feb. 22.

Ka Hale A Ke Ola was initiated as a program providing emergency shelter that provides counseling, training and assistance for the homeless to find jobs that will allow them to qualify for homes. The resource center also provides transitional housing for clients seeking affordable housing.

Maui Economic Concerns of the Community was formed to manage the expanding operations designed to meet the needs of the homeless.

In addition to Ka Hale A Ke Ola in Wailuku, MECC runs Na Hale O Wainee in Lahaina. An affiliated organization, Hale Makana O Waiale, operates an affordable rental housing complex in Wailuku constructed with county support to provide low-cost housing for families who have jobs but have difficulty finding housing they can afford.

Becky Woods, a former case manager who has served as executive director for five months, said the organization has increased rents and facility charges at Hale Makana that will provide an expected $371,560 annual increase in revenue. The rental increases, ranging from an additional $100 to $125 per unit, are the facility's first rent hike since 1996.

Woods said she is also pursuing new grants and working with the board of directors on fundraising to increase revenues.

"Nobody has suffered; programs have not been taken away," she said. "Regardless of our financial situation (the clients) are our number one priority."

MECC has had three executive directors since Ridings retired in December 2006, after 15 years. He is now employed by the organization on an hourly basis as a consultant on financial and billing issues.

Ridings said Monday the agency was not in default of a $4 million county loan made in 1996, noting the terms of the loan gave MECC until 2035 to pay it off.

"It's premature to say we can't pay it," he said.

He acknowledged MECC had missed the first two payments on a second $4 million loan to build the Wainee shelter, but said that was due to a shortfall of funding that was to be transferred from the county.

The county had planned to dedicate 20 rental assistance vouchers from the federal Department of Housing and Urban Development for the project, but HUD later did not approve the request. In addition, county grants to cover operating costs were smaller than promised, Ridings said.

"We really didn't have a chance to pay," he said.

Ridings said the organization hopes a planned affordable rental project in South Maui, which would be funded entirely by developer contributions, will create a cash surplus that could be used to pay the loans.

Council Member Mike Victorino, who is a board member of MECC, initially asked to be recused, but later voted to support the audit after county attorneys said he should only refrain from voting if he had a financial interest in the organization.

"I think the organization will be well served by this audit," he said.

Council Member Gladys Baisa, the former head of Maui Economic Opportunity Inc., said the organization should have planned for gradual rent hikes to keep up with costs, rather than a sudden increase that could be difficult for tenants to pay.

She also said a management audit was needed.

"There's no debate as to the value of what is being done," she said. "We all need the shelter, and we all need the rentals."