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The Honolulu Advertiser
Posted on: Sunday, May 9, 2010

State should sell land to ease budget woes


By Jay Fidell

The state is our largest landholder. If land isn't owned privately, federally or by the counties, it's owned by the state, which tends to hold it forever. Most of this state land lies fallow and doesn't contribute anything to the tax base.

There are 6,400 square miles of land in Hawai'i. It's time to take stock of unused public lands, and it's probably time to start selling some. They're selling state land in states like California and island states like Singapore. Why shouldn't we?

IMPROVE ECONOMY

The recession makes us ask how we can raise money to balance our tenuous budget. Given the inexorable deterioration of tourism and our tragic failure to diversify, the sale of state land could be a magic bullet and our only way out.

It's more than a fiscal matter. Hawai'i's real estate market is disconnected from its people, who can't afford to buy or even rent. They go homeless. Businesses can't afford to take space or grow. The cost of occupancy is simply too high.

On an island, land is a scarce commodity, and scarcity pushes up prices. With more land in the market, prices would be moderated.

So if the state doesn't need some of this land and its sale would improve the economy, why doesn't the state sell it?

But what land to sell? You inventory everything, then exclude private land, county land, federal land, ceded and cultural land, conservation land, agricultural land and land otherwise unmarketable. What's left is what we're talking about.

PAST RESISTANCE

The state has traditionally had a hard time selling land. Officials don't want to be blamed for squandering the "public trust" by those who expect them to hold on to everything. Remember the uproar about the Alexander & Baldwin Kaka'ako condo project?

Because the monarchy owned everything doesn't make it right. Government doesn't have to own the land to do good government. That might have been defensible in the 19th century, but like the gold standard it's no longer useful.

Holding all this land is neither realistic nor appropriate. This is the 21st century and it's time for government to move ahead. The state should not be sitting on unused and marketable assets that could be used to improve our economy.

NO DOWNSIDE

There's no downside in selling. You can worry about losing the land bank effect of state ownership, but the state can always condemn or, for that matter, reserve rights to buy it back. It's not as if the state can't get land when it needs it.

Some people might be concerned that this land would wind up in the hands of buyers from out of state or from other countries. But such buyers have been buying Hawai'i land for decades.

There's absolutely nothing new about that.

The solution is to dispose of land in bite-sized pieces and not in big parcels. That would make it more difficult to assemble land into large holdings, which is exactly where we want to go more land for the little guy, as in other places.

MAKE DEALS

The state should not handle these deals in-house. We have well-developed real estate brokerage, property management, escrow and title companies. We have legal, accounting, insurance, banking and design professionals, and contractors and workers waiting to help. Think of all the people who would be kept busy.

First, we need a careful inventory. This could be done on contract.

The state could then decide what land to offer and list it with brokers, as you and I would. The state might also try some less conventional ideas, like Internet auctions.

Buyers could find financing, but to incentivize them the state could self-finance by taking back mortgages or other security instruments and get higher interest than it does on state bonds. That interest would be another source of revenue.

DLNR already has statutory authority to dispose of state land. The procurement code may need changes to expedite selection of brokers and escrows, but we don't need a Constitutional Convention or an act of Congress to get things going.

DLNR has been offering leases of random parcels to raise money to repair state recreational facilities. That's a good beginning, but to cover the ground we've got a long way to go, in the sale of unimproved fee-simple land and in creative long-term leasing and monetization of other marketable state properties.

IT'S TIME

Sooner or later, we'll need land reform to break down larger holdings into smaller ones.

Campbell has sold its land, Brewer has sold its land and Dole is about to sell its land. We are in a transition, and the direction is to smaller, kinder landholders.

The benefits of selling unused state land are huge the state gets the proceeds and improves its tax base. As land is added into the system, the leasing market is moderated, new properties are developed, new housing, businesses and jobs are created, and the economy is thus revitalized. So what's not to like?

This could be a great equalization, a democratization of ownership, even a new mahele. Sure it'll be an issue for those who feel the state should hold on to every inch, but at this point in our economy, what would you rather do? Gambling?

Jay Fidell is a business lawyer practicing in Honolulu. He has followed tech and tech policy closely and is a founder of ThinkTech Hawaii. Check out his blog at http://thinktech.honadvblogs.com.