Home purchases prompt ethics violation claim

Council member: Kihei condo was not bought as an affordable unit

Couch

An ethics violation claim has been filed against Maui County Council Member Don Couch over questions about his qualifications for an affordable home he and his wife purchased in Kihei while also buying a market-priced home in Waikapu in a three-month span nine years ago.

Haiku resident Sean Lester’s complaint, which is on the Ethics Board’s agenda Wednesday, says that Couch and his wife bought a market-priced home in Waikapu Gardens for $595,900 in March 2007 and a unit at Kai Makani Beach Villas in May 2007 for $389,088.

Lester questions how Couch could qualify for an affordable home — with its requirement of having an income of no more than 140 percent of median income — and still manage to buy it and the market-priced unit.

Last week, Couch told The Maui News that he bought the two homes, but that the Kai Makani unit was no longer under a maximum income restriction when he bought it in 2007. For personal reasons that he declined to elaborate on, the couple signed on for the Kai Makani unit and later also put money down on the Waikapu Gardens home.

When Couch and his wife wanted to back out of the Kai Makani unit in favor of buying only the market-priced home in Waikapu, Couch said they learned that they could not renege on the deal without losing “a substantial sum of money.” Instead, they decided to keep both homes, renting out the Waikapu Gardens home before selling it in August for $669,000.

Couch explained that when he and his wife originally signed up for the Kai Makani unit, their income was below 140 percent of median income, and they did qualify as buyers. When their income changed as they waited for the affordable home selection process to sort itself out and they were offered the unit, the policy at the time allowed them to purchase the home based on their income when they signed the purchase agreement, he said.

Couch questioned the timing of Lester’s complaint to the Board of Ethics. The council member since 2011 is defending his South Maui residency seat in a competitive race against Kelly King, a former Board of Education member and co-founder of Pacific Biodiesel. He is not blaming King for the ethics filing.

Couch said that speculation on the home purchases initially surfaced years ago when he ran unsuccessfully for the council’s South Maui residency seat in 2008.

“This is a meritless, politically oriented attack on my wife and me, made about activities that mostly took place a decade ago,” Couch said in a written statement and in interviews with The Maui News. “This is a blatant attempt to create an illusion of impropriety just before the election.”

Lester said that he wasn’t singling out Couch. He said he has filed complaints against other candidates whom he felt were in violation of ethics laws, including former Council Member Mike Molina and Beverly Pauole Moore, an unsuccessful council candidate.

“I found the purchase of these two residences, especially Don’s purchase of an affordable house as a second home when so many are desperate for affordable homes, to be unethical,” Lester said.

The ethics complaint was not filed as a ploy to hurt Couch’s re-election, he said. “I filed on Don irrespective of others in the campaign cycle,” he said. Lester said that he initially filed the complaint about a month ago but pulled it back to ensure accuracy.

Lester said that he has attended a couple of campaign events for King and was part of a crowd photo at her primary election event, but that he is “not involved in her campaign” and has not given her campaign contributions.

“I have far deeper reasons than a single opponent to file on Don,” Lester said.

King said Monday that her campaign is not about the ethics complaint. There are “a lot of reasons to vote for me . . . on my own merit,” she said.

She also affirmed that Lester is not a member of her campaign.

This isn’t Lester’s first complaint filed against Couch. In 2009, as part of the ‘Ohana Coalition, Lester and his group received training and advice from officials with the state Campaign Spending Commission and later filed a complaint against Couch for exceeding the maximum allowable contributions from nonresidents. The coalition of volunteers vetted campaign spending reports from every candidate who filed for Maui County-centric offices, he said.

The commission ended up fining Couch $375 for exceeding the contributions allowed from nonresidents. The council member told The Maui News that he mistook two out-of-state residents for Maui residents and was not aware that the contributions were coming from out of state when he accepted them.

The Board of Ethics will take up Lester’s complaint against Couch in a closed executive session. The chairman will recommend whether to dismiss the complaint or schedule a hearing, said Deputy Corporation Counsel Gary Murai.

Murai, who advises the board, said that complaints may be dismissed, for example, if they don’t allege a violation of a code of ethics or if they fall outside of the statute of limitations. He presumed that if the board sets a hearing on Lester’s complaint it will held at the board’s November meeting.

When this election cycle started, Lester said that he checked financial disclosure filings for all council members and candidates and came across the Couch home purchases.

He produced deeds for both properties.

The Kai Makani deed, dated May 4, 2007, notes that the Couchs had qualified for the purchase of the apartment as “affordable buyers,” with an income below 140 percent of “median income” as determined by Maui County.

Lester questioned how the Couchs could qualify for an affordable home when they paid $889,000 for both properties. Lester estimated mortgage payments for both properties to be around $69,000 annually. If the Couchs qualified at 140 percent of the state’s median household income, which the Census Bureau in 2007 put at $64,583, their income would have been about $91,000.

He added that Couch’s filings with the Ethics Board show no rental income.

In answering Lester’s complaint, Couch told The Maui News that the Kai Makani unit was not under an affordable housing income or other restriction when he and his wife finally purchased the unit in 2007. He said that the deed they signed contained a boilerplate that should have been changed to reflect that their unit was not purchased under any affordable buyer income criteria.

The Couchs’ effort to purchase the affordable unit began several years earlier. In 2005, when Couch was an executive assistant to Mayor Alan Arakawa, the couple signed a purchase contract for the affordable unit after qualifying at 120 percent of the median income. In 2006, Arakawa appointed Couch as deputy director of the Department of Planning, and his pay raise pushed his income above the maximum 140 percent median income qualification for an affordable home.

However, the Department of Housing and Human Concerns told him that he did not have to forfeit the home because his income eligibility was determined earlier, when he signed the purchase agreement. Couch provided a Department of Housing and Human Concerns letter, dated Feb. 14, 2005. It says that if buyers met all qualification requirements when the affordable units were offered for sale, the buyer would not be disqualified should he or she subsequently acquire property or exceed income limitations.

Couch explained that the letter was sent to his Realtor when his change-of-income situation arose in 2006. While the Couchs awaited the closing of the Kai Makani unit, they also found a market-priced home at Waikapu Gardens. They determined that it was more suitable for them and put a down payment on the property, he said.

After deciding to buy the Waikapu home, Couch said that he and his wife were hoping to have their down payment on the Kai Makani unit returned. However, Couch said, they couldn’t get out of buying the Kihei unit without losing a “substantial amount of money.” So, they ultimately decided that for “personal reasons, we needed to get both” properties.

When they purchased the Kai Makani unit, Couch said, the home was no longer considered an affordable unit. Under the affordable housing process for the units then, if affordable units couldn’t be sold to lower-income individuals, the units would be offered to higher-income buyers after certain periods of time, he said.

Kai Makani’s affordable housing agreement with the county, filed with the state Bureau of Conveyances on Dec. 10, 2004, says that unsold affordable units, with the approval of the county, could be sold to buyers without income restrictions. Couch said that the Kai Makani developers requested the release of affordable units, but the county did not respond. The terms of the agreement allowed for the release to take effect, even if there was no response from the county.

Couch explained that, under the guidelines nine years ago, he was able to purchase the unit at Kai Makani at the same price listed for affordable buyers.

Former Department of Housing and Human Concerns Director Alice Lee, who served from 1999 to 2006, recalled last week that it was not uncommon to have units sold to higher-income homebuyers when no one in the lower-income levels purchased the affordable housing. She said affordable homes even could have been sold at market prices if no one purchased the homes under affordable guidelines.

She confirmed that, during the time the Couchs purchased the unit in Kihei, those who qualified for an affordable home at the time of purchase did not have to forfeit units if their incomes increased. Lee qualified her comments by saying that she was not familiar with Couch’s specific situation and personally did not conduct enforcement on affordable housing criteria.

The Couchs were able to make mortgage payments on both of the homes, living in the Kai Makani unit and renting out the Waikapu Gardens home. Couch said that the rent was “way below market rent rates for a family of five.” The couple thought about selling the Waikapu Gardens home, but that was during the worst of the Great Recession when the housing market collapsed across the country, as well as on Maui.

“We lost a lot of money each month on it,” he said.

The couple finally was able to sell the Waikapu Gardens home in August for $669,000, but given back taxes and the amount they had to cover — the difference between rent charged and the mortgage — they came out with a loss, Couch said.

As far as filing the rental income on his financial disclosure form with the Ethics Board, Couch said that he reported the rental income under his wife’s business income. The item was not specifically listed as rental income, though. He said he listed the rent under his wife’s business income because she was the one collecting the rent.

“We have reported the rental income on all of our tax returns and GET (general excise tax) returns as well,” Couch said.

“While I am well within my rights to say that this matter is personal and private, I am elected to public office, and even if the Board of Ethics chooses to not review this complaint, I nonetheless must respond to it, to protect the integrity of the office I hold,” Couch said.

* Melissa Tanji can be reached at mtanji@mauinews.com.

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