The bills initially introduced in the Senate and House required the state to reach a deal with project developers to keep the units affordable — or, as a last resort, have the government acquire the property by eminent domain.

Last Wednesday, the House Finance Committee recommended gutting the bill and calling on the county to “recoup any and all moneys expended” from leaseholders Front Street Affordable Housing Partners and landowner 3900 Corp. for the affordable project that received millions of dollars in federal, state and county tax credits and entitlement exemptions.

The amended measure calls for the state Housing Finance and Development Corp. to provide rental assistance to the tenants for three years to keep the units affordable conditioned on the county, the leaseholders or landowners matching the state appropriation dollar for dollar. If a match is not made, 3900 Corp. and Front Street Affordable Housing Partners and their successors will be prohibited from doing business with the state.

The amended measure passed the House unanimously Tuesday and was sent to the Senate.

West and South Maui Sen. Roz Baker said Tuesday that is not the version passed by the Senate and is headed to a House-Senate conference panel, where “we will work out the best deal we can.”

Gary Kubota, liaison for the Front Street Apartments tenants, said they were pleased that “House members have recognized that there is a problem, and they are willing look for a solution.” Had the House not passed a version of the bill, it would have died for a second straight session.

“I think we are happy that something got passed,” he said.

The tenants will be working with West Maui Rep. Angus McKelvey and Baker on reconciling the House and Senate measures. While the tenants’ support the initial version of the bill, they haven’t had a chance to digest the changes and will be meeting soon to discuss their options.

“We are not inflexible,” Kubota said.

Mayor Alan Arakawa, who supported the original version of the bill, declined comment Tuesday.

The privately owned Front Street Apartments opened as a 142-unit affordable housing project in 2001. In testifying before the Finance Committee last week, Maui County Council Member Kelly King said public investment in developing and keeping Front Street Apartments affordable exceeds $40 million.

Front Street Affordable Housing Partners received $15.6 million in state and federal tax credits and close to $5 million in county benefits, including waivers on requirements to contribute 1.5 acres for a public park and compliance with building codes, and more than $2 million in real property tax exemptions, she told the committee.

The project was supposed to be affordable for 50 years, but Front Street Affordable Housing Partners used an Internal Revenue Service loophole to put the project up for sale after 15 years. Unable to sell the property, Front Street Affordable Housing Partners was able to begin charging market rates for their units.

Last year, Front Street Affordable Housing Partners tried to sell the project for $15.4 million, but the state was unable to buy the project because the price was higher than the appraised value of $8.7 million. By the time the county learned of the situation, it was too late to try to purchase the affordable project.

While rent isn’t supposed to increase until 2019, vacant units are already being rented at market rates, said Chi Pilialoha Guyer, vice president of the Committee for Residents at the Front Street Apartments.

Residents include seniors, people with disabilities and families with children who could not afford to stay if their rents went up, she said.

“Given the urgency of low income housing in Lahaina, there is enough cause to claim eminent domain, if necessary,” King told the committee. “It would be the pono and humane thing to do.”

Maui County Rep. Lynn DeCoite, who sits on the Finance Committee, supported the amended version of the bill. She called it a “hot potato, hot potato” between the county and the state.

DeCoite, who represents Molokai, Lanai and East Maui, said “it could have played out both ways” but added that the business was taking advantage of a loophole, which was within the law. Front Street Affordable Housing Partners was trying to recoup its costs “even if you committed to affordable housing for 50 years.”

“It’s a double-edged sword,” she said.

Maui County’s other member on the Finance Committee, Rep. Kyle Yamashita, also recommended passage of the amended version of the bill.

The House-passed measure provides funding with the amount yet to be determined for the Housing Finance and Development Corp. to expedite the construction of the Villages of Leiali’i affordable housing project in Lahaina by 2021.

On Tuesday, the House sent over to the Senate its final 61 bills with the crossover deadline for measures two days away. Other measures passed include:

• An amendment to the state Constitution to be put on November’s ballot to authorize the Legislature to establish a surcharge on investment real property to support public education.

• Prohibiting smoking and tobacco use, including the use of electronic smoking devices, on the premises of the University of Hawaii.

• Banning the sale and distribution in the state of any sunscreen that contains oxybenzone or octinoxate without a prescription beginning July 1, 2019.

• Requiring the state and counties to incorporate predictions of sea-level rise and other climate change hazards and mitigation opportunities into plans, strategies and mapping.

• Establishing a fine not to exceed $100 for moped owners who fail to comply with moped registration requirements.

• Establishing a civil penalty for knowingly misrepresenting an animal as a service animal and conforming state law with the definition of “service animal” under the Americans with Disabilities Act.

* Lee Imada can be reached at leeimada@mauinews.com.