Maui County Council members began to untangle Wednesday financing arrangements that enabled Ka Hale A Ke Ola Homeless Resource Center to provide low-income housing but also left taxpayers with millions of dollars in unpaid loans.
The principal on those loans is more than $8 million, and, with interest, the amount owed Maui County rises to more than $10 million - which the county is unlikely to recover soon, if ever, members of the council's Housing, Human Services and Transportation Committee learned Wednesday.
The panel was conducting a review of the management of Ka Hale A Ke Ola's Hale Makana O Waiale project in Wailuku.
The remote possibility of loan repayment was underscored when Rebecca Woods, Ka Hale A Ke Ola's chief executive officer, said the Hale Makana low-income rental project is running a $20,000 monthly deficit.
"If you're operating at that kind of loss, the likelihood of you paying back these loans is impacted by that," said council Chairwoman Gladys Baisa.
After being questioned by Baisa about ways to gain more income, Woods said the agency has tried fundraising and cutting costs by, for instance, installing solar power atop roofs.
Maintenance costs have risen, however, because the aging facilities have needed new roofing, floor tile replacement on second-floor units and other improvements that overall have cost hundreds of thousands of dollars, she said.
Raising rental fees at Hale Makana is problematic, although rents have gone up somewhat recently, she said. Ka Hale A Ke Ola has its hands tied because it does not receive federal Housing and Urban Development funding, and state and federal rules restrict how the facility charges rent to residents, she said. (State and federal sources of funding were used to build the housing projects, and rental restrictions are tied to those funding sources.)
"We're running in the red because we cannot charge or increase our rents to the market, even the low-income market value," she told council members. "We don't have the HUD subsidies to supplement our revenue."
A two-bedroom apartment costs less than $700 per month to rent, she said.
Ka Hale A Ke Ola opened its homeless resource center in 1994 off Waiale Road in Wailuku, Woods said. The center has 72 transitional housing units - 40 studios and 32 two-bedroom units.
Then, in 1997, the agency completed Hale Makana O Waiale next door with its 200 units for low-income families that qualify for housing by earning 50 percent or less than the median income, she said.
And, in 2004, the agency finished its Ka Hale A Ke Ola Homeless Resource Center, West Side, in Wainee, Woods said.
There are two loans in question. With both, the county borrowed money on the bond market and loaned it to the housing agency, according to Department of Finance Deputy Director Mark Walker.
The first loan - provided in 1998 - is for $4,055,000 and is due in September, he said.
The second loan, for $4 million, was provided to the agency in 2005, and "no payments have been made on that," he said. For that loan, $730,000 is currently due on principal and $1.3 million on interest, Walker said. Nearly $3.3 million on principal is not due yet, he added.
After the committee meeting, Woods said the second loan was for construction of Ka Hale A Ke Ola's Lahaina housing facility.
Although the housing agency has not paid the county for the loans, the county has made regular payments on the money borrowed on the bond market, Walker said.
When asked if such a loan arrangement is unusual, Walker said he couldn't comment on past practice because he's only been on the job six months.
But, "I can't believe that this is a routine type of transaction," he said. "I hope it isn't."
Ka Hale A Ke Ola sits on county-owned land in Wailuku, and it has operational control of the buildings, council members were told. If it defaults on the terms of its lease, the county could take possession of the buildings.
Council Member Don Guzman suggested getting an appraisal on the fair market value of the buildings to see whether the county could take possession of them and thereby get something of value for the loans - while still allowing Ka Hale A Ke Ola to continue operating the low-income housing facilities.
"I'm just trying to find a way to balance the books wherein the county does not go away with just giving away money and forgiving something that's probably legally owed to them," Guzman said. "To find a compromise, we might look into fair market value of (the) facility and go ahead and take those over as recoupment of debts."
Woods said that is a possibility.
"It's county property," she said. "We're the managers. The county owns everything."
She maintained that the object of the project's county financing always was for the county to provide low-income housing, with management of the facility handled by Ka Hale A Ke Ola.
"We're in partnership with the county," she said. "Somehow, we need to come to an understanding that, yes, indeed this is a county project. It's a county facility, providing services basically for the county. Somehow or another we need to make this work because, as a nonprofit, I can tell you there is no way that we can ever pay back this money.
"And I don't think it (repayment) was ever intended, from what I've read and my understanding, so I'm just trying to move forward with the agency," Woods said. "It's a burden on my shoulders that I can't do anything about. I hope that we can work together."
Much of the council's information came from a 2009 performance audit on the housing agency, and Guzman said he wanted to see an updated audit and to make sure the 4-year-old audit's recommendations have been adopted and implemented.
Ka Hale A Ke Ola has implemented most of the audit's recommendations, Woods said, pledging to provide the committee with compliance details later.
Council Member Mike Victorino, who recused himself from voting because he serves as vice chairman of Ka Hale A Ke Ola's board, said the board has been working on straightening out the agency for five years.
"It is the board's intention at this time to turn everything over to the county," he said. "That's what we're working on right now."
However, he said he could not provide more details because the matter was discussed by the board in a closed executive session. Nevertheless, "the public can rest assured," he said. "Moneys that were spent will be well resolved and well spent in the future."
Earlier in the meeting, Council Member Don Couch questioned the number of Ka Hale A Ke Ola maintenance workers, which appeared in paperwork provided to council members to be more than a dozen at Hale Makana alone.
Woods explained that the maintenance workers are spread among all three housing developments, not only Hale Makana.
Victorino said he took offense at some of the council members' questions.
"I'm getting tired of hearing all these accusations," he said. "This organization has done a great job. We on the board have turned this around. We've made many changes. Many of the same changes you guys are talking about we're in the midst of doing that . . .
"Rest easy guys, we've been working on it for a long time - five years, two administrations and a partridge in a pear tree," Victorino said.
Rental housing at Hale Makana is in great demand, Woods said. All 200 units are occupied by about 800 people, and there's a waiting list of approximately 400 individuals and families if, and when, units become available.
Maui Economic Concerns of the Community is the former name of the Ka Hale A Ke Ola Homeless Resource Centers Inc., the umbrella agency with three housing developments on Maui.
Ka Hale A Ke Ola has 85 employees and an annual budget of a little more than $4 million, Woods said.
The committee deferred action on its review of the management of Hale Makana O Waiale.
* Brian Perry can be reached at firstname.lastname@example.org.