Honolulu is paying back $1.45 million in federal funds spent to upgrade a senior housing complex after an audit raised questions about how the money was spent.

The city gave $100,000 back to HUD so far and plans to repay the full balance in July.

The money is part of nearly $16 million that came under scrutiny in a federal audit last year. Since then, the U.S. Department of Housing and Urban Development and the city have gone back and forth about whether the money needs to be repaid, and if so, how much.

Honolulu Hale King street view2. 1 may 2017

Honolulu has to pay back federal money that was used to rehabilitate a senior rental housing complex.

Cory Lum/Civil Beat

Andrew Pereira, spokesman for Mayor Kirk Caldwell, said no one from the City and County of Honolulu was available for an interview about the city’s use of the federal housing grant money. But he confirmed the city is repaying the $1.45 million and the money is coming out of the city’s general fund.

“It certainly is going to add to the burden that taxpayers already have,” said Tom Yamachika of the Tax Foundation of Hawaii. The repayment comes as the city is raising parking fees and the vehicle weight tax to help grapple with the rising cost of city services.

“The real issue to focus on is what was the cause of this, was it something that could have been seen or prevented,” Yamachika added.

The federal audit also criticized the city’s “dysfunction, inefficiency” in its administration of CDBG funds and the city’s decentralized management of the money.

What Happened

The $1.45 million was part of a contract to build Kahuku Elderly, a 62-unit senior rental complex on Oahu’s North Shore.

The audit said the city approved a contract award despite the appearance of a conflict of interest. Kahuku Elderly Partners awarded a construction contract to Hunt Building Co. The company was affiliated with HCP-ILP, one of the property’s owners, through Hunt Companies, the audit said.

“The city did not have adequate policies and procedures in place to ensure that a potential organizational conflict of interest did not affect the integrity of the procurement process. If an affiliated entity bidding for a contract had access to inside information about the project or bidding process, the procurement may have been compromised,” the audit said.

The city argued in response to the audit that no conflicted existed because HCP-ILP was not an owner of Kahuku Elderly at the time of the contract award.

Steve Colon, who leads Hunt Development Group in Hawaii, said Hunt Building Co. and HCP-ILP are no longer affiliated with Hunt Companies and that no current employees, including himself, were involved with or knowledgeable about the situation described in the audit.

Kevin Carney, who leads the Hawaii chapter of the nonprofit developer EAH Housing that manages Kahuku Elderly, said he was unaware the city had agreed to repay the money and declined to comment further.

Mark Chandler, who manages the funding known as Community Development Block Grants out of HUD’s Honolulu office, said that the $1.45 million goes back into a pot of federal funds that can be used for future housing projects in the city.

More Money May Need To Be Repaid

Apart from Kahuku Elderly, the federal audit also raised concerns about the spending of $10 million to acquire Hibiscus Hill Apartments and the slow process of rehabilitating the units. Chandler said the city has repaid a $1.5 million loan used for that project and he expects that the apartments will be updated by July 31.

“If the city and the nonprofit developer for that property completes the rehabilitation of the units as promised then there won’t be any additional repayment,” Chandler said.

Pereira said that the rehabilitation is on track.

In one case, the city successfully justified its expenditures. While the audit criticized the spending of $2.9 million to buy a senior housing complex in Kaneohe as “unnecessary,” Chandler disagreed and recommended against requiring the city to repay the funds. Chandler said the city is no longer at risk of paying back that money.

But the city could still potentially be on the hook for $1.6 million used to purchase fire trucks. The city submitted documents justifying the expense and Chandler said he is in the process of reviewing the documents.

It’s not the first time the city has had to repay CDBG grant funds. Three years ago, HUD contended that the city allowed nearly $8 million in HUD funding to be misused and settled for $2.9 million.

Chandler said the city was also asked to repay HUD $900,000 after a Habitat for Humanity Leeward Oahu project didn’t proceed.

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