The state is considering appealing a Big Island judge’s recent decision to allow a project in South Kohala to move forward.

The state Land Use Commission said developers missed deadlines for building affordable housing, and earlier this year, reverted the land classification for the Villages of Aina Lea from agricultural to urban.

The move halted development of the $250 million project and raised questions about what would happen to housing that had already been built on the land.

The developers — Bridge Aina Lea and DW Aina Lea — challenged the LUC’s decision in court, saying that the LUC didn’t follow an appropriate process in reclassifying the land back to agriculture. Judge Elizabeth Strance ruled in their favor, requiring commissioners to switch the land back to urban.

If Attorney General David Louie does appeal the decision, a higher court ruling could set a statewide precedent and strengthen — or even weaken — the land use commission’s ability to force developers to abide by conditions imposed on them when projects are approved.

It’s a case that land use attorneys, government officials and developers, in particular, are watching closely.

“The whole development community is buzzing about this – everyone knows about it,” said David Callies, a land use attorney and law professor at the University of Hawaii’s William S. Richardson law school.

In the case of the Villages of Aina Lea, it’s a tale of missed deadlines, extensions and an easing of requirements.

While plans for the project have gone through numerous changes, one requirement has always been to include affordable housing.

The Receding Affordable Housing Requirement

The South Kohala development has had a succession of owners over the years and plans have evolved. The requirement to build affordable housing has always been in place, but developers have successfully requested a reduction in the number of units that have to be built.

In 1989, the state Land Use Commission required that 1,656 affordable housing units be built. That was later cut to 1,000 units.

By 2005, nothing had been built on the 1,060 acre property — no luxury homes, golf courses or retail spaces, and no affordable housing.

That year, Bridge Aina Lea went back to the LUC and asked that the affordable housing requirement be reduced even further — to 385 units. The LUC approved the request on the basis that the developer complete the housing in three years. Commissioners said that at this point, some affordable housing was better than none, according to court documents.

Hoolae Paoa, Bridge Aina Lea’s CEO, assured commissioners that three years was plenty of time.

“We use three years as, perhaps, a worse case scenario,” he said, according to a brief filed by the attorney general’s office.

But the developer missed the deadline. Three years later, none of the units had been built.

Bridge Aina Lea sold the affordable housing parcel to DW Aina Lea and the LUC imposed a new deadline — 16 of the 385 units had to be built by March 2010.

That deadline was missed, too, according to the LUC. The housing was built, but there were no utilities, such as sewage hook-ups, and no certificates of occupancy were issued.

In response, commissioners cracked down on the developers and in April reverted all 1,060 acres of land from urban back to agricultural.

“How many chances need the LUC give a developer? The LUC waited decades, and eased conditions numerous times,” the attorney general’s office wrote in its brief to the court.

The office stressed that virtually no construction took place on the property for 22 years. And only 4 percent of the 385 affordable housing units were completed.

“All those jobs and housing promised by the development remain wholly a chimera – decades after the project was originally proposed,” the attorney general’s office wrote.

The LUC’s decision confused what would happen to the affordable housing units already built. It also brought to a halt Bridge Aina Lea’s plans to sell the entire property to DW Aina Lea for $40 million. When the LUC switched the land classification of the property back to agricultural, only the parcel carved out for affordable housing had been transferred to the new developer.

Switching the land back to agricultural not only stopped the sale, but also DW Aina’s plans to build a 1,944-unit housing complex, a world-class golf course, retail stores and medical training facilities, according to Bob Wessels, a managing partner at DW Aina Lea. (Bridge Aina Lea sued the LUC and individual commissioners, many of whom are lawyers and serve on a voluntary basis, in a separate case that is pending in federal court.)

LUC Takes a Stand, but Court Slaps it Down

Land use attorneys say the move by commissioners to change the Villages of Aina Lea’s land classification back to agricultural was unprecedented.

Land use commissioners would not comment for this story. But supporters of the decision say that the LUC was finally standing up to developers who for decades have failed to fulfill promises that were instrumental in getting their projects approved.

Bridge Aina Lea and DW Aina Lea, which have tens of millions of dollars at stake in the property, appealed the decision in state court. Earlier this month, Circuit Court Judge Elizabeth Strance ruled in their favor, requiring the LUC to switch the classification back to urban use. Strance said that the LUC “lost sight of its mission” and “lost the forest through the trees.”

She ruled that DW Aina Lea had completed the 16 housing units and suggested that since development was finally progressing it didn’t seem right to stop it now.

Strance also agreed with plaintiff’s attorneys that the developers had been unfairly targeted by commissioners. The attorneys pointed out that the state’s affordable housing requirements had been removed over the years for at least seven other developments.

“Bridge and DW Aina have shown that the LUC treated them differently from other similarly situated developers, that it did so intentionally and without a rational basis,” she said.

Long-time critics of the LUC say the ruling was a significant blow to commissioners who some argue have overstepped their powers.

“It’s a huge slap at the hand of the Land Use Commission,” said Callies, who believes it’s unconstitutional for the state to impose affordable housing requirements on private landowners.

But others see the court ruling, reversing the LUC’s decision, as a major blow to the state’s oversight of private developers.

“The net impact of the decision, potentially, is that the developers no longer have to meet those promises they are making to the LUC,” said Robert Harris, an attorney and the executive director of the Sierra Club.

High Stakes

The Circuit Court ruling only applies to the Villages of Aina Lea case, but if the attorney general’s office appeals the decision, an appellate court ruling would have statewide significance, and could either diminish the powers of the state Land Use Commission or energize them.

At stake is the state’s powers to enforce conditions it imposes on developers when approving their projects — conditions that are often part of a negotiation process between developers, residents and government officials. The only recourse that the state has in holding developers to their promises is to reverse their land classification, according to land use attorneys.

A ruling in an appeals case could also have implications for other developers that gained state approval for projects years ago.

“I think that if the state appeals and the appellate court finds that the land use entitlement agency has the power to revisit decisions that weren’t expressed in the original entitlement documents it could have a dramatic negative effect on older projects pending for years,” said Mark Murakamai a land use attorney in Honolulu.

And it adds to the pressure for developers that have been criticized for not following through on commitments made to the LUC.

Most recently, Tokyo-based Haseko has come under fire for backtracking on promises to build a marina and offer kammaaina rates at its golf course. Local residents have complained that Ko Olina blocked off public access to lagoons. And Turtle Bay developers have yet to build hotels, condominiums, park space and a wetland marsh.

A final decision on whether to appeal could come within two months, said Josh Wisch, a special assistant to the attorney general.

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