UPDATED 3:15 p.m.

The president of a group that helps the elderly and disabled asked a Pearl City contractor for a $90,000 donation as she was giving the company a job worth millions of dollars, a request that appears to violate anti-kickback laws.

A 2004 letter from ORI Anuenue Hale President Susanna Cheung to KORL Construction details this transaction and is a critical part of the federal government’s investigation into how Honolulu city officials oversaw more than $8 million in federal grant money awarded to ORI.

The U.S. Department of Housing and Urban Development now wants the city to repay at least $7.9 million of those funds and earlier this week detailed its findings and requirements in a report to the city. Among the concerns are the potential kickback and whether there was any political favoritism at play when the city forgave $1.2 million in loans for ORI.

Cheung’s letter, printed on ORI letterhead and signed by her, was sent to KORL Construction on Sept. 22, 2004, and appears to confirm the final details of negotiations between the nonprofit and the company.

Cheung said she agreed to pay KORL Construction’s price of $5.3 million for work on ORI’s Aloha Gardens project, which had received nearly $8 million in federal grant funds from the city because the nonprofit had promised to serve seniors and developmentally disabled adults.

But Cheung’s letter also details the terms of a $90,000 donation KORL Construction would have to make to the nonprofit when it finished the job.

“A monetary donation of ninety thousand dollars ($90,000) will be made by KORL Construction, Inc. to ORI Anuenue Hale, Inc. at the completion of KORL Construction’s portion of the project. (Mahalo!)”

HUD found that this request might be a violation of federal anti-kickback laws. The agency’s recent report also says the city needs to alert the “proper authorities” so they can review the incident.

Mayor Kirk Caldwell‘s office did not respond to questions Thursday about ORI or how the city would handle the potential kickback investigation.

UPDATE

But on Wednesday, Caldwell said the city had hired the detective agency, The Hawaii Investigative Group, to help with an internal investigation of HUD’s findings. The Honolulu Ethics Commission was also contacted about conducting its own investigation into whether any current city officials violated ethics laws.1

Cheung did not return a phone call Thursday seeking comment.

Karen Lee, the owner of KORL Construction, told Civil Beat that federal officials spoke with her and her project manager about ORI asking her company for a donation. Lee said she doesn’t remember all the details of what happened with ORI, but recalls that the request for money struck her as odd.

The way Lee tells it, she went to ORI seeking payment for the work her company had completed on the Aloha Gardens project. A representative of the nonprofit, who was not Cheung, then asked Lee for a $90,000 donation, telling her, “We’re not doing well.”

“I was surprised,” Lee said. “You’re making me ask you for money that you owe and then you’re asking me for money. We’re a small business. We don’t have that kind of money.”

That didn’t stop Lee from giving, however. She said she forgave some of the debt owed by ORI. While she couldn’t recall specifics, she estimated the cost to her company was between $20,000 and $30,000.

There are still a number of questions surrounding the KORL contract, including why Honolulu officials overseeing the grant didn’t take issue with the apparent kickback.

Civil Beat received a copy of the letter from HUD on Thursday with several redactions. The names of KORL employees were inked over. It also appears the names of several city employees who had been copied on the letter in 2004 were blacked out.

HUD spokeswoman Gene Gibson said her agency is not releasing any names of people who may have been involved, citing privacy concerns.

HUD’s report to the city also did not include any names despite raising concerns that ORI’s relationship with high ranking city and state officials “appears to have placed pressure on staff resulting in the City ignoring regulatory violations in favor of completing the project and satisfying ORI’s request.”

But HUD isn’t alone in refusing to release names. City officials also are mum.

What’s known is that Honolulu City Council Chair Ernie Martin was closely involved in the grant program.

Martin worked for the city for 23 years before he was elected to the council in 2010. During much of that time he was in the Community Services Department where he administered the grant program through which ORI received funding.

Martin headed the program in 2004 when ORI sent the letter to KORL asking for the $90,000 donation. He also worked there in 2010 when the city chose to forgive $1.2 million in loans to ORI.

HUD found that city employees who were directly involved in forgiving that loan were running for elected office at the time and receiving campaign contributions from ORI.

Martin was running for city council at the time. Former Mayor Mufi Hannemann and Caldwell were also running for office in 2010. All three received donations from Cheung.

Caldwell has said he doesn’t believe he had any involvement in decisions involving ORI.

Martin has refused to comment on the situation, saying he wants the city’s internal investigation to play out. He did not return messages left with staffers in his office on Thursday.

The city has 45 days to respond to the findings in HUD’s June 3 report otherwise it will have to pay back the nearly $8 million the city gave to the nonprofit. Part of the city’s internal investigation will involve assessing whether it should be on the hook for the full amount.

But Gibson said the city can avoid giving back the money if it finds another nonprofit to take over the facilities that were built using the grant funds. There might be other options as well, including getting the money back from ORI and giving it to another nonprofit that serves an identical population.

“We’re not interested in taking the money out of the city coffers,” Gibson said. “We’d just like to see the city use that money as was initially proposed. If that’s not going to happen the money comes back to HUD.”

The federal agency has been working with the city for years to bring its grant program into compliance, yet little has improved. In fact, HUD found that as recently as last month ORI was still skirting federal grant requirements that city officials were supposed to be monitoring.

Gibson said this continual lack of oversight left HUD with little option but to ask for its money back.

“It’s not HUD’s position to tell the city how to run its operation except when it comes to HUD funding, then we have to take the city to task,” Gibson said. “In this particular situation a lot was let go and now HUD finally had to put its foot down. The chickens have come home to roost.”

If the city doesn’t comply with HUD’s requests it could lose future grant funds. In Fiscal Year 2012, the city received $7.5 million from HUD through this particular grant program.

Read ORI’s letter to KORL Construction here:

About the Author