The city of Honolulu has agreed to spend $2.9 million on a new fire station, city housing office and renovations to a Chinatown building that will house homeless people, in order to settle a longstanding dispute with the U.S. Department of Housing and Urban Development over mismanagement of $7.9 million in grant money.

The city allocated $7.9 million in HUD funds to ORI Anuenue Hale, Inc., a nonprofit, to build facilities to serve the elderly and disabled. But investigations by HUD found that the funding had been used inappropriately by ORI and that the city had failed to adequately monitor the grant.

HUD had initially demanded that the funds be returned to the federal government, but in an agreement announced by city Managing Director Ember Shinn on Friday, HUD will now let the city keep all the funds. The $2.9 million HUD had demanded be returned will instead be spent on projects that Mayor Kirk Caldwell’s administration has made top priorities.

City Managing Director Ember Shinn, center, announces the agreement Friday.

Sophie Cocke/Civil Beat

The HUD agreement is significantly more lenient than past federal demands. Not only does the city not have to repay any HUD funds, but HUD has eased restrictions on how ORI uses its HUD-funded facilities.

ORI had used the $7.9 million in HUD funds to construct facilities to benefit the elderly and disabled on a 30-acre plot of land in Wahiawa, which include the Aloha Gardens Wellness Center and Camp Pineapple.

Under an agreement with HUD, ORI must ensure that the Wellness Center serves 50 disabled clients daily. ORI will have to comply with this requirement for only five years, down from the 20 years initially stipulated by HUD.

HUD found that Camp Pineapple was being marketed as cabins for weddings, fundraisers and corporate retreats in violation of federal rules, according to federal documents.

However, HUD has agreed to remove any requirements that ORI comply with grant guidelines for how the facility is used, said Shinn.

“It’s a good win for ORI, allowing them to move forward with their beautiful facility,” she said.

Shinn said that there was an unresolved dispute as to how much of the HUD funding went to build Camp Pineapple. She said ORI asserted that it was very little.

Product of Long Negotiations

Mark Chandler, director of HUD’s Honolulu field office, told Civil Beat that the agreement ends the dispute with the city.

“The way HUD settles a lot of (cases), if an entity agrees to work with us the money is never lost to a grantee,” he said.

He said HUD is still working with the city to improve its oversight of federal grants.

The agreement, which was signed in August but not announced until now, ends months of back-and-forth negotiations between the city and HUD.

In June 2013, HUD issued a report to Caldwell that outlined conflicts of interest and mismanagement of the funds.

At the time, HUD demanded that the city pay back the $7.9 million in full to the federal government.

The city made a counter-offer in July 2013 to reimburse HUD for $1.9 million.

HUD and the city ultimately agreed that the city would return $2.9 million of the funding, according to city documents.

But in February, the city wrote to HUD that it would not comply with the settlement, according to a letter Shinn sent to Chandler in February that was released to the media this week. The city wanted ORI to pay a portion of those costs, but the nonprofit refused.

“We understand and respect HUD’s position that the resolution of . . . concerns is technically a matter between HUD and the city but, as previously noted, from the city’s perspective and as a matter of good public and fiscal policy, this matter cannot be settled without the participation of ORIAH,” Shinn wrote.

In response, HUD issued a legally enforceable “administrative order” against the city in August, which outlined how the city would spend the $2.9 million.

Shinn said that the city still hoped to extract money from ORI, but conceded that at the moment negotiations with the nonprofit were “non-existent.”

The city could sue ORI for not complying with grant rules, but it likely wouldn’t serve the community’s interest, she said.

ORI officials have countered in the past that the city was not clear about grant guidelines and the nonprofit’s attorney blasted the city and HUD for flawed investigations into expenditures of the grants.

Nonprofit’s Campaign Contributions Questioned

The dispute between HUD and the city in part centered on HUD concerns that ORI had solicited kickbacks from a contractor and used campaign donations to garner political influence, issues that were never fully resolved.

ORI representatives donated more than $100,000 over the past 16 years to political campaigns. Recipients of the funds include former Mayor Mufi Hannemann, Caldwell and City Council Chairman Ernie Martin, who at the time was the head of the city’s Office of Special Projects.

Donations also went to council members Ann Kobayashi, Charles Djou, Rod Tam and Romy Cachola.

The city conducted its own investigation into the donations, concluding that there was no evidence that the money influenced any decisions concerning ORI. Caldwell recused himself from involvement in the investigation.

HUD’s Chandler told Civil Beat on Friday that the city has since agreed to comply with HUD’s conflict of interest rules.

“The city was put on notice of it and the city is expected to comply with conflict of interest rules,” he said.

Hauula to Get New Fire Station

The $2.9 million that the city will expend on HUD approved projects include some of Caldwell’s top priories.

The city will use $1.4 million on a new fire station in Hauula. Of that, $1 million will go to design and planning costs. Another $400,000 will go to pay Choon and Mark James for property they own that the city condemned for the fire station.

The city already offered the Jameses $521,000 for the property, its fair market value, according to documents. The additional $400,000, agreed to by the Jameses is to avoid ongoing costly litigation and to allow the project to move forward.

“HUD felt that it was in the best interest of the community to resolve the dispute that had been going on for 13 years,” said Shinn. “The fire station was very much needed in the community and the cost of litigation and the delay outweighed the insistence of sticking with the original appraised value of the property.”

Choon James had mounted an aggressive campaign against the city to derail the fire station, maintaining that the station was unnecessary and exorbitantly expensive.

Reached by phone after the press conference, Choon James said that she was “pressured” into the agreement by her attorney.

UPDATE: After this story was published, James’ attorney, Tony Locricchio, said the allegation that he pressured James to sign the agreement was “absolutely false.”

The city has been looking to relocate an existing fire station for 13 years because it is in a flood zone and falling apart.

Councilwoman Defends ORI

The city will also use $567,000 to staff a new Strategic Development Office, which will manage city properties, including low-income housing and units for the homeless.

Another $930,000 will go toward renovating Pauahi Hale in Chinatown, which has housed low-income tenants. Mental Health Kokua is taking over management of the building. About half the units are expected to serve mentally ill homeless clients. The city will provide 24-hour public restroom facilities in the building, in response to ongoing community concerns that the homeless are relieving themselves on the streets because of a lack of facilities.

If all of the funds are not spent on the three projects, then the city can use the funds to renovate Kanoa Apartments and Bachelors Quarters, low-income public housing, or acquire land to house homeless, according to the HUD order.

Kobayashi, chair of the City Council’s Budget Committee, said that she was pleased with the settlement and said she felt ORI has been unfairly portrayed.

“I think it is good that there is a settlement finally,” she said. “ORI has been painted, I think, in kind of a bad light because they actually do a lot for people who have disabilities.”

In recent months, the Caldwell administration had announced its plans for Puauahi Hale and the Strategic Development Office, but remained silent on the HUD agreement, which was signed in August and now will fund the projects.

Shinn said that the public wasn’t informed because the city didn’t want to jeopardize the settlement with the Jameses. The city had an Oct. 31 deadline to get them to sign off on the deal.

Separately, the city’s Ethics Commission has an open investigation into the city’s management of the ORI grant.

You can read HUD’s administrative order below: