When the Legislature proposed steering funds for papaya research to a state agency in charge of helping diversify Hawaii agriculture, the agency’s executive director in February strongly supported the proposal.

Just two months later, the head of the Hawaii Agribusiness Development Corp. says he doesn’t support the papaya bill after all — even though he says it would benefit the papaya industry.

The reason: Lawmakers have tacked an audit requirement onto the measure. James Nakatani, ADC’s executive director, testified that the organization’s small staff doesn’t have time for such a review of its operations.

Oahu Market Chinatown papaya along King Street. 23 july 2016
The head of a state agriculture agency opposes a pending bill to help the papaya industry because it would also require the agency to undergo an audit. Cory Lum/Civil Beat


At least one key state official agrees that the ADC is simply too busy to be accountable.

“The attached agency has limited employees … and an audit would hinder the agency’s ability to carry out its important State work,” Scott Enright, director of the Hawaii Department of Agriculture, said in testimony opposing the papaya bill.

This raises red flags for some officials.

Although no one has alleged that the ADC has done anything wrong, the organization is something of a black box when it comes to public information. Legislators frequently request the state auditor to audit agencies for a variety of reasons — only a few are audited automatically.

Senate Bill 3087 has moved out of the House and is expected to head to conference committee.

“It’s exploding in size and scope,” Rep. Richard Creagan, a Hawaii Island lawmaker who wants the audit, said of the ADC. “If you’re going to do this stuff, the public has a right to know, to see how it’s operating, where this money is going.”

“The ADC has been in operation for a number of years,” said Rep. Cynthia Thielen. “It’s never really demonstrated to the Legislature what it has accomplished or hasn’t accomplished with the money it has received and the authority that it has.”

Rep. Cynthia Thielen said an audit of the ADC is overdue. Cory Lum/Civil Beat/2016

The four-person office has broad powers, including the ability to buy and hold land and water resources and conduct market research. Over the last five years alone, state budget information shows, the Legislature has appropriated more than a quarter of a billion dollars to the ADC, including about $23.4 million for operations and another $238 million for capital investments.

But it’s not clear to lawmakers where that money has gone.

The ADC has not been submitting annual reports to the Legislature as required by its enabling statute.

Although the ADC has done planning reports required by a different law, known as Act 100, the act doesn’t require financial statements. In addition, Myra Kaichi, a former deputy attorney general who serves as the ADC’s senior executive assistant, acknowledged the planning reports submitted by ADC don’t actually contain all of the information required by Act 100.

Information on the ADC’s website, meanwhile, is woefully out of date. A brochure at the top of the site, for instance, is 10 years old, and the five reports posted on the site are, on average, 12 years old.

“That just doesn’t make sense,” Thielen said.

Kaichi said the bulk of the money appropriated for capital expenditures recently was not spent and therefore lapsed back to the state. That included a $175 million appropriation in 2013, which she said was meant to pay for some 126 parcels that were coming up for sale.

The ADC couldn’t procure the property during the two years allotted under the state budget process, Kaichi said, adding, “Nobody can do that in two years.”

The ADC did not provide financial statements to Civil Beat showing how it has spent its money over the past several years.

Kaichi said two of the ADC’s bigger projects are the Waiahole Irrigation System on Oahu, which it acquired in 1999, and the Whitmore Project, an ambitious plan to create an agriculture zone in Wahiawa anchored by 1,200 acres owned by the ADC.

Kaichi said the ADC is helping fulfill the Hawaii Constitution’s mandate to “conserve and protect agricultural lands, promote diversified agriculture, increase agricultural self-sufficiency and assure the availability of agriculturally suitable lands.”

Thielen said the issue isn’t about preserving land, but accountability.

She noted that Nakatani pulls in an annual salary of almost $146,000 — more than Enright, the Agriculture Department director, who makes almost $145,000. Kaichi earns more than $138,000.

“The executive director is earning more than … Enright,” Thielen said. “For what?”

Another Bill Expands HDC’s Power

Meanwhile, the ADC may soon gain more power.

In addition to the papaya measure, Senate Bill 2522 would set up an agriculture business accelerator and let the agency invest money into agriculture companies in exchange for a 1 percent to 6 percent equity stake.

Sponsored by Senate Ways and Means Chairman Donovan Dela Cruz, who has championed the Whitmore Project as an economic development engine for his Central Oahu district, the bill also would establish a special investment fund administered by the ADC.

Senate Ways and Means Committee Chairman Donovan Dela Cruz, who secured funding for the state to buy agricultural land in central Oahu in 2014, has sponsored a bill that would let the ADC invest in agriculture companies. PF Bentley/Civil Beat

Nakatani, the ADC’s executive director, testified that the bill “will provide ADC the necessary framework and dependable funding source to take a long-term view of the agriculture industry and the requirements needed to build a sustainable industry.”

The measure has support from groups like the Hawaii Farm Bureau; the Hawaii Cattlemen’s Council; Kamehameha Schools, the state’s largest private landowner; and Smart Yields, a local agriculture technology startup. The bill has passed out of the House and is likely headed to conference committee.

Nonetheless, the state budget and finance director testified that that the bill doesn’t appear to meet the state’s statutory criteria for establishing special funds, and the state auditor seconded that opinion.

In addition, it’s not clear why the fund is necessary. The ADC already has a fund, called the Hawaii Agriculture Development Revolving Fund, which it can use to purchase “qualified securities issued by enterprises for the purpose of raising seed capital.”

Dela Cruz said the attorney general’s office advised that an equity is not included in the statute’s definition of a “qualified security.”

“We double-checked, and ‘securities’ is not the same as ‘equities,'” Dela Cruz said.

The existing fund’s statute imposes numerous restrictions on investments the ADC can make.  The proposed fund has no such conditions; instead, the ADC board would get to set the rules.

As for the proposed state audit of the ADC, Kaichi said the agency would cooperate if the Legislature passes the papaya measure, but she said it might fall behind in other work.

“If we have to do an audit, we’ll just do our best,” she said.

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