Members of a House investigative committee on Tuesday questioned heads of the state Department of Land and Natural Resources over leasing practices and the rent it charges its tenants.

An audit of DLNR’s land division in 2018 found that the office lacked a strategic plan to guide its work in that area, that it undercharged rent, and that it lacked transparency necessary to run an efficient operation.

The DLNR hearing, which is in its second day, is part of a yearlong probe of two state agencies that were the subjects of critical audits that found deficiencies in how those agencies manage state-owned lands and the revenues generated from them.

House Majority Leader Della Au Belatti, who chairs the committee, directed many of her questions during the last two days of hearings at whether State Auditor Les Kondo properly followed all the Legislature’s instructions while performing the DLNR audit.

View looking north from the airport as helicopter was flying east out of the airport. Industrial area of Hilo, Hawaii near Airport. Hilo, Hawaii. 29 october 2014. photograph Cory Lum
State lawmakers are undertaking a probe of a state land agency and how it charges rent to tenants. Cory Lum/Civil Beat/2014

The three-hour long hearings on Monday and Tuesday are part of the lawmakers’ probe of DLNR and another agency, the Agribusiness Development Corp.

The committee has subpoenaed numerous records from those two agencies and has plans to request even more, including those regarding DLNR’s finances, Belatti said during the hearing Tuesday.

Hearings on the ADC are set to begin next week. An audit found that the agency has failed to reinvigorate former pineapple and sugar lands.

Committee Hones In On Rent

House lawmakers paid particular attention Tuesday to the rent DLNR charges its tenants.

The auditor found that DLNR may only be getting a portion of the revenue it could charge tenants that hold permits to operate businesses on state lands. Using an independent appraiser, the auditor determined that DLNR lost more than $1.6 million in potential rent on a sample of parcels during the audit review period.

House Minority Leader Val Okimoto and Rep. Dale Kobayashi both pressed DLNR Director Suzanne Case and other land administrators on potential revenue that may have been lost.

Kobayashi described an internal memorandum from a DLNR employee that advocated for charging higher rent rates. The state declined to adopt that proposal.

“Come on, in real life you go out there and find out if you can get that, it’s a lot of money to leave on the table,” Kobayashi said

Kevin Moore, DLNR’s state lands assistant, said he could not recall that discussion specifically. But he said some DLNR employees have proposed revenue-generating measures similar to those put forward by the auditor.

But, Moore said, the state needs to factor in the cost of managing land and building improvements and having the staff that could oversee that.

Rep. Kyle Yamashita, left, questions DLNR’s Russel Tsuji and Suzanne Case during an investigative hearing Tuesday. Screenshot

Generally, revenues are not the only thing the department is concerned about when it comes to managing public lands, the DLNR officials said.

Some lands are used for charitable organizations, like the Hawaii Food Basket, Russel Tsuji, the state lands administrator, told lawmakers.

“There’s not only the idea of maximizing revenue,” Tsuji said.

DLNR seemed to be complying with most of the auditors’ recommendations to develop an overall strategic plan for its land fund, revamp internal procedures in how it collects rent, and create a long-range plan on how to manage land assets.

Case told the lawmakers that DLNR has increased revenues from its revocable permits since the audit report was published in 2019.

The department collected about $2 million from those permits in 2019 compared to about $2.6 million in the fiscal year that ended July 1.

Case attributed those gains in part to the auditor’s recommendations as well as other findings from a DLNR task force that recommended changes to how the agency appraises the value of its lands.

Questions Linger Over Audit’s Scope

Belatti, the chairwoman of the committee, directed her questions Tuesday over the planning of the audit and what questions the auditor, Les Kondo, had been asking before starting work on the report.

In 2017, the Legislature directed Kondo to examine contracts issued by the land fund and if those contracts “were in compliance with laws and in accordance to the terms of the contracts, grants, and memoranda of understanding and whether contractors and awardees were adequately screened and qualified.”

Instead, the audit focused on DLNR’s leasing practices.

The DLNR officials couldn’t recall specific meetings with Kondo’s team regarding discussion of planning for the audit. Russell Tsuji, the land division administrator, said that he was surprised when the audit team began looking into revocable permits.

“If there was a difference of what even the audited agencies understanding of what the scope should have been, that’s interesting. I do think there is clearly interest from this committee about appraiser contracts, about third party contracts. That this was omitted is also of concern to me,” Belatti said.

On Monday, Kondo said that the process his team followed in determining what the audit should focus on was no different than any other audit. He told lawmakers that the auditors determine what activities are most critical to an agency’s functions and what are the greatest risks that could impact those activities.

Kondo told lawmakers that he would still be willing to audit the contracts if legislators ask again.

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