A dispute between the federal government and Hawaii over land leases could stretch well into next year and beyond, likely requiring intervention from state lawmakers and eventually congressional approval.

The disagreement between the federal Department of the Interior and the state Department of Hawaiian Home Lands arises out of a law adopted in 2021 that would allow the state’s lessees – some who already have 55- or 65-year leases – to apply for lease extensions of up to 40 years if they agree to make substantial improvements to their properties.

The law, known as Act 236, was intended for tenants of the Department of Land and Natural Resources to provide businesses with long-term stability to make it easier to secure financing. Questions about how it applies to DHHL commercial leases cropped up recently at a series of Hawaiian Homes Commission meetings that contemplated extending the lease of the Prince Kuhio Plaza mall in Hilo.

While the Hawaiian Homes Commission Act of 1921 set aside more than 200,000 acres of land for homesteading, DHHL has made some of those lands that were deemed unsuitable for homes available for commercial leases. The leasing of those lands has been controversial at times as the department has struggled to build enough homes to house Native Hawaiians on a waitlist that has grown to more than 28,000.

Department of Hawaiian Home Lands building located in Kapolei.
The state and federal government disagree over whether a 2021 law should allow DHHL to extend certain land leases by 40 years. Cory Lum/Civil Beat/2022

The owner of the mall, Brookfield Properties, is so far the only DHHL tenant to apply for a 40-year lease extension even though the mall’s lease does not expire until 2042. Opponents have raised concerns that the rush to extend such leases could preclude the state from finding a different tenant, charging more for rent or repurposing the land.

Other large leaseholders who could take advantage of the new law also have leases that don’t expire for decades. Meanwhile, tenants and smaller businesses whose leases expire this year are worried they may end up in limbo since the DHHL chairman is expected to step down and a new governor will be elected in the Nov. 8 election.

Interior department officials have said that the state needs to pass a new law if it wants DHHL commercial lessees to be eligible for 40-year lease extensions. But state attorneys have argued that the law is fine the way it is and that DHHL could already utilize it. DHHL Chairman William Aila and other officials are in talks with the DOI over concerns the federal agency raised in letters to the state this year.

While lawmakers may take up the issue next year, there’s no consensus three months before the start of the next session on how the Legislature will move forward.

Sen. Lorraine Inouye, who is running for reelection, was a proponent of the 2021 law and believes it should apply to the DHHL’s leases. Inouye said that the issues DOI has raised over congressional approval never came up when lawmakers discussed the bill in 2021.

“There was some discussion over how this bill would apply to Hawaiian homelands. At that time, it seemed like it was a ‘yes, it could apply,’” Inouye said.

She also supported lease extensions for the Hilo mall. Although Inouye is a proponent of long-term state lease extensions, she said she is not ready to introduce a bill to the Legislature next session.

If she retains her seat and her position as chair of the Senate Water and Land Committee, Inouye said she plans to hold a series of legislative briefings on this leasing issue with department officials and the state Attorney General’s Office.

Even if Inouye pushes for another lease extension bill, the proposal may meet some resistance in the House.

Sen Lorraine Inouye Civil Beat post crossover panel.
Sen. Lorraine Inouye said she wants to look into the leasing issue. Cory Lum/Civil Beat/2019

Rep. David Tarnas, who chairs the House Water and Land Committee, said he believes that the focus of Act 236 was on DLNR’s land leases. DHHL did not testify on the measure as it moved through the Legislature although one of its tenants, the Prince Kuhio Plaza, did testify in support of it.

If he wins reelection in November, Tarnas said he does not plan to introduce a bill to extend the DHHL leases.

“We’ve already heard this measure relates to DLNR, and we’re not going to take any action explicit to DHHL unless DHHL asks us,” Tarnas said.

Cedric Duarte, a DHHL spokesman, said the Hawaiian Homes Commission believes it has the authority to extend leases under Act 236, based on the state AG’s guidance. He said any proposals to the Legislature would also need to be voted on and approved by the commission.

Even if the Legislature passes a new law during the next session, a consultation timeline outlined in federal rules could push the federal review of the law well into the latter half of next year.

Once the next governor signs a new act into law, the DHHL director would have 120 days to submit a packet of materials to the interior secretary, who then would determine if the proposal must be approved by Congress.

The secretary’s review needs to include a consultation process that gathers input from the Hawaiian community before determining whether a proposed amendment positively or negatively impacts beneficiaries.

That process did not happen after the Legislature approved the bill that became Act 236 in 2021.

correction: A previous version of this story incorrectly stated that Gov. David Ige signed Act 236 into law. It became law without his signature.

David Kopper, an attorney and litigation director for the Native Hawaiian Legal Corp., said that legally required consultation with Hawaiian communities has been lost in the debate over lease extensions.

“By avoiding that process, you aren’t just avoiding red tape, you’re avoiding the community,” Kopper said, adding that if “the process is done right, it could take some time.”

In his view, there’s no need to rush the process since many of DHHL’s larger lessees’ land tenures don’t end until the 2040s and later.

DHHL’s leases are one of the few ways outside of state funds the department can make money for itself. In 2020, annual rent on its 123 general leases brought in more than $15 million.

The mall lease in Hilo brings in more than $290,000 annually. Rent negotiations for that lease are set to reopen next in 2030.

It’s not the only large tenant that may one day seek to take advantage of long-term lease extensions.

The DHHL’s single largest annual revenue source from its general leases totals about $4.7 million from the Kapolei Hawaii Property Co., a partnership between Florida-based real estate investment trust DeBartolo Development and other companies that operate the Ka Makana Ali‘i shopping center in Kapolei. The lease for that property doesn’t expire until 2079.

Target and Safeway also hold a joint lease for their stores in Hilo with rent set at about $500,000 annually. That lease is up in 2069.

Ka Makana Alii Kapolei mall. 15 march 2017
DHHL earns about $15 million from general leases. Its single largest lease, which pays more than $4 million annually, is for the Ka Makana Ali‘i mall in Kapolei. Cory Lum/Civil Beat/2017

About 16 leases on Oahu, Molokai and the Big Island will expire at the end of the year or have already expired. Those leases combined represent more than $2 million in annual revenue for the department.

The bulk of that revenue comes from warehouse and industrial lands that DHHL leases in Mapunapuna on Oahu. Those were supposed to expire in early October, but the commission granted 10-year lease extensions for about a dozen tenants in July.

Terms of renewals or lease extensions depend on individual lease agreements made between a tenant and DHHL. Some businesses with leases expiring soon are still not sure where they stand.

Jackie DeLuz, president of Big Island Toyota, said she’s already put in a request to extend her company’s lease but was told by the department that “action is not going to be quickly coming,” and that nothing would happen at least until the administration changes hands. Gov. David Ige is barred by term limits from seeking reelection.

One of Big Island Toyota’s leases in Hilo expires Dec. 31. The other expires April 30, 2023.

“It’s down to the wire, pretty nerve wracking,” DeLuz said. “We put in our request, we want to do more, but we can’t move ahead.”

Not knowing the status of the land lease makes it hard to plan for the future. Licenses for motor vehicle dealers and contracts with car manufacturers require a physical space to sell cars, DeLuz said.

“We don’t plan just for next year,” DeLuz said. “And we want to do more improvements. It’s hard to do that if you don’t know if you’ll have a lease.”

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