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OFFICE OF THE MAYOR

CITY AND COUNTY OF HONOLULU


530 SOUTH KING STREET, ROOM 300 * HONOLULU, HAWAII 96813 PHONE: 1808) 768-4141 FAX: (808) 768-4242 INTERNET: www.honoIuIugy

KIRK CALDWELL MAYOR

EMBER LEE SH:NN MANAGING DRECTOR GEORGETTE T. DEEMER DEPUTY MANAGING DIRECTOR

Julyl8,2013 VL4 HAflU DELIVERY Mr. Mark A. Chandler, Director U. S. Department of Housing and Urban Development Honolulu Field Office Region IX 1132 Bishop Street, Suite 14003 Honolulu, Hawaii 968 13-4918

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Dear Mr. Chandler: Subject: On-Site Program Monitoring Community Development Block Grant Pro gram April 11-25. 2011 and May 2013 Follow-up

This responds to your June 3, 2013, letter addressed to Mayor Kirk Caldwell, transmitting the U. S. Department of Housing and Urban Development, Community Planni ng and Developments (HUE)), May 2013 Monitoring Report, which addressed open monitoring findings relating to two subrecipients of the Community Development Block Grant (CDBG) program of the City and County of Honolulu (the City). The two subrecipients are OR! Anuen ue Hale. Inc. (ORIAR), and its affiliate, Opportunities and Resources, Inc., formerly known as Opportunities for the Retarded, Inc. (OPT), and the findings pertain to ORIAHs Aloha Gardens Project (the Project or Aloha Gardens). The Project consis ts of two facilities, the Wellness Center and Camp Pineapple 808 (Camp Pineapple). Mayor Caidwell recused himself from this mailer and asked that I respond to your letter. We appreciate this opportunity to respond to BUDs findings and concer ns and your willingness to consider our responses and proposals. As your June 3, 2013 letter (the June 3 Letter) acknowledges, the City has worked with ORIAH for the last two years in an attempt to increase ORIAI-Is appropriate use of Aloha Gardens to ensure compliance with the CDBG national objective of serving the elderly and developmentally disabled adults. Although we acknowledge HUDs position that there continue to be challenges regarding URIAH s compliance with HUDs standards, we believe that ORIAHs mission is commendable and that significant progress has
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he became Acting Mayor, and was Acting Mayor until October II, 2010. Our review of the City personnel involved in the process and decisions with regard to ORIs loan conversion discuss ed below has disclosed that the responsibilities within the Managing Directors Office were divided between then-Managing Director Caidwell and then-Deputy Managing Director Truth Saito; that the ORI loan conversion decision-making process was assigned to DMD Saito; and that former Managing Directo r Caldwell was not involved in any aspect of the decision to convert the URI loan Mayor Caldwell received a campaign contribution of $500.00 in September 2009 from an individual associated with OR!.

Mayor Caidwell was Managing Director from January 2,2009, until July 21, 2010, when

Mr. Mark A. Chandler, Director July 18, 2013 Page 2 of 15 been achieved. As examples, approximately 40 acres of land were acquired; a portion of that land was graded; the infrastructure has been installed; the primary building has been constru cted and furnished; programs that serve the target groups have been established; and, in order to do all of this, ORIAB has raised several million dollars from sources other than the funds it received through the Citys CDBG program as welt as garnered a large base of community support for its programs. As will be described in more detail below, the Citys proposal for the future of Aloha Gardens contemplates that the portion of the Project that is most compatible with HUWs national objectives criteria remain a CDBG project; the remainder of the Project would be converted to a City-managed project. The City also proposes reimbursing the CDBG progra m for funds that are attributable to the portions that will be converted to a City-managed project . However, the Citys proposals set forth in this letter are subject to: (I) the City reaching an accept able agreement with ORL&H; and (2) securing City Council approval of the settlement in accord ance with applicable laws. The specifics of the Citys proposals are set forth below, along with the Citys responses to specific findings and concerns raised.
BACKGROUND

ORTAH was founded in 1993 as a Hawaii non-member nonprofit corpor ation with a primary purpose of improving the quality of economic and social participation of the elderly, disabled persons, and persons of lower income. ORI was founded in 1980 as a Hawai i member nonprofit corporation with a primary purpose [t]o promote the general welfare of and provide training for the retarded persons living in the State of Hawaii. In the early 1980s, ORI, in part with HUD funding obtained through the City, developed a residential agricultural community in Wahiawa known as Helemano Plantation (Helemano Plantation) for developmentally disabled adults on the 5-acre site of the old Helemano Elementary School. Later, OR! developed (again in part with HUT) fundin g obtained through the City) a training center for residents of Helemano Plantation, which was opened also to other developmentally disabled individuals in the community. While MUDs on-site monitoring concerns both OR! and ORJAH and touches upon the Helemano Plantation project, its primary focus is ORIAHs Aloha Gardens Projec t.

In 1994, ORIAH first applied for CDBG funds to develop the expansion of Helemano Plantation to adjacent lands owned by Castle & Cooke. While ORIAN, at one point, considered acquiring Jand in Kahuku for the Project, it ultimately acquired approximately 43 acres adjacent to ilelemano Plantation (portion of TMK No. 6-4-3:003) from Castle & Cooke Properties, Inc., and Dole Food Company, Inc., for the Project. Castle & Cooke donated 10 of those 43 acres and ORL4H purchased the remainder using CDBG funds from the City. The Project was originally conceived as being limited exclusively to the elderly and developmentally disabled. The intent changed to include a focus on econom ic development, which requiredjob creation in accordance with a set formula based on the total CDBG monies disbursed; part of the Project would be devoted to public facilities. Over time, the Project reverted to the original intent. The original Subrecipient Agreement between ORIAH and the City for CDBG funding for the Project was entered into on February 23, 2001, for $1.5 million to acquire a property near Kahukia

Mr. Mark A. Chandler, Director July 18, 2013 Page3ofl5 and owned by Campbell Estate for a social services facility. Over the next five years. through April 18, 2006, the Subrecipient Agreement was amended nine times as the scope of the project changed and more funds were allocated. Z With the final amen dment, the total amount of CDBG funding for the Project rose to $7,924,850.
ORTAH held a ceremonial ground-breaking for Aloha Gard ens on November 12, 2002. Seven years later, a temporary Certificate of Occupancy for the Well ness Center issued on March 24, 2009, and the Center opened later in 2009 or early 2010. The last Project invoice paid with CDBG funds was dated May 2006. The Camp Pineapple structures were constructed from 2006, and the City believes they were completed in 2010, According to ORJAH, non-CDBG flmding and material in-kind support were relied upon to complete the Project.

Concerns about whether the Project was adequately meet ing a CDBG national objective were raised by HUD in its May 27, 2011, monitoring letter then to -Mayor Peter Carlisle (the May 2011 Letter). See attached Exhibit 1. As a result, the City and ORIAH entered into a Memorandum of Understanding dated June 27, 2011 (Exh ibit 2), which was reviewed and accepted by HUD, and which was aimed at ORIAFI incre asing the utilization rates for the Project, both at the Weilness Center and at Camp Pineapple, and the City stepping up its monitoring activities so as to bring the Project in compliance with its stated national objective. Since that time, the City has regularly monitored ORIAM and has subm itted to MUD quarterly monitoring reports documenting efforts to increase utilization rates . Additional oversight efforts by the City is reflected, as an example, in the fact that the Citys Fede ral Grants Unit in the Department of Budget and Fiscal Services (BFS), expressed its concerns in 2012 to the Citys Department of Planning and Permitting (DPP) about ORIAHs request to DPP for a minor modification to a Special Use Permit (SUP) that would have had the effec t of shifting developable lands surrounding the Weliness Center to ORIAHs adjacent land that is not subject to CDBG requirements. See attached Exhibit 3. In the June 3 Letter, HUD restates in Finding 1 concerns originally raised in its May 2011 Letter and that apparently have not been closed by MUD. The June 3 Letter also raises a number of new issues not previously identified by MUD to the City, inclu ding in the May 2011 Letter. For example. HUDs Finding 2 raises new questions as to whet her contract payments for Aloha Gardens included work that did not pertain to CDBG-el igible activities or projects. HUDs Finding 3 raises new questions about public services gran ts to ORTAH that pre-date the Citys fiscal year 2006. HUDs Finding 6 raises for the first time a conflict of interest issue in connection with the Citys CDBG Loan Conversion prog ram, concerning which the City has already taken corrective action in response to earlier mon itoring by HIJD.
RESPONSES TO HUBS FINDINGS AND CONCER NS

In the June 3 Letter, MUD allowed the City 45 days to respond to the previous Findings that Were not closed by prior administrations and to the new Findings. The City has devoted significa nt resources to investigate the facts of the Citys three decades long relationship with ORI and During this period of time, the CDBG grants were identified administratively and made throu gh budget ordinances by the City Council. In 2003, HUD expr essed concerns over possible conflicts of inter est for Council members who were involved in CDBG fund ing decisions, as is more fully discussed in response to HUD Finding 6. In October 2006, Council adopted resol a ution naming Council appointees to a selection committee that would make recommendations to DCS on CDBG awards.
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Mr. Mark A. Chandler, Director July 18, 2013 Page4ofl5 ORIAJ-T in order to develop meaningful responses to all of the Findings and Concerns raised. Due to the long history, the changes in administration and the loss of histori cal knowledge, we have relied on documents and spotty recollections of available witnesses. ORIAH has refUsed to permit the City to interview its past and present employees and officers and initiall y refused to permit the City to review its files and documents. Accordingly, the City is unable to conclude its internal review prior to BUDs deadline for this response. Nevertheless, the City submits this response, with a proposed resolution and corrective action plan for HUDs consideration RU]) FINDING 1: NON-COMPLIANCE WITH A CE)BG NATIONAL OBJEC TIVE Under this finding, BUD notes that the purpose of the Weilness Center and Camp Pineapple facilities was to serve elderly and developmentally disabled persons, which are presumed benefit categories under the CDBG national objectives at 24 CFR 570.208(a)(2) . HUD has concluded that there is insufficient documentation or records to demonstrate progra m compliance with a national objective as required by 24 CFR 570.208 and 570.506. Additi onally, HIJD has concluded that the City will not enforce and take action to ensure CDBG progra m compliance with regard to ORIARs CDBG assisted projects. BUDs Corrective Actions: 1. The City is advised to reimburse its CDBG program $7,924,850 with non-fe deral funds. 2. Until the funds are repaid to the CDBG program the City must record the $7,924,850 payable to the CDBG program as an account payable in its accounting record s for disallowed program costs. 3. Upon receipt of the funds into the Citys local CDBG account, the City must revise the ifilS draws and cancel the Aloha Gardens activities. The funds shall be noted as a return of grant funds and must be promptly reprogrammed for other CDBG-eligible activit ies.

city Response:
The City acknowledges HUBs concerns regarding ORIAHs compliance with CDBG national objectives. The City further acknowledges that BUDs concerns over this organizations ability to run a viable program have been repeated over the years, through three prior City administrations and now to this fourth current administration. The past efforts of prior administrations to impress upon ORIAH the seriousness of noncompliance and the consequences of failure to meet the national objectives have been largely unsuccessful. Accordingly, the City is now faced with putting its entire CDBG program at risk for loss of fundin g that would benefit other worthy and compliant nonprofit organizations serving low and moderate income residents. In part to address Finding 1, the City proposes reimbursement of approximately $1.88 million to the CDBG program. A portion of that reimbursement includes fair value for the acquisition of and CDBG-funded improvements to Camp Pineapple, with the intent to remov e Camp Pineapple from the CDBG national objective requirements. The City is committed to working with ORIAH in a focused effort to sustain national objective compliance for the Wellness Center and the Attorneys for ORTAH permitted the City to briefly inspect some documents and have indicated a willingness to pernut further inspection.

Mr. Mark A. Chandler, Director July 18, 2013 Page 5 of 15


remaining Aloha Gardens land acquired with CDBG finds, including improv ed monitoring as outlined in the Citys proposed Corrective Action Plan.

The remainder of the reimbursement addresses the eligible cost issues raised in Findings 2, 3 and 4. The City aclmowledges that documentation from ORIAH for some payme nt requests Was unclear. To address 1{UDs concerns about potentially ineligible costs in Finding 2, the City estimated a proportionate share of the development and construction costs for reimbursement. The City believes that the estimated share for reimbursement overstates the potentially ineligible costs but is willing to accept the additional amounts to resolve Finding 2. The cost issues in Findings 3 and 4, and related reimbursement, concerning ORLkHs separa te acquisition of the three acre parcel used for entry to the Project site and for parking (the Entry Lot) are addressed in Finding 3.
HE]) FINDING 2: ACQUISITION AND CONSTRUCTION PAYM ENTS

HUD notes under this Finding that the City authorized $7,924,850 in CDBG payments for the Project. MUD concludes, however, that construction contract payments for the Project included work that did not pertain to CDBG-eligible activities/projects, that ORIAI -I used CDBG finds to pay for costs not associated with the CDBG-eligible Aloha Gardens Projec t and that payment requests were not detailed enough to confirm the costs were attributable to the CDBG-eligible Project. MUD finds that these costs should be disallowed.

HUD s Corrective Action:

Per HUD, resolution of this Finding is subject to completion of the correct ive action in Finding 1.

The City does not dispute that a charge for $275 for vegetation control for a private property near Pearl Harbor should be disallowed and reimbursed, and points out that some of the items listed on Table I in the June 3 Letter are addressed in other parts of this letter. However, the bulk of the expenses listed are not specific enough to address at this time. The City will address this Finding by implementing the proposal described in the Citys response to Findin g I and reimbursing a conservatively proportionate share (overstates the potentially ineligible costs) of total development and construction CDBG-funded expenditures.
lIVE) FINIflNG 3: PROPERTY ACQUISITION

UNPERMITTED PARKING LOT

In the first sentence describing the Condition relating to this Finding, H1JD concludes that the City authorized ORIAH to acquire with CDBG funds what the Citys DPP identified as an illegal three-acre parking lot adjacent to OREs Plantation Hale trainin g facility (Helemano Plantation) for mentally-challenged clients. HLD finds that such use of $597,780 in CDBG funds resulted in an overpayment and ineligible use of CDBG funds. HUDs Corrective Action: Per HUD, resolutton of this finding is subject to the corrective action in Finding 1. City Response: There are two parts to this response.

Mr. Mark A. Chandler, Director July 18, 2013 Page 6 of 15 First, the City believes that the document referred to in the first sentence describing the Condition is an email dated April 22, 2003, from a staff person at the DPP addres sed to other City personnel with the subject line, Prposed [sic] acquisition of additional lands adjace nt to Helemano Plantation for for [sic] ORIs Aloha Gardens See attached Exhibit 4. In that email, the DPP staff person says: I recently learned that ORI was planning to acquire about 3+ acres located between Helemano Plantation and Kam Hwy. for access as required by condition of the SUP from Castle & Cooke (see attached aerial photo). However, that access area also has parking for Helemano Plantation that may have been established illegally since the City Council Resolutions that covere d Helemano Plantation would not have included separate parking on Dole Planta tion lands. Apparently, ORT made this arrangement for off-site parking on their own. If the property is acquired for access then it belongs under the Aloha Gardens project and should be included in the SUPlvariance. However, that would bring it beyond the 15-acre limit and an amendment to the SUP would require Land Use Commission approval. The staff person then goes on to list three options. The approximately 3 acres referenced in the email is the Entry Lot, which serves as the primaty access road into the Aloha Gardens site. While there is surface parking on the Entry Lot, such parking was constructed before Aloha Gardens was constructed, as shown in the aerial photograph attached as Exhibit 5, and initially served as the parkin g area for the Helemano School Site. The supposed illegality referred to in the email refers to the possibility that such parking was not approved via the Hawaii Revised Statutes (RRS ) chapter 201G exemption that permitted the Helemano Plantation to be developed in the agricultural zoning district. Even if the surface parking on the Entry Lot was not a part of the HRS chapter 20 1G exemption, the City intends to address this Finding through an agreement with ORIAI4 that addresses many of the Findings and Concerns and, pursuant to which, ORIAI4 will undertake option 2 mentioned in the email, that is, Modi the recently approved SUP to reconfigure the approved area to incorpoate [sic] the access/parking so that there is no net increase. That will require processing another SUP amendment and will take at least 3 months; Second, the City proposes to reimburse a portion of the CDBG funds that were used by ORIAR to acquire the Entry Lot. The April 14, 2003 Summary Appraisal Report prepared by an independent appraiser appraised the Entry Lot, having approximately 3.1 acres and AG-i zoning, at $650,000. Exhibit 6 at 8. The appraiser derived that value using the Direct Market Comparison approach. Id. at 5. For that approach, the appraiser review ed five comparable transactions. Ia. at 6. Transactions No. 1-3 were AG-i (agricultural) zoned lots in a Waialua agricultural subdivision. Id. Transaction No. 4 was an AG-2 (agricu ltural) zoned lot in Kahuku with grandfathered commercial structures. Id. Transaction No. 5 was a B-i (commercial) Zoned lot in Kunia purchased with plans to construct a shopping center. Id. The appraiser adjusted the values of the comparable transactions based on several factors , including location, access, lot size, and zoning. Id. at 7. For zoning, the appraiser assumed that parking was a principal permitted use of the Entry Lot. Id. As a consequence, for compa rison to the other AG-i lots (Transactions No. 1-3), for which parking was not a princip al permitted use, the appraiser

Mr. Mark A. Chandler, Director July 18, 2013 Page 7 of 15 increased the reported value of those transactions by 25% to refle ct the assumed superior use available on the Entry Lot. Id. For Transaction No. 4, with its grandfathered commercial use, the appraiser deemed the value comparable and made no adjustments based on zoning. Id. Finally, because Transaction No. 5 was zoned for more general commerc ial use, the appraiser reduced the reported value of that transaction by 20% to reflect the inferior uses available on the Entry Lot. Id. Assuming that the other adjustments for location, access, and lot size remain unchanged, the difference between the appraised value for permitted uses of an AG-i zoned lot and an AG-I zoned lot with parking as a principal permitted use, is 25% of the value for the traditional AG-l zoned land. Based on the CDBG expenditure of $594,134.67 to acquire the Entry Lot, the difference would be $118,826.94. The City further would note that direct market comparisons between per acre value in the January 2003 appraisal of the 33 acre parcel to the per acre value in the April 2003 summary appraisal of the 3 acre Entry Lot are not linear As explained by the appraiser, larger undivided parcels are less marketable. Id. at 7 (Adjustments for size were made based on the concept that larger parcels, a11 other factors bein g equal, tend to command lower unit rate values.). In this instance, the appraiser reduced the repo rted value of lots only 2 acres larger than the 3 acre ORIAH parcel by as much as 13%. Id. The City proposes to reimburse the CDBG program $11 8,826.94the increase in value resulting from parking as a principal permitted use on the Entry Lot, according to the appraisal to resolve concerns regarding the principal permitted use of the Entry Lot. This amount is inclu ded in the total amount proposed in response to Finding 1 above. The Entry Lot provides a shared access that will continue to benefit ORIs residential community of developmentally disabled individuals at Helemano Plantatio n and ORIAHs beneficiaries at the Weilness Center, consistent with CDBG requirements.
BUD FINDING 4: PROPERTY ACQUISITION

COST REASONABLENESS

This Finding concludes that the City authorized a CDB G payment for a parking lot that was not a principal permitted use, failed to ensure the property appr aisal was based on permitted uses of the site (agricultural), and permitted ORIAH to use CDBG funds to pay more than the fair-market value for the acquired property. HUDs Corrective Action: Per HUD. resolution of this finding is subject to the corre ctive action in Finding 1. City Response: The City acknowledges that it appears the surface park ing on the Entry bat was not a properly permitted principal use at the time that the Entry Lot was purchased by ORTAH. The City submits however, that the land had been used as a park ing lot for many years prior to ORIA.Hs purchase and that the City advised ORIAH that an optio n to correct the deficiency would be to reconfigure the boundaries of its SUP to include the park ing lot. The City also submits that, since the purchase of the Entry Lot, the City has properly enfo rced its zoning requirements when ORJAH has made requests that have raised questions rega rding its compliance with HUD requirements.

Mr. Mark A. Chandler, Director July 18, 2013 Page 8 of 15 As stated in the Citys response to Finding 3. the City will reimburse the CDBG progra m $118,826 and will address this Finding through an agreement with ORIAII pursua nt to which ORL4H will request modification of the SUP to include the surface parking areas within the Entry Lot.
1TUI) FINDINGS: PUELIC SERVICE COSTS AND EXPENDITURES

HLTD finds that, for certain public service subrecipient agreements with ORIAH prior to 2006, the Citys records fail to demonstrate that payments to ORIA.FI were direct costs for implementing a public service activity, resulting in ineligible or questionable CDBG progra m payments that include, but are not limited to, grant research and management fees. HIJDs Conective Action: HUD proposes that the City reimburse, with non-federal funds, the CDBG progra m for $226,680 or provide supporting documentation for the eligibility of the CDBG expend itures on the public services costs identified by FTUD as ineligible or questionable. City Response: The City has reviewed HIJDs listing of questionable and ineligible expenditures set forth in this Finding. The City notes that all of the questioned expenditures were under public service subrecipient agreements for years prior to 2007. None of these expenditures were mentio ned in HUIYs May 2011 Letter. Reimbursement should not be required for questionable expenditures under subrecipient agreements closed out before June 3, 2009, as the four-year record retention period has expired. 24 C.F.R. 85.42 (as modified by 24 C.F.R. 570.502(a)(l6)). ORL&H administered five CDBG-funded public service grants from 2000 to 2006. The last subrecipient agreement closed no later than January 2007. See attached Exhibit]. To the extent some records for the grants were available, the review conducted by the City has not produc ed documents that would support the conclusion that these questionable expenditures were in fact ineligible. With respect to the automobile expenses identified in HU1J Finding 5 as ineligible, the Citys research indicates that these expenses were for vehicles used to transpo rt ORIAH clients, and not for ORIAH employee auto expenses. See attached Exhibits 8 and 9. Accord ingly, these expenditures were CDBG-eligible. With respect to the ineligible items for Grant Research ($6,000) and Administration ($20,000), those items are identified as proposed categories of expend itures in Subrecipient Agreement No F76820. The City does not have extensive records for Subrecipient Agreement No. F76820 because the record retention period expired in 2005. Although ORTARs final expenditure report does not expressly charge for the ineligible catego ries, Exhibit 10, the City would agree to reimburse $26,000 to the CDBG program.

Mr. Mark A. Chandler, Director July 18, 2013 Page9ofl5 CDBG FINnING 6: LOAN FORGIVENESS HUB finds that the City made a decision to forgive OH (an ORIAH affiliat e) nearly $1.2 million in CDBG loans when City employees, running for elected office, were directly involved in approving, developing, or recommending the OH CDBG loan forgiveness while receiving campaign donations from representatives of, or persons closely associated with representatives of, OH or ORJAH (collectively referred to as the ORI Representatives). HCTD finds that the financial relationship between OH I ORIAII and City staff created a CDBG conflic t of interest situation.

HUDs Corrective Action: HUD proposes that: I. The City immediately reinstate the OH loans and interest due until it issues a public notice and complies with the 30-day comment period advising the public of the Citys OH loan forgiveness, including the total amount forgiven (loan and interest) and the situation involving the ORI/City conflict of interest. 2. The City provide HUD with a copy of the public notice nd accounting entries reinstating the OR! CDBG loan and interest account payable addressing Corrective Action 1 above. 3. The City provide a copy of the Citys loan forgiveness policy to its subrec ipients that currently have an outstanding CDBG loan with the City and provide HUD with a copy of the subrecipients written receipt of the policy.
jtyResponse: There are two parts to this response. 1. The OH Loan Conversion. The City aclmowledges that, until 2010, it was City policy to deny requests to convert HUD-funded loans to grants. In 2009, however, the Citys Department of Community Services (flCS) and the BPS began a dialog ue concerning a change in City policy to permit loan conversion for CDBO and HOME loans that supported special needs housing or public facility projects. Although the December 20, 2009, memor andum from BPS cited in the June 3 Letter (Exhibit 11) raises concerns about loan conver sion and specifically references OH; the November 13, 2009, memorandum from DCS (Exhib it 12) does not mention ORI and includes a list of 17 loans potentially eligible for conversion. The DCS response to BPS on March 16, 2010 (Exhibit 13), explained that DCS had reviewed the eligibl e loans and selected ORI as a pilot project; DCS emphasized that the policy change only concer ned a limited subset of I{UD-funded borrowers that typically relied on government subsid es for operations and were not self-supporting. Although the City interviewed individuals involved in the OH loan conversion process and reviewed relevant documents, no witness or document explains why the City selected OH as the pilot project for loan conversion or why a loan conversion policy was not written and publicly disseminated for comments before conversion of OREs loans. While a technical distinction, the City notes that the loan was not forgiven; rather, the loan was converted to a grant. As far as we can detennme, based on our review of the documents and the witnes s interviews, the individuals involved in the OH loan conversion decision-making proces (from s the fall of 2009

through

Mr. Mark A. Chandler, Director July 18, 2013 Page 10 of 15

As detailed in the Citys prior monitoring response dated May 7. 2012, the Citys Loan Conversion Policy was previously the subject of public notice and comment. The City nevertheless commits to taking the corrective actions outlined above for HIJD Finding 6. 2. Campaign Contrib Finding 6 also alleges a CDBG conflict of interest situation arising from the receipt of campaign donations from ON Representatives by City employees who were running for elected office and were involved in approving, developing, Or recommending the ON CDBG loan conversion. In reviewing this matter, we do not agree that a CDBG conflict of interest exists in the absence of evidence that an individual received a direct benefit, such as would exist where the government official who partici pates in the decision making relating to a subrecipient s CDBG-funded project is also an employee or officer of the subrecipient. Our review of the facts did not support a CDBG conflic t of interest in this situation.
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Our research disclosed many City officials and employees who receive d campaign contributions over the years from ORI Representatives. A copy of our cursory research is attached for your information as Exhibit 14. While this list indicates that ORI Repres entatives contributed over $100,000 over the past 16 years to political campaigns. and while some may infer an attempt to unlawflilly influence the political process, we have found no evidence of a quid pro quo relationship nor any direct benefit resulting from the loan conver sions inunng to City officials who participated in the decision that would constitute a conflict of interest. If you are aware of any evidence of benefits received by any City employee or official other than campaign contributions, we would appreciate receiving that eviden ce so that we may review it to determine if there was a conflict requiring any action. We note that federal and state laws protect the First Amendment rights of individuals to make political contributions. While Congress may limit, regulate or condition the use of federal funds that it appropriates, the federal government is much more circum scribed in its efforts to restrict private, nongovernmental grantees or contractors, or persons affiliated with them, from using their own private or non-federal resources to engage in political advocacy or to make campaign contributions in state or local election contests. Serious First Amend ment concerns are implicated when the government places restrictions on private persons in the area of political advocacy, and the courts have been careful and deferential to the rights of private parties in terms of their freedoms of association and expression. We have asked our Ethics Commission to investigate whether any conflict of interest under the Citys ethics laws existed for those who received campaign contributions and were involved in the decision making of the loan conversion. The City notes that HUD has previously raised conflict of interes t issues in connection with the administration of the CDBG program and approval of grants. Most notably, by letter dated November 25, 2003, addressed to Council Chair Donovan Dela Cruz (Exhibit 15), you advised the Chair of the possible occurrence of a conflict of interest involving the Councilmembers during the City budget process for CDBG-assisted activities. You advise d of the importance of Councilmembers understanding of the HUD program regulat ions as the Council makes the final funding decisions for use of HUD Community Planning and Development program monies, citing to 24 CFR 570.611. You concluded that, at a minimum, Councilmembers who receive June 2010) were: (1) Mayor Hanneman, who indicated his general agreement with the decision: (2) Trudi Saito, then-Deputy Managmg Director (BMW); (3) BFS Director Rix Maurer; (4) DCS Director Debbie Morilcawa; (5) Ernie Martin (OSP Executive Director); and 6) Keith Ishida. a DCS division chief.

Mr. Mark A. Chandler. Director July 18, 2013 Page 11 of 15


payment or who are members or an organizations governing body should refrain from offering for consideration or voting on a funding measure for that organization.

Thereafter, on July 14, 2004, the City Council adopted Resolution 04-189, CD1, which urges the Mayor to establish a review panel to make recommendations on CDBG funding of projects for nonprofits. The Resolution proposed a review panel consisting of 7 memb ers, 3 appointed by the th Council, 3 appointed by the Mayor, and the 7 member nominated by the Mayor and confirmed by the Council; members serve for 4-year terms and no member is to serve more than two consecutive terms. This format for a review panel was not implemented by the City and an agreed upon format for a review committee was apparently not established until the City Counc il adoption of Resolution 06-316, FD 1, on October 25, 2006, to select members for the CDBG and HOME project selection committee for the fiscal year 2007-2008 CDBG and HOME projects. This Resolution identifies the Councils three appointees to the committee and recommends a fourth individual to serve as the jointly selected member of the committee. This Resolution directed that a copy of the Resolution be transmitted to you; we trust you received a copy in good order. The Mayor identifies three members for the committee and agrees upon the joint member, thus establishing a 7-member selection committee. This is the format curren tly in place and most-recently effected with the adoption of Resolution 13-7, CD1, appointing the Councils three members and recommending a fourth member for CDBG and HOME projects for the fiscal year 2013-2014, and providing also that a copy of the Resolution be transm itted to you. Again, we trust you received a copy in good order.
HUB CONCERI4 1: FAILuRE TO FOLLOW UP ON POSSIBLE PR0G1t4M VJOLATIONS Under this Concern, ITUD concludes that the City failed to meet its obligation to administer its the ORIA}1 grant in accordance with Subpart J, Grant Administration [24 CFR 570.500 series], and Subpart K, Other Federal Requirements [24 CFR 570.600 series) , and related provisions, citing as examples that:

During the period 2004 through 2011 the City failed to addres s a possible violation of the anti-kickback jprovisionsjof the CDBG program, arising from a September 22, 2004 letter from ORI documenting that it had negotiated a $90,000 payme nt from the contractor in exchange for a $5.3 million CDBG. The City failed to enforce against ORIAB certain Special Use Permit (SUP) limitations relating to a parking lot parcel acquired for the Aloha Gardens Project and failed to follow a DPP recommendation that the parking lot be eliminated. In 2004 and 2007, the City reviewed ORTh.}I but failed to identif y any noncompliance issues. HUB Corrective Action: HLTD proposes that: 1. 2. The City ensure proper authorities are reviewing the possible kickback situation. The City train current City officials, staff, and management, including but not

Mr. Mark A. Chandler, Director July 18, 2013 Page 12 of 15 limited to, individuals that have and had a direct role in the oversight of the ORI Aloha Gardens project on the Copeland Anti-Kickback Act 18 Usc 874. 3. The City establish a system that will ensure subrecipient compliance with I-lED program requirements, as measured through a decrease in non-compliance HUD program findings for the City and its subrecipients. City Responses: Athough HUD poses this matter as a Concern rather than a Finding, we have spent considerable time investigating the history of the Citys relationship with ORIAH and its related organizations. The evidence of political contributions to City officia ls as well as state and federal candidates or elected officials is clear. \Ve have found evidence of inquiri es by City Council members on behalf of ORIAH, but such inquiries on behalf of constituents are routine actions by Council members and on its face, completely proper. There is anecdo tal evidence indicating that OH Representatives have the ear of and support from elected officials. Our internal review showed management inconsistencies, which could promote an environment where external influence could be exerted. Some of this can be explained by the history of the creation of DCS. Other explanations are attributed to the budget cuts and restrictions that forced more work on fewer staff.

However, two facts contribute to the oversight challenges of the Projec t: First, the Project was managed by the DCS Office of Special Projec ts (OSP), and not by the Community Based Development Division (CBDD). CBDD has more expertise in managing construction projects and a process for documenting work progress and is typically responsible for the CDBG-funded construction projects. Second, after construction was completed on the Project, there was a breakd own between DCS and BFS with regard to which department and person(s) were responsible for monitoring compliance with the CDBG national objectives post-construction. Part of the explanation of this breakdowir is the fact that, while construction may have been compl eted for the Wellness Center in 2009, the Federal Grants Unit of BFS did not take over post-develop ment CDBG compliance monitoring until 2011. Regardless of the reasons, we have chosen to make a fresh start by reorga nizing DCS so that there is one unit responsible for grants rather than two, as in the past. In additio n, we have strengthened our interagency protocols to hold both DCS and BFS jointly responsible for certain aspects of program management. These organizational changes provid e both check and balance in project management as well as coverage when staffing changes affect monitoring responsibilities. 1. Regarding the first Corrective Action, the City notes, as HUD has noted, that the City did take action in 2012 by referring the alleged kickback situation to the attentio n of the office of the United States Attorney (USAO), after the matter was brought to the Citys attention by HUD.USAO has confirmed receipt of the September 22, 2004, letter. Most recently, as a result of the Citys present internal review, on July 16, 2013, the City provid ed to the USAO a copy of a September 21, 2004, letter from ORIAH to its contractor relating to the matter. This letter was provided to the City by counsel for ORIAI-I. Copies of both letters are attached as Exhibits 16 and 17.

Mr. Mark A. Chandler, Director July 18, 2013 Page 13 ofl5 Regarding the second Corrective Action, the email reflecting the 2. advice of DPP and the Citys response are referred to in detail in the Citys response to Findin g 3. Regarding the third Corrective Action, the Citys proposal to take 3. steps to strengthen overall CDBG program compliance by subrecipients is set forth more in detail in the proposed Corrective Action Plan attached to this letter as Exhibit 18. The City believes that the actions proposed will enhance the Citys ability to identify compliance with CDBG-requiremetits by subrecipients and to promptly address any concerns.
Hill) CONCERN 2: RECORDS MISSING AND WITUIaD

During follow up monitoring in the last two years, HUT) has found that the City was initially unable to produce the entire Aloha Gardens Project files and that, when produced, the records were incomplete. In addition, HUD states that the City withheld certain documents from it claiming attorney-client privilege. HUT) states that the Citys claim of attorney-client pnvilege conflicts with CDBG program regulations. HUT) Corrective Action: H{JD proposes that: 1. The City notify all subrecipients in writing of the subrecipients obligation to provide HUD access to their records and failure to do so is a violation of progra m regulations that could result in disallowance of the subrecipients HI.JD funds. 2. The City provide H1JD with a listing of the subrecipients notified and copies of the notices provided to the subrecipients. 3. The City establish a centralized records system for documenting all grants management activity. Until the City establishes a centralized records system, the City needs to maintain all documents generated for a HUD Annual Action Plan Activity (CDBG , HOME, HOPWA and ESG), regardless of the City division creating the document, within the department responsible for developing and submitting the Citys Annual Action Plan (curren tly Budget and Fiscal Services).
City Response:

The City acknowledges that it initially was unable to locate all DCS project files requested by HUD. The City notes that the request was made orally to an acting DCS Division Head and afforded the City only a few hours in which to locate files reques ted by HUD and to review those files so that the originals could be delivered to HUDs offices. The City continued its search for files after BUDs initial request and supplemented its response as files were located and became available for review. The City notes that only three documents and two email streams were wititheld pursuant to the attorney-client privilege. Copies of privilege logs that describe those documents and email streams were previously provided to HUT) are attached hereto as Exhibits 19 and 20. Apart from this limited number of attorney-client privileged documents, the City produced or made available for production its DCS project files for review and copying by HUD. At the request of the HUD

Mr. Mark A. Chandler, Director July 18, 2013 Page 14 of 15 Director, the Citys BFS Director set aside for HUDs review certain BFS files; howev er, 11110 has not asked to review such files. Regarding FEUDs expressed concern as it relates to the Citys assertion of attorne y-client privilege with respect to the limited number of documents, the City must respectfully disagree with FEUDs position, which we interpret as being that the attorney-client privilege does not exist in the context of CDBG monitoring by HUD. In our view, the attorney-client privilege is a bedrock principle of the American legal system, regardless of whether asserted in the CDBG monitoring context.
While the City believes that it is important to assert the privilege when applica ble and appropriate, we note that efforts were made by DCS to accommodate HIDs desire for access to privileged documents by (1) stating that a general waiver of the attorney-client privile ge was not intended by the effort, and (2) authorizing the Citys Department of the Corporation Counsel to produce the privileged documents upon FEUDs agreement that the production would be for the limited purpose of HIJDs monitoring and that such production would not constit ute such a general waiver of the privilege. This offer was made twice to the BUD Directo r in 2012, but the City has not received any response. The City hereby renews that offer.

Having said all this, the City agrees to undertake the above Corrective Actions in connection with this Concern. The Citys proposed efforts regarding establishment of a centralized records system are set forth in more detail in the proposed Corrective Action Plan.
CONCLUDING REMARKS

The City would like to express its appreciation for the time and effort made by HUD in ensuring that its grantees are aware of and implement the requirements of the CDBG progra im We believe I-RiDs letters. and the Citys responses, reflect our mutual desire to serve in the best interests of the people of the City and County of Honolulu. After the submission of this letter, the City intends to confer immediately with ORIAH and its counsel to seek its agreement on corrective actions for certain Findings. We look forward to working further with you on the matters mentioned in this letter, Should you have any questions or require additional information, please contac t Corporation Counsel Donna Y. L. Leong. Aloha,

EMBER LEE SHTNN Managing Director


Attachments

cc Department of Budget and Fiscal Services, Attn.: Director Nelson Koyan gi

Mr. Mark A. Chandler, Director July 18, 2013 Page 15 of 15 Department of Community Services, Mm.: Director Pam Witty-Oaklan d Department of Corporation Counsel, Attn.: Corporation Counsel Donna Y. L. Leong Mark Bennett, Esq., Counsel for ORI Anuenue Hale, Inc.

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U.S. Department of Housing and Urban Development Honoluki Field Office Region IX 500 Ala, Mona Boulevard, Suite 3A Honolulu, Hawaii 96613 httpjiwww.hud.gov httpWw.espanoLhud.gov

May27,2011 The Honorable Peter B. Carlisle Mayor City andCoW of Honolulu 530 South King Street Honolulu, HI 96813 Dear Mayor Carlisle: SUBJECT: On-Site Program Monitoring April 11-25,201! Community Development Block Grant

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This letter is to convey the results of the U.S. Department of Housin g and Urban Development (MUD) on-site monitoring that was conducted on the City and County of Honolulu (City) April 11-25,2011. The purposeof the review was to assess the City and its subrecipients compliance with the statutory and program regulations regard ing its Community Development Block Grant (CDBG) program. HUD found the Citys and its subrcipient, Opponities and 1 Resources Inc. (ORs implementation of the Citys largest CDBG funded subrecipient project, Anuen ue Hale Aloha Gardens unacceptable. Since the inception of the OR] Anuenue Hale Aloha Gardens which includes the Weliness Center and Camp PineappLe 808 (Aloha Gardens) in 2000, City staff expressed concerns and problems about ORIs proposed implementation of the Aloha Gardens project to the pr,evious two City administrations. The issues regarding qualifying the Aloha Gardens under the CDBG regulations were so problematic that.the City requested and received HUD assistance on how to quali theproject. Despite City staff and MUD concerns, the City awarded, CDBG thnds to OR! for the Aloha Gardens project on ORIs assurances that it would comply with the CDBG regulations. During construction, City staff encountered problems with ORIs source documentation for payment requests and compliance with CDBG national objective requirements. At a meeting to resolve the compliance issues, ORIs Chief Executive Officer told the City and HUD to-forget the MUD rules. Although aware of ORIs position regarding HUT) regulations, the City Failed to monitor ORIs project for CDBG program compliance and allowed OR! to operate Aloha Gardens as OR] pleased. HUDs monitoring of the OR! CDBG funded projects was signifi cantly impaired due to unwill ingness to produce-documents and cooperate with MUD during ORIs the on-site monitoring. More specifically, OR] refi.ised to provide HUD access to record, failed todiselose income generated from CDBG assisted properties, and -misrepresented it CDBq project. As a result, MUD has concluded that the OR! Anuenue Hale Aloha Gardens and other CDBG assisted

EXHiBIT 1

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2 activities are not meeting CDBG eligible use nd national objective requirements. The City is hereby advised that the City and OR! need to repay the CDBG accoun t $7,991,711 .47 unless the City takes immediate corrective action proposed in the Schedule of Findings and Concerns enclosed. The schedule identifies several areas of concern. Those conc erns are noted as either a finding, which identities a regulatory non-compliance issue, or a concern, which recognizes a program weakness. The City will have 30days from the date of this Letter to address 5 HUty findings, concerns, and corrective action. Failure to take steps to address the corrective actions and recommendations may result in HUD implementing program sanctions. In closing, HUD would like to point out that Aloha Garden project can be brought in to CDBG program compliance; however, it will take a significant effort on the part of the City to bring the project into compliance and to ensure OR! follows the prog ram rules. Finally, 1-RiD would like to extend its appreciation to the staff from Departme nt of Budget and Fiscal Services and the Department of Community Services for the assistance and courtesy provided during the monitoring review. Should you have any questions, please call, me at 808-522-8180, extension 264 or Rebecca Boris, SeTtior Community Planning and Deelopm ent Representative, at 808-522-8181, extension 265: Sincerely,

Mark A. Chandler, Director Office of Community Planning and Development Enclosures cc: Mr. Michael R. Hansen Director Department of Budget and Fiscal Services City and County of Honolulu 530 south King Street, Room #208 Honolulu, H! 96813 Mr. Samuel E.H. Moku Director Department of Community Services City and County of Honolulu 715 South King Street, Suite 311 Honolulu, HI 96813

3 Ms. Holly Kawano Federal Grants Coordinator Department of Budget and Fiscal Services City and County of Honolulu 53.0 South King Street, Room #208 Honolulu, HI 96813

SCHEDULE OF FINDINGS AND CONCERNS ON-SITE MONITORING CITY AND COUNTY OF HONOLULU APRIL 11-25,2011
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Review Purpose: U.S. Department of Housing and Urban Development (HUD) conducted an on-site monitoring visit oftheCity and County of Honolulu (City) and itsCDBG subrecipients from April 11-25,2011. The purpose of the review was to assess the Citys and its subrecipients compliance with the statutory and program regulations regarding its Comm unity Development Block Grant (CDBG) program Review Scope: The monitoring consisted of a review and an analysis of Citys CDBG -fimded progran in the following areas: 1. Financial management of CDBG program income; 2. Compliance with CDBO national objective requirements for low and moder ate income benefit activities; 3. CompLiance with CDBG eligible activities requirements; 4. Coict of interest 1icies and produr; 5. Opportunities and Resources, Inc. (0111) Anuenue Hale Aloha Garden s Weliness Center and Recreation Cottages compliance with CDBG use of real property and program income requirements; and t6. Pablo Chinese Homes Food Services Complex compliance with CDBG use of real property and program income requirements. Summary: HUD found the City and OREs, implementation of the Citys largest CDBG ffinded subrecipient project, Anuenue Hale Aloha Gardens unacceptable. In additio n, HUD found weaknesses in the Citys implementation of the CDBG conflict of interes t requirements, and the Citys tracking of CDBG program income generated by subrecipicnts.

Findings CPD Finding Ml 1-012 (ACflORI Anuenue Hale Aloha Gardens Is Not Complying wfth CDI3G Eligible Use andNational Objective Criteria: CDBG regulations at 24 CPR570.506 require grantees to maintain records providing a flaIl description of each activity assisted with CDBG finds. The records must demonstrate that each activity undertaken meets one of the criteria for national obje ctive set forth in 24 CFR 570:208. Grantees must use real property acquired or improved with CDBG funds in excess of $25,000 in compliance a national objective in accordance with standards in 24 CFR 570.505. For subrecipients, at a minimum, the standards of for use of real property shall apply from the date CDBG funds are first spend for the property until five year after s the close out of the grant from which the assistance to the property was provided. Condition: ORjAnuenue Hale Aloha Gardens. The City and ORI expended $7,924,850 in CDBG finds to acquire 36.321 acres and construct Aloha Gardens, which includes a Wellness Center and Camp Pineapple 808. According to the Citys subrecipi ent agreement with ORI first executed on February 23,2001 and amended nine times throu gh April 18, 2006,ORI would Use the real property for cabins, garden/nursery, farming/agriculture , elder care activities and vocationaJ training that would meet CDBG eligibility requirem ents specifically and exclusively serving.the CDBG presumed beneficiary population of the elderly and adult with developmentally disabilities. During HUDs monitoring of the City and ORI, ORI impa ired the monitoring by restricting MUD access to beneficiary information, refusing to provide Ml access to information and files of all beneficiaries of ORI Anuenue 1lale Aloha Gard ens, and misrepresenting use of Camp Pineapple 808. ORI did provide limited information related to participants served at the Welihess Center from October 2010 to March 2011. Thes e records revealed participation at the 16,500 square foot facility ranged from 19 to 27 clients per mon th demonstrating a significant under utilization of the facility. ORI stated that the participan ts list did not include participants who reside in Helemano. When requested and advised of the.CDBG requirement to have access to confirm CDBG eligibility of the clients, ORI refused to provide access to the participant files . During the on-site monitoring: HUD observed only five parti cipants in the Adult Day Care program at the Wellness Center supporting the records revie w that the 16,500 square feet, $8 million facility is significantly underutilized. ORI also refused to provide any access to Camp Pine apple 808 records. Through an internet search, HUD identified at least two ineligible events planned at CmpPineapple 808. On May 28, 2011, the American Camp Association was hold to a Camp Staff Training Day. On

July 7-10, 2011, the United Methodist Women will hold its 2011 Hawaii School of Christian Mission. OR! Day Care for Elderly and Adults w3th Disabilities. The Cityexpended $66,86 1.47 in CDBG finds to thud an OR! CDBG public service activities at the Weliness Center. According to the Citys subrecipient agreement executed on October 15, 2010, OR! would provid e adult day care services to a minimum of 20 clients that are elderly, disabled, and/or adults with special needs, l ORIs application to the City for CDBG ftxnds, OR! described its project as consisting of two components: the Adult Day Care/Day Health Program and the Health and #ellness Program. The Health and Weliness Program was an existing program serving adults with developmental disabilitips and providing exercise, recreation, and therapy sessions (movie, cooking, music, dance, and computer); health talks with the doctor and/or nurse, outings, and excutsions. The Adult Day Care/Day Health Program was the new program for which ORI was. seeking CDBG fUnding to provide the elder care services at the Weliness Center.

A review of supporting documentation for CDBG draw downs and interviews with staff revealed that OR.! was receiving CDBGpublic service dollars to pay for the salaries OR! of six Program Aides that work with adults with developmental disabilities under the Anuen ue Hale existing Health and Wellness Program. HUD determined that the Waianae Coast Comprehensive Health Center, a privately funded activity, was the new/increase elder care servicfes at the Weilness Center without CDBG finds. Cause:: OR! Anuenue Male Aloha Gardens. From the start, the City staff had concerns about ability of the ORI Anuenue Hale Aloha Garden to comply with CDBG national objecti ve requirements. Despite staff concerns, the project was funded. In January 7, 2003, the City OI.! entered into an Agreement of Understanding as to how the OR! Anuenue Hale would and satisfj CDBG eligible activity and national objective requirements through a combination econom ic development low-to-moderate income job creation and public facility presumed benefit for elderly and adults with developmental disabilities. On July 7, 2008, when the City and OR! could not justif3 that the activity would be able to create the minimum number ofjobs necess ary to meet the low-moderate income job creation standard, the City and OR! executed a Statem ent ofAssurancesand agreed that the entire Aloha Gardens (the Weilness Center Camp , Pineapple 808, etc.) would be used exclusively for elderly and developmentally disabled individuals. Despite all the Citys past efforts to secure assurances from ORI and known eoncerns about ORIs unwillingness to comply with CDBG requirements, the City failed to monitor OR! Anuenue Hale Aloha Gardens following completion of the development to verify ORIs compliance. OR.! Day Care for Elderly and Adults with Disabilities (Public Service Activity). From August 3 to September 28, 2010; prior to executing a CDBG subrecipient agreem ent with ORI to

a
ftinded adult day care services, emails between City staff noted compliance issues regarding the use and beneficiaries of ORE Anuenue Hale Aloha Gardens. City staff noted that OR! might have been requesting to use CDBG public service funds for eligible and ineligi ble activities. City staff recommended conducting a site visit to verify program services and the number of people being served. City staff aio stated that it might not be feasible to move forward with executing the subrecipient agreement. Despite it all, the City executed the subrecipierit agreement to find adult day care services without conducting a site visit.
The Citys ongoing management of open activities and completed activit ies still within the eligible use period is weak. During the fiscal year 2010, the City conduc tedppst development monitoring of only five (5) CDBG activities. Of the five, four were&esk monitoring and caly one monitoring involved a site visit. Consequence: 1. The ORI Anuenue Hale Aloha Gardens consisting of 36.321 acres acquired and constructed with CDBG finds is not meeting CDG eligible use and national objective requirements. 2. The 16,500 square feet Weilness Center and the 36.321 acres proper ty is underutilized. 3. The OR! Day Care for Elderly and Adults with Disabilities is not eligibl e because CDBG hinds were not going to a new or increase in pubLic service .. Corrective Action: .L Within 30 days of this report, the City needs to notify MUD which of the following options it will undertake to resolve this monitoring finding. Option l. The CityandORlneeds EorepaytotheCDBGacc ount$7,924,850 plus any increase in the property value for the ORI Anuenue Hale Aloha Gardens and $66,861.47 for the ineligible use of CDBG public service fttnds for the OR! Day Care for Elderly and Adults with Disabilities within 60 days of the monitoring report. OR Option 2. The City needs to bring ORI Anuenue Hale Aloha Gardens into compliance with CDBG eligible use and national objective requirements: I. Convert Camp Pineapple 808 into group homes/shelters for the elderly or adults with severe disabilities operated by OR! or anothe r nonprofit organization in compliance with CDBG record keepin require g ments;

2. increase the utilization of the Weliness Center by the elderly and adults with developmentdisabilities by identi&ing and requiring OR! to identif y and execute agreements with other notiprofits including encouraging nonprofit organizations that serve the elderly and adults with disabilities to provide services at the Weilness Center; 3. Cease handing the OR! public service activity until the City and OR! clearly defines the tasks to be performed and the specific increase of the public service activity; 4. Repay to the CDBG account $66,861 471cr the ineligible use of CDBO public service funds for the OR! Day Care for Elderly and Adults with Disabilities within 60 days of the monitoring report; and 5. Conduct quarterly on-site monitoring visits of the OR! Anuenue HaleAloha Gardens for the remaining years of the CDBG real proper ty use period and submit the reports to HIJD within 30-days of the end of each quarter beginning with the quarter ending September 30, 2011. 2. The City needs to strengthen its post development monitoring for CDBG projects. The City should conduct on-site monitoring of at least 20 percen t or no less than four whichever is greater of it CDBG subrecipients and CDBG-assist ed real property within the COBU use period. The City should select for on-site monitoring the subrecipients and activities with the highest nsk assessment results
CPD Finding Ml 1-013 (INC)

Tracking Program Income Cenerated

by

Subrecipients

Criteria: Grantees need to have system for tracking CDBG program incom e generated by subrecipients or other entities to which finds are passed through in accordance with 24 CFR 570.502(aX4). The system needs to ensure the timely and accurate reporting of CDBG program income and transfer of any finds to be returned to the grantee. Condition: Pablo Chinese Home. The City provided CDBG hinds to Pabl o Chinese Home to th acquire and renovate a Hospice Houseat 2449 10 Avenue, Honolulu, Hawaii 96816 and construct a Food Service Complex. Pablo Chinese Home leased the Hospice House to Hospice Hawaii beginning in November 20, 2006. Rent began at $4,000/month and increased annually to a current rent of$4,502lmonth. HUD noted that the City and Pablo Chines e Home did not track CDBG program income generated from the CDBG assisted Hospic House e . HUD reviewed financial revenues and expenditure documentatio n on Pablo Chinese Home Hawaii Neighborhood Outreach to the Aged (HiNOA) Projec t which consists of the

Hospice House, the Adult Day Care, and the Food Service. After review of the financi al documentation, HUD confinned that there was no cash remaining from the Hospic e House gross rental receipts after incidental costs to operate and maintain the HiNOA project for fiscal years 2009 and 2010. ORI Anuenue Hale. The City expended $7,924,850 in CDBG ftmds ORE to to acquire 36.32 1 acres and construct Aloha Gardens, which includes the Weliness Center and Camp Pineapple 808. OR] staff stated that outside organizations use the Aloha Garden s facilities. A medical doetor provides medical care and health workshops, a hair stylist provid es haircuts, and yVaianae Coast Comprehensive Health Center provides elder day care services t the Weilness Center. HUD is also aware of at least two events that were planne4 at Camp Pineap ple 808 and advertised ott the Internet: on May 28,2011, the American Camp Association was to hold a Camp Staff Training Day and ofluly 7-10,2011, the UnitedMethodist Women will hold its 2011 Hawaii School of Christian Mission. ORI refused HUDs requests for access to OR! records on agreements with outside organization and revenue generated from use the of Aloha Gardens facilities. Cause: The City does not have a system for tracking program income generated by subrec from the use or rental of real property acquired or constructed with CDBG funds. The ipients City does not monitor CDBG-assisted real property for compliance with CDBG program incom e rules during the CDBG real property use requirement period. Consequence: 1. The City cannot ensure that subrecipients generating program income on CDBG assisted property are reporting timely and accurately on the use and/or returne d of CDBO progratu income to the City. 2. The City cannot ensure that OR! is in compliance with CDBG program incom e rules regarding revenue generated from the use or rental of real property acquired amid constructed with CDBG funds. Corrective Action: I. The City needs to develop a system for tracking and verifying CDBG progra m income generated by subrecipients or other entities to which CDBG funds are Passed through. 2. The City needs to ensure that OR! remits to the City the CDBG program income from the use or rental of the Weliness Center and Camp Pineapple 808. As part of the process, the City needs to review OR] records onagreements with outside organizations for the use of the Weliness Center and Camp Pineapple 808. The needs to review ORI records on revenue generated from the use of the Weline City ss

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Center and Camp Pineapple 808. Costs incidental to the generation of the income should be deducted from the CDBG program income. CPD Finding M11-014(PRC) Criteria: Conflict of interest provisions at 24 CFR 570.611 and 24 CFR 35.36 state that any person who is an employee, agent, consultant, officer, or elected official or appoin ted ofliial of the recipient, or of any designated public agencies, or of subrecipients that are receiving CDBG finds who exercise or have exercised any ftmctions or responsibilities with respect to CDBG activities, or who are in a position to participate in a decision malcing proces s or gain inside information with regard to such activities, is prohibited from obtaining a financi al interest or benefiting from a CDBG-assisted activity, or having a financial interest in any contr4ct, subcontract, or agreement with respect to a CDBG-assisted activity, or with respect to the proceeds of the CDBG-assisted activity, either for thenselves or those with whom they have business or immediate family ties. Condition: The City uses a Request for Proposals (RFP) process to screen and select CDBG activities. City staff process and review applications for eligibility and feasibi lity. HUDs review and analysis of disclosure information provided by City staff as part of the monitoring and an internet based search of the employees revealed that at least one City employee failed to disclose his/her conflict of interest. The employee is a manager with in the Citys Department of Community Services that has direct oversight of HUD program thnded projects. Additionally, HUD found that CDBG applications that pass the Citys eligibility and feasibility review are passed on to a seven-member selection committee. For the most recent project selections, four selection committee members disclosed conflic t of interest in an organization applying for CDBG finds or had involvement in the planning, development, or ftinding of a project or organization applying for CDBG funds. Two of the four selection committee members did not recuse themselves and ranked the project s and organizations with which there appeared to be a conflict. Cause: I. The City had knowledge of the City managers conflict but could not explain why it has allowed the conflict to exist. 2. The City withheld reporting the conflict in HUDs monitoring request for disclosure becausethe manager did not disclose the conflict in his/her response to the HUD monitoring conflict disclosure request. Conflict of Interest

3. The City failed to establish quality controls to prevent thc managers conflict of interest, despite having knowledge of the conflict.

4. The City took the position that there was no conflict of inter est or perception of a conflict of interest for the two committee members and thus advi sed the members that they could vote on the projects in question. Consequence: The City did not comply with the CDBO conflict of interest prov isions. Upon review of the scores and ranking of projects reviewed by the selection com mittee and City manager that have conflicts, HUD concluded that the scores did not give the appl icants and their projects an unfair advantage over other applicants. Corrective Action: 1. The City needs to update its process for screening, selecting, and administering CDBG projects to ensure that the process complies with conflict of interest provisions. 2. The City needs to provide mandatory ethics training to the City management and staff responsible for the review, award, and administration of the CDBG program and to the members of the CDBG selection committee. The City needs to require City management and staff respo nsible for the CDBG program arid members of the CDBG selection committe e o certiI in writing their compliance with the conflict.of interest provisions and to provide..written disclosure of any such interest that might reasonably tend to create a conflit of interest. 4. The City needs to ensure that any City management, staff or CDBG selection committee member with a conflict of interest do not exer cise any functions or responsibilities with respect to the CDBG activities with which they have a conflict of interest.
5. The City needs to require its manager that has the conflict of interest to disclose the conflict and seek City ethics office/division approval to continue the relationship. If the ethic office/division approves the continuation of the conflict, the manager neeth to be directed to recues him/herself from direct oversigh t of any project of the organization that he/her represents when the organizat ion seeks or assists with HUD program funded projects.

Concerns Cpu Concern Ml 1-0 15 (ACT) Objective Compliance Criteria: CDBG regulations at 24 CFR 570.506 require grantees to maintain records providing a thu description of each activity assisted with CDBG ftinds. The records must demonstrate that each activity undertaken meets one of the criteria for national objective set forth in24 CFR 570.208. Orantees must use real property acquired or improved with CDBG funds in excess of $25,000 in compliance a national objective in accordance with standards in 24 CFR 570.505. For subrecipients, at a minimum, the standards of for use of real proper ty shall apply from the date CDBG finds are first spend for the property until five years after the close out of the grant from which the assistance to the property was provided. Condition: The City provided $5,680,000 to Pablo Chinese Home to acquire and renovate the Hospice House, onstruct the Food Service Complex, and renovate the Lani Booth Building and Victoria Ward Care Home. According to the Citys subrecipient agreem ent with Pablo Chinese Home first executed on February 20, 2003 and amended five times throug h November 8, 2006, PaloloChinese Home would use the real property for elder care activit ies that wouldmeet CDBGnational objective requirements by specifically and exclusively serving the CDBG presunied beneficiary population of the elderly. MUD reviewed Pablo Chinese Homes detailed admission and discharge reports and admission files of 14 out of 390 participants in the Victoria Ward Adult Residential Care Home, the Lani Booth Nursing Home, and Senior Day Care between Augus t 1, 2009 and April 12, 2011. Fifty-seven (57) percent or eight out of 14 participants had admissions files that supported client eligibillty. Forty-three (43) percent or six of the 14 participants had admission files that included only Medicare eligibility which was insufficient to determine CDBG client eligibility. HUD also reviewed Hospice Hawaiis detailed admission and discharge reports and admission flies fbr four (4) out of 333 participants admitted to the Hospice House between January 2007 and March 2011. All four-participant files included documentation of Medicare eligibility but did not include sufficient documentation to initially determine client eligibility. However, based on intake information HUD concluded that ninetyeight (98) percent or 328 participants were more than likely CDBG presumed benefit elderly EaloIo Chinese Homes Documentation of National

Ca use: City did not monitor Pablo Chinese f-tome and its lessee, Hosp ice Hawaii, for compliance with CDBG national objective recordkeeping requirem ents during the CDBG real property use period. Pablo Chinese Home and Hospice Hawaii thought that documentation of Medicare eligibility, in the absence of identification cards, was sufficient to document elderly status. Consequences: The City cannot ensure that Pablo Chinese Home and its lesse e, Hospice Hawaii, were meeting the CDBG national objective requirements by servi ng specifically and exclusively the CDBG presumed beneficiary population of the elderly. Recommended Action: The City should work with Pablo Chinese Home and its lesse e, Hospice Hawaii, to improve their admissions processand require copies of parti cipant identification that sufficiently documents elderly status such documentation may include pass port and drivers license or ID card issued by federal, state, or local government agencies or entit ies provided it contains.a photograph and information such as name and date of birth.

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MEMORANDUM OF UNDERSTAI.WINW RYAN]) BETWEEN TilE CITY AND COUNTY OF HONOLULU AN]) ORI ANIJENUE HALE, INC. This Memorandum of Understanding (MOU) is entered into by and between the City and County of Honolulu (the City) and OR! Anuenue Hale, Inc. (ORIA H) for the purpose Of setting forth the understandings of the parties regarding actions to be taken by ORIAH to address findings of the U.S. Department of Sousing andUrban Development HUD) with respect to T ( OfflAHs Aloha Gardens Project (the Project) and regarding fature use of the Aloha Gardens property. RECITALS 1. By letter dated May 27, 2U11, HUD presented the City with certain findings regar,ljng its recent monitoring of ORIAHs Aloha Gardens Project and, based upon its conclusion that the Project was not in compliance vth Community Development Block Grant (CDBG) regulations required the City and ORIAH to either bring the Project into compliance or repay to the Citys CDBG account $7,924,850, plus any increase in the property value for the Projec $66,861.47 for the ineligible use of CDBG public service funds for the ORIAH t, and Day Care for Elderly and Adults with Disabili.ties. 2. While ORIAH believes it is, and aiways has been, fully in compliance with HUD regulations, the City and ORIAH both acknowledge that in order to avoid repaym ent by the City of in excess of $7,924,850 to the Citys CDBO account and reimbursement of a lile amount by ORTAH to the City, the parties must make certain changes to bring the Project into CDBO compliance and must demonstrate to BUD that the Project has been brought into compliance. 3. The City and ORIAHboth acknowledge that this MOU is not intended to relieve them of any obligations under Subrecipient AgTeement No, F-84471, dated February 23, 2001, as amended by Amendments 1 through 9, respectively dated December 28, 2001, June 28,2002, January 27, 2003April 23, 2003, November 18, 2004, April29, 2005, Novem ber 4,2005, March21, 2006, and April 18, 2006. 4. The City and ORIAH further acknowledge that this MOB is intended to supplement, and not displace, any of the assurances regarding the use of the Project provided to the City under that certain Statement of Assurances in Support of Request for Disbursemen t of Funds dated July 7, 2008. AGREEMENT In consideration of the foregoing and of the acknowledged necessity to take corrective action to address BUDs findings, ORIAH agrees as follows: COMMITMENT TO2DDB G CQjL{C

1. ORIAN aclcn,owledges that its Subrecipient Agreement with the City requires that cabins, garden/nursery, farming/agricultire, elder care activities and vocational fraining activities conducted in the Aloha Gardens Project be carried out in a manne r that meets CDBG eligibility requirements and exclusively serves the CDBG presumed benefic iary population of elderly persons and severely disabled adults. 2, ORIAH specifically acknowledges that the Weilness Center is subjec t to CDBG regulations, including the foregoing use limitation. 3. ORL4H commits to complying with CDBG regulations and requirements with respeci to the Weliness Center, including the foregoing use limitadon 4. OR1AH also commits to complying with all CDBG regulations and requirements with respect to Camp Pineapple 808, including the foregoing use limitat ion, and shall develop a plan for CDBG compliance as detailed in paragraph 12 below.
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5. ORIAR further specifically acknowledges that it is the position of HIM) and the City that Camp Pineapple 808 is also subject to CDBG regulations, including the foregoing use limitation. ORIAS disagrees with that position. 6. ORLAJ-l acknowledges that CDBG funds were used for Camp Pineapple 808 land acquisition, environmental assessment and casts of surrounding infrastructure .. The City acknowledges that ORIAH also used a significant amount of fluids from other sources to complete the development of Camp Pineapple 808. A full accounting ofthe funds expended for Camp Pineapple 808 will be partof any change-of-use effort pursuant to paragr aph 7. 7. ORIAH understands that it may seek, through the City, removal of Camp Pineapple 808 from the coverage of CDBG regulations by pursuing a subdivision of the Aloha Gardens property and by complying with all HOD requirements for a change-of-use of the Project. Until the completion of any such change-of-use effort, ORtAH will comply with all CDBG regulatious and requirements with respect to Camp Pineapple 808, including the foregoing use limitation. 8. ORIAR aclcnowledges that it will hereafter be subject to quarterly monito rings by the City with respect to the Aloha Gardens Project, and commits to cooperating with the City in such monitorings ORIA.H shall submit the following documents to the City at each quarterly monitoring: a) b) c) d) e) Financial statement, Balance sheet, Profit and loss statement, Cash flow statethent, Rent rolls, and Copies of agreements with other organizations and individuals using the facilities to include, but not be limited to, rental agreements.

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ELIGIBILITY DOCUMENTATION
9. ORIAB commits to providing documentation of the eligibility of all individ uals who use the Weilness Center, Camp Pineapple 808, the outdoor theater, or other CDBG-assisted portions of the Aloha Gardens property. ORIAH commits to working with the City to develop, by August 1, 2011, satisfactory procedures for documenting the eligibility of elderly persons and adults meeting the Rureauof the Census Current Population Reports definition of severely disabled (hereafter. elderly persons and severely disabled adults). Those procedures will identify specific action steps and records that ORJAH shall take or follow in order to comply with CDBG requirements for documenting eligibility. For purposes of this MOU, the definition of a severe disability is as outlined on the attached page 3-9 of Basically CDBG. Refer also to 24 CFR 570.208(a)(2)(A).

CLIENT FILES AND FINANCIAL RECORDS JO. ORIA}L commits to maintaining files and financial records and to making those available for inspection in accordance with the rquirements of the Subrecipient Agreem files ent and CDBG regulations. ORIAH commits to working with the City to develop satisfactory procedures for maintaining files and financial records and to making those files available for inspection. ORIAH may, through the City, seek technical assistance from HUD regarding how to carry out its CDBG compliance responsibilities regarding recordiceeping and inspection of records while also complying with HIPAA. HIPAA compliance could include, if necessary, having City or HTJD staff sign a confidentiality agreement before reviewing patient files. CAMP PINEAPPLE 808 11. ORIAH shall by July 15, 2011 present to the City a detailed proposal for brinng Camp Pineapple 808 in CDBG compliance and assuring that it exclusively serves elderly persons and severely disabled adults. This proposal shall be subject to review and appitval by the City by August 1, 2011. The proposal is also subject to HUD approval. WELLiES& CENTEg 12. ORIAH shall by July 15, 2011 present to the City a detailed plan showing how ORIAH will increase the utilization of the Welluess Center by the target population of elderly persons and severely disabled adults. The increased utilization of the Welleess Center shall comply with CDBG use of real j,rdperty requirements. This utilization plan shall be subject to review and approval by the City by Angust 1, 2011. The plan is also subject to WJD approval. PUB LIQVIC&ACTIVITY 13. With respect to the suspended CDBG public service contact for the Day Care fox Elderly and Adults with Disabilities determined by HUD to be ineligible, ORLAH shall, by Judy 15,2011, submit a proposal to the City detailing the eligibility of its proposed use of frnds as a newo increased level of activity. Such proposal must provide enough detail, including the

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specific incroase in the service proposed, for the City and HOD to deterth ire the eligibility of the activity. This proposal shall be subject to reView and approval by the City by August 1,2011. The proposal is also subject to BUD approval. 14. With respect to $66,861.47 in CDBG public service activity finds already reimbursed by the City to the Citys CDBO account, ORIAH shall repay the: City by September 30, 2011, unless: (1) ORIkH submits dotailed docuthentation to the City by August 1,2011 demonstrating that this etpenditure was for new or increased services, and therefore is eligible as a new or increased public service activity; and (2) MUD agrees on before or Angust 31, 2011 that the expenditure was eligible; and (3) BUD allows the City to reimburse itself from its COBO acbountinthe amount of$66,861.47. PROGRAM INCOME 15. At each quarterly monitoring hereafter ORIAII shall provide to the City a report on program income generated by any HOD-funded activity. Program income is defined in 24 CFR 570.500 and the Subrecipient Agreement 16. ORIAH shall also provide to the City an annualfinancial report within 30 days close of ORIAHs fiscal year on program income generated by any HUD-fImded activit of the y. 17. ORIAH shall remit any program income to the City within 30 days of the close of ORIAHs fiscal year.

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The City and ORIAH have executed this Agreement on 2-7 2oq. CITY AND COUNTY OP HONOLULU Director of Budget and Fiscal Services ORI ANUENUE HALE,

APP

AS TO FORM AND LEGALITY Counsel

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EXHIBIT 3

530 SOUTH KING STREET. ROOM 208 HONOLULU. PHONE: (809) 753900 FAX (905) 768.31Th INTERNET:FLAWfl S8h1

CITY AND COUNTY OF HONOLULU


vAcwora*J.gov

DEPARTMENT OF BUDGET AND FISCAL SERVICES

PETER

tAAV0

CARUSLE MIQk4Aa It KANSEN


tIRLCTOR

NELSON H. KOYANAGI JR.


OEPUFY DIRECTOR

November 20, 2012 MEMORANDUM TO: Raymond Young Department of Planning and Permitting

FROM:
SUBJECT;

Cheryl Tanabe

Department of BudM & FisbMjervices

(1 j2tu&(Ojteabc-.

Comments for Minor Modification to the Site Plan Approved by 20021SUP-6 for CR1 Anuenue Hale, Inc. Aloha Gardens Helemano, Tax Map Key: 6-4-3:3

Thank you for the opportunity to review and comment on the subject applicants request for a site plan modification. We have reviewed the applicant s request and we understand that the modifications being requested are as follo ws: 1. Carving out a portion of the property currently in Lot A-i iden Recreation Camp and joining ft with the Group Living Faci tified as the lity in Lot A-2 which will become the revised Lot A-2-A. The target group for the ADA recreational camp was noted to be families, persons with disabilities, the elder ly and visitors to encourage ag-tourism. 2. Eliminating portions of the property in Lot A-i currently in the SUP and adding it to the agricultural area. The applicants agricultural plan revis ed 8120112 indicates that the agricultural products will be used for its elder day care, residential food service, educational purposes for the elder day care and community, classes and workshops for camp participan ts and for sale through the Ohana Country Market. 3. Adding to the SUP portions of property in Lot A-I and Lot A-2 that are currently outside of the SUP.

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Memorandum Raymond Young November 20, 2012 Page 2


History: The City and County of Honolulu has invested approximately $7.9 million in Department of Housing and Urban Development (HUD), Community Development Block Grant (CDBG) funds for the acquisition and development of the ORI Anu enue Hale, Inc. (ORIAH) Aloha Gardens Project. The parcel which includes the voca tional training center, ADA campground, water tank and A-C parking lot adjacent to the Helemano Plantation was acquired and/or improved with federal funds. CommentslConcerns: According to the revised agricultural plan, the target groups are note d to be eligible adults who desire day care services, low-income, the disabled, disad vantaged, immigrants, those needing vocational training to obtainlrnaintain emp loyment or advancement in employment, those seeking a trade as alternativ es to higher education, the general public, community, and visitors. The CDBG Subrecipient Agreement between the ORIAH and the City restricts the use of the parcel to the following: UAII activities on the 33 acres within the parcel being acquired with CDBG funding shall be for recreational purposes and meet CDBG eligibifity requ irements specifically and exclusively serving the presumed beneficiary population of the elderly and developmentally disabled. In 2011, HUD monitored the project, which resulted in a finding that the, OR! Anuenue Hale Aloha Gardens project is not compliant with a CDBG eligible use and national objective. The HUD monitoring finding has left the property in an indeterminate state and we recommend that the applicants request for the modifica tion not be approved due to the following concerns: 1. The HUD monitoring of the Aloha Gardens project is ongo ing and a response from HUD concerning the future use and use restrictions of the property acquired andlor improved with federal funds has not been received to date. 2. The ADA Recreational Camp parcel was acquired and parti ally improved with federal funds therefore, consolidating it with the group hous ing facility would not be acceptable. In addition, the proposed use of the ADA Recreational Camp facility would not be compliant with the HUD requirements or current agreement with the City.

Memorandum Raymond Young November 20, 2012 Page 3 3. Further, in reviewing the detail of federal expenditu res, it is unclear as to which TMKs were acquired and/or improved with federal funds. This issue is being researched and has not been resolved. Based on the 1-IUD monitoring findings, attached is a Memorandum of Understanding dated June 30, 2011, between the City and ORI AH that outlines the future use of the Aloha Gardens property. Recommendation: In closing, the Department of Budget and Fiscal Services is not recommending approval of the applicants request for the modification due to the above outstandin9 issues and concerns. If you require further information, please contact me at 768-3931. Thank you for the opportunity to review and provide comments on the subject application. Approved:

rJ eW- 4 Connie Kaneshiro, Chief Fiscal/CIP Analyst

MEMORANDUM 01? UN DERSTANDING BY AND BETWEEN THE CITY AND COUNTY OF HONOLULU AND OW ANUENUE HALE, INC. This Memorandum of Understandi ng (MO!)) is entered into by and between the City County of Honolulu (the City ) and ORI Anuenue Hale. aicj Inc. (ORIAH) for the setting Ibrth the understandings purpose of of the parties regarding actio findings of the U.S. Depaitnen ns to be taken by ORL4H t of to address ORIAHs Aloha Gardens Projec Housing and Urban Development (BUD with t (the 9mjecfl and regard respect to ing future use of the Aloha property. Garden RECITALS 1. By letter dated May 27, 2011, HU D presented the City with its recent monitoring of OIUANs certain findings regaxung M oh a Ga rde ns Project and, based upo Project was not in compliance wi n its conclusion that th Community Developme the nt Block Grant (CDBG) required the City and OMAN to either bring the Project into regulations, compliance or repay to the CDBG account $7,924,850, plus any increase in the property Citys va 566,861.47 for the ineligible use of CDBO public service fun lue for the Project, and ds for the ORIAR Day Ca Elderly and Adults with Disabili re for ties. 2. While OltiAll believes it is, regulations, the City and OJUAN bo and always has been, fully in compliance with BU D th acknowledge that in ord er to avoid repayment by of in excess of $7,924,850 to the Ci the City tys CDBO account and rei mbursement of a 111cc amoun OMAN to the City, the parties must t by make certain changes to bri compliance and must demonstrate to HI-3D that the Project ha ng the Project into CDBG s been brought into compli ance. 3. The City and OMAN both ack now led ge that this MOU is not int of any obligations under Subrecipien aided to idlest t Agreement No. 1-84471, dated February 23,2001, them amended by Amendments I throu as gh 9, Januazy 27, 2003, April 23, 2003, No respectively dated December 28, 2001, June 28, 200 vember 18, 2004, April 29, 2, March21, 2006, and April 18, 2006 2005, November 4, 2005, .
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4. The City and OMAN flitter ac knowledge that this MOU and not displace, any of the assuranc es regarding the use of the Pro is intended to supplement, ject provided to the City under that certain Statement of Assu rances in Support of Request dated July?, 2008. for Disbursement of Funds

AGREEMENT consideration of the foregoing an d of the acknowledged nece ssity to take corrective action address HIJDs findings, OIUAH agree s as follows: to Qp41TMENT TO CDBC3 CO MPLIANCE

1. ORIAN acknowledges that its Subrecipient Agreeme cabins, gardenhiursery, farming/ agriculture, elder care activitiesnt with the City requires that conducted in the Aloha Gardens and vocational fining Projec activities requirements and exclusively serves t be canied out in a manner that meets CDBG elig ibi the CDBO presumed ben eficiary population of elderl lity persons and severely disabled adu y lts. 2. ORJAJI specifically acknowled ges that the Wellness Cente regulations, including the forego r is subject to CDBG ing use llmitatioa 3 ijpj4j commits to complying with CDBG regulations and to the Weliness Center, including requirements with respec the foregoing use limitaton t 4. ORIAH also commits to com plying with all CDBG regula respect to Camp Pineapple 808, inc tions and requirements luding the foregoing use lim itation, and shall develop with for CDBG compliance as detailed in paragraph 11 below. ap)an 5. ORL4H further specifically that Camp Pineapple 808 is ilso sub aclUiowledges that it is the position of HUB and the ject to CDBG regulations, inc limitation. ORLAH disagrees with luding the foregoing use City that position. 6. ORIAH acknowledges that CDBG funds were used for Ca acquisition, environmental assessme nt and costs of surrounding inf mp Pineapple 808 land acknowledges that ORIAR also use rastructure. The City da complete the development of Camp significant amount of Umds from other sources to Pineapple W8. A full accountin g Camp Pineapple 808 will be part of any change-of-use effort pursua of the funds expended for nt to paragraph 7. 7. ORIAI4 understands that it may see k, tough the City, rem 808 from the coveraEe of CDBC1 reg ulations by pursuing a subdivisio oval of Camp Pineapple property and by complying with all n HI))) requirements for a change ofthe Aloha Gardas -of-use of the Project Unt the completion of any such change-of-us il e and requirements with respect to Camp effort ORIAM will comply with all CDBG regulations Pineapple 808, including the foregoing use limitation. 8. ORIAK acknowledges that it will her eafter be subject to quarterly City with respect to the Aloha Gardens monitorings by the Project, and commits to coo perating with the City in monitorings. ORIAH shall submit the such following documents to the City at each quarterly monitnW
a) b) c) d) e) I)

Financial statement, Balance sheet, Profit and loss statement, Cash flow statement, Rent rlls, and Copies of agreements with oth er organizations and indivi duals using the facilities to include, but not be limited to, rental agreements.

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ELIGIBILITY DOCtJMmflA TIO

9. ORIAR commits to pro use the Weliness Center, Camp viding documentation of the eligibility of all indivi duals Pin portions cite Aloha Gardens pro eapple 808, the outdoor theater, or other CEYBO-ass who isted perty. ORIAH commits to wo by August 1 2011, satisfhctory rking with the City to dev procedures for documenting elop, the adults meeting the Bureau of the Census Current Population eligibility ofelderly persons and Reports definition ofsevere disabled (hereafter. elderly per ly sons and severely disabled adults). Those procedure identi specific action steps and s will records that ORIAI4 shall tak e or with CDBG requirements lbr doc umenting eigibilit>c For purpos follow in order to comply of a severe disability is as outlined es of on the attached page 3-9 of Basic this MO!), the definition CFR 570.208(aX2XA). ally ORG. Refer also to 24 CLIENT FILES AND FINANCIA L RECORDS 10. ORIAH.cornmits to maintaining files and financial rec available for inspection in accordanc e with the requirements oftheords and to rrn.Ithig those files CDBG regulations. ORIAH commi Subrecipient Agreement ts to for maintaining files and financial rec working with the City to develop satisfactory pro and cedures ords and to making those file s ORIAH may, through the City, seek technical assistance from HU available fr inspection. D its CDBG compliance reonsibilitie s regarding recordkeeping and regarding how to catty out also complying with HIPAA. HIPAA inspection of records whi le HOD staff sign a confidentiality agreecompliance could include, ifnecessary, having City or meatbefore reviewing patien t files. CAMP PINEAPPLE 808 11. ORlAHsball byluly 15,201 Camp Pineapple 808 in CDBG compli 1 presenttothe Cityadetailedproposalforbringjng ance and severely disabled adults. This propos and assuring that it exclusively seives elderly person s al shall be subject to review and by August 1,2011. The proposal is also approval by the City subject to BUD approval. WELLNESS CENTER 12. 0R1A14 shall by July 15.2011 ORIAN will increase the utilizaUoa of the preseutto the City a detailed plan showing how Weilness Center by the tar persons and severely disabled adults. The increased utilization ofthe get population of elderly We comply with CDBG use of real property requirements. This utilizatio ilness Center shall reviewandapproval bytheCity n plan shall be subject to byAagust 1, 20l1.Theplan isalsosuecttoHUD approv al fjLIC SERVICE; ACTIVITY 13. With respect to the suspended CD BG public service contact Elderly and Adults with Disabilities det ermined by HIJD to be ineligibl for the Day Care for e, ORIAH shall, by July 15,2011, submit a proposal to the City detaili ng the eligibility ofits pro ncvi& increased level of activity. Such posed use of funds ass proposal must provide eno ugh detail, including the
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specific increase in the service propos activity. This proposal shall be sub ed, for the City and HUD to determine the eligibility ject to review and approval ofthe by the City by August 1,2011 The proposal is also subject to HUD app . roval.
14. With respect to $66,861 A7 in CDBO public service activi reimbursed by the City to the Citys ty tnds already CDBG account, ORIAH shall repay the City by September 30, 2011, unless: (1) ORJAH snbnii ts detailed documentation to the City by August 1,2011 demonswating that is expenditu re was for new or increased ser vices, and therefore is elig a newer increased public service act ible ivity; and (2) HUD agrees on or before August 31, 2O as the expenditure was eligible; and (3) l tha HOD allows the City to reimb urse itself from its CDBQ t account in the amount of $66,861.4 7.

PROGRAM INCOME
15. At each quarterly monitoring program income generated by any HUD- hereafter OR!AH shall provide to the City a tozt on CFR 570i00 and the Subrecipient Ag funded activity. Program income is defined in 24 reement 16. ORIAH shall also provide to the City an annual financial rep close of OMANs fiscal year on progra m income generated by any HU ort within 30 d,s of the D-fimded activity. 17. ORL4H shall remit any program income to the City within 30 day ORIAHs fiscal year. s ofthe close of
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The City and ORJAH have execut ed this Agreement on 27,20 I( CITY AND COUNTY OF HONO

LULU

Director of Budget and Fiscal Services ORI ANUENUE HALE,

APPD AS TO FORM AND LEGA LITY:

Acquisition, construction , or rehabilitation of pr op homeownership assista nce must qualify unde erty lbr housing, Including r the housing national discussed below In furthe objective which wil r detail. l be Creation or retention of jo bs generafly qualify un of the WI benefit national der the jobs or the area objective. benefit category

I The housing category of W I be ne fit national objective quali for the purpose of providing fies activiti completion, will be occupi or improving permanent residential struc es that are undertaken tures which, upon ed by LMI households . V Examples of eflgible actMties include, but ar e not limited to: Acquisition of an apartm ent house to provide dw elling units to LMI ho affordable rents, where at le useholds at ast 51 households; be occuiiled by WI Site improvements on pu bl rented to WI households lclyowned land to serve a new apartment str at affordable rents; ucture to be Housing rehabilitation for single family units; Conversion of an abandone at toast 51 percent of the und warehouse to be reconfigured into newap its wHI be occupied by ar LMI households at aff tments, where I )n order to meet the ho ordable rents. using occupied by a LMI househol LMI national objective, structures with on e LMI occupied. StrUctures wi d. If the structure contains two units, at leas unit must be th t one th ree or more units mus WI households. t have at least 51 perc unit must be ent occupied by Rental buildings under co mm or contiguous properties m on ownership and management that are ay be considered as located on the sam a single structure. e For rental housing, occupa ncy by LMI househol ds with standards, adopted an d publicized by the gr must be at affordable rents, consisten antee. t
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3.2.3 Low Mod Housina Activities

rely Disabled Persons are considered severe ly disabled If they: Use a wheelchair or anaher special aid for6 months or longer; Are unable to pestarm one or tue functional activities (seeing. hearing. haVIng one and g,waDdngupa(ghtofsta s speech understood, andwaIklng); Wg Need assistance with actht tles of da bathing, dressing. eating and toe y Mg (getting around inside the home, getting etin or Instrumental activi in or out of bed or a track of money or bh pepafln ties or daily ving (going out cha g meals, doing light housew side the home, keepinir ork g an d using the telephone); Are wevented from wosldng at ajob or doing housework Have a selected condWon including autism, cerebral palsy. /kl retardation; or zheimWs disease. senilit y or dementia or merit j Are under 65 years of age an d are covered by Medicare or receke Supenna l Secuity income ($51). CLMH

Definition of Seve

percent

of the un its wifl

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iicaliy CDBG oventer 2007) HUt), Office of Block Giant Assistan ce

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Martin, arnie
Prom: Sent: to: Cc: Subject: Young, Raymond C. S. Tuesday, April22, 2003 1:29 PM Bob Stanfield (E-mail); Crispin, Eric G.; Kathy K Sokugawa (E-mail); Lowell K W. Chun (E mail); Robert I-I. Bannister (E-mail); Stanton, Barbara K. Martin, Ernie Prposed acquisition of additional lands adjacent to Helemano Plantation for for ORls Aloha Gardens

Background: I recently learned that ORl was planning to acquire about 3 actes. located between Helemano Plantation and for access as required by condition of the SUP from Castle & Cooke (see attached aerial photo). However; Kam Hwy. area also has parking for Helemano Plantation that may hme access. been established illegally since the City Councthat il Resotutions that covered Helemano Plantation would not have included separa te parkin on g Dole Plantation lands. Apparently, ORI made this arrangement for off-site parking on their own.
If the property is acquired for access then it belongs under the Aloha Gardens project and should be included SUPiVaiiance. However, that would bring it beyond the in the 15-acre limit and an amendment to the SUP would require Land Use Commission approval. The options are: 1. DCStDPP informs ORI that if acquired, the parking must be eliminated. No problems for allowing the roadwa roads are typically allowed in the State Ag. District. That means y because the parking has to be removed; or, 2. Modilj the recently approved SUP to reconfigure the approved area to incorproate the access/parking so no net Increase. That will require processing another SUP amend ment and will take at least 3 months; or, that there is 3. Add the additional acreage to the SUP/Variance and go before the Land Use Commission for final approval the Planning Commission. Timefrarne will be even longer after OK by than 3 months. And, LUC has alrea4y said that these should be processed under a boundary amendment. projects I reconin,end Option 1 that ORI be allowed to acquire the proper ty but eliminate the parking. If they need can be accommodated on the Aloha Gardens site since there is surplus parking proposed in that project. the parking, it Option I has been discussed with Kathy and Ernie Martin OCS and that is probably the best short-tern the Aloha Gardens project to move forward at this time. If of solution to allow in nd access agriculture, we can consider further permitting forthe future, ORl wants to use the addition for other than that piece.

3acr addition.jpg

If there are any problems with Option 1, please let me know. Department of Planning and Permitting Planning Division 650 South King Street Honolulu, Hawaii 96813 (806) 527-5839

Raymond Young

EXHIBIT 5

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COMPLETE SUMMARY APPRAISAL REPORT REGARDJNG VACANT LAND WAIALUA, OAHU, HAWAII TAX MAP KEY 6-4--3FOR II, FIRST DIVISION

PREPARED FOR HELEMANO PLANTATION APRIL 2003

EXHIBIT 6

1 flA .ItS1t

N4ec1u.skySzDo., Inc.
C0r45tLTA>.T

Jan It. Mcduskv, MAI.

TOM FINANCIAL CENTER 311 FORTSTREET BUILDING 745 FORT STREET HONOLULU HAWAII 96813-3S33 PHONE (SOS) 531.2705 (805) SW.3736

April 14, 2003

Susanna Cheung President Helemano Plantation 64-1510 Kamehameha Highway Wahiawa, Hawaii 96786 Subject: Complete Summary Appraisal Report Regarding Vacant Land, Waialua, Oahu. Hawaii. Tax Map Key 6-4-3-Par Ii First Division

In response to your request, we have prepared this Complete Summary Appraisal Report regarding the above referenced property located at Kameharneha Highway, Paalaa Uka, Waialu a, Oahu, Hawaii. The property is identified hy Hawaii State Tax Maps as a portion of TMK 6-4-3-li, First Division and contains 3.1 acres. The land is zoned Agricultural and has potential for Comm ercial use. It is currently used as a parking lot in conjunction with the Helemano Plantation facility. Flelem ano Plantation intends to acquire the property for purposes of consolidation with their existing facility. In this regard, you have retained Medusky & Co., Inc. to complete appraisal services. ASSIGNMENT Our assignment has been to prepare a Complete Summary Appraisal Report estima ting the Market Value of the fee simple interest in the subject property. The function of the appraisal is to provide factual reah property information and real estate market data, in addition to providing an estimate of Market Value upon which decisions regarding acquisition of the property may be based. The intended readers of this report are the cijent and others involved in the acquisition process. The City & County of Honolulu isa third party to the appraisal/acquisition process and the appraisal is being prepared for a request for release of Federal funds. This report is subject to the Limiting Conditions and Assumptions contained in Exhibit I in the Addenda of this report. The readers attention is particu larly directed to the Special Limiting Conditions and Assumptions regarding Summary Appraisal Report and Subdivided Land Area. This appraisal assumes that the subject property has been subdivided from the Larger Parcel of which it is a portion as described herein. The effective date of value of this appraisal is April 14,2003.

{]t Valu& The most probable price which a property should bring in a competitkre and open market under all conditions requisite to a fair sale, the buyer and seller each acting pruden tly and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definit ion is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
-

The Dktionary of Real Estate Appraisal, Fourth Ed. (Chicago, illinois: Apprai sal Institute, 2002).
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Susanna Cheung April 14, 2003 Page2

Buyer and seller are tynically motivated; Both parties are well informed or well advised, and acting in what they consider their best interests; A reasonable time is allowed for exposure in the open market; Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and The price represents the normal consideration for the property sold unaffected special or creative financing or sales concessions granted by anyone associated with by the sale.

ECONOMIC BACKGROUND DATA Hawaiis economy is supported primarily by tourism, federal government spending and agriculture, in that order. Tourism provides the greatest opportunity for growth. After decline in the tourist industry in the mid and late 1990s, tourism showedsigus of improvement in 2000/early 2001. Federal government expenditures have increased while agricultural production has decreased. After nearly a decade of stagnation, the economic climate hit bottom with solid improvement in 2000 and 2001, prior to the terrorist attacks in September 2001 in New York and Washington D.C. Subsequerrtly, tourism is down (see graphs on a following page). The Iraq War has exacerbated the problem. Many tourist-orient ed businesses are having trouble. The near term adverse effects are significant with long-term effects uncertain at this time. Most local economists predict a return to normalcy within a year. HAWAII REAL ESTATE MARKET Hawaiis real estate market has hit bottom after a sustained decline that began in 1991. Over the last three years, sales volume has increased. Property values/prices have stabilized with increases in value in some market sectors. The market for agricultural land has been stable with no indications of significant price appreciation yet. The market for commercial property has been active, with potential for appreciation. It is unclear to what extent the terrorist attacks on the mainland United States and the Iraq War will affect Hawaiis real estate market, however, preliminary indications are that it will remain strong. ENVIRONS The subject property is located near the WaialuaJWahiawa District boundary in Central Oahu. Wahiawa Town, Mililani and South Central Oahu are to the south. Agricultural fields and the North Shore are to the north. The Koolau Mountain Range is to the east and the Waianae Mountain Range is to the west. Primary access to the area is via the H-2 Freeway that extends from Honolulu to Wahiawa, south of the subject. Kamehameha Highway parallels the freeway and extends beyond Wahiawa Town providing access to the North Shore and the subject property.

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Passenger counts are back to normal 0... but notfroniiapan


.

Daily arrivals to Hawaii airports. percent change (coin prevIous year (Sept. 7, 2001 to Sept. 1, 2002) [?osvvratcr
I

Daily arrivals from Japan airports, percent change from prevIous year (Sept. 7, 2001 to Sept. 1. 2002)

Full recovery
7OAYAVSRCOE

20%

Not just the 9/li effect


4?4
Japanese

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travel to Hawaii has been declining since the

13
mid-1990s, end experts say Sept. 11 just drove it further

The bottom felt out last loll, resulting in the lowest yearly arrivals Jo Hawaii in the last decade. But things started oicking up around Christmas. arid passenger counts have been largely in line with 2001

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down. Japanese arrivals are still off about 20 percent. the

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economists say.

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Japanese economy Is

too

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shaky to predict much rebound before 2004, moat

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employers
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Job count, percent change from previous year (August 1994 to July 2002)
4%
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Hotel, retail and transporlationjob count, percent change from previous year (August i99 to July 20021

Dowsi only a little


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-

Reluctant

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routism employers have still


not returned to hiring node

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juty 200043.7O%

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a strong 2000, the number of iobs Jell dramalleelly iet late 200L Out since the year has l,tun. employers lava addot lhuusands Cf jobs, tsorbintg

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some

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experienced in the disastrois

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altar slashing their staffs by thousands of workers Past fati. Marty are oncertath about the prospects lot growth arid are reuctant to add jobs before getting clear evidence of rebound.

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B 94 95 96 97 98

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Planes are flying the


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to

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June 2002)
International v;sitors us a percent of total Hawai i visitors (Januaty 1990
tO June

Nuititici of sctiotl;ihixl ow seals to !lawaii, percent change from previous yeer (Jan. 1999 .1

2002

Upward Irend
fe
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account

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p1 Senlaitr,iq,,. l,;ea, liven Is lurlilni. I,, lfJ(fl levels since Maicli..vi, t r.n r June sceniC, a,i, I lii show year oll-yedi fi flwi Ii to, the first 111111: iIIiltI. ;iXX).

-10 15
20

exace,batad after Sept. 11, as growth In U.S passengers has coincided with sharp declines from Japan.
og92o394qsoro,e

loweat level in at least 12 years. The lontnin trend was

25

J F MA Mi J AS 0 NO J F MA Mi J soNot)r)4AMJjAoyojrAlAMJ 00 01 99 02

MAPLOCATING SUBJECT PROPERTY

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MAP LOCATING SUBJECT PROPERTY

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MAP LOCATING SUBJECT PROPERTY

SusannaCheung April 14, 2003 Page 3

The town of Wahiawa is the urban center of the area and began as a plantation town which grew to serve the needs of nearby Schofield Barracks and Wheeler Air Force Base. Commercial development in Wahiawa is strip-fashion along KamehaEneha Highway, California and Kilani Avenues. The remainder of Wahiawa Town involves mostly residential development. Schofield Barracks, west of Wahiawa, is a major US Army Installation that is home of the 25 h 7 Infant Division. Wheeler Air Force Base (south of Schofield Barracks) is a small Air Force facility. Other US Department of Defense facilities in the area includes Wahiawa Naval Radio Receiving Station (NCAMS PAC) and Helernano Military Reservation (US Army) to the east and northeast Helernano Military Reservation is a US Army residential area. NCTAMS PAC, run by the Navy, is a major communications center for the Pacific. It is a secured facility that includes a large antennae array. Whitmore Village (southeast of subject) is a small residential community that also includes the headquarters for Dole Food Company Hawaii. The area includes Helemano Elementary School> a community center, Lalawai Hale apartment project and modest commercial facilities (Whitnore MarketlAloh4 Gas Station) along Whitmore Avenue. Surrounding land is planted with pineapple. The subject property is located adjacent to the Dole Plantation pavilion which fronts Kameharneha Highway, The facility is a major tourist attraction based on an agricultural theme that attracts 900,ooo visitors a year. It includes a large retail building, the worlds largest pedestrian maze, agricultural attractions and adequate parking. Recent expansion includes a small train that takes visitors to a nearby reservoir through pineapple fields. Helemano Plantation, an organization that provides opportunities for retarded individuals, also abuts the subject property and the Dole Plantation facility. This facility include offices, a restaurant and retail space. ORI Anuenue Hale, an affiliated organization, recently acquired 33 acres of agricultural land adjacent to the subject (across the service road) for $25,000 per acre (below market value). An additional abutting 10.8 acres was donated to the organization. In summary, the subject property is located in the vicinity of the Dole Plantation pavilion and Helemano Plantation in Central Oahu. The area has been planted with pineapple for decades with pockets of agricultural land put to urban development over the years. PROPERTY DATA Prootrtvjdgntification The subject property is identified as a portion of TMK 6-4-3-li, First Division and contains 3.1 acres (see map on a following page). The Larger Parcel of which the subject is a portion contains 79.814 acres. A Legal Description is not available. Per the clients instructions, this appraisal assumes that the property has been subdivided from the Larger Parcel.

rperw Historv/Owr,ersh The property has been owned by entities conuolled by Castle & Cooke for several decades. Castle & Cooke Commercial Hawaii, Inc. currently holds title to the property.

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SUBJECT PROPERTY DATA TMK 6-03-por. II (First Division) 4 Eiaa Uka Waialua Oaliu. Hawaii

Tax Map Parcel:

6-4-03-por. II (First Division)

Land Area: Larger Parcel: Subject Portion: Location:

79.814 acres (3,476,698 sq. ft. 3.1 *acres ( 135,036sq.ft.) Kamehameha Highway, Paaiaa Uka, Waialua, Oaitu, Hawaii Portions involve paved parking lot. Castle & Cooke Commercial Hawaii, Inc.

Jm r 1 ovemefls:
Fee Simple Property Owner:

Ordinances Affecting Land Use and Development: State Land Use Classification: Sustainable Communities Plan: County Zoning: Federal Flood Insurance Rare Map (FIRM) Panel No. iSOO3CO 120 F, not printed: Special Management Area (8MM: 4 Agricultural District Agriculture Ag-I, Restricted Agricultural District

Zone D: Areas in which flood hazards are undetermined Not located in Special Management Area. 100

Census Tract:

Real Property Tax Assessed Values and Estimated Taxes for Larger Parcel 11 (79.814 acs) Assessed Vaues Land 100% Total $40,000 $39,900 $39,800 $39,930 $40,000 $40,100 Tax Ratej$l,000 Land Bldg. $9.89 $9.89 $9.89 $9.89 $9.89 $9.00 $9.89 $9.89 $9.89 $9.89 $9.89 $9.00 Approxinmte R.P. Taxes $396 5595 $394 $395 $396 $361

Year
2003 2002 2001 2030 l99 1998

S
$36,100 $36,100 $36,000 $35,100 $36,100 536,100

S/acre

Building $3,900 $3,800 3,800 3,800 $3,900 $4,000

$452 $452 $451 $452 $452 $452

Tax rates for this year are not availabe. Tax rates ror prior year have been used.

TAX MAP LOCATING SUBJECT PROPERTY

STATE LAND USE MAP LOCATING SUBJECT PROPERTY

C
LAND USE MAP
EXISTING
p A

NORTH SHORE SUSTAINABLE COMMUNITIES PLAN


FUTiffi WasteWaterTreatmentPlant RefuseTransferstation ElementarySohool Preservation Agriculture Park Rural RuralResidential RuraiCommunityCommercialCenter CeuntryTown Industrial Mihtary RuralCommunityBOundary preservationBoundary Streams

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Intermediate&HighSchool SnialiBoatNarbor Airfield Agriculturesupport Highways,Arterial&CollectorStreets

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oepartmentolPlanningandPermitt(ng C ty&CountyofH onoft, ti July2000

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ZONING MAP LOCATING SUBJECT PROPERTY

Susanna Cheung April 14, 2003 Page 4

Land Use Ordinances previous page).

The State of Hawaii has classified the property for Agricultural use (see map on a
-

The North Shore Sustainable Communities Plan designates the property Agriculture (see map on a previous page). County zoning is AG-I, Restricted Agricultural District (see map on a previous page). It is noted that the property owner as in the process of seeking rezoning of the property for Business/Commercial use in conjunction with their adjacent Dole Plantation facility. The proposed zoning change included other land as well. The zoning change process was canceled in early 2002 when it was rejected by the County. The property is located in Flood Zone D indicating areas in which hazards are undetermined. The property is not located in the Sp&ial Management Area. Assessed Values/Real Proberty Taxes for the Larger Parcel of which the subject is a portion are included on the Subject Property Data Table on a previous page. Assessed values are not necessarily considered accurate indicators of market value as is the case for the subject. Utilities

Power and telephone lines run along Kainehameha Highway and are available to the property.

County water lines are not available. Water in the vicinity is available and is provided by private systems. There are no sewer lines. Sewage is handled by on-site systems in the area. Pendinr Sale

The subject property is pending sale to Helemano Plantation at a price to be determined.

PROPERTY DESCRIPTION The property contains 3.1 acres in an irregularly shaped site. Kamehameha Highway is to the west. In front of the subject, this roadway provides for two paved traffic lanes (one each way) with no cutbs, gitters or sidewalks. Power/telephone lines along the roadway are overhead. A gravel paved agricultural service road abuts the subject to the north. Vacant agricultural land recently acquired by ORI Arntenue Hale is located beyond the roadway. Helemano Plantation abuts the property to the east. The Dole Plantation parking facility is to the south. Topography is fairly level, at grade of the abutting roadways.

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SUBJECT PROPERTY TMK 64-3-11 (por.) (First Division) Waia!ua Oahii Hawaii

Northeasterly view across Kamehameha Highway. Note the overhead utility lines and absence of curbs, gutters and sidewalks along Kamehameha Highway.

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E:

Easterly view from Kamehameha Highway. The Subject Property is to the right Land recently purchased by (RU Anuenue Hale is to the left.

1
SUBJECT PROPERTY TMK 6-4-3-Il (por.) (First Division) WaialaOabu. Hawaii

.3

Northwesterly view along the northern boundary of the Subject Property (at left). Kamehanieha Highway appears in the background.

.1

Southerly view along the eastern boundary of the Subject Property. Subject Property is to the right. Helemano Plantation is to the left.

The

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-

Susanna Cheung April 14, 2003 PageS

The [and is used as a paved parking lot in cofljunction with the Helemano Plantation facility. It also has mature frees and oth er vegetation.

RIGHTS APPRAISED The Rights Appraised involve the fee simple interest in the property. HIGHEST AND BEST USE
-3
-

The highest and best use is the reasonable and probable legal use of vacant land or an improved property which is physically possible, appropriately supported. financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility and maximum profitability. Leally Perrnissihk Zoning typically sets forth the legally permissible uses for land. The cuzyen legally permissible uses for tbe propertyailowed by the zoning code involve traditional agricultural uses and include associated residential use. Parking lot use in conjunction with the Helemano Plantation facility is also permitted. The current property owner previously proposed to obtain rezonirsg of the property to B-I, Business. The process required reclassification to Urban by the State as well as other approvals. The process was canceled in early 2002 as previously discussed.

Physically Possible Physical characteristics of the land are well suited for agricultural and urban use. Urban use would likely be in conjunction with the adjacent Dole Plantation facility and/or Helemarto Plantation facility.

Financially Feasible Preliminary analysis indicates that traditional agriculture use is not financially feasible over the long run. Urban use in conjunction with the adjacent Dole Plantatiorflielemano Plantation facilities is financially feasible.

Maximally Productixc Of the financially feasible uses, the use that provides the highest residual land value is considered to be the highest and best use of the land. The highest and best use is concluded to be for use in conjunction with the adjacent Dole Plantation and or Helemano Plantation facilities. Such 1 use could include commercial use if rezoning could be obtained. If rezoning cannot be obtained, parking use is allowed which benefits the adjacent facilities. The existing parking lot improvemen ts are of modest interim use valise and do not contribute significantly to the propertys overall value.

APPRAISAL METHODOLOGY The Direct Market Comparison approach was employed.

Planeasion Olo3iseporc.doc

Susanna Cheung April 14, 2003 Page 6

MARKET DATA Employing the direct market comparison approach, we searched for transactions involving land having characteristics similar to the subject and made appropriate comparisons. Due to the scarcity of pertinent land transactions in the immediate vicinity of the subject, we expanded our research to include the entire Island of Oahu, focusing on outlying areas like the subject. Timewise, our research included January 2002 to present. A table summarizing the most pertinent transactions disclosed by our research is included on a following page. Details to each transaction are included in Exhibit 2 in the Addenda of this report. The transactions are briefly described as follows. Transaction No. I involves 5.1 acres zoned AG-I in an agricultural subdivision in Waialua. The property has panoramic views and was purchased as a house lot with additional agricultural uses. The property sold in December 2002 for $550,000 reflecting $2.50 per square foot. Transaction N1c.2 involves 5.1 acres zoned AG-i in the same subdivision as Comparable No. I. This property sold in October 2002 for $550,000 reflecting $2.50 per square foot. Itsaction Nofl involves 5.1 acres zoned AG-I in the same agricultural subdivision as Comparable Nos. I and 2. The property sold in August 2002 for $550,000 reflecting $2.49 per square foot. Transaction No. 4 involves 1.7 acres zoned AG-2 at Kahuku. The property is improved with older commercial structures that are allowed due to grandfathering. The property sold in April 2001 for $600,000. The buyer indicated that an improvement allocation of $300,000 is reasonable indicating a land allocation of $300000 or $4.09 per square foot. Transaction No involves 4.6 acres zoned B-i at Kunia. The property sold in November 2002 for $2,650,000 reflecting $13.36 per square foot. The relatively low price for business zoned land reflects atypical improvement costs and other factors adversely affecting the propertys value. The buyer plans to build a neighborhood shopping center.

])U.ECT MARKET COMPARISON Direct market comparison analysis is summarized on the table on a following page. For purposes of analysis, we employed a unit rate of dollars per square foot as this is the typical unit rate used by knowledgeable buyers and sellers in Hawaii. Before adjustment, the five transactions reflect a range of unit rate prices from $2.49 to $13.36 per square foot. Adjustments made are discussed as follows.

were made.

The subject and all of the cornparables involve a fee simple interest. No adjustments

Einncing

Transaction Nos. 2 and 4 involved seller financing that did not affect the price. adjustments were made. The other transactions involved cash to the seller, not requiring adjustment.

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MAP LOCATING LAND TRANSACTIONS

LAND TRANSACTION SUMMARY

Trans. Location No. (Tax Map Key) Land Area aes sq. ft. Zoning Comments Transaction Date Type Price/Indicated Land Value $ S/acre S/sq. ft.

Acricultural Transactions Poamoho Estates I (6-5-04-IS) 5.052 220,065 Ag-I 12/02 Deed $550,000 $108,868

$2.50 Vacant land in agricultural subdivision. Distant ocean views.

2 5.057 220,283 Ag-) 10/02 Deed $550,000 $108,760

Poamoho Estates (6-5-04-03)

$2.50 Vacant land in agricultural subdivision. Distant ocean views.

3 220,806 Ag-I 08/02 Deed $550,000 $108503

Poantoho Eslales (6-5-04-09) 5.069

$2.49 Vacant and in agricultural subdivision. Distant occan views.

4 73,355 Ag-2 Deed $300,000 $178,147 04/01

Kahuku (5-6-04-01) i.684

$4.09 5600.000 purchasc price with $300,000 allocated to improvements. Grandfathered commercial use.

conNnercial Trantctio.g Kunia 5 (9-4-106-01) 4.552 198,303 B-I 11/02 Deed

$2,650,000 $582,162

$13.36 Vacant land. Previously sold in March 1997 for $5.3 ,niIion ($27/sQ.

1..,

LAND VALUE ANALYSIS I) TMK 6-4-03-rmr, II (First Division) g,aI pa W,_W iilhla. 9ali uikwafi Subject Trans No I Trans No 2 Trans No) Trans No 4 Traiss No 5

DESCRIPTION

PROPIjEJY_DATA
6-4-0)-poe. I Kamelsameha Highway, Paalaa Uka

lax Map Key Localion

6-5-04-09 5-641-01
Karneharneha highway, Kahuku
-

91-106-01
Kunia Road, Kuilia

Poamolto Eslales

08/26102 04/09/01
Deed Ag-2 73,355 1684 $300,000 5409
a

11/22/02
Deed B-I 198,303 4,552 2,650,000 S 1336

Transaction Date Transaction Type Zoning Land Area (sfl Land Area (ac)
.

Ag-I 135,036 3.1 $550,000 $2.50 $550000 $2.50 $550,000 $2.49


j,Q

6-5-04-15 Ioamolso Estates 12118102 Deed Ag-I 220,065 5.052 6-5-04-03 Poatnoho Estates 0/28/02 Deed Ag-I 220,283 5.057 Deed Ag-I 220.806 5.069

TRANSAcTION ANALYSLa

Sale lrice/hpidicaled Land Value Price per Sq. FL oiLaad Area a

(T)
1.20
$4.09 a

ADJUSTMIILC_EOR PROPFRTY RIGLONVFYLD Properly Rights Adjusimeni Adjusted Unit Rate (S/Sq. Fl. olLatid Area)

j,M5l
x $2.50 $2.49 a a LS $2.50 a
.

$2.50 a

ISO $13.36 a

AEJSJMENT FOR CONDlTION&2EALE

Conditions 01 Sate Adjustment Adjusted Unil Rate (S/Sq. Pt. ofLand Area)

ISO
2.50

LOG
2.49 1.92 52,49

I,S
54.09 a

ISO
S 1336

TimcAdjustnsrnt Adjusted Unit Rate (5/Sq. Fl. orl.and Area) a .159 $2.50 LOG $2.50 25% 25% 25% 20% a

LOG
$4.09

LOG $13.36

25% 25%

35% 5%

-10%

Oil IEILADJtJSINENJ,S Localiott Aecess/Frortlage ZoniisglCont,nercial Use Net AdjuclnlcnIs

s3$
51.25
$4.25 a

70%
a

&L18
$4.38

75%

5112
$4.36

75%

LLM
$5.73

40%
.

51213
$4.01

7fl

Subtolal SizcAdjustntcnl!21 Adjusted Unit Rale Per Square Fool

Liz
$4.76
$642,771

LIZ
$4.91
$663,027
a

012
LIZ $4.88 $4.99

1.09
$437
$590107

INDICATF.DSUIIJFCT VAjiffi iiihriI2AyI:A. Weiglsflng Factor: a


Q,j,5

0,15
$99,454 Or persq.fl

Pu
$88,516

$96,416 Weighted Average: Say, Total


$590,107 to

$658,976 Oil $98,846

$673,830 1132 5269.532

$652,764

UNWIjJGIIFFI? SUMMARY Unit Value

Range: Median: Avenge:

$673,830
5658.976 $645,742

54.37

$4.99 $488 54,78

se clkciivc dsuc isis anatysia is: 04/14/03 (2 tjascd on lisa Dittnoxc Size Adjustment Tables, 85% curve.

r 0

Susanna Cheung April 14,2003 Page7

Conditions of Sk

No special conditions were noted warranting adjustment.

Time Adjustments for time are made to take into consideration changes in market conditions from the transaction date to the effective appraisal date. The transactions occurred in the April 2001 through December 2002 time frame during a stable market for agricultural/commercial land. No adjustments are warranted. Adjustments for location were made taldng into consideration proximity to Honoiuhi/urban centers and the quality of the immediate environment. The subject enjoys a location closer to the urban center of Honolulu than Comparable Nos. I through 4 which were adjusted t25 to +35 percent. Comparable No. 5 is located in an urban area that is bedroom community of Honolulu. It is substantially superior to the subject and was adjusted 40 percent

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AccesslFrontaae The subject has adequate access from Kamehameha Highway at the corner of an agricultural service road.

Comparable No.-- I has a corner Location, but does not benefit from frontage for commercial purooses due to use restrictions and was adjusted +20 percent. Adjustments of +25 percent were made to Comparable Nos. 2 and 3 which have single road frontage in the same subdivision as Comparable No. I. Comparable No. 4 has access/exposure from Kamehameha Highway, as does the subject. However, the subject has the additional service road frontage. An adjustment of +5 percent was made. Comparable No. 5 has frontage/access from four roadways and is superior to the subject. An adjustment oflO percent was made. 2 p jng/CommerciaI Us Although the subject is zoned Agriculture, it can legally be used for parking for both the adjacent Dole Plantation and Helemano Plantation facilities. Further, it has long term potential for rezoning to business use.

Comparable Nos. 1, 2 and 3 are inferior to the subject as they are restricted to residential/traditional agricultural uses. Adjustments of +25 percent Were made. Comparable No.4, although zoned Agriculture, has a grandfathered commercial use and is similar to the subject in this respect. No adjustment was made. Comparable No. S is zoned for business use and is superior to the subject. An adjustment of20 percent was made. Adjustments for size were made based on the concept that larger parcels, all other factors being equal, tend to command lower unit rate values. The Dilmore Size Adjustment Tables were used. The 85 percent curve reasonably fits the market data and results in size adjustments ranging from 2 13 to -l percent.

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The five transactions, after adjustment, reflect a range of value for the subject from $4.37 to $4.99 per square foot. Weighted average analysis was completed. Greatest weight was placed

3 tLndal W Ieb doC\RpOrtS 0nb 0 Plantation O4O3Wepordac t20O

Susanna Cheung April 14,2003 Page 8

on Transaction No. 4 as it involves agricultural land with grandfathered commercial use similar to the subject. Weighted average analysis indicates a value for the property of $650,000 or $4.81 per square foot.

MARKET VALUE CONCLUSION Based upon the research and analyses completed, subject to the Limiting Condit ions and Assumptions stated in this retort, we estimate that the Market Value of the unencu mbered fee simple interest in the subject property, as described herein, as of April 14, 2003, was: SIX RUNDRED FIFTY THOUSAND UOLLARS ($650,000) There is a limited market for the subject property indicating a prolonged exposure time and marketing time estimated at 9 months. CERTIFICATION I certify that, to the best of my knowledge and belief:
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the statements of fact contained in this report are true and correct. the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, impartial, and unbiased professional analyses, opinions, and conclusions. I have no present or prospective interest in the property that is the subject of this report, and no personal interest with respect to the parties involved. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. my engagement in this assignment was not contingent upon developing or reporting predetermined results. my compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occuffence of a subsequent event directly related to the intended use of this appraisal. my analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. the undersigned have made a personal inspection of the property that is the subject of this report. my analyses, opinions and conclusions Were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. as of the date of this report, Jan R. Medusky, MM, CItE, has completed the requirements of the continuing education program of the Appraisal Institute.

Ptanlation O4OStRevorLdOC

Susanna Cheung April 14, 2003 Page 9

no one provided significant professional assistance to the undersigned in compieting this report. We appreciate the opportunity of completing this assignment for you. Sincerely,

MEDUSKY & CO., INC.

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Jan It Medusky, MM, CRE President Hawaii State Certified General Appraiser CGA-17 Certificate Expires 12/3 1/03

Edward W. Becker Real Estate Appraiser

Hawaii State Certified General Appraiser CGA-581 Certificate Expires 12)31/03


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EXHIBIT I (Page 1)

LIMITING CONDITIONS AND ASSUMPTIONS


The conduct of any study is necessarily guided by, and its results influenced by, the tents of the assignment and the assumptions forming the basis of the study. The following conditions and assumptions, together with other assumptions embodied in the study, constitute the framework of our analysis and conclusions.

STANDARD LIMITING CONDITIONS AND ASSUMPTIONS

I.

The conclusions and oninions are based upon the purchasing power of the dollar and economic conditions as of the effective appraisal date. This study expresses the opinion of the appraisers as of April 14, 2003 with an effective date of April 14, 2003 and in no way was contingent upon the reporting of specified conclusions. It is assumed that the subject nropertv is free and clear of any and all encumbrances, except for those noted herein; no responsibility is assumed for matters of a legal nature; nor is the report to be construed as rendering any opinion of title, which is assumed to be good and salable. Soil Conditions and Land Aia A soils report was not furnished to the appraisers. We assume soil conditions to be satisfactory for existing and potential development of the subject and assume no responsibility in this respect. Land areas are based on information provided by Tax Office records, the client and other sources and are assumed to be correct.
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2.

3.

4.

Relied Upon Information- Information provided by informed local sources, such as governmental agencies, financial institutions, Realtors, buyers, sellers, property owners and others, was weighed in the light in which it was supplied and checked by secondary means when appropriate. It is believed that the information obtained from these and other sources is true and correct.
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5.

Any maps or plans reproduced and included in this report are intended only for the purpose of showing spatial relationships. They are not necessarily measured surveys or measured maps and we are not responsible for cartographic or surveying errors.
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6.

Possession of this retort, or a copy thereof, does not carry with it the right of publication, and the report may not be used by any person or organization except the client without the previous written consent of the appraisers and then only in its entirety. The report does not imDly the right of court testimony on the part of the appraisers, without additional arrangements. Disclosure of the contents of this study is governed by the By-Laws and Regulations of the Appraisal Institute. Neither all nor any part of the contents of this study (especially any conclusions as to value, the identity of the appraisers or the firm with which they are connected, or any reference to the Appraisal Institute or to the MM designation) shall be disseminated to the public through advertising media, public

7.

8.

HLindaWOCRePOrtSi2003RetemcflO PIo,,ta,ion 0403 ILCA .doc

EXHIBIT I (Page 2) relations media, news media, sales media or any other public means of communication, without the prior consent and approval of the appraisers. 9. Disclosure to Institute The contents of this report are subject to the review, upon request of the Appraisal Institute, by duly constituted committees of the Institute or individual members thereof when such committees or members are acting within the scope of their authority under the By-Laws and Regulations of the Institute. This requirement was adopted by the Institute to facilitate the Institutes efforts to maintain the high standards of professional practice and ethical conduct that have been the hallmark of theinstitute since its creation.
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10.

Toxic Wastes and Hazardous Materials The existence of toxic wastes and/or other hazardous materials, which may or may not be present on the property, was not observed by the appraisers. The appraisers have no knowledge of the existence of such materials on or in the properly. The appraisers, however, are not qualified to detect such substances. The presence of substances such as toxic wastes, asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value, No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them, The client is urged to retain an expert in this field, if desired. The value conclusion shown in this report assumes that there are no toxic wastes and/or hazardous materials affecting the subject property.
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SPECIAL LIMITING CONDITIONS AND ASSUMPTIONS II. Summan Aporaisal Renort This is a Summaiy Appraisal Report that summarizes our research, analyses and market valu conclusion regarding the subject property. Further details are retained in the appraisers files and are available for review upon request.
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12.

Subdivided Land Area The subject property is a portion of a larger Tax Map Parcel that has not yet been subdivided. The subject land area was provided by the client and is assumed to be accurate. It is further assumed that the property is a saleable, subdivided parcel as described herein.

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LAND TRANSACTIONS

Transaction No. I Property Data: Tax Map Key: Land Area: Location: Improvements: County Zoning: Transaction Data: Transaction Type: Transaction Date: Recorded: Grantor: Granrees: Purchase Price: Indicated Unit Rate: Warranty Deed December 18, 2002 Doc. No. 2002-227864 Poamoho Venture Li. George E Vickers and Patricia S. Vickers $550,000 (cash to seller) $2.50 per sq. ft. $550,000 + 220,065 sq. ft.) $108,868 peracre $550,000 + 5.052 acres 6-5-04-IS (First Division) 5.052 acres (220,065 sq. IL) Pcamoho Estates, Kernoo, Waialua, Qahu, Hawaii Vacant Ag-I, Restricted Agricultural District

Comments: Details of this transaction were verified with David Taogoshi, a representative of the seller. According to Mr. Taogoshi, this was an arms length transaction involving cash to the seller. The property is located in an agricultural subdivision permitting one house per 5 acre lot. Topography is gently sloping and there are distant ocean views. There are no curbs or sidewalks in the subdivision. However, there are drainage gutters along the roadways. Utility lines are overhead.

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EXI-1I81T2(Page2)

Property Data: Tax Map Key: Land Area: Location: Improvements: County Zoning: T:ansactiOn Data: Transaction Type: Transaction Date: Recorded: Grantor: Grantees: Purchase Price: Indicated Unit Rate: Warranty Deed October 28, 2002 Doe. No. 2002-197706 Poamoho Venture L.P. David P. Crockett and Judith G. Crockett $550,000 (see comments) $2.50 per sq. ft. 220,285 sq. It) S550,000 $108,760 per acre $550,000 5,057 acres) 6-5-04-03 (First Division) 5.057 acres (220,283 sq. ft.) Poamoho Estates, Kemoo. Waialua, Cahu, Hawa:t Vacant Ag-I, Restricted Agricultural District

Comments: Details of this transaction were verified with David Taogoshi, a representative of the seller. According to Mr. Taogoshi, this was an arms length transaction involving short term seller financing. The transaction involved a $250,000 down payment with the balance due at an unspecified time in the near future. According to Mr. Taogoshi, the buyer is in the process of obtaining a mortgage and will pay off the balance in the near future. The property is iocated in an agricultural subcivision permitting one house per 5 acre lot. Topography is gently sloping and there are distant ocean views. There are rio curbs or sidewalks in the subdivision. Howevet, there are drainage gutters along the roadways. Utility lines are overhead.

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No.

Property Data: Tax Map Key: Land Area: Location: Improvements: County Zoning: Transaction Data: Transaction Type: Transaction Date: Recorded: Grantor: Grantees: Purchase Price: Indicated Unit Rate: Warranty Deed August 26, 2002 Doc. No. 2002-152385 Poarnoho Venture Li. Alastair W. Thompson and Constance L. Thompson $550,000 (cash to seller) $2.49 per sq. ft. $550,000 + 220,806 sq. ft.) $108,503 per acre $550000 + 5.069 acres)

6-5-04-b9 (First Division)


5.069 acres (220,806 sq. ft.) Poamoho Estates, Kemoo, Waiaka, Oahu, Hawaii Vacant Ag-, Restricted Agricultural District

Comments: Details of this transaction were verified with David Taogoshi, a representative of the seller According to Mr. Taogoshi, this was an arms length transaction involving cash to the seller. The property is located an in agricultural subdivision permitting one house per 5 acre lot. Topography is gently sloping and there are distant ocean views. There are no curbs or sidewalks in the subdivision. However, there are drainage gutters along the roadways. Utility lines are overhead.

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Property Data: Tax Map Key: Land Area: Location: !mprovemenrs: County Zoning: Transaction Data: Transaction Type: Transaction Date: Recorded: Grantor: Grantees: Purchase Price: Allocation to Improvements: Indicated Land Value: Indicated Unit Rate: Warranty Deed April 9,200! Doc. No. 2001-052559 Tanaka Plantation, Inc. Su-Ching Fong Chu $600,000 (see comments) $300000 $300,000 $4.09 per sq. ft. $300,000 + 73,355 sq. ft.) $178,147 peracre $500,000 + 1.684 acres) 5-6-04-01 (First Division) L64 acres (73,355 sq. ft.) Kamehameha Highway, Kahuku, Koolauloa, Gahu, Hawaii Four wood frame structures built about 1931/1932. Ag-2, General Agricultural District

EXHIBIT 2 (Page 4)

Comments: Details of this transaction were verified with Su-Ching Chu, the buyer. According to Mrs. Chu, this was an arms length transaction involving seller financing. The transaction involved a $250,000 down payment, with monthly interest only payments on the balance at 10%. The term of the original agreement has expired, but the parties have extended the term indefinitely. The land is improved with four older wood frame structures with grandfathered commercial use. There is a 3.630 sq. ft. wood ftarr.e retail building built about 1932. There are three structures built about 1931 that include two 2 bed/I bath dwellings containing 830 sq. ft. and 624 sq. and a 96 sq. ft. utility building. According to Mrs. Chu about half of the price paid was allocated the buildings. Topography of the and is fairly level, at grade of Kamehameha Highway. Utility lines are overhead.

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Transaction ND. 5 Property Data: Tax Map Key: Land Area: Locatidn: lrnprovementv County Zoning: Transaction Data: Transaction Type: Transaction Date: Recorded: Grantor: Orantees: Purchase Price: Indicated Unit Rate: Wartanty Deed November 22, 2002 Doe. No. 2002-211616 Premier Property Deveopment Corporation A&B Properties, Inc., et al. $2,650,000 (cash to seller) $13.36 per sq. ft. $2,650,000 + 198,303 sq; ft.) $582,162 peracre $2,650,000 + 4.552 acres) 9-4-106-01 (First Division) 198,303 sq. ft. (4552 sq. ft.) Kunia Road, Kupuohi Street and Kupuna Loop, Village Park, Ewa, Oahu, Hawaii Vacant B-l,Neighborhood Business District

Comments: Details of this transaction were verified with Rick Stack, a representative of the buyer. According to Mr. Stack, this was an arms length transaction involving cash to the seller. The land is planned for development with a neighborhood shopping center. Construction is scheduled to begin in ate 2003. According to Mr. Stack, the raw land price was low relatiye to comparable transactions as the property had road improvementJtraftic signal and topography issues that needed to be addressed. According to Mr. Stack, costs associated with these items raise the land cost to the range of $20 to $22 per square foot. The property has good frontage along Kunia Road, Kupuohi Street and Kupuna Loop. Topography is generally sloping.

qUALIFICATIONS OF JAN R. MEDUSKY. MAT. CRE President, Medusky & Co., Inc., Real Estate Consultants 311 Hawaii Building, 745 Fort Street, Honolulu, Hawaii President 11993-1994), Cowell & Ca., Inc. Licensed Real Estate Broker, State of Hawaii (License No. RB-169 IS) Member, Appraisal Instinite (MAr), Hawaii Chapter (Certificate No. 7313) Past President, American Institute of Real Estate Appraisers Honolulu Chapter No. 15 Member, The Counselors of Real Estate (CRE) (Certificate No. 2560) Chapter Chair, The Counselors of Real Estate I-{avaii Chapter Hawaii State Certified General Appraiser (CGA-17)

EDUCATION Culver Military Academy, Culver, Indiana. Graduated with honors, 1964.1968. Bachelor of Science Degree, U.S. Military Academy, West Point, New York, 1968-1972. University of Hawaii, Graduate courses in Business and Economics, 1975-1976. Master of Business Administration Degree, Chaniinade University of Honolulu, 1980. SPECIAL COURSES Graduate Real Estate Institute. Courses land H, Honolulu, l979 Stapletcn School of Real Estate, Sales Licensing Cours; Honolulu, 1979. Credit for the various American Institute of Real Estate Appraisal Courses. Instructor for various seminars/classes regarding real estate valuation.

Captain, U.S. Army, 1972-1978. Held various positions including Commander, Air Defense Artillery Battery and Seciai Staff Officer, 25th Infantry Division General Staff, Schofield Barracks, Hawaii.
EXFERTENCE

Engaged in real estate consultation and valuation throughout the Pacific Basin since 1979. Geographical areas covered include the four counties of the State of Hawaii, the Territory of Guam, the Federated States of Micronesia, Republic of the Marshall Islands, R.epublic of Palau, Saipan, American Samoa and selected locations on the West Coast of the United States Mainland. Specializes in valuation for litigation purposes, tax appeals, leased fee conversions, arbitations and rent renegotiations.

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QUALIFICATIONS OF EDWARD W. BECKER Staff Appraiser, Medusky & Co., Inc., Real Estate Consultants 311 Hawaii Building, 745 Fort Street, Honolulu, I-Iawaii EDUCATION Bachelor of Arts Degree University of Hawaii at Manoa, Honolulu, Hawaii Political Science Major

SPECIAL COURSES University of Hawaii at Manoa, Small Business Management Program, Real Estate Sales Licensing Course, 1992 State Certification Courses Foundations of Real Estate Appraisal, 1992 Appraising the Single Family Residence, 1992 Uniform Standards of Professional Appraisal Practice, 1992 Real Estate Appraisal Methods, 1993

Credit for the following American Institute of Real Estate Appraisal Courses: 540 510 410 420
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Report Writing and Valuation Analysis Advanced Income Capitalization Standards of Professional Practice, PartA Standards of Professional Practice, Part B

EXPERIENCE Engaged in real estate research and valuation with Medusky & Co., Inc. (previously known as CoweD & Co., Incj since July 1993. Geographic areas covered include the City and County of Honolulu and the Counties of Maui, Kauai and Hawaii. Types of properties covered include resort, industrial, agricturai, residential, shopping centers and various other commercial properties.

L IISIHX3

:EDEPARTMENT OF COMMUNITY SERVIH


71553 ThK,G STREET. SUFTE 3i

CitY AND COUNTY OF HONOLULU

MUFI HANNEMANN
MAYOR

DEBORAH KIM MORIKAWA DIRECTOR MARK K. OTO SENIOR ADVISOR

January

16, 2007

Memorandum To: From: Subject: ary Patricia W terhouse, Director of Budget & Fiscal Services Services f Completion of CDBG Funded Contract and Final Payment Request For the ORI Anuenue Hale Elder Care Project

The following project is submitted for final payment approval. Services related to the subject contract have been completed and an on-site final monitoring was conducted. The HCAP was found to be in satisfactory compliance. Contract Data: Contract Execution Date: Effective Date (NTP): Contract Expiration Date: Actual Completion Date: November 14, 2005 November 21,2005 November 21, 2006. November 15, 2006 310/4154-06-01 044X S 100,000.00 $ 94,167.29. $ 5,832.71 $ 5,832.71 0

Final Cost Data: Account No.: Contract Amount: Amount Paid to Date: Balance: Final Invoice: Remaining Balance to be Lapsed:

The Final Invoice, Non-Gratuity Affidavit, Tax Clearance, Certification of Compliance for Final Payment, and initial Notice To Proceed are attached for your review. Questions regarding this matter may be referred to Paul Taniguchi at 591-5552,

7 EXHIB IT

Mary Patricia Waterhouse January 16, 2007 Page Two Your approval is appreciated.

APPROVED:

MARY PATRICIA WATERHOUSE Director Budget and Fiscal Services

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ORI-ANUENUE HALE, INC. ELDERLY CARE SERVICES PROGRAM FINAL PROGRAM REPORT REPORT FOR: CONTRACT No.: F84461 JANUARY 2001 to DECEMBER 2001 Page 1 of 2

There was a significant increase in number of senior participants served this year, with a cusrent average of 70 seniors and 20 individuals with developmental disabilities on a regular basis at ORI Anuenue Hale. Quarterly thematic events were held for seniors in the community, which drew 1300 seniors from different parts of the island. These thematic events incorporated cultural activities, entertainment, and arts/crafts. The events also introduced the different programs offered by ORI Anuenue Hale such as the Health and Weilness Program, Learning Center, Computer Training, and Music/Dance Therapy. This year, the computer classes were increased due to popular demand. The program was able to purchase a new computer and printer plus new software and training materials. Additional computers were obtained through other resources and DSL internet service was actively sought. Unfortunately, the DSL service is still pending due to Verizon Hawaiis inability to do the connection at this time. Verizon said that they will continue to see how we can obtain the services for the seniors. Music dance therapy was started early this year and after several months, ON Anuenue Hale decided to pursue other program offerings and have this particular class take a short break. The seniors did enjoy these sessions and are excited to re-start. Tai-Chi and Meditation Classes started mid-year and soared. This as well as the computer classes have been a popular program for the seniors. ON Anuenue Hale program staff began outreach services to seniors in the community through Health and Wefiness speaking engagements with senior clubs on health topics/issues; Foods that Heal and Healthy Cooking events; in addition to music/dance and art/crafts therapy activities at senior nursing homes as well as with other senior groups in the community. This outreach

EXHIBIT 8

ORI-ANUENUE HALE, NC. ELDERLY CARE SERVICES PROGRAM FINAL PROGRAM REPORT REPORT FOR: CONTRACT No.: F84461 JANUARY 2001 to DECEMBER 2001 Page 2 of 2

program service benefited an additional 300+ seniors on Oahu. This program is doing well and ON Anuenue Hales speakers were asked by the seniors to do more of these speaking engagements for the upcoming year. The Elderly Affairs Division was also asked to participate in the ON Anuenue Hale Learning Center to provide information to caregivers in the comnumity who are interested in working with or volunteering to help seniors. ON Anuenue Hales Learning Center also provided valuable information to assist family caregivers with elderly family members. More requests for outreach assistance from families or individual seniors were received, particularly in dealing with family relationships and the heavy load of caregiving. Transportation was an issue addressed this year with the leasing of a wheelchair-accessible van and a mini-van. These vans addressed one of the top barriers to the seniors being able to participate in the community, which is transportation. OR! Anuenue Hale, Inc., is planning to pursue more outreach services to individual seniors and families with senior members in the community. We are hopeflul that fimding will be continued for this program, which is greatly needed particularly in the Central Oahu and North Shore community. Community response has been positive and, due to the communitys needs and demands, ON Anuenue Hale is being pro-active in its pursuit to begin and complete its future plans for the elderly and disabled in the community. Prepared by: Yvonne C. de Luna Date: January 15, 2002

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ORI-ANIJENUE HALE, NC.

ELDERLY CARE SERVICES PROGRAM FINAL PROGRAM REPORT REPORT FOR: CONTRACT No.: F-92342 JANUARY 2002 to DECEMBER 2002 Page 1 of 2

The number of participants sewed this year averaged at 85 seniors and 28 individuals with developmental disabilities on a regular basis at ORI Anuenue Hale. Two major senior health fairs were held this year plus three other smaller events for the purpose of community and health awareness for the seniors. The health fairs incorporated cultural activities, entertainment, arts/crafts and other activities that educate and involve the seniors with theft community. The events included a Health and Weilness Program, Learning Center Activity and Computer Training. This year, the computer classes increased due to popular demand. The program was finally able to obtain Roadrunner service for internet capability and through the assistance of a volunteer, we were able to have the computers networked. The seniors enjoyed using the Internet and learning to e-mail. Tai-Chi and Meditation Classes continued to have an increasing number of participants. More requests were received and will be accommodated for spealcing engagements with senior groups/clubs, which will be conducted by ORI Anuenue Hale trainers. This as well as the computer classes has been popular with the seniors. The outreach services also continued to receive requests. The outreach services included personal care assistance, companion assistance, counseling and telephone reassurance, advocacy and case management support, transportation to and from the doctor health and weilness visits, and help with routine management of finances such as following up that the seniors keep up with paying theft bills on a timely basis and arranging for an easier way that they can manage theft finances and still remain independent.

EXHIBIT9

ORI-ANUENUE HALE, INC. ELDERLY CARE SERVICES PROGRAM HNAL PROGRAM REPORT REPORT FOR: CONTRACT No.: F-92342 JANUARY 2002 to DECEMBER 2002 Page 2 of 2

Our linkage with the Elderly Affairs Division has been helpful in terms of information and referral support. Symposiums for caregivers of elderly individuals, conducted by the AARP and Executive Office of Aging, were helpful in exposing the seniors and theft families to services and other resources in the community. The Caregiver Class Program that we linked with has been a resource for relief caregivers to families while also serving as a basic introductory course to care-giving for interested individuals in the community and for seniors continued learning. The wheelchair-accessible van, mini-van and another leased vehicle, have been important in accommodating the varied transportation needs of the seniors. Transportation to and from community events of large and small groups as well as individualized transportation assistance to and from the doctor, have been the major usage for these vehicles. These vehicles ameliorate one of the top barriers to the seniors being able to participate in the community. ORI Anuenue Hale, Inc., would like to continue the different senior services that it offers and are hoping for continued fbnding, especially since there is a great need in the Central Oahu and North Shore community. Community response has been positive and, due to the communitys needs and demands, ORI Anuenue Hale continues to be pro-active in its pursuit to begin and complete its future plans for the elderly and disabled in the community. Groundbreaking was held in November of 2002 and construction is expected within the next year, once the fbnding is obtained. Prepared by: Yvonne C. de Luna Date: January 21, 2003

EXHIBIT 10
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ORI.-ANUENUE HALE, INC. CDBG Expenditure Report Contract No. F76&20

Salaries & Wages Advertising Consultant Services Contract Services Equipment rental Insurance Medical/Dental Insurance Group Life Insurance Workmens Comp Insurance TDI Insurance General/Fire Legal & Accounting Meals Lease of Vehicle Lease of Premises ManagernentlAdmin. Fee Program Activity Payroll Processing Payroll Taxes Social Security Payroll Taxes Medicare Payroll Taxes SUTA Supplies/Materials Utilities
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240,097.37 340.18 36,952.50 6,000.00 410.00 8,130.00 1,157.87 11,930.90 1,351.07 1,281.25 1,549.48 5,783.83 5,995.02 20,130.00 20,000.00 2,170.00 307.11 14,88603 3,481.41 2,739.51 13,494.71 6,795.05

TOTAL EXPENSES

$404,983.29

EXHIBIT 10

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DtrARTMENT OF BUDGET AND FISCAL SERVICt3
530 SOUTH KING STREET. ROOM 208 HONOLULU, HAWAII 96813 PHONE: (808) 768-3900 FAX (8C8) 768-3179 INTERNET: ww.sionouIu.gov

CITY AND COUNTY OF HONOLULU

MUFI HANNEtiANN MAYOR

RIX MAURER III DIRECTOR


MARK IC 010 Dpcjry oEaoR

December 18, 2009 341790 MEMORANDUM TO: Deborah Kim Morikawa, Director Department of Community Services

SUBJECT: Disposition of CDBG and HOME Loans This is in response to your memorandum of November 13, 2009, regarding your loan forgiveness proposal to address the issue of outstanding CDBG and HOME Program loans used to assist public facilities and special needs housing projects. We generally agree with your assessment that the CDBG and HOME Loans identified in your attachment are unlikely, now and in the future, to be able to generate the income required to repay their loans. However, we would recommend further review and discussion on the following matters: Of the identified loans, the loan amount outstanding is currently over $9 million, and the City currently receives about $62,000 per year in repayments. When loan forgiveness has been requested in the past (e.g., from ORl and ARC), DCS position, supported by BFS, was not to forgive long-term loans because they represent a potential source of income to the City; and, as such, the City must be willing to forgo the possibility of that future income, however remote the possibility of being repaid. Certain projects on the list, notably those that receive Section 8 rental subsidies or those in which the City holds a second mortgage, should eventually be able to repay their loans. These projects are essentially multi family rental projects, even though they serve non-elderly special needs populations. Certain ARC of Hawaii projects, for example, receive Section 8 subsidies; and the ARC 10 project, actually did mak a $20,925 payment out of residual receipts in 2004. The City should not give up its ability to collect should property be sold in the future. To avoid being unfair to projects that have already begun repayments, such as the Sierra House project, we should consider forgMng loans going forward, but not forgive repayments already owed to us.

EXHIBIT 11

F
Memorandum Disposition of CDBG and HOME Loans December 18, 2009 Page Two The proposal ties loan forgiveness to the CDBG five-year reversion of assets period, which seems to imply that it is also the Citys intention to institute a five-year CDBG national objective period for the listed projects. Such an action needs further discussion because it could affect all CDBG assisted projects, not just the listed projects. HOME assisted projects would continue to be subject to their respective HOME affordability periods. If it is the Citys intent to release, upon forgivehess, these projects from their obligation to comply with CDBG (or HOME, as applicable) program regulations (including achieving a CDBG national objective) or other restrictions on use, the City must consider that the obligation to repay a loan and the obligation to achieve a national objective are separate issues. For example, forgiving the loan of the Easter Seals Ewa Villages Group I-tomes will not release Easter Seals 35-year Lease obligation to use the group homes to benefit disabled youth and adults; and it may or may not release Easter Seals of its obligation to comply with CDBG regulations under its Subrecipient Agreement. Because the terms and conditions imposed on the projects throughout the years are varied and may have been fashioned in consideration of other agreements with the benefiting agencies, each project must be reviewed on a case-by-case basis to determine the effect of loan forgiveness.

Also, you should be aware that if the loans are written off, it will increase our CAFR expenses and, therefore, decrease the CAFR income by approximately $8.5 million. It is not expected to impact our budgetary process as operating funds are not involved: Finally, organizations that have been diligent and paid off their obligations are likely to protest and demand equitable treatment should they hear that we are forgiving existing loans. It may also set a bad precedent wherein future awardees will expect the City to forgive their obligation if they take a long enough time to pay. Although it is not likely that we will be able to take action on the loans prior to the end of the calendar year, please let me know if you would like to meet to discuss our concerns and recommended actions.

M rer III Director RM/HK:ts

EXHIBIT 12

DEPARTMENT CF COftMUNlTY SERVICES


715 SOUTH KjNGSTREET&RTE3II

CITY AND COUNTY OF HONOLULU


HowoLtrw4Awn 813 AREA CC3E 80
PhONE: 758-7762 FAX 7-7792

BFS-CDBG 91710

MUFI HANNEMAI4N a&Yoa

DEBORAh KIM MORIKAWA DIRECtOR ERNEST Y. MARlIN DEPUTY DiRECTOR

November 13, 2009 MEMORANDUM TO: Rix Maurer Ill, Director Department of Budget and Fiscal Services

FROM: SUBJECT:

tW4 tVWvk4AI Deborah Kim Morikawa, Director


Department of Community Services Disposition of CDBG and HOME Loans

-J

on

(n

c-fl. C>. roM


C,)

This is to propose a framework for the resolution of outstandingCDBG and HOME program loans, between the City and various nonprofit agencies. The Department of Community Services is proposing that existing Community Development Block Grant (CDBG) loans related to special needs housing projects and public facilities be forgiven at the conclusion of the five year reversion of assets period, which is consistent with the U.S. Department of Housing and Urban Development requirements. We are further proposing that existing loans for special needs housing projects, undertaken through the HOME Investment Partnerships program, be forgiven at the conclusion of the projects HOME affordability period. The rationale for this proposal is that most public facilities and special needs housing projects do not generate sufficient income to make loan payments and, in fact, require external subsidies to sustain operations. We also suggest that based on the maturity of these loans, the long term prospects for the future repayment is remote. We do not propose that loans for affordable rental housing projects, including rental housing projects for senior citizens, be forgiven at this time. The majority of these loans are zero or low interest (1% to 4%) residual receipt loans that have the potential for future repayment when the senior debt is fully amortized or refinanced. The projects also genera te substantial revenue that could be used to make payments in the future. Upon your concurrence, we will establish and implement a procedure to forgive the CDBG public facility and CDBG and HOME special needs housing loans described above. Questions regarding this mailer may be directed to Keith lshida at X-7750.

DKM:dk cc: Gordon Nelson, Deputy Corporation Counsel (w/ attachment) Attachment

EXHIBIT 12

Community Development Block Grant and HOME Loans Public Facility and Special Needs Housing
PROJECT CONTRACTOR / SUBR.ECWIENT AMOUNT

r
Easter Seals Ewa Group Homes Helemano Village Helemano Village Independent Living Training Home for Teen Mothers Independent Living Training Home for Teen Mothers Residential Training Center Residential Trainin Center

Easter Seals Society of Hawaii, F49857 Opportunities for the Retarded tnc, F 39875 Opportunities for the Retarded Inc Hale Kipa, Inc., F-45616 Hale Kipa, Inc. Opportunities for the Retarded Inc., F58450 0 ortunities for the Retarded Inc.

435,000.00 315,629.45 Interest owed on above loan 212,351.57 Interest owed on above loan 812,718.50 Interest owed on above loan 192,111.o 51,343.00 412,155.60 1,006,000.00 366,116.35 500,000.00 298,410.42 1,800,000.00 1,389,789.98 64,955.0C 900,000.00 175,000.00 431,000.00
-

432,995.20 315,629.45 121,343.95 254,196.88

23,295.56 812,718.50 356,451.34 169,266.40 51,343.00 73,725.50 993,256.42 167,027.35 500,000.O( 137,431.79 1,772,338.11 1,389,789.98 3,747.42 858,482.15 175,000.00 405,999.78

ARC No. loLusitana ARC No. 12-EwaEstate Duncan Drive Edwin Thomas Home Independent Living Apts Independent Living Waipahu Kamehanie Ridge Group Home Pearl City Complex Wahiawa Complex Youth Crisis Center Gregory House Lahilahi Residential Substance Abuse Project Sierra Group Home

ARC Hawaii, F-10952 ARCHawaii,F-18493 Oahu House Inc. (F-43 116) Housing Solutions, Inc., F-59080 Hale Kipa, Inc., F-483 19 Independent Living Waipahu, F-49847 ARC Hawaii, F-46319 ARC in Hawaii, F-23063 ARC Hawaii, F-49129 Central Oahu Youth Svc Association Contract No. F-58440 Hoomanaolana, F-47286 Hoomau Ke Ola, F-56978 Mental Help Hawaii, F-36015

EXHIBIT 13

--

I-

DEPARTMENT OF COMMUNITY SERVlCES


715 SOUTh IcING STREET, SURE 311 HONauu Y1AS 96813 AREA CODE tee PHONE 768-7762e Ffrt 758-7792

CITY AND COUNTY OF HONOLULU

Mull HAM4EMANN MAYOR

DEBORAH KIM MORIKAWA DIRECTOR


ERNEST Y. MARTIN DEPUTY DIRECTOR

Marchl6,2010

MEMORANDUM TO: Rix Murer III, Director Department of Budget and Fiscal Services IDb6rawKim Mbrikawa, Director Department of Community Services Disposition of CDBG and HOME Loans

FROM: SUBJECT:

This memorandum is in follow-up to our letter, dated November 19, 2009, regarding the disposition of CDBG and HOME loans, and in response to your letter dated December 18, 2009. Since our initial communication, we have reviewed several outstanding CDBG and HOME loans, and as a pilot project, we have focused on the outstanding CDBG loan to Opportunities for the Retarded Inc. (ORI), related to the construction of its residential training center. Your memorandum recommended that the City not cancel the outstanding debt for which there is the possibility of repayment. We generally agree with this position and have no plans to cancel the debt associated with rental housing projects which are generally self supporting through thecollection of rental income and are currently making periodic payments on their City loans, or making payments on senior debt while the City subordinated debt remains unamortized. We agree that for many of these projects, the prospects for the City to obtain some form of repayment either in the form of residual receipts loan payments, or through a lump sum payment due upon the refinancing of the project remains positive. We note, however, that special needs housing projects and human service projects like the CR1 residential training center, which rely on government or private subsidies to fund operations, do not fall into this category. It is not our suggestion to automatically release these projects from CDBG or HOME program obligations upon the cancellation of the debt. In the case of a HOME-assisted project, the HOME restrictions required by program rule will need to be followed. In the case of CDBG-assisted projects where the five year national objective

cXI-IIBIT 13

Rix Maurer Ill, Director March 16, 2010 Page2

period has already lapsed; we are proposing that a new five year national objective period be imposed as a condition of canceling the outstanding debt. In instances where there is an underlying lease or longer term land use covenant, such as a HUD Section 202 use restriction agreement, our proposal is to require the nonprofit agency to maintain the property in accordance with the CDBG national objective requirement for a period equal to the length of the term of the lease, use restriction, or other underlying covenant. In the specific case of CR1, the project site is subleased to CR1 by the City. We are proposing that CR1 be required to maintain and operate the residential training center in a manner which meets the CDBG national objective of benefiting low and moderate income persons, limited clientele, as stated in 24 Code of Federal Regulations, 570.208(a)(2), during the entire term of the amended sublease. We propose to memorialize this requirement, as well as the cancellation of the ebt through an Amendment, Agreement and Acknowledgement to be executed by the City and ORI. We have attached a copy of the draft Amendment, Agreement and Acknowledgement for your review and comment. To date, we have reviewed the documents relating to the CR1 Residential Training Center, the CR1 Housing project, and the Mental Health Kokua Sierra House Rehabilitation loan. What has become evident is that there are variations in the loan documents for each project, which will require some modification to the debt cancellation documents on a case by case basis. Notwithstanding these variations, we suggest that the underlying guidelines of: (1) limiting cancellation only to those special needs housing and human service projects which are not self sustaining; and (2) extending the CDBG national objective period for a minimum of five additional years or to a length concurrent with an underlying covenant, should serve as basic program parameters. We look forward to hearing your comments on these issues and proposed program parameters. If you have any questions regarding this matter, please call me at 768-7758.

DKM:ki Attachment cc: Tnidi Saito, Deputy Managing Director Gordon Nelson, Corporation Counsel

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_____ ______ _______ _____ _____________ ______ ________ _____ ______ ______

Contributions by ORl/ORIAH Affiliates to Persons Holding or Seeking City Offices

Candidate Name Office Sought Contributor Name

Office Held

[Honolulu Council
]

Date 05/3112001

Amount $200.00

Contributors Ernployer Contributors Occupation

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Honolulu Council

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2006 2008 20062008 2003-2010 20002002 1000 2002 2002 2004 20022004 20042006 2004-2006 20022004 20042006 2004-2006 2004 2006 2006-2008

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Honolulu Council

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OSP Chief Executive

Page 1

of 5

Contributions by ORl/ORIAH Affiliates to Persons Holding or Seeking City Offices

Martin, Ernest Cheung,Susanna 12/29/2009


-

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2008-2010

DCS Deputy Director & OSP Chief Executive HonoluCouncu UCS Acting Director or Deputy Director & OSP
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_92/26/2002

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-

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Honolulu Coil

Honolulu Council Honolulu Council Honolulu Council $1,000.00 Helernano Plantation qpqpp HeJernanoHantation 2 .1 $500001
- -

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-

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[Cheung,SusannaO4/23/20Q3

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02-2004 0022004 2002-2o0-4 - - 2004-2006 20042006 1 20022004

Okino, Gary Okino, Gary Okino, Gary Okino, Gary Okino Gary Tam Rod Tam, Rod Tam Rod Tam Rod Honolulu Council Honolulu Council Honolulu Council Honolulu Council Honolulu Council HonoluluCounch Honolulu Council Honolulu Council

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------H-

Contributors Employer

contributors Occupation

-
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Contributor Name Date Amount Cheung, Ho Ming 05/07/2010 I$*IXiIiI n/a cheung, Ho Ming $5p.00n/a 10n2007t

04/14/2008$500MOn/a

n/a Red Retired Red_

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Retired
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Candidate Name Djou, Charles Hannemann, Mull Hannemann, Mull Hannemann, Mull Hannenlafln, Mull kobayashi, Ann

Office Held Honolulu Council Mayor Mayor Mayor Mayor None

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Office Sought

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Office Sought US. House _Mayor Mayor Mayor Governor Honciulu Council Honolulu Council / [Mayor Mayor

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Office Held State Senate

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08/26/2008

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Contributions by ORI/ORIAH Affiliates to Persons Holding or Seeking City Offices

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Page 3 of 5

_ ________ ____ _____ _______ ______

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Contributions by ORI/ORIAH Affiliates to (1) Political Parties or (2) Persons Holding or Seeking Non-City Offices

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Election Period 1996-1998 2006 2008 2008-2010 fl2008 2010 f2008-2010 2004-2006 20102012 os 2010 Z22db6 2008-2010 CEO

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.

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Candidate Name Abercrornbie. Ne Aiona James (Duke) Bunda, Robert 8unda Robert Burida, Robert Coleman, N. Dela Cruz Donovan Djou Charles Djou Charles flnnegan, Lynn Fukunaga, Caro! Fukunaga. Carol Gore Al Hanabusa, Colleen Hanabusa Colleen Hawaii Republican Party Lingle Linda Magaoay Michael Magaoay Michael Magaoay Michael Magaoay Michael Mizuno John Mizuno John Mizuno John Mizuno John Mizuno John Oshiro Marcus Oshiro Marcus Oshiro Marcus Ward,Gene

[Governor Governor State Senate Lt Govrnor State Senate Lt.Governor n/a U.S. Senate State Senate State Senate U S House U S House US House US House State House Lt.Governor State Senate State Senate State Senate State Senate US Vice President U rese Stte Sen [State Senate State Senate [State Senate n/a _[nla None US Senate State House State House State House State House State House State Senate State House State Senate State House State House State House tate House State House State House State House State I-louse State House State House State House State House State House State House Stale House IState House StateHouse Sttfrkjse

1Ii_oo000li T20l0 2012 Q4JlO097j_ Oh wig Susanna $200 aOL 2006 2008_ GheungSusannal1/21/2007J__ $600 00[ 2006 2008 CheungSusanna 04/20,2009 000 2006-2010 Cheung Susanna L4/15/201O_,._,.$i5000 2008-2010 CheLJ!g Susanna 0t30/2008 $200 00, I 20062008 CheurigSusanna 04/11,2008 $200 I {_ ChoungSusanna /lP?J$20000i ,_200gp0_ ___J Cheung Susannaj 02/24,2009 20082010 L 550002 _4 [__ Cheun Susanna__J $200 00k 2008 2010 4 2 o H 01 3 09/03/2008j_$5OQ9jHelen-ianpPtantaton Che!g Susanna President/CEO g0O6_gc CheungSusaniill 11/09/2009 [ $1000 oo[Heiemano Plantation PredenUCEO 20082010 &heungSusanna_LQijp20i2 4_P0_Q9Pjfrlelemano Plantation President/CEO 20102012 Cheunq,Susanna 08/12/2008 $200001 2006-2008

Election Period 1996-1998


-

2oo20{
--

--

Candidate Name Abercrombie, Neil Buoda Robert Bunda, Robert lJjou, Charles Finnegan, Lynn Hannemann, Mufi

Office Held U.S. House State Senate State Senate U.S. House State House None

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Candidate Name Bunda, Robert Bunda, Robed Bunda, Robert

Office Held Senate State Senate State Senate

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Office Sought Ii. Governor Lt. Governor Lt. Governor

Contributor Name Date Amount jiliga, Ann Ol/28/2OO9__ QQQQLV. Higa, An 12/09/2009 5500.00,n/a Hig Ann S200Th0n/a jTh1&2010

--

n/a In/a

2008-2010 2008-2010

Page 4 of 5

Contributions by ORIIORIAI-i Affiliates to (1) Political Parties or (2) Persons Holding or Seeking Non-City Offices

--

--

08/032O10 $250.00Th/a
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2010-2012

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U.S.l-iouse State House State Senate StateSenate State Senate US Y!c President Jios Lt. Governor State Senate [StateSenate tate Senate Pr!s!c1n JHiga, Ann !liga,Ann 07/14/2011 07/26/1999 $300.00 n/a $1,000.00 n/a

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Contributors Employer

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Election_Period

Finnegan, Lynn Lt. Governor $453.00 n/a

State House

Calabash - Heleinano Plantation Visit 10/14/2010

n/a

2008-2010

Pagesof5

91. IBIHX3 L

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U.S.Departmerit of Housing and Urban Development Honolulu Field Office Region IX 500 Ala Moana Boulevard, Suite SA HonouIu, Hawaii 96813-4918 wwihud.gov espanoLhud.gov
-

November 25, 2003

Donovan M. Dela Cruz Chair, City Council City and County of Honolulu 530S.KingStreet,R0om202 Honolulu, Hawaii 96813
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Subject: Conflict of Interest

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Dear Chairman Dela Cruz:


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It has recently come to the attention of our office that. a conflict of interest issue, invo1vin City Council members, may have occurred during the Citys budgeting process for Community Development Blck Grant (CDBG) assisted activities. This letter provides guidance to the City regarding HUDs Community Planning and Development (CPD) program and conflict of interest issues. It is critically important that the Council understand the requirements of the CPD regulations, since it is the Council that makes final funding decisions for the use of CPD programmonies received by the City and County of Honolulu. Regulations for the CDBG funds are found at 24 CFR 570.611 and provide that: The conflict of interest proyision ..apply to any person who is an employee, agent; consultant, officer or lected official or appointed official of the recipients,...
.

Clearly, the federal regulations apply to the City Council. These regulations further require:
.

that no person... .who exercise or have exercised any functions or responsibilities with respect to CDBG activities or who are in a position to participate in a decision making process or gain inside information With regard to such activities, may obtain a financial interest or benefit from a CDBG-assisted activity, or have a financial interest in any contract, subcontract, or agreement either fnr themcelves nr thnse with whom they hive hiisiriecc (emphasis added).
. .

apply to other CPD program funds received by the City including the Home Investment Partnership Program (HOME), Emergency Shelter Grant Program (ESO) and the Housing For Persons With Aids Program (HOPWA).

Similar regulation

EXHIBIT 15

.
L

Therefore, at a minimum, federal regulations reqUire that cOuncil members who receive payment or who are members of an organizations governing body, refrain from offering for consideration or voting on a funding measure for that organization. Failure to conform to these regulations can potentially result in disallowance of a CPD assisted activity. If you have any questions concerning these regulations or their application please call LynnJ.Lee, Sedior Community Planning and Development Representative at (808) 522-8180, extension 276.

Sincerely,

Mark A. Chandler, Director Office of Community Planning and Development

cc: Council Members City and County of Honolulu 530 S. King Street, Room 202 Honolulu, Hawaii 96813 Mr. Ivan Lui-Kwan Director Department of Budget and Piscal Services City and County of Honolulu .530 South King Street, Room #208 Honolulu, HI 96813 Mr. Michael Amii Director Depment of Community Services City and County of Honolulu 715 South King Street, Suite #311 Honolulu,H196813

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ua;itp p.1 4 s tcr:;. Su.ranna I? Cheui,g AlEc!. Fost,ie/a and President

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September 22, 2004

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A%IJF%iUt h)Lt, A Rainbow of Opponisnisies

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Mr. & Mrs. Richard Lee KORL Construction, Inc. P.O. Box 1224 Pearl City, HI 96782 Atm: Mr. Stephen Wong, Project Manager

Dear Mr. Wong: Subject: Aloha Gardens Revised Drawings

I am in receipt of your letter dated Sep tember 21,2004 submitting your revised This is to inform you that the revised pric e of 55,306,877 as indicated on you price proposal. accepted. This letter will also serve to r breakdown is confirm: A rnonetazy donation of ninety thousa nd Construction, Inc. to ORI Anuenue Hal dollars ($90,000) will be made by KORL Constructions portion of the project e, Etc. at the completion of KORL (Mahalo!) 2. Per your request, the following con ditions will continue to be include d: a. The owner will indemni& the Con tractor for the Grading Permit and NPDES fines and penalties of up to $25,000 .00 each. 1,. Payment to be made to the Contrac tor within seven (7) calendar day s after receipt of payment by the Owner from the City. c. Special Provision SP-15 in the Request for Proposal dated Jan uary 27, the Aloha Gardens Project and Addendum Nos. 1, 2, 3, 4, and sha 2004 for 5 ll prevail. We are anxious to get the work started aga be able to begin work and the projected in. Please let us know when KORL Construction will schedule for completion. if you have any questions, please.contaet Ann Higa at 622-3929. Sincerely yours, 1.

President and Chief Executive Offiy (


c: CDBG, City & County of)olulu Lloyd Sueda, Sueda & Asociates
64.1510 Kamehameha Hwy.

Wahfawa, Hawaii %786-291 50 Ph: (808) 622-3929

Fax:(808)621-8227

EXHIBIT 16

EXHIBIT 17

Pfl Boz 1224 Pad Qi$ IV 96252

KORL DNSThUCDON, INC


Sept. 21, 2004

P-.r

o&. soa 45546S7


(50*) 455.3153

*43. Susanfla cheung President and Chief Executive officer DPI AnuenC Sale, Inc. 64-1510 Xanhameha EIghway Wahiafl. Rawail 96786

Attn: Ns. Ann Rigs, Chief Operating Officer Dear Ms. Niga:
Subject: Aloha Garden

Revised Drawings
As requested, enclosed herewith is a breakdow n of our portion f the revised subject project, in accordance with your ConsuLtants request form.

I han discussed the conaideratica you requested and management KOfl construction, Inc., is willing to make a ninety thousand dollars (*90,000.00) to the monetary donation Oil help in your programs, at the completion of the Anuenue Rale, project. In accordance with our original contract, we have the other conditions or provisions inclu would still need ded, which were;

of of to to

The owner will indemnify the Contractor and NPDES fines and penalties of up to $25, tot the Grading Permit 000.Q0 each.
Payment to be made to the Contract or within seven (1) calendar days afler receipt of payment by the Owner from the City. Special Provision SPl5 in the Requ January 27, 2004 for the Aloha Gardens Proj est for Proposal dated ect and Addendum Nos. 3, 3, 4, and S shall prevail. , Please contact the undersigned, Very truly yours, KORL Construction, Inc. if you have any questions.

Stephen C. L. Wcng Project Manager enclosures

File; Otti

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EXHIBIT 17

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Community Development Block Grant Corrective Action Plan to improve contract management and national objective compliance by the City and County of Honolulu.

Prepared by: City and County of Honolulu Department of Budget and Fiscal Services Department of Community Services June 2013

EXHIBIT 18

Table of Contents

Executive Summary Introduction


t

.3 6 6

I-hiD Community Development Block Grant Program


Eligible Activities Must Meet National Objectives Compliance Review

CDBG Program Administration by City and County of Honolulu:


CDRG & HOME Requestfor Proposals CDBG & HOME Program Responsibilities

(
12

Corrective Action Plan to Address CDBG Program Deficiencies


Consolidate and Define Compliance Monitoring Responsibilities Strengthening City Contract Oversight Compliance with Land-Use Regulations Development ofa Centralized Recods System

Summary and Additional Correctiv Actions to be Taken Specific to Concerns Raised by HJD Regarding ORIAH

16

7118/2013

Executive Summary On June 3, 2013, the Honolulu Field Office Region X provided the City and County of

Honolulu (City) with an On-Site Program Monitoring Report identifying findings of program non-compliance that required corrective action within forty-five (45) days, and concerns of program deficiencies. The findings and concerns raised, insofar as they relate to the particular sub-recipient and project (Opportunities and Resources, Inc. Anuenue Hale or ORIAH) that was the focus of the report, are set forth in a separate City response letter to the U.S. Department of Housing and Urban Development (l-{UD). Problems identified within the project management function of the Citys Community Development Block Grant (CDBG) program include weak enforcement of sub-recipient non compliance with HUD regulations and City land use ordinance, insufficient construction contract oversight with the Office of Special Projects (OSP), failure to adhere to HUD regulations on public notice and an inadequate records system. The deficiencies require immediate attention to ensure consistent and proper application of feder City compliance with HUD regulations. regulations to all sub-recipients, as well as
A

Within this report the City identifieioperational procedures and resources required to improve contract managemnt of the program, including the need to: a. Develop and implement consistent procedures. protocols and policies, invest in a grants management tool, centralize files and project management, and standardize protocols both between departments, as well as between units within the same department. b. Revise monitoring functions through collaborative discussion with both the Department of Community Services (DCS) and the Department of Budget and Fiscal Services (BFS) teams. Options for improving the monitoring function are diverse. A final determination on changes to the monitoring function will be addressed in the scheduled technical assistance with the National Association for Latino Community Asset Builders (NALCAB).
3

7/1 8/2013

c. Provide ongoing technical assistance and annual training for all personnel directly responsible for managing CDBG projects. Technical assistance from NALCAB is scheduled for August 2013. The NALCAB teams assessment provides an opportunity to review all functions relating to administration of the CDBG program, including monitoring and organizational stmcture. The history of inconsistent implementation within OSP lends itself to consider reorganizing with a similar function for both compliance and economies of scale. The City further identifies protocols and tools required to enforce compliance with HUD program regulations, including the need to: a. Ensure the inclusion of asset reversion language in all sub-recipient agreements, and enforce as needed for non-compliance

64

b. Record national objective-compliance, perforniance-based mortgage on properties to provide an additional incentive to sub-recipient to achieve compliance.
S 6

The City will meet the following benchmarks and deadlines necessary to improve contract management of CDBG programs, including increased compliance with national objectives. a. Provide notice of loan forgiveness program to all organizations with outstanding CDBG
S

loans by August 1,2013. b. Acquire and implement software program to provide system for grant/contract management by November 1, 2013.

c. Notify all sub-recipients in writing of the obligation within the sub-recipient agreement to provide HUD access to records and that failure to do so could result in disallowance of

7/18/2013

funds. Provide HUD with a listing of referenced sub-recipients and a copy of the notice provided to subrecipients by November 1, 2013.

d. Conduct training on the Copeland Anti-Kickback Act 18 USC 874 with all individuals with direct oversight of CDBG contracts by November 1, 2013. In summary, the City commits to a collaborative management effort between DCS and BFS to manage the CDBG program, eliminating management of CDBG projects by OSP, and welcomes the tecimical assistance opportunity to review national best practices for further enhancements to the Citys implementation of CDBG program objectives.

7118/2013

Introduction May 2013 issued by the U.S. Department of Housing and Urban

The Monitoring Report

Development (HUD), Honolulu Field Office

Region IX identified various findings that require

corrective action, cited deficiencies in program performance and noted a conflict of interest issue related to the management of Community Development Block Grant (CDBG) program contracts and loans.
.4

In response to the HUD Monitoring Report, the City and County of Honolulu (City) Department of Community Services (DCS) and Department of Budet and Fiscal Services (BFS) conducted a comprehensive review of operational procedures, protocols and policies related to the Citys management of the HUD CDBG program and offers this corrective action plan to: (I) identify operational procedures and resources required to improve contract management of the program, (2) identify protocols and tools required to enforce compliance with HUD program regulations. and (3) identify benchmarks and deadlines necessary to achieve measurable results.

HUD Community Development Block Grant Program

The CDBG program provides Metropolitan Statistical Areas (MSAs) with resources to address a wide range of community development needs. The CDBG program is one of the longest continuously run programs at the U.S. Department of Housing and Urban Development, and provides aniual grants on a formula basis to local governments and States. The CDBG entitlement program allocates hinds to MSAs to develop viable communities by providing decent housing, a suitable living environment, and opportunities to expand economic opportunities, principally for low- and moderate-income persons. The City and County of Honolulu qualifies as an MSA.

http://oor aI.hud.gov/hudooflai

UD?srcfproam offices/comm plannineJcommunitvdevelooment/yrograms.

7/18/2013

The CDBG entitlement program works to ensure decent affordable housing, to provide services to the most vulnerable in our communities, and to create jobs through the expansion and retention of businesses. CDBG is an important tool for helping local govermnents tackle serious challenges facing their communities. HUD determines the amount of each CDBG grant by using a formula comprised of several measures of community need, including the extent of poverty, population, housing overcrowding, age of housing, and population growth lag in relationship to other metropolitan areas. Additional factors include efficient and effective useof the CDBG entitlement program
:4.

funds. The MSA must develop and follow a detailed plan that provides for citizen participation. This integral process emphasizes participation by persons of low or iiioderate income, particularly residents of predominantly low- and moderate-income neighborhoods, slum or blighted areas. and areas in which the MSA or grantee proposes to use CDBG funds. The plan must provide citizens with the following:
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Reasonable and timely access to local meetings; An opportunity to review proposed activities and program performance; Timely written answers to written complaints and grievances; and Identify how the needs of non-English speaking residents will be met in the case of public hearings where a significant number of non-English speaking residents can be 2 reasonably expected to participate.

f/portal .hud. aov4,udportj/fl7J1J7c.tpj offices/comm nlannina/coznmunjtvdevelonuxnijoromams.

7118/2013

Eligible Activities Must Meet National Objectives Over a 1, 2, or 3-year period, as selected by the grantee, not less than 70 percent of CDBG finds must be used for activities that benefit low- and moderate-income persons. In addition, each activity must meet one of the following national objectives for the program:
-

Benefit low- and moderate-income persons, Prevent or eliminate slums or blight, or Address community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the health or welfare of the community 3 for which other flrnding is not available.

Compliance Review The HUD Office of Assistant Secretary for Community Planning and Development administers the CDBG program and conducts ongoing review for compliance with the primary and national objectives as provided in 24 CFR 570.901. Routine compliance reviews include on-site monitoring of CDBG fbnded activities and inspection of supporting documentation of program beneficiaries served. On-Site Program Monitoring reports are provided to CDBG grantees documenting observations. During compliance review, ajinding is a determination of non compliance with a program regulation and requires corrective action, while a concern is a deficiency in program performance; a concern is not statutory, regulatory, or a program requirement.
21

CDBG Program Administration by City and County of Honolulu

Historically, the City and County of Honolulu identified CDBG and HOME funded projects as line items within the Citys annual Capital Improvement Projects (CIP) budget. The Mayors proposed budget bill included CDBG funded projects, and the Honolulu City Council (Council)
Ibid.

7/18/2013

fhrther amended the bill to include additional CDBG fimded projects in the final CIP budget
ordinance. The Councils non-competitive method of project selection omitted departmental

underwriting, which resulted in the selection of projects not well-conceived to comply with HUD regulations, and ofprojects not sufficiently advanced to draw down awarded ftinds. thereby hampering City compliance with HUDs animal timeliness evaluation. As a consequence, the HUD Honolulu Field Office mandated that the City change its process for awarding CDBG funds to non-profit organizations. In response, the City administration developed a workout p1an the local HUD office that included the creation of an external CDBG Revie,onmuttee sd by the staff of both the Department of Budget and Fiscal Services (BFS) dilkl the Departmenffifljornmunity Services (DCS). On October 25, 2006 the City Council adopted Resolution 06-316 implementing the workout plan. The CDBG Review Committee membership ejsists of seven members: three members appointed by the Mayor, three members aPPoinj by the Council and the committee chair mutually agreed upon by the Mayor and the Council. Additionally, the current process limits the Councils ability to amend the CDBG Review Committees individual project recommendations, which are transmitted in the form of a Draft Action Plan for Council approval via resolution.
-

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Currently, utilizing the CDBG priorities established by the Council, the BFS Federal Grants Unit develois a five-year Consolidated Plan that serves as the framework for the Citys CDBG program. Arual implementation commeices with issuance of a Request for Proposals (RFP), followed by review and selection of projects by the external CDBG Review Committee. Selected projects are included in the Citys annual Action Plan, which requires City Council approval prior to implementation. Subsequent to City Council approval, BFS executes a grant agreement with HUD as recipient of CDBG funds. DCS then implements the Action Plan through execution of sub-recipient agreements with organizations identified within the Action Plan. Each fiscal year the following timeline is followed:

711 8!2C3

CDBC & HOME Request for Proposals

ACTIVITY

4 BATE

City issues RFP for CDBG and HOME programs. Deadline to submit proposals. All proposals received by submission date reviewed for eligibilitf for CDBG and HOME funding and analyzed for feasibility. Evali documents, summaries and analysis prepared for Selection City Council approves Selection Committee m Selection Committee reviews and scores CDBG OME

September 1 October 4

Citys BFS prepares Draft CDBG/HOtction Plan projects identified for funding by Selection Committee. lution ap5T6ving Diaft 2 BFS submits Draft Action Plan and Draft Res Action Plan to City Council. BFS publishes 1tfjf in Honolulu Star Advertiser inviting public to review and eommltn Draft Action Plan. The public has 30 days to Conciusion of 30-day public Deadline for City Council to approve Vtnal Action Plan. The Final Action Plan must be approved b City Council no later than 45 days prior to the deadline for submittffig Action Plan to HUD. Deadline for submission of the citys Final Action Plan to HUD. March 31 February 3

May15

Dates are samples of the 2012 schedule. Note that March31 and May15 are annual hard deadlines.

7/1812013

10

BFS serves as recipient of CDBG funds and is responsible for post-development monitoring. The Community Based Development Division (CBDD) of DCS implements the CDBG program, executes and manages the sub-recipient agreements, and provides technical assistance to subrecipient agencies. A summary of the shared roles and responsibilities are outlined below:

CDBG & HOME Program Responsibilities RESPONSIBILITY Establish CDBG Priorities Develop Consolidated Plan Develop Request for Proposals PRIMARY AGENCY City Council 4FS & DCS SECONDARY AGENCY
-

4P

BFS & City Council & Mayors Office DCS

/ I Coordinate Selection Committee ____________________________________________ Pre-screen Proposals for Eligibility & Prepare
Project Summaries for Review Committee Review and Score Proposals Recommend Projects Citizen Patti cipation Develop Action Plan Approval of Action Plan Submit Action Plan to HUD Execute Grant Agreement with Contract CDBG Funds Manage CDBG Contracts nce 5 Monitor CDBG Contract Inititomplia Monitor CDBG Contract Post-Initial Compliance
0

.4;&

DCS DCS & BFS BFS

BFS
-

DCS

Effective July 1,2013 DCS and SF5 staffjointly monitor during initial compliance period, with BFS assuming primary responsibility after subrecipient achieves inilial compliance.

7/18/2013

11

Corrective Action Plan to Address CDBG Program Deficiencies

On June 3, 2013 the Honolulu Field Office

Region IX provided the City with an On-Site

Program Monitoring report identifyingfindings of program non-compliance that required


corrective action within forty-five (45) days, and concerns of program deficiencies. The findings and concerns raised, insofar as they relate to the particular sub-recipient and project

(Opportunities and Resources, Inc. Anuenue Hale or ORIAR) that was the focus of the report, are set forth in a separate City response letter to HUD.
4

However, the On-Site Monitoring Report also identified various CDBG program management issues that should be treated as opportunities tove the program. In response to the HTJD report, the departments responsible for administering and implementing the CDBG program reviewed operational procedures and offer the foIloc1o ations and plans for action

Consolidate and Define Compliance MoniZtPResponsibilities The City strives to assist sub-recipients to achieve

idhai compliance with HUDs national

objectives and to sustain compliance throughout the )uired piod. Most sub-recipients are conscientious and cooperative, but some organizns have difficulty meeting CDBG national objectives. The problems with the particular subpient (ORIAH) identified in the On-Site Monitoring Report have led DCS and BFS to monitoring responsibilities: 1. From the mid 1990s to 201 1,the Office of Special Projects (OSP) within DCS managed the ORIAH (and other) construction projects whereas the Community Based Development Division managed most CDBG-funded construction projects within the DCS. Effective May 2013 all CDBG projects are centrally located within DCS Community Based Development Division. areas for strengthening compliance

7/18/2013

12

2. The 2011 transfer and retirement of key personnel in DCS Community Based Development Division resulted in a change of leadership and confusion over when the DCS monitoring role ended and the BFS post-development monitoring responsibility began.

Effective July 2013 the DCS and BFS staffjointly monitor projects from the point ofcontract final payment to the achievement of initial compliance with the HUD national objective, and to include co-development ofpost-monitoring tools. Once initial compliance is achievea BFS assumes primary responsibilit-yfor post-monitoring, while DCS remains involved in a secondary capacity to assist in the event the project requires project management assistance. DCS and BFS will provide training to ensure understanding and implementation of the joint monitoring approach is embraced by all team members.

4
DCS and BES will revise existing procedures to clarft roles and responsibilities between departments to eliminate potential gaps in the contract management process. DCS will develop CDBG program monitoring policies and procedures to include an annual monitoring schedule and methodology for identjj5.ing which projects are monitored

Strengthening City Contract Oversight 1. During the construction phase of a CDBG project, the BFS Fiscal Services Branch is responsible for ensuring that proper documentation supports the sub-recipients request for payment. BFS has adequate procedures in place to prevent duplicate and overlapping payments. However, responsibility for monitoring the actual construction work and documenting the work to support the request for payments is the responsibility of DCS. A greater depth of experience and understanding of construction project management to perform this function lies within CBDD rather than in the Office of Special Projects. Effective May 2013 all CDBG projects managed by OSF were transferred to the DCS Community Based Development Division for consistent oversight with other CDBG projects.

7/18/2O3

13

CBDD requires adequate documentation to support CDBG payment requests to include invoices, schedules ofbudget versus actual expenditures, and construction progress payments notarized by project principles as appropriate. Payment requests are processed by CBDD planners andfurther reviewed by the CBDD Administrator prior to transmittal to BESfor payment.

2. A comprehensive reporting tool would strengthen contract oversight of CDBG projects, arid should replace files and status reports maintained by individual CBDD planners. The separate management of CDBG projects by OSP led to disconnects and lack of comprehensive records for the CDBG program. In March 2013 DCS engaged the Citys Department ofInformation Technology to assist with evaluation of grant management tools to address the needfor improved contract oversight, documentation, monitoring. unUied records management and real-time reporting tools. The FLUX? Grants Management Software team recently provided on-line product demonstrations for City employees. DCS anticipates implementation of the grants management-tracking prom by November 1, 2013. 3. There was a temporary lapse of contract oversight over the ORIAR construction project when project management ended prior to achievement of initial compliance with HUD national objectives. Effective July 2013 the DCS and BFS staffjointly monitor projects from the point of contract final payment to the achievement of initial compliance with the HUD national ob/ective. Once initial compliance is achievec4 BFS assumes primary responsibility for post-monitoring while DCS remains involved in a secondary capacity to assist in the event the project requires project management assistance. 4. Oversight over ORIAHs public service contract failed when the program eligibility and cost reasonableness were overlooked.

711812013

14

DCS will conduct training on CDBGprograrn eligibility and cost reasonableness to ensure regulations are accurately applied on public service contracts.

DCS will review all current public service contract budgets for compliance with CDBG program eligibility and cost reasonableness criteria.

Compliance with Land-Use Regulations There is more in-depth knowledge of the Citys land use regulations in CBDD than in OSP, which offers an opportunity to strengthen the City contract oversight in this area. Effective May 2013 all CDBG projects managed by OS? were transferred to the DCS Community Based Development Division for consistent oversight with other CDBG projects, and compliance with all City regulatory requirements. Development of a Centralized Records System Developmcnt of a centralized records system to support the CDBG program that spans two departments and multiple divisions within the DCS department will ensure that the department can account for all project documents, vi1l mitigate the impact of transfers and retirements of key personnel upon the departments institutionafknowledge, and will enhance the ability of the department to reassign projects or cross-train for organizational efficiencies. Further, a centralized grants management system will avoid delays in addressing project needs on a timely basis when a project manager is on leave. The City shall establish a centralized records system for documenting all grant management activities. Commencing with FY2013 contracts, all documents generatedfor an annual Action Plan activity will be maintained with DCS to provide HUD with a single location for monitoring purposes to include proposal contract, environment, notice-to-proceed correspondence, monitoring reports, amendments, payment requests, and receipt of payments. Implementation of the FL UJG( Grants Management tracking program by November 1, 2013 will assist in centralizing the records system.

7/18/2013

15

Summary andAdditional Corrective Actions to be Taken Spec We to Concerns Raised by HUD Regarding ORJAH Problems identified with the project management function of the Citys CDBG program include failure to enforce non-compliance with HUD regulations and City land use ordinance. insufficient construction and public service contract oversight, failure to adhere to HUD regulations and an inadequate records system. The deficiencies require immediate attention to ensure consistent and proper application of federal regulations to all sub-recipients, as well as City compliance with HUD regulations. The City will undertalce the following actions: 1. Identify operational procedures and resources required to improve contract management of the program: a. Develop and implement consistent procedures, protocols and policies, invest in a grants management tool, centralize files and project management, and standardize protocols both between departments, as well as between units within the same department. b. Revise monitoring functions through collaborative discussion with both DCS and BFS teams. Options for improving monitoring include implementation of peer reviews within CBDD, reviews by BFS internal controls division, or reviews by a dedicated planner within CBDD monitoring all contracts. Rotating the assignments of long-term projects to new project managers will ensure a continuing arms length relationship between the subrecipients and project managers, protect against complacency and improve outcomes. A final determination on improvements to the monitoring function will be addressed in the scheduled technical assistance with the National Association for Latino Community Asset Builders (NALCAB). c. Utilize CDBG administrative funds to provide ongoing technical assistance and annual training for all personnel directly responsible for managing CDBG projects. Technical assistance from NALCAB is scheduled for August 2013. The NALCAB teams assessment provides an opportunity to review all functions relating to administration of the CDBG program, including monitoring and organizational structure. The history of
16

7/18/2013

inconsistent implementation within OSP lends itself to consider reorganizing with a similar function for both compliance and economies of scale.

2. Identify protocols and tools required to enforce compliance with HIJD program regulations

a. Ensure the inclusion of asset reversion language in all sub-recipient agreements, and enforce as needed for non-compliance.

Record national objecti e-comphance, performat%sed mortgage on properties to provide an additional incentive to sub-recipient to achieve cp1iance.

3. Meet certain benchmarks and deadlines necessary to improve contract management of CDBG programs, including increased compliance with national objectives.
-

a. Provide notice of loan forgivenes program to all organizations with outstanding CDBG loans by August 1,2013

b. Acquire and implement software program to provide system for grant/contract


it

byNovember 1, 2013.

c.

fy all sub-recipients in writing of the obligation within the sub-recipient agreement to proviF1UD access to records and that failure to do so could result in disallowance of funds. Provk. HLD with a listing of referenced sub-recipients and a copy of the notice provided to ie r q 4 by November 1, 2013.

d. Conduct training on the Copeland Anti-Kickback Act 18 USC 874 with all individuals with direct oversight of CDBG contracts by November 1, 2013

7/18/2013

17

In summary, the City commits to a collaborative effort between DCS and BFS to manage the CDBG program, and welcomes the technical assistance opportunity to review national best practices for further enhancements to the Citys implementation of CDBG program objectives.

7/18/2013

18

61. 1J81HX3

ORIJORIAH
DATE 8/25/1997 FROM David C. Laxson Esq., former Deputy Corporation Counsel Chris A. Diebling, former Acting Director, Department of Budget and Fiscal Services Gordon D. Nelson Esq.

PRIVILEGE LOG (as of 8/16/12)

9/17/2002

TO DESCRIPTION [ I IRIVILEGED BASIS Robert Agres, Jr., former I Memorandum: Discussion I Attorney Client Director. Department of of proposed amendment to Privilege Housing and Community 12/22/1989 Subrecipient Development Loan Agreement. (4 pages with routing sheet) David Z. Arakawa Esq., Memorandum: Request for Attorney Client former Corporation assistance itt clarifying Privilege Counsel language in City ordinance for ORI Anuenue Hale project. (2 pages) Debbie Kim Morikawa (cc: Ernie Martin, Keith Ishida) Email communication: Response to 6/21/2010 D.K. Morikawa email to 0. Nelson Esq. (part of email stream) re: status of ORI Amendment Agreement. (1 page) Email communication with attached draft memorandum: Discussion of process for cancellation of promissory notes. Email stream includes two (2) ernails between K. Ishida and 0. Nelson both dated 11/8/2010, prompted by email inquiry from Ann Higa of ORI to K. Ishida dated 1 1/6/20 10, with regard to such process. (3 pages)

6/21/2010

Attorney Client Privilege

1 1/12/20 10 Keith Ishida

Holly M. Kawano, Gordon D. Nelson Esq.

Attorney Client Privilege

EXHIBIT 19

1181HX3

DOCUMENT WITHHELD PURSUANT TO ATTORNEY-CLIENT PRIVILEGE:


DATE FROM December ]ivm M. Lui Kwan, Acting 12, 2002 Director. BFS j

TO David Z. Arakawa, Corporation Counsel

DESCRIPTION Anuenue ORI Hale a Transmission of revised State Land Use Permit Application for Aloha Gardens, dated October 2012, in connection with 9/17/02 memorandum requesting Corporation Counsel assistance in clarifying language in City ordinance for ORI Anuenue I-tale project.

-J

EXHIBIT 20