Kamehameha Schools

Kamehameha Schools asks slack, gives none

  November 15, 2010 by David Shapiro
Categories: Volcanic Ash

There was a dissonance in two stories about Kamehameha Schools over the weekend.

One in the Star-Advertiser by Rob Perez examined how Honolulu’s real property tax breaks for charitable institutions enables Kamehameha Schools, Hawai‘i’s  richest landowner, to pay only $300 a year in taxes on its 425-acre Kapalama campus that is valued at $157 million — the same tax a couple pays on a single parking space at their Waianae apartment.

A Kamehameha Schools spokesman said the relief is warranted in recognition of the value nonprofits provide to the public good.

Cut to the other story, about small farmers in Kamilonui Valley protesting an attempt by Kamehameha Schools to push their lease rents 28 times higher — from $15 per acre per month to $434.

Judy Nii, operator of a small nursery, is looking at a rent increase from $1,200 a year to $32,000, which threatens the survival of a business with a small profit margin.

“Basically, they’re asking us to work and give them whatever we make,” Nii said.

Kamehameha Schools was totally unsympathetic in a statement: “We appreciate that the Kamilonui lessees are facing a large rent increase, but we also hope the lessees appreciate that they’ve been paying extremely favorable rents for 38 years for land that has provided their livelihood and also their residence.”

I know there’s no direct connection between the two stories, but it leaves a bad taste when a multi-billion-dollar trust that expects an awful lot of slack on taxes it could easily afford refuses to give any slack at all to honest, hardworking farmers who can’t afford higher levies of the magnitude Kamehameha Schools is demanding.

The inevitable outcome if the hardball succeeds is that the farmers will be driven off the land and another piece of green Hawai‘i will be lost to development.

This is an example of public good worthy of enormous tax breaks?

1. Carolyn Martinez Golojuch, MSW Says:

   
   November 15, 2010 at 1:51 am Great insight into a problem that I face on a regular bases. The CC of HNL has a Tax Review board. It’s always made me wonder if the landowners who ask for a decrease in their 2nd, 3rd and 4th or more properties ever give the leasees a break on their monthly rent prices. Some by the photos of the property are really slum lords. Welcome to the land of Aloha.
   
2. Earl of Sandwich Says:

   
   November 15, 2010 at 7:41 am Somewhere along the line, KS went from charitable trust to evil empire. It’s true that a lot of the lessees have gotten off with good deals, but I know a number of them who really are on a thin line and could be at least treated with some flexibility in the payments. However, KS is towing the hard line, probably to force these folks out and redevelop to get some of that fat, juicy, mainland money.
   
3. Capitol -ist/WassupDoc Says:

   
   November 15, 2010 at 10:01 am oh, the rich get richer and the poor get children, in the meantime, in betweentime, aint we got fun.
   The more things change, the more they stay the same.
   Cliche Monday, I know….but what we see and what we get is how things go when we llive in a society where money talks and the rest of us walk.
   Off to work – have a Good Monday everyone
   
4. Michael Says:

   
   November 15, 2010 at 10:21 am “Business is War”.
   Not Kamehameha School itself but those who are trusted to run the School that are the ones to blame. It is again Business Persons who run Hawaii.
   If you note in the article presented, The Same Politicians who are deciding on the fate of Kalihi are involved again. Are they being “paid” off by donations to cater to the “rich”?
   I scratch your back, you scratch mine? The poor cannot afford a back scratcher!
   
5. anticoqui Says:

   
   November 15, 2010 at 11:12 am The State wants to help agriculture; step in and ‘condemn’ the farmland from KS/BE for $30/acre and then, negotiate a lease agreement with the farmers for slightly more per acre. The farmers, hopefully, won’t be stressed by a smaller increase of $15 to $32-35/acre compared to KS’s $434. Are the farmers using well water or paying for pumped in water? I guess land-owners always want incentive$ to keep agricultural lands in production but, why do some/most of them ‘ask for blood’ right off the bat’ instead of long-term vision toward sustained agricultural revenues? The Kamilonui Valley farmers seem to be in a ‘serf-like’ position….being asked/demanded to give all to the land-owner and hope for crumbs in return which seems doubtful in this situation.
   
6. David Shapiro Says:

   
   November 15, 2010 at 2:18 pm Kamehameha Schools forwarded a copy of its full statement to the media:
   

   We appreciate that the Kamilonui lessees are facing a large rent increase, but we also hope the lessees appreciate that they’ve been paying extremely favorable rents for 38 years for land that has provided their livelihood and also their residence.
   The lease renegotiation date has been known since the leases were signed, and we have been meeting with the farmers since March. We have given them several extensions of time. We are headed into arbitration on the lease negotiations, which is the process provided for in the leases if written agreement can’t be reached. We believe that the arbitration process will determine a fair price, and we will abide by the arbitrator’s decision.
   Our offer to the farmers in Kamilonui was approximately $434/acre/month. This included the right to sublease their property for bona fide farm use, and the right to reside on the property.
   They rejected our offer, and the lease rent will now be set by a three-member panel of arbitrators. We have named our arbitrator, and we are waiting for the lessees to name their arbitrator. The two named arbitrators will agree on a third arbitrator.
   We still believe our expired offer was fair. As a comparison, the State Department of Agriculture just completed a competitive bid process for agricultural acreage in Waimanalo that resulted in leases for bona fide farmers of $460/acre/month.
   Here is some information you may wish to consider:
   1. The average lease rent for the last 38 years in Kamilonui has been $185/acre/year or $15/acre/month. That includes the right to reside on the property.
   2. Out of the 87 acres under lease for farming in Kamilonui, less than half is actively farmed.
   3. The leases require that 50% of the land be in Ag use.
   4. Subleases are not allowed under the current leases, yet several of the lessees are currently sub-leasing or allowing others to use the property. Two of the sublessees are not doing any form of agriculture. We understand rent in one case is $1,875/acre/month. Again, our average rent currently for an entire parcel is $987 per year. The parcels range in size from approximately 3 to 10 acres.
   5. Several leases are in violation with rubbish, abandoned vehicles, scrap metals and discarded plastics.
7. ppcc Says:

   
   November 15, 2010 at 4:45 pm KSBE’s media statement is contradictory. If the lessees are in violation of the lease such as subleasing, not using at least 50% for agriculture or using the land as a dumping ground then KSBE should warn, then evict the people who violate the lease. Lessee violations should have NOTHING to do with increasing rent for everyone, INCLUDING the families/groups or are abiding by all lease rules, NOT using slave labor like Aloun farms, providing food for Hawaii residents and making a modest profit to continue on with their farming business.
   Also the difference in additional rent money collected by KSBE for the old lease rates with the higher lease rates for all 87 acres as identified by press release adds up to less than $260,000 more per year, which is chump change to KSBE. You get the feeling that KSBE figures it is legally easier and less of a public relations nightmare** to just ‘throw out the baby with the bath water’ and impose a blanket rent increase for everyone as a more effective tool to kick out the bad tenants once and for all. The legitimate tenants who are efficient and can make good use of KSBE land to farm can stay because only they will be able to comfortably abosrb the increase in their rent.
   ** Possible that some of the renters who are abusing their rental agreement with KSBE will try to get the local media to paint them as the “victims” who are now being kicked out of their “homes” by the “greedy” KSBE. Seems KSBE is using a preemptive strike to get it out to the public that some of these renters are not all “innocent victims”.
   
8. Hawaiino Says:

   
   November 16, 2010 at 6:58 am The lessees submitted a proposed lease rent based on the Income Capitalization method of valuing land. KS, and the other large landowners in Hawaii , have relied on Sales Comparison as their exclusive method for valuation. This allows them to hold their land for income (rent) yet value it at speculative levels as if it were for sale, which it is not.
   The local appraisers ignore the federally mandated principles contained in USPAP ( it uses “should” instead of “shall”) to the detriment of the lessees, who are the farmers and small businesses of Hawaii.
   The basic principle of choosing a methodology for appraisal is that it should reflect the actions of the market participants. If they are speculators or investors then Sales Comparison or Replacement Value is most appropriate. If they are seeking rent then the Income Approach is called for.
   But not in Hawaii.
   
9. ppcc Says:

   
   November 16, 2010 at 10:18 am Math correction:
   Current:
   ($185/acre-yr)*(87 acres)=$16,095/yr
   KSBE proposed:
   ($434/acre-mnth)*(87 acres)*(12 mnth/yr)= $453,096/yr
   Difference:
   $437,001/yr
   Still chump change to KSBE but that is salary for at least one KSBE lobbyist
   
10. Hawaiino Says:

    
    November 16, 2010 at 2:44 pm ppcc, re: “…at least one KSBE lobbyist”
    I was haunting the Capitol this past session, and in the process interviewed some registered lobbyists. One was a former KSBE contractor and they advised me that post “Broken Trust” KSBE had released all their formal contracts and were basically AWOL from the Leg. Too much scrutiny of their past bad behaviors had lead to hyper sensitive current trustees. Hence, no active lobbyists on the floor.
    BUT…I just had another talk with a lobbyist who advised me that KS is currently taking proposals from lobbyists for active representation in the next session. So, if in fact they ever really left, what with alumni sprinkled throughout elected and administrative positions, it seems like they’ll be back to politicize their interests once again. I guess 10 years or so was long enough in purgatory.
    This lobbyist advised me that KSBE was highly concerned about leasehold reform, and the HRPT success in having ACT 189 overturned had apparently emboldened them. They want to nip in the bud any attempts to change the status quo. I guess LURF and the other secondary representation is not enough.
    Have you ever wondered what a Dynastic Trust looks like? Well, I checked their latest reported 2008 results:
    9.44 billion 2008 up from 9.05 billion in 2007, thus they earned 435 million that year with Total Expenditures for ALL activities 273 million or less than 3% of assets. A Dynastic trust can keep increasing their portfolio basis by earning more than they spend with no statutory limit to the life of the trust. They have announced their portfolio is down to the 7+ billion range in 2010, but their income should be holding steady.
    And thanks to the farmers of Hawaii Kai, maybe even going up!

retired 

My feeling is they want the farmland for million dollar housing. It's a small, secluded valley perfect for a gated community. It only will benefit a few. Another sad chapter the powerful stepping on the weak.

HonoluluBoy

I think the King would just roll over in his grave to see what Kamehameha School is doing to this community of farmers who are too old to fight back and have very little cash to take it to court. Auwe...