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Wednesday, October 22, 2014         

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Private funds hobble some UH projects

By Craig Gima

POSTED:

star-advertiser / 2008The University of Hawaii's $71 million Frear Hall project was criticized by the state auditor for costing millions more than it should have.

The University of Hilo is finally hoping to break ground next year on much-needed new student housing using a combination of $32 million in state tax money and revenue bonds to be paid back with housing fees. The project has been in the works for more than a decade but was delayed as UH-Hilo tried to get a developer to build the student housing at no cost to taxpayers.

The China Center student housing project at UH-Hilo is one of five public-private partnerships pursued by the University of Hawaii during the past decade. Using private developers to build UH facilities was supposed to save taxpayer money, but results have been mixed and in some cases have cost taxpayers more than if the university developed the projects on its own using state funds.

Of the projects, only one — the Frear Hall dorm at UH-Manoa — was finished using a private developer. The others — the new UH-West Oahu campus, the Cancer Research Center in Kakaako and the new Hawaii Community College West Hawaii campus — are under construction or close to starting construction using a mixture of state tax money, revenue bonds and, in the case of HCC's new Kona campus, a $4.7 million cash contribution from a private developer.

The state auditor, however, criticized the $71 million Frear Hall project as costing as much as $10 million more than it should have because the bid requirements were "unduly restrictive and unfair." University officials insist the bid process was competitive and fair. Howard Todo, the UH vice president of finance, noted Frear Hall was completed on time and on budget.

UH also paid $2.5 million to settle a lawsuit brought by Townsend Hawaii LLC, the private developer contracted to build the Cancer Research Center and lease it back to the university when UH ended the contract.

Todo said the Cancer Research Center and other projects started out as private-public partnerships, but the university went back to the Legislature to get other funding "because of the economic downturn and … the inability to obtain competitive funding or meet purchase prices or other commitments."

The developer of the UH-Hilo project — originally, Taiwanese company GEO International Explorer and, later, Southern California-based Bridgecreek Development — couldn't get financing to build the student housing and the hotel/retail complex after more than a decade of trying to put the deal together. It was called the China Center because plans also included a Chinese-studies center.

Gerald De Mello, UH-Hilo's director of university relations, said he believes the private-public partnership at UH-Hilo didn't work out because there was a "disconnect" between the needs of the university to keep the project affordable and the needs of the developer to get a return on its investment.

In January, UH-Hilo went to the Legislature and got $16 million in taxpayer-financed bonds and $16 million in revenue bonds to be repaid with student housing fees. The aim: to start construction on the 400-bed project, the first student housing development at the campus since 1989.

De Mello said UH-Hilo is using $3.5 million in housing revenue bonds to begin planning the project and for infrastructure development. If the governor releases the $32 million, De Mello said construction could begin next year, and the dorms could be ready for occupancy in 2014.

De Mello said student housing is sorely needed at UH-Hilo and that the lack of housing is inhibiting the growth of the 4,000-student campus.

"We turn away roughly 340 students a year who are admitted to UH-Hilo and decide not to come because we can't provide housing," De Mello said.

De Mello said state funding was needed to keep prices low at the campus, where nearly 3 out of 4 students qualify for Pell Grants, federal financial aid for low-income families.

Many of the private-public partnerships began or were pushed at the university under former UH President Evan Dobelle, a big proponent of bringing private businesses and government together. Dobelle is credited with helping to put together $250 million in private-public partnerships to redevelop the area around Trinity College in Connecticut, where he was president before coming to UH.

"Successful public/private partnerships require relationships carefully built over time, and with ongoing and transparent leadership from the various parties involved," Dobelle said in an email. "I was pleased to begin this process in several instances and regret not having been in a position to see them all to completion."

PUBLIC-PRIVATE PARTNERSHIPS

These are the public-private partnerships that have been forged at the University of Hawaii since the late 1990s:

>> China Center — UH-Hilo officials announced plans in 1998 to have a private developer build student housing in exchange for the right to develop a shopping center, hotel and China Center conference facility on 36 acres of land across Kawili Street from the UH-Hilo campus. But the developer couldn’t get financing for the $100 million project, and the contract expired last year. This year the Legislature approved $32 million — $16 million in taxpayer-financed bonds and $16 million in revenue bonds to be paid back with housing fees — to start construction on the housing.

>> UH-West Oahu — UH began negotiations in 2005 to sell up to 320 acres of state land around a new UH-West Oahu campus in Kapolei to Hunt Development Co. for $100 million to finance the construction of the campus. But Hunt canceled the deal in 2008 when it couldn’t get financing. The campus, including roads and infrastructure, is now under construction using $83 million in taxpayer-financed bonds and $48 million in revenue bonds to be paid back with student tuition. The first phase is scheduled to be completed next year.

>> Cancer Center — UH began searching for a private developer in 2004 to finance, design and build a $200 million Cancer Research Center in Kakaako next to the medical school. UH selected Townsend Hawaii LLC. But the deal fell apart, and Townsend sued UH for breach of contract. The company received a $2.5 million settlement. UH also spent $590,000 in legal fees on the case. The Cancer Research Center is now under construction with about $120 million in revenue bonds using tobacco settlement funds and money from the state’s cigarette tax.

>> Hawaii Community College West Hawaii campus — Palamanui Partners LLC is giving the university $4.7 million to help finance the construction of the first phase of a new Hawaii Community College West Hawaii campus on land about a mile north of Kona Airport. The state is spending

$4.7 million to build a road to the campus site. Palamanui, which is building a $700 million housing and commercial subdivision next to the campus, pledged the money as a condition of its zoning approval for its project. The UH regents had selected an Atlanta-based development team in 2005 to build community college facilities in both Kona and Hilo in exchange for the right to develop land around the campuses. But those plans fell through over funding for planning and infrastructure, and the transfer of title to the Hilo land.

>> Frear Hall (pictured) — American Campus Communities, a private developer, completed the 810-bed Frear Hall dorm at UH-Manoa in 2008. The facility is the first new dorm at UH-Manoa since 1973. The $71 million project included a $3.1 million development fee for ACC. State Auditor Marion Higa criticized the contract award in a 2007 audit. Higa said construction costs should have been about $61 million.





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