The city has offered to reimburse $1.88 million to the federal housing agency that demanded return of $7.9 million in grants given to a Wahiawa nonprofit organization. Of course, giving up less than the full $7.9 million would be helpful to Honolulu taxpayers, and the city is right to pursue all acceptable avenues to ease the sting of full repayment.

Nonetheless, it won’t settle the disturbing cloud over the city’s credibility in handling federal grants.

The organization’s contribution of more than $100,000 to numerous elected officials over a 16-year period hangs over the project. A thorough independent inquiry is required, and the city Ethics Commission has rightly taken that role. At the very least, the rules involving conflicts of interest need to be tightened to avoid such problems in the future.

The U.S. Department of Housing and Urban Development reported this month that Opportunities and Resources Inc. (ORI) Anuenue Hale, which helps those with developmental disabilities, should return to the department the grants spent to develop ORI’s Aloha Gardens Wellness Center and Camp Pineapple 808. Local HUD official Mark Chandler cited numerous improprieties with the programs.

The HUD report points to the city’s move to forgive a separate $1.165 million loan from the federal Community Development Block Grant program to ORI, an action approved by city employees running for political office who received campaign contributions from ORI.

"ORI has maintained significant support over many years by the direct involvement of high-ranking city and state officials regarding ORI’s projects," according to the HUD report. "The direct involvement of the officials appears to have placed pressure on staff resulting in the city ignoring regulatory violations in favor of completing the project and satisfying ORI’s requests."

Mayor Kirk Caldwell recused himself from a role in the investigation, having received a $500 contribution by ORI in his unsuccessful mayoral campaign in 2010.

Other recipients were former Mayor Mufi Hannemann and numerous City Council candidates going back to Duke Bainum in 2002 and more recently to present City Council Chairman Ernie Martin, who headed special projects for the city’s Department of Community Services and was running for office as the ORI loan was being forgiven.

In a letter responding to Chandler, City Managing Director Ember Shinn maintained that there is "no evidence of a quid pro quo relationship nor any direct benefit resulting from the loan conversions inuring to city officials."

She questioned whether there was "any evidence of benefits received by any city employee other than campaign contributions," maintaining that the contributions were protected by the First Amendment.

On a monitoring visit in April, HUD staff found only five participants in Anuenue Hale’s 16,500-square-foot Wellness Center, which was supposed to serve at least 50 clients daily, according Chandler.

He said that ORI Anuenue Hale received more grant money of the kind provided than any other organization in Honolulu. However, he said, "HUD’s monitoring of ORI projects was significantly impaired due to ORI’s unwillingness to produce documents and cooperate."

HUD is reviewing the city’s plan to settle the controversy with a relatively small reimbursement. That should not prevent the Ethics Commission from conducting a thorough investigation of what has all the earmarks of quid pro quo, despite Shinn’s assertion.