Rent increases arrive for long-held state land parcels

The state Department of Land and Natural Resources has increased rents on nearly 300 month-to-month land permits by as much as 27 percent to account for its failure to adjust prices for years despite a 2005 board policy calling for regular reviews.

Before the across-the-board increases took effect in January, the department had not changed rents since at least 2007 for more than three-fourths of the 294 rental agreements, called revocable permits, that it had with private entities, according to a Honolulu Star-Advertiser analysis of DLNR data.

For about 130 of those land permits, the period of unchanged rents lasted even longer. Those tenants, including such longtime companies as Parker Ranch, Alexander & Baldwin and Gay & Robinson, paid the same respective amounts since at least 1999, a span of nearly 20 years, the newspaper found.

The Star-Advertiser analysis provides the first public accounting of the extent to which DLNR had mishandled a program that enables the department to rent land on a month-to-month basis while sparing the agency the expense of maintaining the property.

The rents are discounted about 25 percent to account for the state’s ability to reclaim the property with as little as 30 days’ notice.

Although the program was established specifically to allow for temporary occupation of state land, a Star-Advertiser investigation last year found that dozens of the permits had been in place for years or even decades. And the rents — sometimes only pennies per acre monthly — often went unchanged for all or much of that time, even though the permits were renewed yearly by the DLNR board.

The tenants, including large landowners and for-profit companies, were able to benefit from the discounted rents for extended periods without having to go through the normal bidding process used for long-term leases. Some of the parcels, however, are remote, offer limited access or have other features that make them unlikely candidates for competitively bid leases.

In the wake of the newspaper’s coverage and earlier calls to re-evaluate the board’s annual bulk renewal process, DLNR reviewed all 300-plus permits, identified ones that are candidates for long-term leases, and made changes recommended by a task force that are designed to increase transparency and accountability.

The DLNR board last year also approved raising rents 1.5 percent to 27 percent for the nearly 300 land permits — water ones were not included — to generate a better rate of return from the properties, which cover more than 30,000 acres. The increases depended on when the rent was last changed or, if no changes had been made, when the permit was issued.

For each year the rent went unchanged, an inflation-related factor of 1.5 percentage points was added to what the overall increase would be, with a cap of 27 percent. The cap applied to the roughly 130 permits that had not had any rent changes since at least 1999.

$230K more revenue

State Sen. Karl Rhoads, chairman of the Senate’s Water and Land Committee, applauded the changes the department has made, saying it is doing the best it can despite being understaffed and overworked. But he disagreed with DLNR’s contention that the program has operated effectively over the years.

“It would certainly not appear on the face of it to be well run if there were no adjustments for that many pieces of property,” particularly given the overall increase in real estate values, Rhoads told the Star-Advertiser.

The rent increases that took effect in January will generate more than $230,000 in additional revenue for the department, bringing the overall total to nearly $2.3 million. The revenue is tied to permits managed by DLNR’s land division.

The January increases came more than a decade after DLNR’s board adopted a policy calling for commercial, industrial and baseyard/storage permits to be reviewed yearly for possible rent hikes. Agriculture, pasture and residential deals were to be reviewed every five years, and all other permits every 10 years, according to the board’s 2005 policy.

But the department was unable to stick with those schedules, mainly because of lack of resources. Its land division, for instance, has not had an appraiser on staff for years.

Suzanne Case, DLNR director and chairwoman of the board, said in written responses to Star-Advertiser questions that it would not have been cost-effective for the agency to appraise every revocable permit on the schedule the board previously established in 2005.

The cost of an appraisal averages $5,000 to $10,000, which for 300 permits would amount to $1.5 million to $3 million, and the agency does not have the spending authority or funds for anything of that size, according to the department.

Instead of using the 2005 approach, DLNR has selected a limited number of higher-income commercial and industrial permits to periodically evaluate for rent adjustments.

Looking ahead, the department is planning to adjust rents for higher-paying permits based on appraisals done by a contractor.

In the wake of the Star-Advertiser’s coverage last year, Case formed a task force to evaluate the overall program. While the group proposed changes to the process for issuing permits, it found in the majority of instances “evidence of fair pay, equitability and satisfaction,” Case wrote.

She said the program has been operated effectively over the years “but more attention should have been given to periodic rent adjustments.”

The rents generated by the land division’s revocable permits average about $20 per acre per year, which top some lease rents for pasture land set by appraisal, mediation or arbitration, according to the department.

Concerns remain

Despite the program changes made last year, some concerns linger.

Kamana‘opono Crabbe, chief executive officer of the Office of Hawaiian Affairs, said DLNR needs to more fully consider its public trust responsibilities as land steward and better ensure the protection of natural and cultural resources and sensitive habitats.

“While OHA can appreciate the intent of the revocable permit program guidelines adopted by the land board, subsequent permit renewals have not adhered to these guidelines,” Crabbe said in a statement. “Permits continue to be issued, sometimes for pennies per acre, without clear justification as required by the guidelines.”